Malta is one of only 12 EU member states that have fully complied in time with EU rules on hedge funds, according to research published this week by audit firm KPMG. The remaining 16 were found wanting in terms of complying with new EU rules intended to clamp down on hedge funds and other alternative investments.
Austria, Croatia, Cyprus, Denmark, Germany, Ireland, Latvia, Luxembourg, Malta, the Netherlands, Sweden and the UK were the only states to comply in time, the report found.
The failure of 16 of the 28 EU states to meet the 22 July deadline for the Alternative Investment Fund Managers Directive (AIFMD) gives rise to speculation that fund companies in non-compliant states may be forced to halt alternative fund sales to certain countries or risk falling foul of their regulators.
The area of hedge funds is highly important to Malta’s burgeoning financial services industry, and also serves as a major enticement for investment in the area in Malta.
The KPMG research also suggests that some EU countries still have a long way to go to the full implementation of the Directive.
A survey of 220 hedge fund managers in July, conducted by research group Preqin, revealed that just 22 per cent of managers had reached compliance, with many still waiting for guidance from their local authorities. Unlike the EU member states, the managers have a grace period ending in July 2014 to get the authorisation.
The AIFMD was first drafted in 2009 and aims to bring numerous multi-billion-dollar industries under a single regulatory framework. Many hedge funds, private equity, venture capital, real estate and infrastructure vehicles and investment trusts fall into its sights.
One of the main facets of the AIFMD is a system of fund ‘passporting’ under which vehicles that comply with the directive can easily be exported to professional investors across the continent. The area of operations is, again, crucial to the growing success of the Maltese financial services industry.
The directive includes risk and liquidity management limits, reporting and disclosure requirements and marketing and pay curbs – some of which are still under discussion. The rules also apply to non-EU managers operating in the continent.
The KPMG report highlights Belgium, Finland, Spain and France as key states that missed the deadline for AIFMD readiness.
Countries that have failed to add the AIFMD to their own laws are now breaking European law and could face sanction by the European Court of Justice as early as this year