EUROPE – Joint ventures where one or none of the partners is responsible for operational management could still avoid being caught by the Alternative Investment Fund Managers Directive (AIFMD), according to UK regulator the Financial Services Authority (FSA).

In its second consultation paper on the Directive, published this week, the FSA confirmed that joint ventures – which would, by default, include real estate joint ventures – would "not normally" be caught by the regulation.

"Joint ventures are often a marriage of equity and expertise, with one partner having the necessary experience to carry out the day-to-day management and the equity partner being involved in making more key, strategic decisions," the paper said.

"These factors do not necessarily mean the undertaking is an AIF. The clearest example of a joint venture is when all the parties have day-to-day control over its activities.

"However, it is still possible to have a joint venture in which not all the parties have day-to-day control."

Ambiguity over the definition of a joint venture is partly the result of the absence of a common meaning across member states' legal systems.

The FSA this week suggested a condition of AIF status in the UK would be whether strategic decisions required the unanimous consent of all parties.

"No single party should be in a position to control the activity unilaterally," it said.

The regulator also refined its flexible interpretation of 'letterbox entities' – in a move that could create a blueprint for other member states.

It said it would review delegation structures case by case according to its compliance with risk-management principles – although it did not rule out the possibility of drafting formal guidance in future.

The European Commission is to decide in 2015 whether to adopt additional measures aimed at tightening up delegation structures.

Melville Rodrigues, partner in law firm CMS Cameron McKenna, said: "Given the challenges of progressing with the legislation, the FSA should be commended for making its thinking transparent and adopting a pragmatic, flexible approach — especially regarding the transitional provisions, delegation, letterbox entities and joint ventures.

"I hope that where the FSA has led, other EU regulators will follow a similar approach and minimise the scope for regulatory arbitrage."