Commenting on the publication by the Financial Services Authority of Consultation Paper CP12/32 on Implementation of the Alternative Investment Fund Managers Directive, Ronald Paterson, a partner advising on alternative investment funds at global law firm Eversheds, said:

"The FSA is taking a pragmatic and helpful approach in a very difficult situation. AIFMD, which will regulate all investment funds managed or marketed in the EEA, other than funds regulated under the UCITS Directive, must be implemented by July of next year. A key element in implementing AIFMD will be a European Commission Level 2 Regulation specifying much of the detailed rules with which managers of alternative investment funds, depositary banks (who will be responsible for custody of the assets of AIFs) and others will have to comply. The FSA paper confirms that the process of adoption and agreement of the Level 2 Regulation by the European Commission, European Parliament and European Council has not yet begun. Agreement of the Level 2 Regulation is being held up by disagreements on key provisions which will be important for AIFMs in planning to implement the Directive, such as the definition of a letter-box entity which cannot qualify as an AIFM, the extent of the liabilities of depositaries and arrangements to allow non-EEA funds to be sold into the EEA. With finalisation of Level 2 still some way off, fund managers are finding it difficult to prepare for the implementation of AIFMD.

"Although AIFMD is a maximum-harmonisation directive under which EU Member States have very limited discretion to vary its requirements, it appears that the FSA and the Treasury are proposing to exercise the discretion they have in a helpful way. The FSA has been signalling for some time that it intends to take a pragmatic approach to transitioning into the AIFMD regime and this consultation paper gives a useful update on the FSA proposals in this area. There are a number of things in the consultation paper which UK fund managers will be grateful for in the circumstances and with its guidance they should now be focussing seriously on preparing for implementation of AIFMD."

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