IoM Prepared For Hedge Fund Directive

by Amanda Banks, Tax-News.com, London

30 June 2010

The Isle of Man Financial Services Commission has released comment on the draft European Union (EU) Alternative Investment Fund Managers Directive and its anticipated effect on the island’s fund industry.

On May 18, 2010, the Council of the European Union agreed for negotiations to begin with the European Parliament on the draft Alternative Investment Fund Managers Directive. If adopted by the EU Parliament this will increase the regulatory requirements for fund managers, including those based outside the EU, for any Alternative Investment Funds (AIFs), such as hedge funds and private equity, marketed or operated in the EU. The EU’s stated aim is "to create harmonized regulatory standards for all alternative investment fund managers within its scope and to enhance transparency of the industry and reduce risks to financial stability."

The Financial Services Commission said that proposals which will be of primary interest to the island’s funds industry are those relating to non-EU Managers of AIFs that will be marketed in the EU.

The Directive proposes that individual member states may allow managers in non-EU states to market AIFs to professional investors in their jurisdiction providing there are rules in the home jurisdiction which are at least equivalent to the Directive in relation to:

• Transparency Requirements – including requirements relating to an AIF’s annual report, requirements for disclosure to investors, and reporting obligations to competent authorities in relation to issues such as leverage, investment strategies and valuation procedures; and
• The obligations and protections in place where an AIF acquires control of non-listed companies and issuers.

Additionally, the Directive states that there must be appropriate co-operation arrangements in place between the member state and home regulator for the purpose of systemic risk oversight and exchange of information in line with international standards.

The Financial Services Commission said that it believes that the Isle of Man will be considered compliant, or broadly compliant, with the new rules surrounding non-EU AIFs. In particular it noted that the Commission is a full signatory to the IOSCO Multilateral Memorandum of Understanding, and is considered to “meet world class standards in relation to international co-operation.”

Other matters that the Commission has identified that may be of relevance to an assessment of a 3rd country include:

• The jurisdiction's international standing with regard to reviews surrounding its policies on anti-money laundering and countering terrorist financing;
• Reciprocal access for EU funds to the 3rd country jurisdiction; and
• Tax information exchange agreements between relevant non-EU and EU authorities.

“The Commission believes that the island’s regulatory environment and established co-operation agreements and practices mean that it is well placed to respond to the challenges and opportunities of the AIFMD. However, until the fine detail is known, together with the EU assessment process for judging equivalence, the final position has yet to be determined,” the Commission said.

“The island, and its advisers, have maintained and will continue to maintain, a careful watching brief on developments. The Commission has undertaken to prepare for the AIFMD in order to react quickly as developments occur in the island’s and the fund management industry’s interests.”

The draft Directive is expected to be tabled before the European Parliament in July.

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