Directing the directive

The Alternative Investment Fund Managers Directive (AIFMD) is one big grizzly bear Guernsey regulators must wrestle with. Hannah Beecham reports on the latest round of negotiations and asks what deals must still be struck before Europe opens its doors for business.

Next time you find yourself irritated by yet another complaint that the Alternative Investment Fund Managers Directive lacks comprehension and clarity, your impatience might be eased on learning from Jon Moulton, Chairman of Better Capital Fund, that there's a sentence in the Directive containing 400 words and 11 sub clauses. So, thank your lucky stars, it's not your job to dissect and digest such detail.

Guernsey's legislators and regulators are determined to remain undaunted by this dense forest of legal gobbledegook. Much to the relief of its £250 billion fund sector, they are leaving no stone unturned to ensure their Channel Island will be not only ready for the Directive's challenge of change when it comes into effect but will be well positioned to retain a distinctly competitive niche for its players.

The latest terms to be approved by the Directive present Guernsey with two much-needed certainties. The first is that the AIFMD will keep Europe's markets open for private placement regimes - that's all qualifying non-European domiciled finance centres like Guernsey, provided they have secured the minimum harmonisation agreements.

And the second confirms the creation of a passport for third countries which will be phased in over five years. This passport, says Guernsey Finance, will be assessed on the basis of objective criteria by national regulations, which in turn will be based on the premise of "same rights, same responsibilities."

However, there's a lot of time between now and 2018 when the Directive's full weight will come into force and there could be many a slip twixt cup and lip. Anne Rannaleet with the European Venture Capital Association, explains the Directive's time-line from Guernsey's perspective.

"From now until 2013 it's business as usual, Guernsey is not affected at all. The European-based funds can have another year during which to comply and so Guernsey can continue marketing under the private placement regimes as they are.

When this comes into force in 2013 they will still continue to use the private placement regimes but there will be some conditions attached meaning that the foreign country needs to have co-operation agreements in place with the EU jurisdiction where Guernsey is marketing ... and  the OECD tax compliance comes into place."

Ms Rannaleet confirms that there will be a period of dual regime between 2015 and 2018. Jurisdictions will be able to choose whether to use the passport conditions of the AIFMD or continue marketing under the private placement regime. Come 2018 the private placement regime arrangement will disappear for all funds above €500 million. 

In terms of securing the necessary harmonisation agreements on OECD tax compliance, Guernsey is cooing like a dove. It has already signed bilateral Tax Information Exchange Agreements (TIEAs) with 23 other jurisdictions  and has a further 15 lined up for completion.

Robustly defending the hard work Guernsey has already put in on regulating its funds sector, Carl Rosumek, Director of Investment Business with Guernsey's Financial Services Commission, points out, "We do not have an unregulated funds’ sector in Guernsey and this is where we differ from some fund jurisdictions.

Following some changes to our investor protection law a couple of years ago, all funds in Guernsey are regulated by the Commission either through authorisation or registration process. In parallel to that we also regulate service providers, whether it is the manager, the administrator, or the custodians that are established on the island. They've got to be regulated by the Commission. So we've got both the licences and the product within our regulatory scope."