12/11/2009 Author: Tony Griffiths

Econ assessment deems Directive "inadequate"

An impact assessment study commissioned by the EU’s Economic and Monetary Affairs (Econ) Committee has delivered a damning appraisal of the European Commission’s draft Directive for Alternative Investment Fund Managers (AIFM), calling it “poorly constructed, ill-focused, and premature.”

Produced by London-based economics and regulation consultants Europe Economics, the report pulls no punches with its opening stanza: “We find the Commission impact assessment analysis of the policy problem to be vague, sweeping, and inadequate as a basis for justifying regulation,” it reads.

Though the Europe Economics team admitted that there was a “strong case for additional regulation”, the report concluded that the “rationale for a directive of this form is weak”, before going on to list a host of negative impacts on a range of subjects.

The 41-page document, delivered to Econ at the end of October, is divided into seven sections, and dedicates four to the key areas of marketing, leverage, depositories and third-country issues.

Echoing a number of criticisms from lobbyists within the hedge fund industry, the report acknowledges that marketing-led compliance costs would increase, and that global competition would likely be impaired. 
 
The AIFM Directive’s third-country provisions would lead to a very significant restriction on EU investor choice, it said, and could be interpreted as protectionist.  

The restrictions on non-EU depositories and the heightened liability burden were likely to result in a reduction in competition.

The Directives suggestions for leverage limits, the report noted, did not take into account the complex nature of leverage issues. The study suggests central banks, and not the European Commission, should have the power to impose leverage limits for systemically significant AIFs. 
 
Econ members, who received further external input on the AIFM Directive at a public hearing in Brussels yesterday, are due to vote on their own revised version of the legislation in April.

One HFMWeek contact close to the parliamentary action has already questioned the practicality of an April vote, and after Tuesday’s public Econ meeting, the date is beginning to feel increasingly optimistic.

“There’s clearly been a lot of work been done behind the scenes,” Deutsche Bank’s Anthony Byrne, the panel’s sell-side representative, told HFMWeek afterwards.