As reported, a scheduled vote on the Alternative Investment Fund Managers Directive (AIFMD) by the European Parliament’s Economic and Monetary Affairs Committee was postponed on Tuesday to give EU lawmakers more time to fine-tune it and to give Britain time to install a new government.
France and Germany are pushing hard for the new regulations in spite of protests from the US, UK and such offshore jurisdictions as the Cayman Islands, as well as from organisations representing fund and hedge fund companies and pensions funds.
Among their main arguments is that the funds industry was not responsible for causing the recent financial crisis – which is one of the main reasons Germany and France in particular argue that greater regulation of the funds industry is needed.
Of particular concern to non-European countries are elements of the directive that would make it more difficult for countries outside the EU to market their funds inside it.
‘risk…of retaliatory action’
Key proposals in the directive, known as “compromise amendment N”, would “ban European investors from investing overseas…reduce choice [and as a result] drive down returns for pension funds and other investors…and undermine Europe’s competitiveness”, three British financial services organisations argued in a joint letter to all 736 members of the European Parliament on Wednesday.
“There is [also] a real risk that [the compromise amendment] would provoke retaliatory action in non-EU jurisdictions, which would damage the European financial services industry and the whole European economy”, the Investment Management Association (IMA), National Association of Pension Funds and the Alternative Investment Management Association, wrote.
“There is no contradiction between setting criteria for some funds and fund managers to avail themselves of a ‘passport’ for cross-border marketing and maintaining member state discretion on which non-EU funds may be marketed to qualified investors…
“We encourage members [of the EU parliament] to vote against compromise amendment N, or at least abstain from the vote”, and instead vote in favour of amendments that would deliver “the ‘passport’ for eligible funds and fund managers and maintaining national discretion on access to national markets for non-EU funds and non-EU fund managers”.
Also expressing concerns over the proposed directive was Cayman Finance chairman Anthony Travers, whose organisation represents the Cayman Islands financial services industry, which is home to more than half of the world’s hedge funds.
In a letter to Jean-Paul Gauzes, the EU parliament’s rapporteur on the directive, Travers said he had the impression from "recent comments" by Gauzes that "there may exist a misunderstanding about the nature of the transparency which exists in relation to the Cayman Islands hedge funds industry and the manner in which Cayman Islands hedge funds operate". Travers then spelled out details of the standards for anti-money laundering, tax reporting and other regulations that Cayman meets.
‘Grave unintended consequences’
Earlier this week, the IMA’s director of international relations, Jarkko Syyrilä, told an audience of more than 500 at a Luxembourg funds industry event in London that the directive in its present form could cause “grave unintended consequences” to Europe’s funds industry as well as potentially damaging the pension savings of its people.
“European professional investors will only be able to invest in those third country funds whose manager and its regulator [agree] to apply the rules of the directive. It is questionable whether any third country will want to or be able to sign up to these overly burdensome rules.
“Therefore, European professional investors will no more be able to search from among best of breed products globally.”
Syyrilä noted that although the directive is seen as a hedge fund/private equity directive, “it will complicate and add new burdens to the operations of all non-UCITS fund managers”.
"How will our international trading partners react to this closing of the doors of Europe, and will it lead to retaliation?” he continued.
“The risks are evident and a big question is how will this impact the global distribution opportunities of European funds, including UCITS."
US Treasury secretary Tim Geithner has also warned of the potential dangers for relations between Europe and the US in letters to various European authorities in March and April.
As determined to see the legislation passed, however, are key German and French ministers, who note that that they have the backing of the majority of EU member countries.
The European Parliament’s Economic and Monetary Affairs Committee (Econ) will vote on the directive on Monday, followed on Tuesday by Economic and Finance Council (Ecofin) ministers. George Osborne, the UK’s new Chancellor, is expected to attend the Ecofin meeting, which will take place in Brussels.
