The act implementing the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) ("AIFMD") in Belgium has been published on 17 June 2014 in the Official Gazette, following its approval by the Parliament on 3 April 2014 (the "AIFM Act"). For the most part, the AIFM Act adheres closely to the wording of the directive; however, it imposes more stringent rules on the managers of alternative investment funds marketed to the public.
In the wake of the recent financial crisis, the European Parliament and the Council adopted the Alternative Investment Fund Managers Directive, introducing harmonised requirements for managers of a wide variety of investment institutions which do not qualify as undertakings for collective investment in transferrable securities ("UCITS"). Amongst other things, AIFMD strives to limit the systemic risks arising from alternative investment institutions and increase their transparency. AIFMD will have a significant impact on the European regulatory framework; private equity funds, hedge funds and real estate funds in particular will be affected.
1. Scope of the AIFM Act
1.1 General remarks
AIFMD, as implemented by the AIFM Act, applies to the managers of alternative investment funds ("AIFMs") which solicit capital from investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors and which are not subject to UCITS requirements ("AIFs"). It should be noted that unlike previous directives on investment funds, the primary purpose of AIFMD is to regulate fund managers rather than the funds themselves. Of course, funds will be indirectly affected by the AIFM Act.
The core management functions of AIFMs should consist at least of portfolio and/or risk management, although AIFMs may exercise certain other functions, such as administration and marketing activities or activities linked to the fund's assets (such as property management services, M&A advisory services, etc.). Finally, AIFMs may, if authorised, exercise certain ancillary services, such as portfolio management on a discretionary or client-by-client basis, the provision of investment advice, safe keeping, administration for units or shares of UCITS, and receipt and transmission of orders relating to financial instruments.
The AIFM Act applies in particular to:
- AIFMs organised under Belgian law, regardless of whether the managed AIFs are subject to the laws of an EU Member state or a third country;
- AIFMs organised under the laws of an EU Member State which manage Belgian AIFs or market AIFs in Belgium;
- AIFMs organised under the laws of a third country, for which Belgium is the reference Member State (after extension of the passport regime to non-EU AIFMs), which manage AIFs subject to the laws of an EU Member State or market AIFs in the European Union; and
- AIFMs organised under the laws of a third country, for which Belgium is not the reference Member State (after extension of the passport regime to non-EU AIFMs), which manage Belgian AIFs or market AIFs in Belgium.
1.2 Current statutory framework
In Belgium, certain AIFMs, such as closed-end real estate investment companies (vastgoedbevak/sicafi) and public closed-end private-equity investment companies (openbare privak/pricaf publique), are already subject to a special status and to supervision by the FSMA pursuant to the Act of 3 August 2012 on certain forms of collective management of investment portfolios. The statutory framework applicable to these managers will be amended in accordance with the AIFM Act.
However, in order to ensure the highest level of investor protection, the AIFM Act provides that the current framework will remain unaffected insofar as it is complementary to AIFMD. As a result, public collective investment undertakings and their managers will, in most cases, have to comply with both the new AIFMD rules and the existing rules already applicable to them.
The AIFM Act also applies to AIFMs which do not raise funds from the public but which are registered as institutional or private collective investment undertakings. This includes open-end institutional investment companies (institutionele instelingen voor collectieve belgging met een veranderlijk aantal rechten van deelneming/organismes de placement collectif institutionnels à nombre variable de parts), collective investment undertakings in institutional receivables (institutionele instelingen voor collectieve belegging in schuldvorderingen/organismes de placement collectif en créances institutionnels), and closed-end private-equity investment companies (private privaks/pricafs privées). For such managers, no mandatory statutory framework currently exists.
Finally, the AIFM Act applies to all other managers of AIFs which do not raise capital through private placements and which are not yet subject to the Act of 3 August 2012. Belgian REITs (which are subject to the Act of 3 August 2012) will have the possibility to remain outside the scope of the AIFM Act if they opt for the new regulated investment company status (société immobilière reglementée/gereglementeerde vastgoedvennootschap).
1.3 Exclusions and exemptions
Certain entities, such as family offices which do not raise capital, do not qualify as AIFs. In addition, the following entities are exempt from the AIFM Act requirements:
- holding companies;
- pension funds;
- supranational institutions, international organisations, national central banks, national, regional and local governments, and other bodies and institutions which manage funds to support social security and pension systems;
- special purpose vehicles used solely for securitisation purposes;
- employee participation or savings plans; and
- managers of AIFs in which only group companies invest (provided none of these group companies is itself an AIF).
1.4 De minimis regime
As AIFMD was adopted to mitigate systemic risks to the financial system, Belgium (like other Member States) has opted to implement less stringent rules for "small" AIFMs, which either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding:
- manage portfolios of AIFs whose assets under management, including any assets acquired through the use of leverage, do not exceed in total a threshold of EUR 100 million; or
- manage portfolios of AIFs whose assets under management do not exceed in total a threshold of EUR 500 million, when the portfolios consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF.
Although the activities of individual AIFMs falling under the above thresholds are unlikely to have significant consequences for the stability of the financial system as a whole, aggregation could cause their activities to give rise to systemic risks. Consequently, the AIFM Act requires such small AIFMs to register with the FSMA and to provide all relevant information to the FSMA regarding the main instruments in which they trade and the principal exposures and most important concentrations of the AIFs they manage.
Belgium chose to enact this option in the AIFM Act, but only for small AIFMs which do not manage AIFs offered to the public. The circumstances under which an offer shall be deemed public are set out in the AIFM Act.
Small AIFMs that manage AIFs offered to the public will be subject to most AIFM Act requirements, with the exception of certain reporting obligations to the FSMA and provisions on the valuation and sale of valuable assets of unlisted companies (cfr, asset stripping).
Small AIFMs, regardless of whether they manage AIFs offered to the public, that wish to benefit from AIFMD's passport regime may choose to opt-in but in that case will have to comply with the requirements of the AIFM Act.
2. Consequences of the AIFM Act
2.1 For AIFMs established in the EU (EU AIFMs)
In order to manage an AIF in the EU or market the shares or units of an AIF in the EU, an EU-based AIFM must be licensed. The licencing requirements pertain to inter alia the minimum capital, shareholder structure, effective management, and organisation of the AIFM.
In addition, in order to maintain its licence, the AIFM must put in place and adhere to remuneration, conflict-of-interest and risk management policies, as set out in AIFMD and Commission Delegated Regulation 231/2013 of 19 December 2012. Furthermore, for each AIF managed, the AIFM must meet certain requirements in terms of liquidity, valuation, transparency (both to investors and the FSMA) and the use of leverage and appoint an independent depository for each AIF. Finally, the possibilities of the AIFM to delegate its responsibilities are limited and subject to stringent conditions.
EU-based AIFMs authorised under the AIFM Act will be granted a passport to either manage AIFs in other EU Member States or to market the units or shares of AIFs in other EU Member States to qualified investors. In order to exercise such activities in other EU Member States, the EU-based AIFM is required to notify the supervisory authority of the relevant Member State.
The passport regime will not apply to the marketing of AIF units or shares to retail investors, as AIFMD permits the Member States to impose stricter requirements for marketing to such investors. As is the case in most EU Member States, Belgium has elected to make use of this option, and the AIFM Act imposes more stringent conditions for AIFMs marketing units or shares in AIFs to retail investors. Most of these requirements will need to be further implemented by royal decree.
2.2 For AIFMs established outside the EU (non-EU AIFMs)
The passport regime will at first apply only to EU AIFMs. Pursuant to AIFMD, the European Securities and Markets Authority ("ESMA") will issue an opinion by 22 July 2015 on the functioning of the European passport regime and national private placement rules and whether the European passport regime should be extended to non-EU AIFMs. On the basis of this opinion, the European Commission will decide, by means of a delegated regulation, whether to extend the passport regime to such AIFMs. In this case, the national private placement rules described below will be abolished by way of Commission delegated regulation, once again based on an opinion of ESMA (expected by mid-2018).
Until then, non-EU AIFMs which market units or shares of an AIF in Belgium will be subject to the Belgian private placement rules. During this time, a non-EU AIFM will not be required to obtain a licence from the FSMA, provided the following conditions are met:
- the units or shares of the AIF are offered solely on a private placement basis in Belgium;
- the country in which the AIF is established is not listed as a non-cooperative country or territory by the Financial Action Task Force; and
- a cooperation agreement is in place between the FSMA and the local supervisory authority of the country in which the non-EU AIF is established, allowing the FSMA to exercise its supervisory duties. On 30 May 2013, ESMA published a list of cooperation agreements with 34 approved third-country regulators, including the USA, Canada, Switzerland, Hong Kong and Singapore. These cooperation agreements will however need to be ratified by local supervisory authorities.
Even though non-EU AIFMs will not be subject to the passport regime, they must still comply with certain provisions of the AIFM Act if they market AIFs in Belgium, including information and reporting obligations to the FSMA and investors (with additional reporting obligations for leveraged AIFs) and compliance with provisions on the valuation and sale of valuable assets of unlisted companies (cfr, asset stripping).
3. Transition period and entry into force
AIFMs that fall under the scope of the AIFM Act and which performed activities covered by AIFMD prior to the entry into force of the act should take all necessary measures to comply with the AIFM Act and submit a request for authorisation as an AIFM by 22 July 2014, at the latest. Due to late implementation of AIFMD in Belgium, the aforementioned deadline is also applicable to AIFMs that commenced activities after 22 July 2013. It should be noted that the FSMA recommends that all AIFMs use their best efforts to comply with AIFMD prior to the entry into force of the AIFM Act. AIFMs incorporated after the entry into force of the AIFM Act must meet the requirements of the AIFM Act and submit a request for authorisation as an AIFM before they can conduct business in Belgium.
The following AIFs and AIFMs are exempt from the AIFM Act:
- AIFs whose units or shares were offered to the public and for which a prospectus was published before 22 July 2013, for the duration of the prospectus (this exemption only applies to the passport requirements);
- closed-ended AIFMs which have not made any additional investments after 22 July 2013; and
- closed-ended AIFMs whose subscription period closed before 21 July 2011, if their term of existence ends by 22 July 2016.
Finally, authorisation requests submitted to the FSMA in accordance with the latter's communication no. 201-11-1 of 2 July 2013, prior to the entry into force of the AIFM Act, must be confirmed by the FSMA in accordance with an official procedure under the AIFM Act.