For Managers

The Final Report:

• brings clarity as regards calculation of AUM for the purposes of the AIFMD;
  
  
• gives further detail as to the authorisation process under the AIFMD;
  
  
• details a requirement to either have own funds set aside or professional indemnity insurance (or a combination of the two) to cover liability for professional negligence.  The own funds requirement could be up to 0.01% of the value of the portfolios of AIFs managed by the Manager but this can be lowered in certain circumstances. As an alternative (or in combination with a reduced own funds' requirement), the Final Report provides that the Manager may take out professional indemnity insurance and minimum requirements are set out in that regard;
  
  
• details of the operational requirements which will not come as much of a surprise to anyone who has been through the UCITS IV process;
  
  
• clarifies how to calculate AuM (and there are some positives here as regards not counting certain existing funds) and leverage;
  
  
• sets out restrictions on investing in certain securitisation provisions where the originator has not retained an economic interest of at least 5%.

For Despositories:

For depositories, the news is not so good. In particular, a relatively hard line has been taken as regards their ability to contract out of their safekeeping obligations – they can only do so if they had no other option or if the AIFM considers that it is in the best interests of the AIF and its investors for the depository to do so. There is slightly better news as regards a depository's obligations concerning cash monitoring. 

The Final Report also provides details as regards rules for valuations and the provisions that will need to apply between individual EU member states (or ESMA acting collectively) and third countries before certain functions (including investment management and custody) can be delegated to entities in those jurisdictions. The equivalence requirement for third countries that caused such a storm at the time of the consultation seems to have been dropped which is good news. However, ESMA is recommending that it negotiates such agreements centrally so the issue may just have been deferred. 

Finally, it is not clear as to whether the Commission's legislative measures to implement this technical advice will be in the form of directives (which will require national implementing measures) or regulations (which do not require further action from member states).

There is a lot to this Final Report and further updates will be issued as matters progress.

Please do not hesitate to contact any of your usual contacts in A&L Goodbody's Investment Funds team.