The Isle of Man Funds Association's Ita McArdle examines the impact of the Alternative Investment Fund Managers Directive on the jurisdiction.
As with the vast majority of regulation, the Alternative Investment Fund Managers Directive (AIFMD) was incubated in the eye of storm and its relevance was not reviewed after the storm had passed.
The market has corrected, adapted and simply moved on. AIFMD will be of no use for future structuring and financial regulation; it merely represents the creation of a reactionary blame culture.
In a dream world, regulators, wealth creators and politicians would work together in tandem to develop the structures needed to create the wealth that makes our world (not just the EU) fiscally viable, and secure political stability to facilitate recovery and onward sustainability.
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In fairness, that is what the drivers of AIFMD think they are doing. The concept is to instigate a system of authorisation, operation and ongoing reporting for those that manage and/or market Alternative Investment Funds (AIFs) in the various member-states of the EU.
However, the policymakers behind AIFMD have ignored the recommendations of practising regulators and wealth creators. Those with the least knowledge and experience have written the manual. The most contentious areas have been in the area of custodian and depository.
The latter is a very European concept and does not apply to many of the traditional AIFs. In trying to apply non-delegable liability responsibilities for the assets of the AIF (even if they lost value in the normal course of business), a hideous double jeopardy has been created.
Not least is the issue of the AIF definition, which extends into private equity fixed investment vehicles, closed-ended property funds and traditional open-ended collective investment schemes.
Many managers will be unaware they are now caught by AIFMD provisions. The definitions of what a manager does overlaps with administration and custodian roles, which could shift the burden of the alternative investment fund manager (AIFM) regardless of who is designated contractually. Further, the AIFMD assumes AIFMs are large institutions, not the small, niche investment adviser the non-EU world is more familiar with.
While we have been amazed at the “own goal” nature of the proposition aiming to create “fortress Europe”, the funds industry and the regulator have simply got on with it; enduring the painful 18-month incubation period and becoming heavily involved in making representations to ESMA, which has advised the EU. Sadly, EU policymakers have often rejected the advice of their own advisers.
However, negatives aside, we see enormous opportunities for clients. Such high standards of corporate governance are already enshrined in our domestic regulation in order to meet international standards. Meeting the AIFMD requirements will not require any mindset change.
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