The Alternative Investment Management Association (“AIMA”) continues to be proactive in responding to proposed European regulatory initiatives. Recently it responded to the European Securities and Markets Authority (“ESMA”) consultation paper on proposed guidelines on remuneration policies and practices under MIFID, the recent guidelines on ETFs and other UCITS issues and the ESMA consultation paper seeking comments on the treatment of repos. AIMA also issued guidance on the EU Short Selling Regulation.
- AIMA responds to ESMA consultation paper on proposed Guidelines on remuneration policies and practices under MIFID
ESMA published this past summer a consultation paper regarding draft guidelines on remuneration policies and practices under MIFID (the “Guidelines”). The aim of the Guidelines is to reduce excessive risk taking by the financial services industry by avoiding conflicts of interest and to increase investor protection.
AIMA has now responded and welcomed the opportunity to comment.
AIMA considers the Guidelines a good basis in respect of remuneration guidelines. In its response to the Consultation Paper, AIMA notes the following as its chief concerns:
- bank-style regulation of asset managers - AIMA would prefer a focus on specifics of the asset management sector rather than bank style regulation;
- proportionality- it is important that this principle be asserted;
- scope should apply to identified staff; and
- tax and regulatory impact.
For our article on ESMA Guidelines on Remuneration Policies under MIFID please click here
- AIMA Letter to ESMA regarding guidelines on ETFs and other UCITS and consultation paper on repo and reverse repo arrangements
On 25 July 2012, ESMA issued guidelines on ETFs and other UCITS issues (the “Guidelines”). In addition, a consultation paper seeking comments on the treatment of repo and reverse repo arrangements (the “Consultation Paper”) was released.
Following publication of the Guidelines and the Consultation Paper AIMA submitted a letter to ESMA. The issues highlighted by AIMA in respect of the Guidelines and the Consultation Paper are discussed separately below.
AIMA’s letter outlines the disarray that the implementation of the Guidelines will have on the UCITS industry as a whole.
ESMA has attempted to deal with its concerns regarding strategy indices in the Guidelines. In its letter AIMA outlines that the implementation of the Guidelines will lead to the use by UCITS of certain indices being prohibited. The letter states that in the event the Guidelines are adopted it would appear that certain validly authorised investment strategies would be discontinued.
AIMA’s letter urges ESMA to reconsider the stance taken in the Guidelines and in particular in those areas where it could lead to individual market participants with valid authorisations having to amend their core business practices.
The Consultation Paper
AIMA’s concerns regarding the Consultation Paper lie with the limitations being proposed in respect of UCITS entering into non-recallable repo transactions. AIMA points out that where UCITS are prohibited from entering into such transactions the counterparties involved will seek reciprocal terms to the effect that they have a right to recall assets. This could lead to detrimental consequences for both the UCITS and its investors in the form of increased overnight repo financing and consequentially the weakening of the UCITS funding arrangements.
AIMA states that it is reasonable to expect UCITS to have the capability of offsetting repo transactions as soon as possible as opposed to having to recall the assets or termination the transaction.
- Guidance on EU Short Selling Regulation
A guidance note dealing with the European Union’s Short Selling Regulation (Regulation (EU) No 236/2012) (the “Regulation”) has been issued to the members of the Alternative Investment Management Association (“AIMA”). The Regulation will become effective on 1 November 2012.
Section C of the guidance note consists of a series of questions raised by members of AIMA and the responses of AIMA. AIMA’s responses seek to provide guidance on sound practice that members can apply in respect of some of the main issues that have arisen in connection with the Regulation.
Section C focuses on the following key areas:
- calculation of net sovereign debt – “Netting correlated positions”;
- issues around cover and correlation;
- the definition of “Investment Strategy”, “Management activities” and “Management entity”;
- calculation of net sovereign debt – “Duration adjustment”;
- issues concerning the calculation and aggregation of positions;
- Issues concerning reporting obligations under the Regulation; and
- miscellaneous issues under the Regulation.
Section D of the guidance note deals specifically with the extra-territorial scope of the Regulation. An informal opinion issued by the Commission states that the Regulation has global applicability. Until this view is challenged in the courts it is likely that any enforcement actions arising from the operation of the Regulation will be based on this interpretation by the Commission.