Alternative Investment Fund Managers Directive and Coronavirus – what’s next?
29th May 2020 3752 - Blog Posts
As we all know, the global financial crisis forced the European Union to regulate the alternative investment industry including hedge funds, real estate funds and private equity – many of which remained largely unregulated on a grand, global scale. As a result, the Alternative Investment Fund Managers Directive (AIFMD) was implemented in the EU in 2013.
Fast forward seven years, and fund managers now face new and significant challenges around the Covid-19 pandemic, especially when it comes to compliance. As firms respond by focusing their efforts on people, processes and technology, it can be easy to forget regulatory issues or to put them to the bottom of the ‘to do’ list.
So, as we adapt to the long-term impact of coronavirus, what effect will the pandemic have on AIFMD compliance, particularly post-Brexit?
Passporting rights post-Brexit
The FCA recognises that the global economy faces massive challenges from coronavirus. At the same time as we react to the coronavirus emergency, we also need to consider other events. Leaving the EU will create a new political, legal and economic environment for firms and regulators.
Post the 31st December 2020, there is a risk that no deal will be agreed between the UK and the EU by the end of the Implementation Period and that no extension will be agreed. Such an outcome would cause disruption to UK fund managers and investment firms operating on a cross-border basis into the EU under one or more financial services passports.
Therefore, AIFMD compliance is vital as this is required in order to get a passport to sell financial services across the European Union market.
What impact is Covid-19 having on start-ups?
As well as understanding the compliance hurdles, it’s worth remembering the effects of Covid-19 are being felt across the whole financial landscape, which has severely impacted the global financial markets – reporting a decline of 30% across the stock market back in March.
However, start-ups that have performed well during the implementation of social distancing and lockdown measures might offer favourable opportunities to investors amid uncertainty, while the changing investment environment is set to add impetus for greater collaboration and renewed risk evaluation.
For these reasons, outsourcing compliance through the use of technology and software is helping fund managers during these challenging times with regulatory infrastructure, reporting and risk requirements and variations in regulations for different jurisdictions all being catered for in a digital landscape.