ABBL

The PwC annual Alternative Investments Conference took place on 30 January 2012 and brought together about 200 professionals from the industry who came to hear three panels of thought leaders deliver distinctive, forward-looking insight and points of view on important industry issues and developments, like FATCA, the Dodd Frank Act, including the Volcker Rule, and the AIFM Directive. The future of the Luxembourg funds industry generated discussions on both its track-record and its brand as a clear asset to seize new opportunities from these regulatory challenges.

Overview of the industry

There is increased complexity as the industry is faced with tremendous changes.  These changes come in the form of political pressure, regulatory and tax changes and continuous investors’ scrutiny.  The panellists discussed the key concerns for alternative managers in today's environment and the industry’s view of the current regulatory agenda from a European, US, UK and Asian perspective.

As trust and transparency have become critical industry issues, alternative asset managers are faced with increasing demands for information including more transparent insight into the manager's operations and controls, regulatory Compliance, reporting of investment performance and various tax-related issues. In response to the "trust but verify" mindset of investors that amplified with credit crisis, new regulations in the US and Europe are driving specific infrastructure enhancements in areas such as Compliance, risk management, valuation, tax and investor reporting.

Navigating through US uncertainty: FATCA and Dodd Frank timelines

The Foreign Account Tax Compliance Act (‘‘FATCA’’), which will become effective starting on 1 July 2013, is a way of seeking to reduce tax evasion by US citizens, by increasing the tax reporting and Compliance obligations in respect of US persons who invest through non-US entities.  

FATCA is far reaching and can impact any person, US or foreign, to the extent that such person is involved in making or receiving payments that fall within its scope. In order to meet the reporting requirements, it is first necessary to have identified all account holders who are US individuals or US entities. Although the final FATCA regulations have yet to be released, sufficient information has been made available by the IRS to enable preparation for the new regime to start. The information was discussed by a panel of experts during the event, including:

• Familiarisation with IRS withholding, reporting and Compliance obligations,
• Education of stakeholders,
• Identification of US account holders,
• Gap Analysis in client information collected.

The Volcker Rule is one of the most controversial provisions in the Dodd-Frank Act and is largely believed to be the most far-reaching regulatory prohibition in the US financial history by prohibiting proprietary trading not only in Federal Deposit Insurance Corporation-insured institutions but also in any affiliate irrespective of its business or geographic location.  The rule prohibits banking entities, the definition of which has an extremely broad, extraterritorial reach, from engaging in proprietary trading or investing in or sponsoring covered funds.  The proposed implementing measures are open for comment through 13 February 2012 with the rules becoming effective on 21 July 21 2012.

The Volcker Rule gained a lot of attention from the audience.  An informal poll showed that a large part of the audience has not yet invested time in understanding the full impact of this rule on their business.  Based on the current draft of implementing measures the Volcker Rule is likely to have a significant impact on the Asset management industry as a whole.

AIFMD – Post implementation measures

The Alternative Investment fund Managers Directive (‘‘AIFMD’’) offers fund managers and service providers the opportunity to seek competitive advantages through reshaping their product strategies and operating models. According to the poll, 53% of the attendees reported that they had already performed a preliminary diagnostic to assess the implementation challenges, strategic ramifications and how to turn the AIFMD to their advantage.

The panel discussions focused on the agenda of the EU commission and ESMA over the next few months, to then cover the Luxembourg perspective as well as  the highly ‘controversial’ depositary issues and in particular the liability regime. Finally, Rudolf Kömen, Managing Director of SEB Asset management S.A., provided the audience with his view of the Directive as future AIFM of both EU and Non EU funds.

Patrice Bergé-Vincent, Head of the Asset management regulation policy, Autorité des Marchés Financiers (“AMF”), pointed out that while ESMA’s final advice to the EU commission on possible implementing measures has provided clarifications on a number of key topics, the EU Commission has the ability to change this advice. He mentioned that there were a number of rumours about potential changes, in particular to the depositary provisions, but that no one actually knows at this time what the outcome will be. The EU Commission is to issue the final implementation measures by July 2012, providing each EU Member State a year to get ready before the implementation of the Directive in July 2013.

High on ESMA’s agenda is the issuance of technical standards on the issue of scope. Mr Bergé-Vincent highlighted the fact that a common understanding of what is an AIF is essential to the success of the EU passport.

Where does Luxembourg stand? 

‘‘Luxembourg’s legal and regulatory framework nears the requirements of the AIFMD”, stated Odile Renner, Regulatory Compliance Advisory Services Partner, PwC Luxembourg. ‘‘Luxembourg has always had a head start over other countries in complying with new regulations. By presenting a draft bill, due in March 2012, Luxembourg will become one of the first countries to implement the Directive.”

“More than ever, the cohesion within the Luxembourg Alternative fund industry is important to face the different upcoming regulatory steps’’, says Begga Sigurdardottir Tax and Transfer Pricing partner at PwC Luxembourg. ‘‘The different complementary views expressed during the event reflected a lot of challenges moved by the regulatory agenda which will require different competencies to be met.”

(Source: PwC Luxembourg)