Application of the European Market Infrastructure Regulation to Alternative Investment Fund Managers

July 11, 2014

European investment managers of non-UCITs funds will have to be authorised as an alternative investment fund manager (known as an “AIFM” under AIFMD) under the Alternative Investment Fund Managers Directive (“AIFMD”) from 22 July 2014. From the date of an EEA investment manager’s authorisation as an AIFM (the “Authorisation Date”) any of its funds (known as Alternative Investment Funds, or “AIFs”, under AIFMD) that are counterparties to derivative contracts will also come within the scope of Europe’s regulatory reform of its derivative markets, known as the European Market Infrastructure Regulation (“EMIR”). Under EMIR, an off-shore AIF with an AIFMD-authorised AIFM will be defined as a “Financial Counterparty” and consequently subject to the fullest possible scope of the regulation. Specifically, a Financial Counterparty is expected to ensure details of its derivative contracts are reported to a central trade repository, all derivatives in-scope for clearing are cleared with a clearing house and, in respect of those contracts that are not centrally cleared, that it complies with the EMIR risk mitigation requirements.

Consequently, AIFMs should start preparations to ensure that their offshore AIFs comply with EMIR with effect from 22 July (or earlier if authorised as an AIFM prior to 22 July). The obligations under EMIR apply to the AIF rather than the AIFM, but practically speaking the AIFM will have to ensure that the AIF complies with those obligations.

A non-EEA AIFM that wishes to market an AIF in Europe through private placement is currently not required to be authorised as an AIFM, but only to register with the relevant national regulator. This registration will not bring the AIF within the scope of EMIR.

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