Interviewer (Simon Lovegrove): Hello there and welcome to the latest Financial Services Fireside Friday. This Fireside Friday is an update on the status of the Alternative Investment Fund Managers Directive. As many of you will know, ESMA published its technical advice on possible implementing measures last November. Following that the FSA has recently published its Discussion Paper.
Imogen, at a high level what does the Discussion Paper cover?
Interviewee (Imogen Garner): It essentially covers all of the major themes in the Directive. So, for example, we’ve got a small amount on scope, we’ve got a chapter on transparency, we’ve got input on depositories, delegation, leverage - all of the big things that have been of interest.
Interviewer (Simon Lovegrove): What’s the market reaction to the Discussion Paper?
Interviewee (Imogen Garner): One of the key aims of the paper was to get firms to a state of what the FSA calls AIFMD readiness and so it’s actually quite detailed in terms of Directive requirements and some of the positions that ESMA has taken. But despite that we’re still hearing from firms that it leaves quite a lot of questions unanswered.
Interviewer (Simon Lovegrove): What do you mean, what are the key issues left unanswered?
Interviewee (Imogen Garner): Well, there are two good examples. The first is third countries and because the Directive’s implementation is staggered for third countries, issues relating to third country funds and managers have been left to be dealt with at a later stage.
Interviewee (Jonathan Herbst): The other obvious area is scope. I mean both the definition of what is an AIF, what is an alternative investment fund, and also the holding company exemption from that definition. I mean to be fair to the FSA they couldn’t really comment on that because there hasn’t been any ESMA guidance, any ESMA consultation and also the Commission hasn’t commented obviously following up from ESMA. So I think they’re just trying to gather views at this stage on those questions.
Interviewee (Imogen Garner): That’s right and similarly on the question of who is the AIFM, they haven’t really said much on that but the notable exception actually relates to listed closed ended funds which the FSA has suggested would need to become themselves authorised as self-managed AIFs.
Interviewer (Simon Lovegrove): And the FSA have said they’ll carry out a preliminary firm categorisation exercise [to determine likely UK AIFMs] following the publication of the Discussion Paper and it’ll be interesting to see how that follows through.
Jonathan there’s been a lot of politics in the run-up to the Directive. How do you think that’s reflected in the Discussion Paper?
Interviewee (Jonathan Herbst): Very subtly I think is the answer and rightly so from the FSA’s perspective. What they’ve done implicitly in one or two areas is to, from my perspective, support the sort of pragmatic line that ESMA has taken. You know on certain particular issues, for example on third countries and one or two other aspects but I think, nevertheless, they’ve gone very light because clearly they don’t know how the Commission is actually going to react on many of these areas and I think therefore it’s a question of getting the consultation responses in and to the extent the industry wants to, supporting what I would call the ESMA pragmatic line.
Interviewer (Simon Lovegrove): One final question Imogen. What do you think the FSA is looking for firms to do in response to the Discussion Paper?
Interviewee (Imogen Garner): I think if you look at the questions that the FSA’s asking, they’re really aimed at trying to understand how the Directive is going to affect firms in practice. So I think what firms should think about when they’re responding either themselves or through their trade associations is what it will really means for them in terms of the way they do business. Those are the aspects that I think the FSA is really interested in at this stage.
Interviewer (Simon Lovegrove): And I think it’ll be interesting as well, we’ll be expecting a Treasury Discussion Paper which will look at regulatory scope issues. And also in Q1  we’re going to see the Commission’s proposals for possible implementing measures.
When does the consultation [on the Discussion Paper] close?
Interviewee (Imogen Garner): It closes on the 23rd of March so firms have two months to respond.
Interviewer (Simon Lovegrove): That concludes this Financial Services Fireside Friday. Catch us next time, bye bye.