AIFMD currently is being debated in the European Parliament and the European Council. The Parliament and Council need to reconcile their respective draft versions of AIFMD before it can become law.
In the European Parliament, Jean-Paul Gauzès, the rapporteur of the Parliament’s Economic and Monetary Affairs Committee (“ECON Committee”), received 1669 amendments to the text of AIFMD from fellow Members of Parliament (MEPs) who serve on the ECON Committee. This is an unprecedented number of amendments for EU financial services legislation. Nevertheless, it appears that the proposed timetable for the consolidation and debate of these amendments remains unchanged, and Gauzès will aim to put the compromise text to a committee vote in April, followed by a plenary vote in July.
Separately, the European Parliament’s Legal Affairs Committee (“JURI”), whose role is to provide the ECON Committee with an opinion, has reviewed the current text of AIFMD and issued a draft opinion on January 26. The opinion proposed a series of additional changes – for instance, it called for regulation of funds in addition to fund managers, stricter rules for private equity-backed companies that reduce the threshold for disclosure to SMEs, and a hard leverage cap of five times assets. These additional proposals are controversial and, in some cases, contrary to the sentiment expressed in the Gauzès report. Nevertheless, this opinion is a political and aspirational document, rather than a submission of amendments, and is subject to amendments by other members of JURI. It will be considered by the ECON Committee along with the 1669 amendments referred to above.
In the European Council, the new Spanish Presidency continued the negotiations process and produced a reworked text on February 3. A further revised (third) version of the compromise text was published on February 15. Although the Spanish Presidency used as their starting point the previous compromise text by the Swedish Presidency, they have reinstated Article 35 which was removed by the Swedes. Article 35 stipulates that non-EU managers and funds may only be able to access the EU market if there is a cooperation agreement in place between the jurisdiction where they are based and the EU jurisdiction in which they wish to market. In practice such agreements would be difficult to establish. They also have inserted similar conditions for EU managers who wish to market non-EU funds to professional investors in the EU market. Spain aims to agree on a compromise text among EU member states’ governments in March 2010. However, this may be an ambitious target given the prevailing disagreement in the Council on a number of key issues, including the overall scope of AIFMD, depositary requirements, and the third-party regime. We also understand that signals from the Spanish Presidency indicate that an agreement on AIFMD by June 2010 is unlikely, which means that AIFMD will continue to be debated under the Belgian Presidency.
On January 21, 2010, the UK Financial Services Authority (“FSA”) published a briefing which summarizes the status, purpose and key provisions of AIFMD. While the FSA expressed support for many of the aims of AIFMD, it is concerned that specific provisions may restrict investor choice and increase costs substantially. In particular, the FSA suggested that the scope of AIFMD, restrictions on delegations to non-EEA entities for management services, custody and depositary activity, and “disproportionate regulation,” such as arbitrary leverage caps and portfolio company disclosure, are the biggest issues. The FSA suggested that late 2012 or mid-2013 are possible dates for the AIFMD to enter into force and be implemented.
A senior FSA official, Dan Waters, recently told a London conference that as many as 40% of the world’s hedge funds will not have access to the EU under AIFMD.