Esma Finalises Advice To European Commission On AIFMD Level 2 Measures

Author:Mr Olivier Sciales
Profession:Chevalier & Sciales

The European Securities and Markets Authority has published on November 16 its final advice to the European Commission on the detailed rules underlying and implementing the Alternative Investment Fund Managers Directive. The Commission is expected to issue the rules in the form of subsidiary legislation and regulation by the middle of next year.

According to Esma, its proposed rules should establish a comprehensive framework for alternative investment funds, their managers and depositaries, and by achieving the directive's aim of increasing transparency and mitigating systemic risk, ultimately contribute to improved protection of investors.

Esma's advice is in response to a 2010 request originally sent by the Commission to Esma's predecessor, the Committee of European Securities Regulators. An advisory body comprised of EU securities regulators that advised the European Commission from 2001 to 2010 on securities legislation policy issues, Cesr was replaced by Esma at the beginning of this year.

November 16 was the deadline for delivery of Esma's advice to the Commission. The 500-page document takes into account industry feedback received by Esma in response to two consultation papers, published in July and August. The Commission has indicated that it remains open to further input from the industry and other stakeholders before it finalises the rules.

Esma says that while not binding on the Commission, the proposed rules will bring greater clarity on the application of the thresholds that determine the scope of the AIFM Directive, while the provisions regarding operating conditions impose stronger organisational and conduct rules for alternative fund managers, on top of increased reporting requirements to investors and regulators and the rules governing use of leverage.

The advice seeks to clarify the duties of depositaries to alternative investment funds, such as monitoring funds' cash flows, as well as defining the circumstances in which assets held in custody can be deemed to be lost and the consequences. It also fleshes out the framework under which third-country firms and managers will be able access European investors, both before and after the AIFM Directive's marketing 'passport' is due to be extended to non-EU firms and funds after mid-2015.

The advice document covers four broad areas. The first part, covering general provisions for managers, authorisation and operating conditions, clarifies how the asset thresholds determining...

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