AIC responds to AIFM directive
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New rules proposed by the European Council’s Alternative Investment Fund Managers (AIFM) directive could undermine the prosperity of investment trusts, says the Association of Investment Companies (AIC).
New rules proposed by the European Council’s Alternative Investment Fund Managers (AIFM) directive could undermine the prosperity of investment trusts, says the Association of Investment Companies (AIC).
The AIC has submitted written evidence to the House of Lords European Union Committee inquiry on the AIFM directive, which was released in March this year. The directive called for the regulation of Alternative Investment Funds (AIFs), a classification that included investment trusts.
According to the AIC, the AIFM proposals will create unnecessary and duplicated regulatory objectives, increase costs and reduce investment companies’ commercial flexibility.
The written response states: “Recent market turbulence, and its broader economic impact, creates a case for updating the regulation of ‘alternative investment funds’ (AIFs). However, in pursuing this agenda, European policymakers should seek to deliver well targeted, effective and proportionate regulation — not simply more regulation. Unfortunately the AIFM Directive does not achieve this.”
Its headline concerns are that the directive fails to target its regulatory ambitions, primarily because it focuses on particular market participants, namely AIFs, rather than abusive activities. Meanwhile, the AIC says where the directive does impose regulatory objections, it fails to do so effectively.
“The Directive is not proportionate because it threatens serious, negative consequences for all investment companies without providing compensating regulatory benefits. These risks arise regardless of the company’s size, assets, domicile or the market on which they trade their shares.”
Other measures in the directive threaten the sector’s ability to meet investor needs and will ultimately lead to greater consumer costs, the AIC adds.
It concludes “a lack of consultation and understanding of investment companies’ unique characteristics mean that profoundly damaging outcomes are a real threat unless the proposals are adjusted”.
As such, the AIC has called for every aspect of the AIFM directive to be examined, and changes made to ensure the regulatory obligations are “appropriate and effective”.
Instead the AIC advocates that the regulatory objectives of the AIFM be applied to investment companies using existing regulatory mechanisms.
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