AIFM depository could increase systemic risk - EFAMA

EUROPE - The European asset management industry's central lobbying group has warned key changes are still needed to the Alternative Investment Fund Managers Directive or politicians could end up ratifying legislation which in fact increases the potential for systemic risk.

Peter de Proft, director general of the European Fund and Asset Managers Association (EFAMA), today argued progress appears to have been made by politicians and technical experts on key elements about the AIFM Directive, but said experts need to understand that introducing some of the proposals could in fact heighten regulatory risk.

More specifically, he said requiring funds to hold assets in depositories could increase systemic risk because only a handful of firms would be able to provide the service.

"When [the proposed directive] came out, we were a little bit surprised because we had some discussions with the [European] Commission a couple of weeks before, about the philosophy of the Directive. The principles were systemic risk and investor protection, and passporting throughout Europe. We are not against this regulation because we knew it was coming.

"Depository issues came up, as you know, after the Madoff situation. But depository regulations for institutional investors change the burden of responsibility, limiting the depository function to Europe, without the possibility of outsourcing. We are limiting the number of institutions who are able to fulfil the role, which is contrary to the principles of risk and increases risk because [the depositories would] hold all of the assets," he said.

EFAMA is stepping up its public focus on proposals for the AIFMD as its review of the latest draft released to key individuals by the Swedish Presidency last week suggested there is room for manoeuvre on the terms of the directives.

De Proft said the organisation's discussions with European Commission insiders has revealed technicians acknowledge the paper, issued in March, had been compiled rather hastily, so requirements are being reviewed to ensure the directive improves investment regulation, rather than introduces new complexities.

IPE understands the document contains a series of exemptions to earlier proposals which could essentially lead to the splitting out of the key asset classes - hedge funds, private equity, closed-ended funds and real estate - within the main document so rules are tailored to specific categories of asset rather than placing all assets under the same rules as currently seen. (See earlier IPE story: AIFM could bring less fund choice, claims law firm)

EFAMA is currently lobbying on behalf of local asset management organisations and investment groups to try and persuade officials that fund managers distributing their services at a national level should be exempt from the AIFMD.

Similarly, De Proft and his team believe many of the regulations laid out for UCITS-regulated funds would be perfectly suited in terms of transparency and requirements to alternative investments offerings.

The Swedish government - currently holding the EU Presidency - has until now been leading discussions on the directive and EC officials are said to be confident it will be completed by the end of this year. However, EFAMA executives believe completing the directive by then would be ambitious.

Key figures have only just been assigned to review and manage the implementation of the AIFM directive.

Jean-Paul Gauzès, the European People's Party's representative for North Western France, is now also the AIFM directive's Rapporteur and will guide the directive through the European Parliament.

And Wolf Klinz (ALDE), Syed Kamall (ECR) and Pascal Canfin (Greens) have also been named as Shadow Rapporteurs while a fourth Shadow Rapporteur is expected to be appointed next week.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com