With ESMA having published their final guidance on AIFMD, many fund managers – both inside and outside of the EU – are left wondering what has changed since the initial discussion and consultation papers.
Some clarity added
Let’s start with the positives. The final guidance delivers some much-needed clarity in a number of areas. Some changes, such as the new detail on the semantics and filing rules to help managers with transposition requirements have eased some of the concern voiced within the sector. Other changes (particularly the inclusion of a new ‘human-readable’ version of the proposed form) have provided more consistency and improved transparency for managers.
ESMA should also be lauded for delivering the guidance ahead of schedule in direct response to feedback from managers and national competent authorities who – justifiably – argued that they would need more time to review the final guidance before any reporting or implementation deadlines.
Regrettably, there are also a number of areas where ESMA’s final guidance may actually make things somewhat more difficult for fund managers. Having received voluminous feedback from the industry during the consultation phase on a variety of issues (such as the first reporting date and the need to separate the reporting of master funds from their feeder funds) some of the more contentious clauses originally proposed have either been omitted or watered down in the final guidance.
But while the omissions may seem like a ‘win’ for the sector, they are not. Many of the offending requirements that were removed from the guidance were instead inserted into an official ‘opinion’ passed down from ESMA to the various national competent authorities. As such, they are now not only open to the interpretation of each member state’s regulators; they are also closed to discussion by the industry.
In other cases, ESMA’s drive to reduce complexity has had the opposite effect. For example, the most recent guidance removed contentious references to specific reporting dates but – in their place – it has created a complex multi-pronged test based on guidance from the EC, the regulation itself and the transitional rules of each individual member state. Complexity has, for many, increased as a result.
ESMA’s guidance also misses a massive opportunity to bring greater harmony between Europe and the US which, in turn, would help reduce the reporting burden by bringing AIFMD more closely into alignment with the Securities and Exchange Commission’s (SEC’s) Form PF and Commodity Futures Trading Commission’s (CFTC’s) CPO-PQR reporting requirements. More to the point, ESMA’s new guidance on major issues such as ‘top 5 counterparties’ and ‘individual exposure’ means that managers will need to use substantially different logic in order to meet what are essentially superficially identical requirements.
Ultimately, this will all lead to more complexity and uncertainty for fund managers. European-based managers will need to ensure that their AIFMD implementation aligns to the interpretation of their home member state. But for non-EU managers, the situation is significantly more problematic; at the outset, they will not fall under the full AIFMD and will therefore need to wait for a non-EU ‘passport’ system to emerge. Until then, they will need to report to each member state in which they market or manage funds. This means that non-EU managers will likely face massive uncertainty as they try to come to terms with the significant variation across member states’ reporting requirements and first reporting deadlines.
Since ESMA released its final guidance, the various national competent authorities have been busy reviewing the document and creating their own implementation guidelines for their markets. Some, such as the UK’s Financial Conduct Authority, have been actively consulting with the industry to create a national position before formally responding to ESMA. Others – such as Ireland and Luxembourg (both fund-friendly jurisdictions) and France and Germany (both highly-regulated markets) – have already written interpretations into law.
But uncertainty and complexity is no reason for fund managers to blithely stand on the sidelines and wait. As Heleen Rietdijk boldly asserted in her article in this series, organizations and fund managers operating in this sector will need to take immediate action if they hope to achieve compliance before the registration dates set by member states.
Our clients, for example, have spent much of the transitional period mapping out where they would need to report and what ‘footprint’ they will be reporting on. We’ve also been helping fund managers – particularly non-EU managers – understand the new reporting requirements by comparing AIFMD to the US’s Form PF (the most similar regulatory mandate to AIFMD) to show how their existing systems can be adapted to smooth the transition.
The truth is, however, that fund managers will still need to make certain assumptions and take calculated risks if they hope to achieve compliance before the reporting deadlines. Those that take action based on informed advice and experience will likely meet their objectives; those that do not – or those that choose to wait for more clarity from national competent authorities – may well find that they are too late to muster a robust response in time.
By Ameet Sharma, KPMG in the UK and Chris Rose, KPMG in the US
Technical Director, KPMG in the UK
Tel: +44 20 76944073
Director Advisory, KPMG in the US
Tel: +1 212 954 1055