CP12/32: Implementation of the Alternative ... - BVCA admin

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
Annex 1X
low as firms are mostly already able to passport or promote their products to professional
investors in the UK under existing promotion rules.
Benefits
82. We hold that the benefits of AIFMD as a whole cannot be reasonably estimated due to its
scale, the high-level nature of the requirements and the outstanding uncertainties about the
forthcoming Level 2 Regulation. We therefore describe the benefits qualitatively.
83. The European Commission has identified a number of problems that the AIFMD is
aiming to solve or mitigate. The benefits of AIFMD will therefore arise from solving these
problems. In its Impact Assessment the Commission stated that the activities of an AIFM
‘give rise to risks for AIF investors, counterparties, the financial markets and the wider
economy over and above the investment risk that is intrinsic to any financial investment’. 24
84. Specifically the European Commission identified macro-prudential (systemic) risks relating in
particular to the use of leverage; micro-prudential risks linked to market, liquidity, counterparty
and operational risks; risks to investor protection because of inadequate disclosure and
potential conflicts of interest; risks to market efficiency and integrity; and impacts on the
market for corporate control and on the acquisition of control of companies by an AIFM.
There will also be benefits from sharing of systemic risk information with ESMA and ESRB.
85. The possibility of passporting may allow access to the UK market by funds that were not
previously easily available, though the benefits of this may be limited due to the UK’s
flexible private placement requirements. It would also make it easier for UK-domiciled
funds and managers to access markets in other Member States. This benefit would be
particularly important for real estate funds as the current market is very fragmented along
national borders and passporting could give rise to significant economies of scale.
86. Although most studies have failed to show that leveraged AIFs pose a particular risk to
financial stability 25 , intervention on leverage limits will reduce the extent to which AIFs can
magnify the effects of an external shock and hence contribute to the transmission of risks
through the financial system. There are likely to be macroeconomic benefits associated with
such a reduction which are substantial but very difficult to estimate.
87. The authorisation requirement, coupled with the additional information that AIFMs need
to provide to us, could lead to benefits from improved monitoring and should allow for the
identification of whether specific activities of AIFMs lead to an increase in risks
to consumers.
88. The operational and transparency requirements will also increase the level of information
available for smaller professional investors and should result in improved investor confidence.
24 See, European Commission’s impact assessment (http://ec.europa.eu/internal_market/investment/docs/alternative_investments/fund_
managers_impact_assessment.pdf).
25 See, for instance ECB, ‘Hedge Funds and their Implications for Financial Stability’ Occasional paper series no.34 August 2005.
A1:20 Financial Services Authority November 2012