Brussels, 13/11/2009 (Agence Europe) - The Swedish Presidency's draft compromise on regulation of alternative fund managers proposes a number of changes to the draft directive presented by the European Commission in April. Some issues remain open and certain proposed changes are disappointing, both for the Council and the European Parliament, with which negotiations will have to be launched speedily if, perchance, political agreement among member states were to be reached before the end of the year, as the Presidency still hopes.
The issue of supervision by the European financial markets authority (ESMA), the creation of which is by no means certain, and its ability to possibly require a fund to limit its leverage (to impose higher risk control) are among the issues for discussion. Relations with third countries will also be discussed. On this, the compromise says simply that member states must ensure that alternative investment fund managers (AIFMs) may only manage alternative investment funds (AIFs) established in a third country where: a) the relevant legislation in the third country is in line with the standards set by international organisation, including IOSCO (International Organisation of Securities Commissions) standards on hedge funds oversight; and b) an appropriate cooperation agreement is in place between the competent authority of the home member state and the AIFM and the supervisory authorities of the third country where the AIF is established.
The compromise could also clash with the interests of the sector on remuneration. The compromise text says that member states should require AIFMs to have remuneration policies and practices that are consistent with, and promote, sound and effective risk management and do not encourage risk-taking that exceeds the level of tolerated risk of the AIFM. In an appendix, the Presidency compromise proposes a number of principles to guide these policies and practices, which concern above all top management, in a way and to the extent that is appropriate to their size and the size of the AIF they manage, the internal organisation and the nature, the scope and the complexity of their activities. It states, too, that the fixed and variable components in remuneration should be balanced and that a substantial proportion (at least 40%) of the variable component of remuneration (bonuses) be deferred over a period which is not less than three years and is correctly aligned with the nature of the business, its risks and the activities of the member of staff in question. All these principles should apply both to the remuneration paid by the AIFM and remuneration paid by the AIF itself (“carried interest”), the appendix states. (A.B./transl.rt)