Text proposed by the Commission Amendments proposed by the ECB (1)

Amendment 1

Article 2(2) (new point (h))

‘2. This Directive shall not apply to any of the following: […].’ ‘2. This Directive shall not apply to any of the following: […] (h) national central banks of the Member States.’

Explanation: Article 2(2)(g) of the proposed directive excludes, inter alia, the ECB from the scope of the proposed directive. The national central banks in the European System of Central Banks should also be expressly excluded from the scope of the proposed directive as these central banks, in view of their objectives and tasks, do not represent sources of risk justifying their inclusion within the proposed directive.

Amendment 2

End of Article 3

‘The Commission shall adopt implementing measures further specifying the definition of “Leverage” in paragraph l Those measures designed to amend non-essential elements of this Directive by supplementing it shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 49(3).’

Explanation: The definition of ‘Leverage’ could be usefully clarified.

Amendment 3

Article 8

‘Article 8 Withdrawal of the authorisation The competent authorities may withdraw the authorisation issued to an AIFM where that AIFM: 1. has obtained the authorisation by making false statements or by any other irregular means; 2. no longer fulfils the conditions under which authorisation was granted; 3. has seriously or systematically infringed the provisions transposing this Directive.’ ‘Article 8 Withdrawal of the authorisation The competent authorities may withdraw the authorisation issued to an AIFM where that AIFM: 1. has obtained the authorisation by making false statements or by any other irregular means; 2. no longer fulfils the conditions under which authorisation was granted; 3. has seriously and/or systematically infringed the provisions transposing this Directive. Any withdrawal of authorisation shall be effective immediately and promptly announced. The Commission shall adopt implementing measures further specifying the timing and the addressees of an announcement on the withdrawal of an authorisation in paragraph 1. Those measures designed to amend non-essential elements of this Directive by supplementing it shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 49(3).’

Explanation: Many credit and master agreements specify ‘events of default’ that entitle a counterparty to terminate a contract or a transaction entered into under the master agreement. Withdrawal of authorisation is a standard type of ‘event of default’. To ensure that any withdrawal of an AIFM’s authorisation does not result in a disorderly termination process — that may well otherwise have different effects in different Member States — it would be desirable to specify that the practical implications of a withdrawal are the same throughout the EU, in particular with respect to when and to whom a withdrawal of authorisation is announced, and when the withdrawal produces effects. The ECB suggests that the Commission could adopt implementing measures via a comitology procedure to specify when and to whom a withdrawal of authorisation should be announced. The ECB would express similar concerns if breaches by an AIFM of the ‘operating conditions for AIFM’ set out in Chapter III of the proposed directive were also to result in an event of default, or trigger other contractual or legal rights of termination.

Amendment 4

Article 16(3)

‘3. The rules applicable to the valuation of assets and the calculation of the net asset value per unit or share of the AIF shall be laid down in the law of the country where the AIF is domiciled or in the AIF rules or instruments of incorporation.’ ‘3. The rules applicable to the valuation of assets and the calculation of the net asset value per unit or share of the AIF shall be laid down in those applicable in accordance with the law of the country where the AIF is domiciled or the AIF rules or instruments of incorporation.’

Explanation: US Generally Accepted Accounting Principles or ‘GAAP’ are not ‘laid down in the law’ of the United States, and a similar factual background may well apply in other countries. Article 16(3) of the proposed directive, as drafted, may therefore be impossible to implement.

Amendment 5

Article 17(3)

‘The depository shall be a credit institution having its registered office in the Community and be authorised in accordance with Directive 2006/48/EC of the European Parliament and Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).’ ‘The depository shall be a credit institution having its registered office in the Community and be authorised in accordance with national law or Directive 2006/48/EC of the European Parliament and Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast).’

Explanation: The amendment would broaden the definition of depository at least to include credit institutions that are allowed under national law, rather than just credit institutions authorised by Directive 2006/48/EC.

Amendment 6

Article 18(1)(d)

‘(d) the AIFM must demonstrate that the third party is qualified and capable of undertaking the functions in question, that it was selected with due care and that the AIFM is in a position to monitor effectively at any time the delegated activity, to give at any time further instructions to the third party and to withdraw the delegation with immediate effect when this is in the interest of investors.’ ‘(d) the AIFM must demonstrate that the third party is qualified and capable of undertaking the functions in question, that it was selected with due care and that the AIFM is in a position to monitor effectively at any time the delegated activity, to give at any time further instructions to the third party and to withdraw the delegation with immediate effect when this is in the interest of investors and simultaneously substituting different delegation arrangements that are consistent with Article 6(3).’

Explanation: To ensure consistency with Article 6(3) of the proposed directive, which requires the authorisation of any AIFM to ‘cover any delegation arrangements made by the AIFM’, the proposed change is intended to require that alternative delegation arrangements are in place should it ever become necessary for the AIFM to withdraw a delegation ‘with immediate effect’.

Amendment 7

End of Article 22

‘For the purposes of the second subparagraph, an AIF shall be deemed to employ high levels of leverage on a systematic basis where the combined leverage from all sources exceeds the value of the equity capital of the AIF in two out of the past four quarters.’ ‘For the purposes of the second subparagraph, an AIF shall be deemed to employ high levels of leverage on a systematic basis where the combined leverage from all sources exceeds the value of the equity capital of the AIF in two out of the past four quarters. The Commission shall adopt implementing measures further specifying the circumstances in which an AIF shall be deemed to employ high levels of leverage on a systematic basis. Those measures designed to amend non-essential elements of this Directive by supplementing it shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 49(3).’

Explanation: Article 22 of the proposed directive would have the practical effect that the vast majority of AIFs would be deemed to employ high levels of leverage on a systematic basis because their combined leverage would frequently exceed their net assets (rather than their ‘equity capital’), which might not provide the appropriate point of reference in a fund context. The ECB suggests that this technical issue would be best resolved by the Commission adopting implementing measures via a comitology process, with the appropriate involvement of supervisors and other competent authorities.

Amendment 8

Article 33(8)

‘8. AIFM may only market shares or units of an AIF domiciled in a third country to professional investors domiciled in another Member State than the home Member State of the AIFM as from the date referred to in the second subparagraph of Article 54(1).’ ‘8. AIFM may only market shares or units of an AIF domiciled in a third country to professional investors domiciled in another Member State than the home Member State of the AIFM as from the date referred to in the second subparagraph of Article 54(1). Shares or units of an AIF domiciled in a third country that have been purchased by an investor domiciled in a Member State prior to that date may continue to be held by the investor or sold to the AIFM.’

Explanation: As of now, investors (including private, retail investors) may legitimately own shares or units of third-country domiciled AIFs. Our proposed addition is designed to ensure that there are legal rules for handling such investments after the transition to the new regime set out in the proposed directive (i.e., a regime under which an AIFM from a third country would need authorisation in order to continue its current activities within the EU), and in particular to ensure that the value of those shares or units is not adversely affected merely as a result of the third-country AIFM either not seeking, or not obtaining, authorisation to continue its current activities within the EU. Alternatively, the transitional rules could be amended.

Amendment 9

Article 46(1)

‘1. The competent authorities responsible for the authorisation and supervision of AIFM under this Directive shall communicate information to the competent authorities of other Member States where this is relevant for monitoring and responding to the potential implications of the activities of individual AIFM or AIFM collectively for the stability of systemically relevant financial institutions and the orderly functioning of markets on which AIFM are active. The Committee of European Securities Regulators (CESR) established by Commission Decision 2009/77/EC of 23 January 2009 (2)shall also be informed and shall forward this information to the competent authorities of the other Member States.’ ‘1. The competent authorities responsible for the authorisation and supervision of AIFM under this Directive shall communicate information to the competent authorities of other Member States, where this is relevant for monitoring and responding to the potential implications of the activities of individual AIFM or AIFM collectively for the stability of systemically relevant financial institutions and the orderly functioning of markets on which AIFM are active to the central banks, including the European Central Bank and to the European Systemic Risk Board, for the exercise of their functions. The Committee of European Securities Regulators (CESR) established by Commission Decision 2009/77/EC of 23 January 2009 (2)shall also be informed and shall forward this information to the competent authorities of the other Member States.’