It only came into full effect on 22 July 2014, but as everyone gets used to AIFMD (the Alternative Investment Fund Managers Directive), there are already suggestions amongst some market participants as to where the Directive could be improved in future iterations, much like its retail fund sister Directive, UCITS, has been down the years.
AIFMD is changing the fund landscape, most obviously by its depositary provisions, which rewrite the role of the custodian. UCITS V will extend full depositary liability to mutual funds, which is a much bigger market. What changes will that impose on managers, custodians and investors? Will the logic spread to institutional segregated mandates? UCITS was originally implemented in 1985 to protect retail investors and it is hoped that AIFMD, as a brand, will prove to be just as successful. “That is the intention,” says Giovanni Giro, compliance manager at Moore Stephens. “It will not happen straightaway, there will be a period of people coming to terms with the Directive. Despite different reactions, the AIFMD concept is already starting to become embedded in the landscape of the fund management industry.”
There was a feeling in the industry, at least initially, that AIFMD could be seen off, that it would not come to pass. Whilst this was not the case, it is certainly something that can be adapted. “From my perspective I have said that the text is not perfect – it could be better,” explains Jean-Marc Goy, Counsel for International Affairs at Luxembourg’s financial regulator, the CSSF (Commission de Surveillance du Secteur Financier). “Does it go too far? The text is in place, so there is not much to be gained from arguing against it now. What we need to do is accumulate the experiences of the Directive and discover where the text is flawed and needs improvement. First we need to give it some time and let the landscape settle down, though.”
With the Directive only having come into effect in July, the landscape is still settling and the industry of fund managers, asset managers and depositary banks is still adapting to the Directive’s nuances. One early talking point has certainly been the differing interpretations of the Directive amongst the EU Member States and EEA countries that have transposed the Directive.
Giro sees the main area of improvement being around the clarity of AIFMD at a national level. “The Directive itself is quite clear,” he suggests. “Where it becomes difficult is where it is adopted and interpreted at national level by the different member states, which of course affects harmonisation and passporting negatively. We have seen with the FCA that there have been difficulties in understanding the best way to implement various facets of the Directive into national regulation and rules. A lot of this is still in progress.”
There are also issues of compatibility between AIFMD and other Directives and Regulations. “The issue of future compatibility between AIFMD and MiFID II could also represent an additional challenge for some firms and would benefit from further clarification,” adds Giro. “The contrast between MiFID and AIFMD activities in the same firm did cause difficulties with implementation of AIFMD at national level, and hopefully MiFID II will give an opportunity to rectify similar issues.”