“Now, with the 22 July 2013 compliance deadline just 8 months away,” said Charles Muller, Head of the KPMG European Centre of Excellence for Investment Management. “Many alternative investment fund managers (AIFMs) find themselves in a race against the clock to prepare for the Directive and the wide-reaching implications that will accompany it.”
A KPMG International survey released today, Last Boarding Call: An overview of the alternative industry’s preparedness for AIFMD reveals that among more than 70 AIFMs surveyed, nearly half have not taken any concrete steps to analyze the impacts the AIFMD will have on their businesses or to make changes to their operations despite the looming implementation deadline.
Significant Changes for AIFMs in the EU
The AIFMD is one of the most ambitious and complex regulatory regimes ever introduced into the alternative investment management industry. For providers within the EU, the stakes are incredibly high on a number of fronts. The AIFMD will require providers in the EU to make substantial changes to their operating models and will impose severe restrictions on their ability to delegate certain operational functions. Under the new Directive, every AIFM will also be required to appoint a depositary for each of its funds. These depositaries will have a broad range of duties and can even exert control over the manager’s activities, as they can be held liable for losses incurred by the fund.
AIFMD: The Clock is Ticking
A significant percentage of AIFMs said they have been waiting for the publication of the final implementing measures before beginning their preparations in earnest for the AIFMD. These firms would be well-advised to conduct an in-depth impact analysis of the AIFMD for their business without delay, as the timelines for preparation are short. While the publication of the final implementing measures was delayed by more than 8 months due to high-level political debate in Europe, the 22 July 2013 deadline for compliance remains constant, leaving scant time for in-scope providers to prepare.
“The deadline for compliance with the Directive is looming large on the horizon,” said Mr. Muller. “Those managers who are not ready in time for the deadline will find themselves facing some serious problems, not the least of which will be the fact that many of their investors will be demanding to invest in funds that are compliant with the regulation.”
Implications for AIFMs outside the EU
The introduction of the Directive also threatens to complicate the fund distribution process in Europe for providers located outside the EU. In fact, non-EU managers of existing alternative investment funds who are out of compliance after the 22 July 2013 will be prevented from raising new capital in the EU. And even if those firms achieve compliance, they will need to submit to a very complicated and extensive reporting process.
“Ultimately, if alternative investment managers from the US, Asia and other countries want to continue to raise capital in the EU, they will need to substantially change the way they are doing business under the AIFMD or they will lose their European clients,” stated Mikael Johnson, Partner, KPMG in the US. “There are still managers outside the EU who are not even aware of this legislation. This is going to be a complex change and it is something they should start preparing for immediately.”
Implementing Measures to be Directly Applicable in all Member States
While the AIFM directive (Level 1) itself would need to be implemented on an individual basis by each of the EU Member States, the European Commission has been granted powers to adopt the final implementing measures (Level 2) directly into law in all Member States without the need for any national transposition. This swift and sweeping passage of the regulation in all Member States will only serve to compress the already-tight timelines for those firms looking to prepare for the AIFMD.
The Time to Act is Now
“Those firms that have not already conducted an in-depth impact analysis of the AIFMD for their business should begin this process immediately, as the business implications are significant, the amount of work to be done is substantial and the timelines for preparation are extremely short,” stated Georges Bock, Global AIFMD Leader and Partner, KPMG in Luxembourg. “By embarking on this work now, AIFMs will position themselves to achieve compliance under the directive and maintain long-term profitability under these stringent new rules.“
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