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AIFM:"blood and guts"

The European Commission's proposals for its Alternative Investment Fund Managers (AIFM) directive faces a tough time as it progresses through the European Parliament, and there could be blood and guts flying during hearings in the Economic and Monetary Affairs (ECON) committee.

It looks as if there will be strong and equal pressure on both sides. "An irresistible force working against an immoveable object," is what Cristen Thomson, director of communications at the London-based Alternative Investment Management Association, fears.

The democratic process in Brussels for the AIFM Directive is subject to a ‘co-decision' procedure. This means that it is being worked on by the Parliament and by the Council of the European Union, that is, finance ministries, going down the same track simultaneously.

So far, dramatis personae have been listed, but positions of different interest groups still remain confused. Much to her surprise, British liberal MEP Sharon Bowles was nominated as chair of the Parliament's economic and monetary affairs (ECON) committee in July. The former patent attorney then expressed disquiet over depository matters. She opposes possible new rules that could result in main depositories having to take on indemnity insurance against failure by sub-depositories. This could lower yields, including for pensioners, she said, shortly after her appointment.

The role of rapporteur, who co-ordinates the progress of the directive, goes to Jean-Paul Gauzès, member of the centre-right European People's Party. Gauzès, a lawyer who represents North Western France, could be presumed to take a firm line on tightening up financial legislation. Notably, he is involved in the saga of the UK's Equitable Life Insurance Company.

Gauzès refuses to air personal views on the AIFM directive, given that his duty is to nurse widely different positions through the democratic process as fairly as possible.
Shadow rapporteurs in the ECON committee are Udo Bullmann (German, socialist), Pascal Canfin (French, Greens), Wolf Klinz (German, ALDE/liberal), and Syed Kamall (European Conservatives and Reformists). The committee's output will be passed to the Parliament's Legal Affairs Committee for an opinion.

Key among officials is the Commission's Ugo Bassi, head of unit in the internal market division. At ECON's first meeting in September, he stated that the Commission's proposal is in no way seeking to promote one financial product or location over another.

His counterpart in the Council is Olli Mattla, principal administrator, who may expect negotiations in the working group under the Swedish presidency (chair: Charlotta Erikson) to be calm and objective.

One reason for tension in ECON is that some member states are experiencing domestic conflicts. The Dutch government, for example, is a supporter of the proposal, but is under pressure from Dutch interests with billions in assets under management. Germany is presumably supportive, but its asset management association says it will lobby against the directive. The German funds association, BVI, warns that German Spezialfonds and open-ended real estate funds will be heavily affected by the directive.

Bearing in mind that 800-1,000 amendments to the directive are expected to be tabled, the directive could go through two ‘trials' plus a conciliation procedure at the end. The hope is for just the one, building up to the rapporteur's report being approved by the Council.

In case of failure, there would be a second reading, with an amended common position from the Parliament going to the Council. If that were rejected, there would be a third reading, which could involve a ‘conciliation committee'. If this committee is unable to agree on a joint text, or either the Parliament of the Council were not to approve a joint text, the legislation would not be adopted. Gauzès hopes to have a draft, taking in amendments, ready by 20 October.

Interesting technical points to the draft directive come from Marta Andreasen, former Commission accounting officer and current MEP, who says that the leverage requirements are too narrowly written. "A leverage cap on any one fund will not offer systemic protection," she says. Also, the transparency requirements are in danger of exposing confidential investment strategies.

The Commission has forecast that if the directive obtains political approval by the end of 2009, member states may have to implement its provisions into national law by 2011.
 

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