By now most people will have seen that FSA has published its first step in the process of implementing the Alternative Investment Fund Managers Directive, Discussion Paper 12/1. It would be fair to say that not everyone has found it particularly illuminating. So many questions are so very wide open that FSA cannot be accused of having revealed its hand early.

Seven months ago, Sheila Nicoll, FSA Director of Conduct Policy, pointed out that there was much uncertainty about. She was speaking soon after ESMA had published its draft Level 2 guidance. In those days of innocence, some confusion was to be expected. AIFMD remained an unfamiliar experience, most especially to those dedicated to the production of the Directive. But now we are worldly wise, we know a thing or two about how this sort of directive works and we are ready for learn the facts. So it is with some surprise that we discover that FSA has not hit us with one they made earlier. To some, this open-mindedness will be refreshing; to others, it will suggest a surprising level of vagueness at this advanced stage. Whatever your viewpoint, this is an opportunity for those with an eye to the main chance.

Not all of Sheila’s questions were technical. She, herself, described at least one of them as ‘fundamental’ and then observed that ESMA had added clarity in this grey area. This courtesy was clearly carefully crafted to enhance relations with ESMA – it certainly can’t have been intended to reflect a transforming vision emerging from Paris. Vague it was, and vague it remains.

That fundamental question was who the ‘alternative investment fund manager’ actually is. A fair question. After all, the directive is addressed to AIFMs, so, as always, good to know whether it is you they are talking to. The trouble is we don’t, still don’t. Perhaps that means that you will have a choice as to who picks up the AIFM tag. Greater flexibility hath no regulator than this. Somehow that seems too good to last.

There is a case for saying that in the greater scheme it will not make as much difference as all that. Surely, what applies to the AIFM applies to all its delegates. Well, apparently not – just as you thought you were getting the hang of how delegation did not alter responsibility and, however and wherever delegated activities were carried on, they must be done just as you would do them yourself. But it seems not so. As with its reluctance to type-cast firms, so FSA is also reluctant to elaborate on delegation. Ask yourself a key question: will the AIFMD Remuneration Code apply to an investment management delegate?

All who say aye will note that an EU based investment manager will be a MiFID firm and already subject to the CRD version of the Code. So, if it is identical to the Remuneration Code that we already have, what is the problem? The problem is it might not be. One MiFID firm, two remuneration codes. With them both hailing from Europe, that looks clumsy even by their standards. So that will be a no, then. Call the removal vans, the investment managers are off to Geneva. Amazing what you can achieve with regulation.

And, yes, I know what you are thinking: what is the point of all this? The point is this: with so much undecided, the scope for influencing the shape of the final outcome is enormous. This is an opportunity not to be missed.

Oliver Lodge

February 2012

Oliver Lodge is the director of OWL Regulatory Consulting.