AIMA: New EU hedge fund rules impractical and unworkable
The Alternative Investment Management Association (AIMA), the largest organization of hedge fund managers in the world said the new EU's Alternative Investment Fund Managers Directive which aims to tighten control on hedge funds and private equity firms, are impractical and unworkable.
Andrew Baker, AIMA CEO, said the group fully supports the regulatory goals of the AIFM Directive to increase transparency and to improve systemic risk assessment in the interests of financial stability.
"However, we are concerned that many of the proposals in the texts of the Directive discussed by the European Parliament's Economic and Monetary Affairs Committee (ECON) and European finance ministers at the ECOFIN meeting are impractical and unworkable," he said.
He said that the process of negotiation in ECON was so highly-politicised that it took little note of the legal and practical feasibility of the compromise amendments put forward. For example, Article 35a now prohibits investors from investing in third country funds unless the jurisdiction of the fund meets a list of various conditions which have very little to do with prudential regulation. It is questionable whether, today, every EU Member State would meet those conditions. And the international passport proposed by the Parliament is unworkable as it relies on the extraterritorial enforcement of EU rules by third country supervisors who would almost certainly decline to do so.
Baker added: "We are also concerned that the Directive singles out our industry for special treatment and imposes controls and burdens that it does not place on other financial market participants. We can safely say that the Parliament's proposed rules on depositaries, delegation, valuation, leverage, short selling, access to third countries' funds and service providers have no equivalent in any other part of EU financial services legislation."
According to him, many requirements proposed to be put on the alternative asset managers in the ECON text are disproportionate to the point of being punitive. Often, they are considerably more onerous than obligations imposed on the rest of the financial services industry. All we are seeking is equal and fair treatment.
The text approved by the Council is much more practical and realistic than the Parliament's one, particularly on the crucial issue of third countries, where the Council text does allow for national private placement regimes which would allow third country managers to market their funds in individual EU member states, Baker added.