ESBG response to the CESR call for evidence: Implementing measures on the Alternative Investment Fund Managers Directive

Transcription

1 ESBG response to the CESR call for evidence: Implementing measures on the Alternative Investment Fund Managers Directive European Savings Banks Group Register ID January 2011

2 DOC 1449/10 UKO The European Savings Banks Group (ESBG) appreciates the opportunity to comment on the CESR call for evidence on implementing measures on the Alternative Investment Fund Managers Directive. ESBG, however, regrets the insufficient time allowed for responses to this consultation paper. The deadline of 7 January 2010, and even the prolonged deadline of 14 January, allowed ESBG members only to focus on the question which form the implementing measures should take (CESR question number 2) and to further comment (in an almost exclusive manner) on Part II of the Commission request to CESR for technical advice on possible Level 2 measures, which concerns the depositary. It is regrettable that, in particular after the experiences with the Level 1 legislation, the current consultation process is conducted in a rushed manner. A. Form of implementing measures In response to question 2, ESBG proposes that Part I (general provisions of AIFMD, authorization of and operation conditions for AIFM) shall be adopted in form of a Directive, since this ensures a smoother application and implementation of the AIFM given the currently existing national regulations for private placement regimes and even more considering the leeway for Member States in the application of certain provisions of the Directive (see in particular Article 3 (3) exemptions, as also quoted under issue 1 in the Commission request to CESR on page 8 and Article 19 (3) valuation, issue 9, page 18 of Commission request). With respect to Part II (depositary provisions) ESBG considers that this area should be also addressed by a Directive, as this best reflects national specificities which will to a certain degree persist and that despite the reversed burden of proof. This is in particular valid for the area of civil liability. In this context, ESBG highlights the particular relevance of the implementing measures with respect to depositaries, also due to the rather general provisions established by the Directive, which on their own do barely deliver a workable framework for depositaries (see in particular external events beyond reasonable control, item 17). Thus, detailed explanations will need to be provided by the implementing measures (see also comments in part B of this paper). When looking at Part III (transparency requirements and leverage), the Level 1 Directive sets a high standard, which will need to be specified on Level 2. In ESBG s view the equitable instrument for this purpose is a Directive, in particular in relation to transparency requirements (issue 20 to 22 in the Commission paper). This approach would be in line with the approach chosen in the Transparency Directive, which is applicable for securities admitted to trading on Regulated Markets in the EU. ESBG considers that Part IV (supervision of AIFM) could be dealt with in a Regulation. Cooperation and information exchange between competent authorities is crucial and has to be balanced. As rightly outlined by the Commission on pages 42 and 44, administrative arrangements have a non-binding nature, which even more shows the need for clear and harmonised provisions (in other words, provisions with a low degree of harmonisation combined with the non-binding nature of the arrangements do not appear highly promising). Furthermore it is vital to have a coherent approach with respect to the authorization of non-eu AIFM. For these reasons, a Regulation seems the most appropriate vehicle to ensure the high degree of harmonisation required in this field and to avoid regulatory arbitrage. If, however, a Directive would be chosen, it would be important to limit as far as possible national discretions.

3 B. Implementing measures with respect to the depositary Issue 11- Contract evidencing appointment of depositary (page 23) ESBG believes that it would indeed be helpful to establish an overview of all main elements, which - as a minimum - need to be included in the contract between the AIFM (the manager) and the depositary. Beyond that, it is necessary to still leave a certain degree of flexibility for contractual arrangements, which would be restricted by a draft model agreement in an unwished-for manner. The main elements for the contract comprise in particular the following aspects: - A description of the tasks of the manager and the depositary; - A description of the procedures to be adopted for each type of asset entrusted to the depositary; - A description of the procedures to be followed where a manager envisages a modification of the fund rules; - Exchange of information between the manager and the depositary in both directions, enabling the depositary and the manager to perform their duties, - A clause requiring the manager to include in the agreement with the counterparties/ prime broker an obligation for the latter to send information to the depositary about the transactions, positions and other information affecting it, as well as to provide additional information on the request of the depositary; - Depositary s remuneration. Issue 12- General criteria for assessing equivalence of the effective prudential regulation and supervision of third countries (page 24f) ESBG agrees to all elements brought forward by the European Commission in context of the assessment of the criteria as to whether the prudential regulation and supervision applicable to a depositary established in a third country with respect to its depositary duties are to the same effect as the provisions laid down by European law. In this context it would be helpful if ESMA could develop a list of eligible equivalent third countries. Issue 13- Depositary functions Issue 13.1 Depositary functions pursuant to paragraph 6 (page 25f) ESBG considers that the function of properly monitoring the AIF s cash flow implies on the one hand that the depositary is directly informed by the counterparty about payments in favour of the AIFM (hereafter the manager), and such payments should be charged in the AIF account at the depositary, while on the other hand the manager should previously and adequately justify ordered payments to be effected by the depositary. Payments made by or on behalf of investors upon subscription of shares or unit should be booked in one or more cash accounts at the depositary receiving all subscriptions. The depositary implements the controls necessary to guarantee that in no case the depositary s own cash is kept in the same accounts; importantly, the depositary itself has no disposal on the AIF s account and only acts on request of the management company. With respect to third countries it is important that the entity is subject to effective prudential regulation and supervision to the same effect as the provisions laid down in European law and which is effectively enforced.

4 Issue 13.2 Depositary functions pursuant to paragraph 7 (page 26f) With respect to the types in financial instruments to be included in the scope of the depositary s custody duties that can be registered in a financial instruments account and that can be physically delivered, this includes in ESBG s view securities, including bonds, fund units, and, units of collective investment vehicles registered with the depositary itself or the CSD. Other assets mean e.g. cash, real estate, commodities, loan funds, private equity and derivatives. For verifying the ownership of the AIF or the AIFM on behalf of the AIF, the depositary needs to rely on the agreements, confirmations and original documents issued by the counterparty/ entity carrying the register. This information will be received by fax, , SWIFT messages or web access to the entity s registry. In case of temporary lending or repurchase arrangements, the depositary needs to be informed and it could be envisaged to require its prior agreement to proceed. In ESBG s view such cases are similar to those where the manager envisages a modification of fund rules. The depositary remains liable, even if the collaterals get lost; therefore ESBG reiterates that a prior agreement by the depositary should be required. Issue 13.3 Depositary functions pursuant to paragraph 8 (page 28) The depositary needs to verify AIFM s procedures in order to comply with its duties to ensure that the sale etc. of shares or units of the AIF are carried out in accordance with the law (point (a)), ensure that the value of the shares or units of the AIF is calculated in accordance with the law (point (b)) and ensure that an AIF s income is applied in accordance with the law (point (e)). In practical terms, point (a) requires periodic verification of samples and point (b) requires a comparison between the Net Asset Value evolution versus a benchmark. The carrying out of the instructions of the AIFM (point (c)) has to be handled in due course (as also suggested by point (d)); it should be, if necessary, possible to inform the AIFM after execution of failures in compliance with national law or AIF rules and to correct them. In the same spirit, if such failures are of great importance, the regulator would need to be informed by the depositary afterwards. Issue 14- Due diligence (page 29) A different degree of due diligence is necessary depending on which of the outsourceable tasks are transmitted to the sub-custodian. This implies also different levels of risk management. In general the report concerning the sub-custodian, to be established in the selection process of the third party, needs to check the solvency, credit rating as well as the legal and operational risk profile. The required information for the report will be i.a. extracted from the potential sub-custodian s SAS 70 certification. Issue 16- Loss of financial instruments (page 30f) In ESBG s view it is important to align the provisions under AIFMD with the future Securities Law Directive, as the issue is also addressed in the related Commission consultation document It is crucial to reflect further on the situations which constitute a loss of financial instruments and to align activities in different legislation.

5 Issue 17- External events beyond reasonable control (page 31) Such events can e.g. materialize in political or legal changes in the country in which the instruments are deposited or in restrictions to the securities markets imposed by the local supervisor. They could also appear in case of loss occurred or caused by the central depository. ESBG considers that there are further cases that should qualify as external events beyond reasonable control, but these require further reflection, which has not been possible due to the short consultation deadline.

6 About ESBG (European Savings Banks Group) ESBG (European Savings Banks Group) is an international banking association that represents one of the largest European retail banking networks, comprising about one third of the retail banking market in Europe, with total assets of 5967 billion (1 January 2008). It represents the interest of its Members vis-à-vis the EU Institutions and generates, facilitates and manages high quality cross-border banking projects. ESBG Members are typically savings and retail banks or associations thereof. They are often organized in decentralized networks and offer their services throughout their region. ESBG Member banks have reinvested responsibly in their region for many decades and are one distinct benchmark for corporate social responsibility activities throughout Europe and the world. European Savings Banks Group - aisbl Rue Marie-Thérèse, 11 B-1000 Brussels Tel: Fax : Info@savings-banks.eu Published by ESBG. January 2011