AIFM Directive - Analysis Of ESMA Consultation Paper On Third Country Issues

Author:Mr Leonard Ng
Profession:Sidley Austin


On 23 August 2011, the European Securities and Markets Authority ("ESMA") published its consultation paper in relation to the "third country" aspects of the Directive on Alternative Investment Fund Managers (the "Directive") (the "Consultation Paper").1 This follows the publication on 13 July 2011 of ESMA's earlier consultation paper on all other aspects of the Level 2 implementing measures relating to the Directive.2 The deadline for responses to the Consultation Paper is 23 September 2011.

Please refer to our previous Update of 12 November 20103 for a detailed analysis of the provisions of the Directive and our Update of 6 July 20114 regarding the final implementation timetable.

Issues discussed

The Consultation Paper covers the following issues:

cooperation arrangements for third country alternative investment funds ("AIFs") and alternative investment fund managers ("AIFMs"); delegation of portfolio/risk management functions to third country undertakings; assessment of third country depositaries; and identifying the "Member State of reference". Cooperation arrangements for third country AIFs and AIFMs

The Directive requires that, both for the purposes of marketing third country AIFs under the national private placement regime, as well as the passport regime, cooperation arrangements should be entered into between the relevant third country regulator(s) and the relevant EU Member State regulator(s).

ESMA proposes that the relevant cooperation agreements allow for the exchange of information for supervisory and enforcement purposes. The agreement should ensure cooperation by the third country regulator in assisting the relevant EU Member State regulator in enforcing EU or national legislation.

ESMA has recommended basing these cooperation agreements on similar documents prepared by IOSCO.5 ESMA has suggested that it could negotiate and establish a template cooperation agreement for the purpose of satisfying the cooperation arrangement requirements. This would have the benefit of consistency, with third countries not having to negotiate cooperation agreements with each EEA Member State on a bilateral basis. However, it raises the question as to whether ESMA will, in preparing the template, consult with interested third countries such as the United States, the Cayman Islands, Hong Kong, etc.

As a separate matter, although the Directive requires ESMA to publish guidelines on the conditions for application of the measures...

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