The Irish Minister for Finance, in exercise of the powers conferred by the European Community Act 1982, has sealed on 16 July the European Union (Alternative Investment Fund Managers) Regulations 2013 (the Regulations). The Regulations contain provisions for the authorization and the ongoing operation of managers of alternative investment funds (AIFM) in Ireland. The scope of this newsletter is restricted to an analysis of the procedure provided by the Regulations for the notification of the intention to market European alternative investment funds (EU AIF) both in Ireland and in other member states of Europe. The official implementation of AIFM directive in Ireland, in fact, gives rise to the opportunity to make some general considerations on the notification procedure of the passport of EU AIF and identify its peculiarities when comparing it to existing procedures, like the passport already existing under UCITS directive. Chapter 7 of the Regulations gives effect to the passport of EU AIF managed by Irish and European AIFMs.
It is not a surprise that the notification procedure, as described in article 33 of the Regulations, relies on the process, already tested with UCITS IV, where the home state regulator plays a pivotal role in the management of the information flow with the host state authorities and is instrumental to the overall approval process. In fact, with no significant divergence from the procedure for the UCITS passport - if not for the increased delay of 20 business days – the outcome of the application process, if successful, will result in the transmission of the notification file to the relevant authority of the host state targeted and the communication to the AIFM that such transmission has been completed.
The parallelism with the UCITS passport procedure is even more inevitable with regards to some other provision of article 33 of the Regulations, namely the introduction, in the list of documents to be submitted with the application, of a certification that the AIFM is authorized to manage EU AIF, which resembles the UCITS certificate.
Last but not least, notwithstanding that the provisions of article 33 make reference to a transmission of information between authorities that can be made “otherwise in writing”, we would expect that an [already tried and tested] electronic process of transmission via email will be adopted for this procedure as well.
However, in despite of the cited analogies, the notification procedure of EU AIF has some aspects of peculiarity related to the nature of manager regulation of the AIFM directive. An interesting example is provided for by Article 32 of the Regulations, which introduces the requirement for Irish AIFM to notify the Central Bank in case it intends to market EU AIF (including Irish AIF) locally. Also, the same provisions seem to convey the message that the [most important] requirement for the approval of any passport application is the continuous compliance of the AIFM with the broader set of provisions of the Regulations, rather than the submission of a complete notification application.
This approach, in light of the centrality of the role of the home state regulator, may seem to have obliterated the function played by the host state authorities in the overall application process.
We take the view however that the role of the target host state and its local regulations will play an important part also in this notification procedure and actually will represent one of its main challenges. In fact, Schedule 4 to the Regulations - in the list of documents and information required for the passport application - contains reference to information on the arrangements made by the AIFM to market the AIF [in the host domicile] and to prevent marketing to retail investors. In despite of general definitions of marketing, this situation gives rise to concern for practitioners that there will be emphasis – and a corresponding effort – to be placed in identifying the local requirements applicable in the different domiciles targeted from time to time. In line with this spirit, the provisions of article 44 of the Regulations leave discretion to the local regulator [and mutatis mutandis to the regulatory authority of the member states] to impose stricter requirements for the marketing of EU AIF towards retail investors.
Ireland has already guidance on the point and requirements for the appointment of a local facilities agent.
This brief analysis on the notification procedure introduced by the Regulations could not be considered complete without some minor considerations on the ongoing obligations to notify the Central Bank of changes to the particulars provided as part of the passport application.
In fact, Schedule 4 to the Regulations contains a reference to the additional information disclosures provided for by Chapter 5 of the Regulations - which governs the transparency requirements towards investors – and requires such additional information to be part of the application package.
Pursuant to article 33 of the Regulations, any changes to the information provided as part of the application, will have to be notified by the AIFM to the Central Bank - this is not new either. However, in case the changes are acceptable – and in the context of a passport to other member states – the Central Bank will have to notify the host state authorities of these changes.
Such discipline of the changes seems to diverge prima facie from the discipline adopted in the UCITS space, where the UCITS fund itself is still in control [and bears the burden] of the notification to the regulatory authorities of the various host state where it is pass-ported of any changes in the particulars. Time will tell us if this will result in a less cumbersome operation than the one for UCITS funds. pean