ESMA weighs in on 'third-country' issues for alternative funds
EUROPE - The European Securities and Market Authority (ESMA) - previously known as CESR - has published a consultation paper in which it recommends the Alternative Investment Fund Managers directive (AIFMD) focus on three issues to ensure co-operation arrangements with third-country entities.
According to ESMA, the AIFMD should focus on supervisory co-operation and an exchange of information between countries; the delegation of portfolio or risk management activities to third-country entities; and an assessment of equivalence of third-country depositary frameworks.
Steven Maijoor, chair of ESMA, said: "It is important that the co-operation arrangements with authorities outside the EU work smoothly and allow for a comprehensive exchange of information, both from the perspective of day-to-day supervision by competent authorities as well as systemic risk."
ESMA said arrangements with third-country entities should take the form of written agreements allowing for the exchange of information for both supervisory and enforcement purposes.
The agreements should also impose a duty on the third-country authority to assist the relevant EU authority where it is necessary to enforce EU or national legislation, it said.
ESMA also considered it important that the arrangement make provision for exchange of information for the purposes of systemic risk oversight.
In terms of risk management, ESMA said the third country should allow "the possibility of on-site inspections of the entity to which functions are delegated", as well as "the carrying out of enforcement actions in the case of a breach of the regulations".
Finally, the prudential regulation and supervision applicable to a fund established in a third country should have the same effect as the provisions of the AIFMD and be considered as effectively enforced.
Richard Stobo, rapporteur at ESMA, told IPE: "Co-operation arrangements with third-country entities are an important element and represent one of the key parts of the advice we are providing to the European Commission on the AIFMD.
"Our aim is simply to clarify what the conditions should be, without interrupting the entire framework.
"The consultation is now open to everybody. We are particularly interested in hearing from third-country authorities directly, but we also expect a large number of responses from the industry itself."
Respondents will have until 23 September to comment on ESMA's proposals, before the organisation delivers its final advice to the European Commission on the implementation of the AIFMD in November.
The directive, approved by European finance ministers last October, has been criticised by several players in the market.
In January, the Alternative Investment Management Association warned that any single piece of legislation would be unable to cater to all alternative investment vehicles.
It also argued that the impossibility of legislating all vehicles should not be viewed as a failure.
The consultation paper can be found here.