The European Commission has proposed a new regulatory framework for alternative investment managers.

The so-called Directive on Alternative Investment Fund Managers “aims to create a comprehensive and effective regulatory and supervisory framework” for this segment of the market in the European Union.

The proposed directive will require alternative managers to be registered and to be subject to harmonized regulatory standards on an ongoing basis. “It will also enhance the transparency of the activities of AIFM and the funds they manage towards investors and public authorities. This will enable member states to improve the macro-prudential oversight of the sector and to take coordinated action as necessary to ensure the proper functioning of financial markets. The proposal will help to overcome gaps and inconsistencies in existing regulatory frameworks at national level and will provide a secure basis for the development of the internal market,” the EU says.

In response to the proposal, the Hedge Fund Standards Board said it “has strong reservations… and is concerned at the lack of consultation over the directive.”

“We are very surprised at some of the proposals contained in this directive given the efforts already underway to develop a new architecture for the world financial system,” said Antonio Borges, chairman of the Hedge Fund Standards Board.

“The draft directive has not been discussed with the key interested parties nor is it consistent with the analysis and recommendations of the commission’s own experts – as outlined in the well received De Larosiere Report. The directive also ignores the efforts already underway to develop global proposals such as those taking place under the G20 process,” it says.

“We are particularly concerned that the draft directive opts for prescriptive norms, in contrast with the principles-based approach under which the industry developed in the UK. It would empower the commission to issue detailed regulations, in effect sidelining national regulators. It would also force non-EU countries to approve equivalent regulation if they want to maintain access to the European market,” he added.

“This is the first attempt in any jurisdiction to create a comprehensive framework for the direct regulation and supervision in the alternative fund industry,” the EU says, adding, “The proposed directive is an important part of the European Commission’s response to the financial crisis.”

“There is now a global consensus – as expressed by the G20 leaders – over the need for closer regulatory engagement with this sector. In particular, it is essential that regulators have the information and tools necessary to conduct effective macro-prudential oversight. The crisis has also underscored the importance of robust risk and liquidity management systems and the need for reliable investor information as the basis for effective due diligence. I look forward to working with the European Parliament and Council to secure the adoption of this important piece of legislation,” said EU Internal Market and Services commissioner Charlie McCreevy.

The proposal now passes to the European Parliament and Council for consideration.

IE