EU Directive on Alternative Investment Fund Managers

Malta – 2nd December 2009 - Back in April 2009 the European Commission proposed a new Directive on Alternative Investment Fund Managers (AIFM) in order to provide a framework for all alternative fund managers (AIF). The proposed Directive applies to investments relating to the undertakings for collective investment in transferable securities (UCITS) which covers some EUR 5,000 billion in assets. In an effort at improving accountability and transparency within the financial sector, the EU Commission has devised a new set of rules for hedge funds and private equity firms which would require mandatory registration and disclosure of activities to regulators whilst at the same time easing their access to European markets in the long term. These new regulations will be of great relevance to countries such as the United Kingdom and Malta.

In mid-2009 almost USD 1,000 billion of assets as against 2,000 billion in mid-2008 were managed by alternative fund managers. The proposal by the Commission lays down that all alternative fund managers established and operating within the European Union and who manages alternative funds, regardless of where they live should be authorised and subject to supervision.

The European Systemic Risk Board and the European Securities and Market Authority will be of importance in the alternative investment funds sector in order to ensure that measures will be taken so as not to burden the European Market with unfair competition. Recently the Maltese government has adopted a position that expresses Malta’s agreement with the proposal for the setting up of a European Securities and Market authority.

The new rules, as proposed by the European Commission, fit in the context of a pledge by the G20, the G20 Finance Ministers and Central Bank Governors, to require as many off-exchange traded derivatives contracts as possible to be centrally cleared. The draft legislation will also include settlement houses within its scope. The European Commission is expected to table legislation on the EU financial markets in July 2010 that is expected to come into effect by the end of 2012. Discussions on the proposed Directive are ongoing with several Member States and representatives of private entities holding differing positions.