Funds and games
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A large number of regulatory changes have taken place or have been proposed in the past two years affecting the financial sector. Of the recent regulatory changes, which has had the greatest impact on the funds industry to date?
Jeffrey Bronheim, general counsel, Cheyne Capital: When the Alternative Investment Fund Managers Directive [AIFMD] was published certain provisions could have harmed the hedge fund business in Europe. While the final directive is more appropriate it will still require many person-hours to understand and implement. In the past few years we have seen changing, inconsistent and often complex short-selling restrictions imposed by various countries and regulators, occasionally without warning. These appear to have had minimal impact in calming market volatility or slowing the fall in share prices, but they have certainly increased the operational costs of doing business and had a significant impact on trading strategies.
Matthew Cavanagh, general counsel, Christofferson Robb & Company: Clearly, the AIFMD - not from the perspective of an impact on our day-to-day activities, but rather from that of needing to keep on top of its detailed terms and constantly assess its potential impact as it has moved through its various guises. Otherwise, the banking regulatory capital rules have been of direct relevance to us due to the nature of our investment strategy.
Laetitia Muir, general counsel, Reech AIM Partners: As a European alternative investment fund manager we believe the AIFMD will have the biggest impact on our business owing to its extensive nature and the requirements under it. Keeping in mind that we are regulated by the FSA in the UK it will also be interesting to see the changes brought about by financial services regulatory architecture reform.
Janene Waudby, general counsel, Cube Capital: To date the remuneration rules, which came into force early this year. These have had little attention in the press, but have revolutionised how bonuses are paid in the industry. Put simply, neither bankers nor investment managers can receive big cash bonuses any more. The main impact for our business was felt because the rules were adopted with only a few weeks’ notice of the precise terms. Smaller firms such as ours were forced into making decisions without knowing what the final rules would say.
Richard Perry, head of financial services, Simmons & Simmons: The regulatory changes with the greatest impact on funds so far have probably been the restrictions on short-selling/transparency requirements. These have had a massive impact in terms of the systems and procedures our clients have to maintain to ensure compliance and stay up-to-date, and also some consequences for the transactions they enter into.
The combination of some regulatory developments in the area of market abuse regulation and a more aggressive approach from regulators in policing the rules has had a significant impact on asset managers. There is more rigour in ensuring there are no breaches and being able to show there are adequate controls in place. Investors do not see insider trading for their accounts by their appointed managers as ’added value’: evidence suggests they will want to withdraw their money immediately.
Pre-empting regulations, the banks are reducing their proprietary trading businesses. Many of these teams have spun out into new asset management businesses. This is potentially a significant change to the market landscape.
Peter Astleford, co-chair of financial services, Dechert: The AIFMD will require all non-Ucits [Undertakings in Collective Investment in Transferable Securities] funds to meet new structural requirements and is likely to lead to additional requirements being imposed on Ucits as well. Some of these provisions, such as the rules on depositaries’ liability, have been imposed without any real consideration of the practicalities. At the moment this seems to be the most far-reaching change.
The market reforms envisaged by the European Market Infrastructure Regulation and MiFID II are also potentially far-reaching, although it is difficult to know what their impact will be at this stage. The position of non-EU managers doing institutional business into Europe, for example, will be materially affected by MiFID II, but we do not yet know the full details and practical impact.
Have you begun to address the possible effect of the AIFMD on your company yet? What impact do you think it will have?
Bronheim: We have created a multi-cell Ucits and a multi-cell Qualified Investor Fund to deliver onshore investment products for clients who prefer it, and to have an alternative to offshore funds should they be disadvantaged by the AIFMD. The impact would appear to be manageable, but this will depend on the outcome.
Cavanagh: We have undertaken a review of the rules of the AIFMD to determine whether the directive impacts our business. Our assessment, including advice from outside counsel, is that our current structures and funds/managed accounts will not be caught by the AIFMD. We do, however, keep a watching brief on the AIFMD with regard to our structures and marketing plans. It will obviously be a real consideration for us, given that we are not caught by the directive, if any one-off future marketing or fund proposition were to bring us within the operation of the AIFMD, as the compliance costs might outweigh the opportunity.
Muir: Despite the 2014 deadline to apply for authorisation under the AIFMD, we have initiated a process to identify actions needed to comply with the directive. We are of the view that while the European ’passport’ scheme would simplify the process to market for our funds in various EU jurisdictions, some of the restrictions under the AIFMD such as capital adequacy restrictions, leverage restrictions, external valuation experts, remuneration caps and depository requirements may lead to additional cost for minimal benefit.
Waudby: Yes, we are considering it, but in the absence of seeing the FSA’s rules on the subject it is hard to judge the precise effect. The biggest impact is likely to be that it will drive us, and probably others, increasingly offshore. This is because we believe that no UK-based adviser will be able to do any discretionary management without being designated under the AIFMD as the ’manager’ of the relevant funds, and there can be only one manager under the rules. If this is correct we expect it to have a big impact on any fund structure with an offshore manager and UK-based adviser that does some discretionary management. Such businesses will inevitably end up relocating more staff offshore. |
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Author Resource:-
Read the rest here: Cheyne Capital
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By :
Rivington Charlotte
Submitted
2012-01-25 15:24:06 |
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