Current status of legislative procedure

The Directive was approved by the European Parliament on 11 November 2010 and adopted by the Council on 27 May 2011. The Directive has been published in the Official Journal on 1 July 2011 and entered into force on 21 July 2011. It will enter into force on the twentieth day following its publication in the Official Journal of the EU. This is expected now not to take place in June 2011. Member States have two years to implement the provisions of the Directive into national law.

As noted above, there are some transitional provisions and review provisions in relation to the rules on marketing AIF to EU investors.

No Level 2 measures have yet been published in draft form or approved. However, ESMA is currently consulting the EU professionals on a draft technical advice to the European Commission on possible implementing measures of the Directive. Responses are expected for 13 September 2011.

Detailed legislation to follow – Level 2 measures

As the Directive has been prepared under the Lamfalussy process1, the Directive itself is merely the framework for the regulation of the industry. More detailed rules are to be set out in subsequent directives and/or regulations. The Directive itself sets out a long list of areas that are reserved for these Level 2 measures in Recital (79) et sqq. In addition, many of the Articles of the Directive also provide that additional regulation is to follow (for example, a large amount of additional regulation is provided for in relation to depositaries. No draft text of these measures has yet been prepared or circulated and it is therefore difficult to get a full sense of the impact of measures on managers, although the ESMA consultation paper grants an initial insight on the prospective implementation. It may be for example that a provision in the Directive which looks as if it could be implemented with relatively minor changes to existing systems and controls could become significantly more costly and time consuming to implement once the Level 2 measures are finalised.

Implementation in Germany

At present, there is no official announcement as to how the Directive will be implemented into German law.

However, there are strong indications that the Directive will likely be implemented by significant revisions of the German Investment Act (Investmentgesetz – “InvG”). Many other regulatory and commercial laws will need to be amended in implementing the Directive.

Currently, the InvG regulates open-ended funds, special funds, hedge funds and UCITS only. Other fund types, such as closed-ended real estate funds, private equity funds or funds without investment restrictions, are subject to the so called Grey Market Regulation which by international standards is subject to a low level of regulation. With the implementation of the Directive the Grey Market funds would need to be included in the scope of the InvG.

Germany's "Competent Authority" will be the BaFin.

See here for our article regarding the implementation of the Directive on national level and its consequences for the fund industry in Germany (in German).”.

Implementation in UK

The UK Government has not yet indicated how it will implement the Directive. It is to be expected that it will be implemented by a combination of amendments to the Financial Services and Markets Act 2000 and its subordinate legislation (in particular the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001) with the more detailed requirements on managers and depositaries being implemented through changes to the successor rules to the Financial Services Authority Handbook of Rules and Guidance.2

The "Competent Authority" for the UK is likely to be the Consumer Protection and Markets Authority, the new regulator that is expected to be established to take over certain functions of the current Financial Services Authority.

Implementation in France

There is no indication as to when the Directive will be implemented into French legislation and in what form. However, in light of, inter alia, recent public debates from the French Parliament relating to banking and financial regulations, it seems fair to anticipate that France will, as the new president of the G20, want to be at the forefront of the transposition process. A "Haut Comité de Place" gathering French professionals has been set up to discuss the prospective implementing measures.

The Directive will most probably be implemented by a combination of amendments to: (i) the French Monetary and Financial Code (Code Monétaire et Financier) in relation to the implementation of the Directive's general principles; and (ii) the General Regulation of the Autorité des Marchés Financiers (AMF) in relation to the implementation of specific application criteria, such as those relating to the delegation of AIFM functions.

Footnotes: 1.