Note from EVCA to its subscribers:
During 'Level 1' the European Parliament and Council adopted legislation which enshrined the core values of the Directive. In 'Level 2' the European Commission must develop 'delegated acts' so that the legislation can be converted by Member States into national law. As part of this process they have taken advice from the new regulator, the European Securities and Markets Authority (ESMA).
The EVCA is close to the process but does not believe that, at this stage, it is necessarily helpful to engage significantly in a public debate through the media. In fact you may well read some comments in the press tomorrow from Commissioner Barnier which demonstrate the Commission's concern at this approach. Rather we continue to directly press home our message with key stakeholders that we expect to see the tailoring and proportionality introduced for our industry in Level 1 to be respected in the development of implementing measures during Level 2.
It is not particularly unusual during Level 2 processes to see some proposals out of the scope of Level 1. While we are concerned that ESMA's advice may not be followed, it is important to note that the implementing measures remain in draft form and will not be published until the end of April. At that point, the European Parliament and the Council will have three months during which they can object. To avoid this, the European Commission is already in close contact with both institutions and has presented its draft acts to both of them. It is clear from press coverage that these drafts have been leaked.
From our end, EVCA will continue to engage to ensure that the Delegated Acts take sufficient account of the specificities and diversity of private equity and venture capital AIFs and AIFMs, and in particular of the nature, scale and complexity of their activities.
The main areas we are focused upon are:
- Capital requirements – In addition to taking account of current market practice in terms of risk coverage, the implementing measures should not contradict the text of the Level 1 Directive giving the genuine choice between professional indemnity insurance and additional own funds. Furthermore, EVCA remains very concerned that national authorities should be empowered to establish higher additional own funds requirements.
- Depositaries – One of EVCA’s key concerns includes the description of financial instruments which can be held in custody. It is important that the Delegated Acts take into account the fact that the AIFM Directive provides for a category of assets that do not need to be held in custody. Furthermore, regarding the verification of ownership, the Delegated Acts should at the very least clarify that any look-through does not entail verifying the assets of any of the target holding and operating companies, a task which would be potentially unlimited and impossible for any depositary to perform.
- Third countries – Key areas of concern in this respect include the cooperation agreements (differentiation between requirements for cooperation agreements for the private placement regimes and those for the operation of the passport regime) and the determination of the Member State of reference. It is important to highlight that this section, although already briefly touched upon, will be dealt with in further detail at a later stage. In this respect, we would like to highlight the following key dates:
Before July 2012: ESMA to issue MMoU for enforcement and supervisory co-operation
- July 22, 2015: ESMA opinion on EU passport for non-EU AIFMs and AIFs
- July 22, 2018: ESMA opinion on withdrawal of national PPRs
- Leverage – The Level 1 Directive recognises that private equity and venture capital funds are not leveraged at fund level. Many of the issues raised in today’s FT article concerned leveraged funds. We are confident that this important distinction will be maintained at Level 2.
The European Commission plans to have the final Delegated Acts adopted by 22 July 2012. The final transposition into national law would then start.