Thursday, October 21, 2010

Ecofin Council Reaches Agreement on AIFM Directive

At a meeting of the Economic and Financial Affairs Council ("Ecofin") held on October 19, 2010, the Council of the European Union issued a press release setting out its position with a view to concluding negotiations with the European Parliament on the proposed AIFM Directive. The press release indicates the Council's belief that there is a "large degree of convergence" between the Council and the European Parliament, and its hopes to be able to conclude the negotiations in the near future.

In a statement issued following the Ecofin meeting, Michel Barnier, European Commissioner for Internal Markets and Services, stressed the lengthy and difficult negotiations on the subject between Member States, but indicated his belief that a good compromise has been reached. In particular, he highlights that the "essential elements of the initial Commission proposal have been preserved: the broad scope, robust rules, increased transparency, and better protection for the investor."

Neither the Council press release nor Mr. Barnier's statement provides a copy of the text that was agreed at the Ecofin meeting. However, Reuters reports that the agreed text represents a compromise which follows the June 2010 stalemate in negotiations. This compromise is most evident in relation to one of the more contentious aspects of the proposed directive, the so-called "third-country" provisions, which were heavily disputed between France and the UK. While Mr. Barnier's statement confirms that the agreed text does foresee a passport for third-country alternative investment funds and managers, Reuters suggests that in order to reach an agreement, the UK agreed to delay the "start of this new licensing scheme for foreign-based funds until around 2015." It is understood that during the transitional period existing national private placement regimes will co-exist alongside a European passporting scheme.

Andrew Baker, CEO of AIMA, the global representative of the hedge fund industry, indicated that while the agreed text was a "considerable improvement" on the original proposal, “[t]here is still much in the Directive that will be difficult to implement for the industry and there will be a heavy compliance burden that the industry will have to bear. But the impact will be far less severe than if something close to the original proposal had been passed."

The agreed text will now be subject to a trialogue between the Council, the European Parliament and the Commission. If, as expected, it is approved, the agreed text will go to a plenary debate of the European Parliament for approval on November 10, 2010.