The European Securities & Markets Authority (ESMA) recently announced that it intends to extend AIFMD passporting to managers from Switzerland and UK Channel Islands Jersey & Guernsey – but not for now at least from Singapore, Hong Kong, and the USA.
In practice this leaves a Singaporean AIFM wishing to market alternative funds in the EU with two options:
- Reverse solicitation arrangements
- Compliance with individual private placement regimes
With the first of these diminishing in popularity thanks to increased regulatory scrutiny and legal ambiguity, a lot of managers currently find themselves filing quarterly, half-yearly and annual AIFMD Annex IV returns with multiple competent authorities across the EU.
This may not sound like a challenge since the 38 AIFM & 302 AIF questions that make up the Annex IV return are identical for all jurisdictions, but the reality is that regional variances between national competent authorities contribute to making the process of compliance a significant regulatory burden.
Differences In Reportable Data
In theory, Annex IV templates populated with the same fund data should be equally acceptable in each reporting jurisdiction. In practice things are rather more complicated.
Some regulators ‘gold-plate’ the ESMA reporting requirements, adding data fields which they consider important. Others have yet to adopt the most recent XML technical standards which renders certain valid data unreportable. And finally there are those that simply have different ideas about how validation rules should be applied and will not accept data unless it is modified arbitrarily to suit their algorithms.
Security & Transmission Arrangements
Anyone relocating to continental Europe for business or pleasure will know how pervasive the use of notaries can be. For the uninitiated it may come as a surprise that in order to file electronically you may first need to engage a notary to stamp paper copies of identification for your principal filers before couriering these to the local chamber of commerce for inspection. This is one example of the various administrative hoops different competent authorities require filers to jump through.
Differences are particularly noticeable in the various styles of data security and transmission regimes implemented in different states. One authority might supply physical smartcards as a means of user identification, for instance, while another opts for electronic certificates. Some require submission via their web portals while others accept data by email. One competent authority currently requires Annex IV returns to be emailed as encrypted XML files contained within a series of ZIP folders – described by one of our clients as like playing Russian dolls with their fund data.
Added Filing Costs
Europe is rarely cheap for visitors and this is certainly true for fund managers marketing into the EEA. The majority of an AIFM’s compliance expenditure will come in the form of legal advice, fund admin fees and technology provision, but regulators can also add to the direct cost of compliance through registration levies and certification fees. One common cause for complaint is the requirement from one authority for filers to spend thousands of Euros purchasing bespoke filing software – available from a commercial subsidiary of the national stock exchange.
Differences In Translation Of Technical Standards
Since the technical standards for Annex IV XML schema and data validation rules are prescribed by ESMA, implementation of these should in theory be identical across all EU jurisdictions. In reality, however, since it is the responsibility of each national competent authority to build their own tech infrastructure to receive and validate submissions, differences arise upon translation.
Some differences are intentional – a particular authority may interpret the guidance differently or add their own embellishments – whereas others are simply the result of software bugs that can affect any development team.
English is of course widely spoken across Europe these days and for the most part the same can be said for regulator communications – but not entirely. Some very useful resources provided by individual competent authorities are available only in the local tongue, as are some online submission portals. Most Anglophone filers will cope in practice – though perhaps with a little assistance from Google Translate.
For now then, AIFM filers from Singapore and other non-passport countries will continue to comply on a jurisdiction-by-jurisdiction basis. If this includes your firm and you would like some help navigating the current AIFMD reporting environment, please get in touch here.
By Nick Baldwin, Director, Arkk Compliance
Visit Arkk Solutions here