03/02/2010 Author: Tony Griffiths

First Spanish AIFM redraft released

The first redrafting of the Alternative Investment Fund Managers (AIFM) Directive by new EU Council president Spain was made public today, just hours after a key Bank of England committee released a report criticising the work of the presidential predecessor.  
 
The Spanish draft – dated 1 February, but published today – has addressed a number of flashpoint issues, concentrating on depositories, third-countries, scope and remuneration. Under the new proposals, depositories will be allowed, where legally permitted, to sublet liability, while the remuneration proposals, though left intact, have been clarified in terms of the staff to who they apply.       
 
Andrew Baker, chief executive of the Alternatives Investment Management Association, commended Spain’s approach, but registered concerns regarding the document’s third-country amendments. “There is much in this compromise text that is sensible and reasonable,” Baker said. “We are, however, still concerned by some issues, in particular the ‘third countries’ section, which has been significantly changed and which could have unfortunate protectionist consequences."
 
In a 57-page report released last night, meanwhile, the Bank of England’s Financial Markets Law Committee (FMLC) indentified a series of concerns, including a number “yet to be adequately addressed” by the compromise texts of the EU Council under the Swedish presidency.      
 
The Directive contains “fundamental issues which would, in the FMLC’s view, create significant legal uncertainty leading potentially to systemic failure and widespread market disruption, unless they are appropriately amended”, the report said.
 
The report divides pertinent legal issues into two categories: those which the FMLC feels the EU Council has inadequately dealt with (which, at the point of publication, includes the redrafts produced by previous president Sweden), and those with which “substantial” headway had been made.
 
Those issues in the former subdivision are: depositories (liability regime, restrictions on delegation, and ability to verify an AIF or AIFM’s ownership of assets); the inconsistencies and inherent conflicts between the AIFM Directive and existing financial services directives; and scope, particularly in relation to the central concepts.   
 
However, substantial progress had been made, the report said, in regards to the implementation of private placement rules, the definition of leverage, and an AIFM’s ability to delegate.
 
The FMLC describes itself as a “bridge to the judiciary to help UK courts remain up-to-date” with current legislation. The role of the FMLC, the report said, was to “identify issues of legal uncertainty or misunderstanding” within the Directive, rather than to make suggestion for actual improvement.