AIFMD Countdown:
Breakfast Briefing No. 3
Gus Black
Richard Frase
Declan O’Sullivan
© 2012 Dechert LLP
Agenda Today
1. Implementation and delegation update
2. Marketing
3. Remuneration
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Implementation Update
Delegation Update
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© 2012 Dechert LLP
Implementation Update
A. Statutory Regulation implementing Level I
Directive
B. Level II Implementing Regulations (directly
effective)
C. Minor amendments to primary legislation
D. Central Bank Consultation
All by 1 January before EU Presidency
Implementation Update (cont’d)
A. Statutory Regulation implementing Level I
Directive
B. Level II Implementing Regulations
Minor Amendments to Primary
Legislation
• Unit Trust Act 1990
• Companies Act 1990, Part XIII
• Investment Limited Partnerships Act 1994
• Investment Funds, Companies and Miscellaneous
Provisions Act 2005 (permitting CCFs)
Central Bank Consultation
• Draft AIF Handbook, 30 October 2012
• Consolidated rulebook:
– “RIAIF” requirements “Or I AIF”
– “QIAIF” enhancements “Q I AIF”
– AIFM requirements
– AIF Management Company requirements
– Fund Administrator requirements
– AIF Depositary requirements
• Finalised Handbook expected early 2013
Consultation Paper: Headlines
– Removal of the Promoter approval process
– Increased flexibility for RIAIFs (UCITS alternative)
– Reduced investment restrictions for QIAIFs
– ‘Fair treatment’ of unit-holders in different share classes
– Creation of side pockets for investment purposes
– Removal of Irish prime brokerage rules, OTC counterparty
criteria and credit rating criteria
– Abolition of PIF regime
Coming Soon
• ICAVs
• ILP Legislation
Delegation Update
Article 85(d), draft Level II Regulations March 2012:
“AIFM shall be deemed a letter-box entity and shall no
longer be considered to be the manager of the AIF... [if]
(d) the totality of the individually delegated tasks
substantially exceeds the tasks remaining with the
AIFM.”
• Still being argued over
Marketing AIFs to European
Investors
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© 2012 Dechert LLP
The Permutations
• EU AIFM marketing EU AIF
• EU AIFM marketing Non-EU AIF
• Non-EU AIFM marketing EU AIF
• Non-EU AIFM marketing Non-EU AIF
• Home state marketing
• Cross border marketing under passport
• Cross border marketing under private placement regime
• Unsolicited sales aka passive marketing aka reverse solicitation.
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Timetable – Marketing
Directive in force
(P)
2011
2012
2013
EU AIF obtains
passport
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2014
2015
Non-EU AIF can
obtain passport
2016
2017
2018
No more private
placements?
EU AIFM markets EU AIF in AIFM’s home state (art 31)
1)
–
AIFM notifies home state regulator (and AIF regulator if different).
–
Home state regulator approves within 1 month.
–
Any material change to particulars must be reapproved by regulator.
2)
EU AIFM markets EU AIF under passport in other EU states
(art 32)
–
AIFM notifies home state regulator (and AIF regulator if different).
–
Home state regulator notifies host state regulator within 1 month.
–
Home state regulator notifies AIFM that it has done this.
–
AIFM can market in host state from date of notification.
–
Any material change must be reapproved by home state regulator.
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3)
EU AIFM marketing non-EU AIF (art 36)
–
AIFM is based in EU and authorised under AIFMD
–
Non-EU AIF must comply with AIFMD except for depository rules
–
An “entity” must be appointed to monitor cash flows, safe-keep
assets and ensure subscriptions and redemptions, and that
calculation of units takes place in line with AIFMD requirements
–
Non-EU AIF’s home state must have cooperation arrangements.
–
Marketing is on a state by state basis and an individual state may
impose additional restrictions
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4)
Non-EU AIFM marketing EU and non EU AIFs (art 37)
–
Non-EU AIFM is authorised under AIFMD
–
AIFs must be managed by the authorised Non-EU AIFM
–
Non-EU AIFM must have an EU state of reference and a legal
representative in that EU state (which must perform the compliance
function)
–
State of Reference is (in outline)
–
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•
the same state as the home state of the EU AIF
•
the state where most of the AIFM EU AIFs are established
•
the state where the largest amount of assets are managed; or
•
the state when the AIFM intends to develop effective marketing
If the AIFM does not follow its marketing strategy, or changes it,
then the state of reference may also be changed.
5)
Non-EU AIFM passporting EU AIF (art 39)
–
6)
Non-EU AIFM passporting non-EU AIF (art 40)
–
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If non-EU AIFM is authorised under AIFMD it may passport using
the same notifications procedure as for EU AIFM subject to its
home state meeting cooperation requirements.
If non-EU AIFM is authorised under AIFMD it may passport using
the same notification procedure as for an EU AIFM subject to its
home state meeting cooperation requirements.
7)
Non-EU AIFM marketing without a passport (art 42)
–
Non-EU AIFM is not authorised under AIFMD
–
States may on a state by state basis allow marketing in their
territory only if:
–
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•
The non-EU AIFM complies with the AIFMD’s annual report, disclosure
and reporting requirements and with requirements on control of nonlisted companies
•
Its home state meets the cooperation requirements
States may impose stricter rules on a state by state basis.
Permitted Categories of Investor
•
States shall ensure marketing is only permitted to professional
investors, subject to right of individual states to establish retail
marketing regimes under article 43.
•
Under article 43 EU states may allow AIFMs to market to retail
investors in their territories and impose stricter requirements
•
Requirements may not be stricter for EU AIFs established in
another EU state than for domestic AIFs
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Marketing Summary (1)
Entity
EU Passport
Individual Private Placement
Regimes
EU AIFM and EU AIF
Comply with full Directive
n/a
EU AIFM/non EU AIF
Comply with full Directive, plus
3rd country conditions
Comply with full Directive
excluding depositary rules
3rd country conditions.
States may impose stricter rules.
Non-EU AIFM/EU AIF
Non-EU AIFM/non-EU AIF
Comply with full Directive, plus
3rd country conditions plus state
of reference
Chapter IV: Transparency
requirements
•Annual Report
•Disclosure to Investors
•Reporting Obligations to
competent authorities
3rd country conditions.
States may impose stricter rules.
Small EU AIF
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N/A
Domestic regime only.
Marketing summary (2)
2010
2011
2012
Implementation date. Passports
made available to EU AIFMs for EU
Funds.
Non-EU Funds or EU
Funds with Non-EU
AIFMs
2013
2014
Extension of passports to non-EU
AIFMs and non-EU AIFs.
EU Funds with
EU AIFMs
2015
Dual marketing system –
EU passport or private
placement
Private placement only
Dual marketing system –
EU passport or private
placement
2016
2017
ESMA to review the passport
regime. Possible end of national
private placement regime.
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2018
Passport only ?
Passport only ?
Remuneration issues
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© 2012 Dechert LLP
Remuneration
• What is the regulatory agenda?
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Remuneration
• What is the current state of play?
– Level 1 text
– ESMA consultation
– FSA consultation
– Next steps
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Remuneration - scope
• Who is affected?
– Portfolio management
– Governing body members
– Senior management
– Control functions
– Other highly paid staff
– Other risk takers (who have a material impact on risk
profile)
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Remuneration – ten key questions
1. How will my comp structure have to change?
2. Will “proportionality” and “tailoring” help me?
3. Will I need a remuneration committee?
4. What are the disclosure requirements?
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Remuneration – ten key questions
4. Why are “malus” and “clawback” important?
5. How do I deal with multiple funds?
6. How do I mitigate the tax impact?
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Remuneration – ten key questions
8. How do I deal with risk takers who are also
business owners?
9. Will there be a regulatory capital impact?
10. Can I avoid any/all of the above?
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QUESTIONS?
Your speakers today:
gus.black@dechert.com
richard.frase@dechert.com
declan.osullivan@dechert.com
dechert.com
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