ESMA's technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive

Final report ESMA`s technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive 2011 | ESMA/2011/379 Date: 16 November 2011 ESMA/2011/379 Table of Contents Acronyms used I. Executive Summary ______________________________________________________ 5 II. Introduction and background ________________________________________________7 III. Article 3 exemptions _____________________________________________________16 III.I. Identification of the portfolio of AIF under management by a particular AIFM and calculation of the value of assets under management__________________________________________16 III.II. Content of the obligation to register with national competent authorities and suitable mechanisms for gathering information ___________________________________________21 III.III. Opt-in procedure ________________________________________________ 23 IV. General operating conditions _______________________________________________25 IV.I. Possible Implementing Measures on Additional Own Funds and Professional Indemnity Insurance ______________________________________________________________ 28 IV.II. Possible Implementing Measures on General Principles________________________ 39 IV.III. Possible Implementing Measures on Conflicts of Interest ______________________52 IV.IV. Possible Implementing Measures on Risk Management ______________________ 60 IV.V. Possible Implementing Measures on Liquidity Management______________________73 IV.VI. Possible Implementing Measures on Investment in Securitisation Positions ________ 82 IV.VII. Possible Implementing Measures on Organisational Requirements ______________ 98 IV.VIII. Possible Implementing Measures on Valuation ____________________________ 111 IV.IX. Possible Implementing Measures on Delegation ___________________________120 V. Depositaries __________________________________________________________ 136 V.I. Appointment of a depositary ____________________________________________139 1 Contract evidencing the appointment of a depositary ___________________________139 1.1 Particulars of the contract appointing the depositary __________________________140 1.2 ESMA’s justification for not providing a model agreement ______________________143 V.II. General criteria for assessing the effective prudential regulation and supervision of third countries 144 V.III. Duties of the depositary______________________________________________ 147 V.IV. Depositary functions________________________________________________150 1 Depositary functions pursuant to §7 – Cash monitoring__________________________150 1.1 Cash flow monitoring _______________________________________________150 1.2 ESMA’s justification for not providing further guidance in relation to the depositary’s duties regarding subscriptions in the AIF ___________________________________________ 154 2 Depositary functions pursuant to §8 – Safe-keeping duties _______________________ 155 2.1 Definition of the financial instruments that should be held in custody ______________ 156 2.2 Conditions applicable to the depositary when performing its safekeeping duties on each category of assets _______________________________________________________ 159 3 Depositary functions pursuant to §9 – Oversight duties__________________________164 Section 2 Due diligence duties ____________________________________________ 172 Section 3 Segregation __________________________________________________ 175 V.V. The depositary’s liability regime ________________________________________ 178 1 Loss of financial instruments____________________________________________ 179 2 External events beyond reasonable control __________________________________182 3 Objective reason to contract a discharge ____________________________________185 VI. Possible Implementing Measures on Methods for Calculating the Leverage of an AIF ________188 2 VII. Possible Implementing Measures on Limits to Leverage or Other Restrictions on the Management of AIF 212 VIII. Transparency Requirements _______________________________________________ 217 VIII.I. Possible Implementing Measures on Annual Reporting ______________________218 VIII.II. Possible Implementing Measures on Disclosure to Investors___________________229 VIII.III. Possible Implementing Measures on Reporting to Competent Authorities ________234 IX. Supervision __________________________________________________________240 IX.I. Co-operation arrangements between EU and non-EU competent authorities for the purposes of Article 34(1), 36(1), and 42(1) of the AIFMD_____________________________________240 IX.II. Co-operation arrangements between EU and non-EU competent authorities as required by Articles 35(2), 37(7)(d) and 39(2)(a) of the AIFMD __________________________________240 IX.III. Co-operation and exchange of information between EU competent authorities ______244 IX.IV. Member State of reference: authorisation of non-EU AIFMs – Opt-in (Article 37(4)) __245 Annex I: Annex II: Annex III: Annex IV: Annex V: Commission’s request for assistance Cost-benefit analysis Advice of the Securities and Markets Stakeholder Group Feedback on the consultations Pro-forma for AIFM reporting to Competent Authorities (Article 24) 3 Acronyms used AIF AIFM AIFMD AuM CCP CEBS CESR CFD CIU ESFS ESMA ESRB GAAP IASB IFRS IOSCO MiFID NAV OTC UCITS UCITS Directive VaR Alternative Investment Fund Alternative Investment Fund Manager Alternative Investment Fund Managers Directive (2011/61/EU) Assets under management Central counterparty Committee of European Banking Supervisors Committee of European Securities Regulators Contract for difference Collective investment undertaking European System of Financial Supervision European Securities and Markets Authority European Systemic Risk Board Generally Accepted Accounting Principles International Accounting Standards Board International Financial Reporting Standards International Organization of Securities Commissions Markets in Financial Instruments Directive (2004/39/EC) Net asset value Over-the-Counter Undertaking for Collective Investment in Transferable Securities Directive 2009/65/EC Value at Risk 4 I. Executive Summary Reasons for publication On 2 December 2010 the European Commission sent a request for assistance to CESR (now ESMA) on the content of the implementing measures for the Alternative Investment Fund Managers Directive (AIFMD)1. This paper sets out ESMA’s technical advice on the content of the implementing measures2 for the AIFMD. Contents This paper sets out ESMA’s advice for implementing measures regarding the issues identified in the Euro-pean Commission’s request. The formal advice is contained in the boxes in Sections III to IX of the paper, while further commentary and explanation is provided in the explanatory text. A cost-benefit analysis of ESMA’s advice can be found in Annex II, followed in Annex III by the formal advice provided by ESMA’s Securities and Markets Stakeholder Group. Feedback on the public consultations is set out in Annex IV. General provisions, authorisation and operating conditions This section includes advice on the implementing measures foreseen under Article 3 of the Directive, which cover the following issues: • the identification of the portfolios of alternative investment funds (AIFs) under management by a particular alternative investment fund manager (AIFM) and calculation of the value of assets un-der management (Article 3(2)); • influence of leverage on the assets under management (Article 3(2)); • the determination of the value of the assets under management by an AIF for a given calendar year (Article 3(2)); • the treatment of potential cases of cross-holding among the AIFs managed by an AIFM (Article 3(2)); • the treatment of AIFMs whose total assets under management occasionally exceed and/or fall be-low the relevant threshold (Article 3(2)); • the content of the obligation to register with national competent authorities and suitable mecha-nisms for gathering information set out in Article 3(3); • the registration requirements for entities falling below the thresholds set out in Article 3(3); and • the procedures for small managers to ‘opt-in’ to the AIFMD set out in Article 3(4). As regards general operating conditions, the advice covers the following elements: 1 http://ec.europa.eu/internal_market/investment/docs/alternative_investments/level2/mandate_en.pdf 2 This paper uses the term ‘implementing measures’ as a generic term to refer to delegated acts and implementing acts. 5 ... - --nqh--