By Ben Cook, Managing Director, Ipes (UK)
When the Implementing Regulations of the Alternative Investment Fund Managers Directive (AIFMD) were issued, market commentators were quick to point out the challenges inherent within the reporting requirements covered in Annex IV. The first annual reporting deadline was in January 2015 and the first quarterly deadline was in April 2015. This article highlights some of our key learnings from this reporting.
The European Securities and Markets Authority (ESMA) provided guidance regarding the contents of the reports, together with templates for completion. Whilst this was helpful, it didn’t go far enough to provide the level of clarity the market required, which has led to some fragmentation in the way responses were made.
Reporting Information - Questions
The reports contained 340 questions across the Manager (AIFM) and Fund (AIF) reports; 38 and 302 questions respectively. Typically, around 120 of the questions are mandatory for Private Equity AIFMs and AIFs. Many clients chose to answer the mandatory questions only.
Many of the questions have themselves caused questions. For example, the stress testing questions (numbers 279 and 280 in the ESMA template) have resulted in detailed answers from some clients, none from others and ‘not applicable’ from a few. Is this the outcome the EU was looking for?
Typically, reports were submitted by uploading an XML file to Regulators’ reporting portals, which some Managers found challenging. Some Regulators, such as the Danish regulator required submission by email for this reporting period. Luxembourg required the use of the eFile platform. Some Regulators required different versions of XML. On average, Ipes submitted reports to four Regulators on behalf of each client using the National Private Placement Regime. If this is indicative of the market, simplification and harmonisation of reporting can only be welcomed!
The reporting frequency depends on Assets under Management (AUM), leverage and whether investments are made in non listed companies and issuers in order to acquire control. For Private Equity, this has, in the main, resulted in annual reporting. That said, many Managers will be coming up against the next quarterly and mid year deadline of 30 June 2015.
Filing deadlines are tight and providing timely data is challenging. Many Managers have made the point that it is not possible to provide confirmed year end information within 30 days. We welcomed public comments from the Financial Conduct Authority (FCA) regarding “best endeavours” i.e. providing the most up to date data available and their pragmatic approach to this area. Whilst all participants are working towards providing the most accurate, up to date information possible, the “best endeavours” approach has brought realism to the process and demonstrates the UK’s Regulator is listening to industry.
Outsourcing the report production and filing allows AIFMs to stay focused on managing assets. The AIFM signs off the report contents prior to submission. The right outsource partner can collate the data, deal with the reporting process and provide piece of mind that the submission will meet the technical requirement of the Regulatory gateways.
If history has taught us anything, it’s that regulation gets tighter, not lighter. Looking to the future, it is not beyond comprehension that the existing optional questions will become mandatory. It is therefore important that your outsource provider looks to the future and builds processes to collect that data.
Many Managers have found the reporting process a challenging, time consuming exercise. The good news is that, for many, it is an annual occurrence.
Q. To whom do I need to report?
A. Authorised AIFMs must report to their home Member State regulator. Registered AIFMs must also report to the regulator of each jurisdiction in to which they are marketing. This will necessitate gaining credentials and accessing each of the relevant regulatory systems in order to submit the file.
Q. What makes a successful submission process?
- Be organised. Agree and communicate the data collection and sign off process with your chosen partners or internal team.
- Optional, mandatory or a mix? Decide on your approach and stick to it to avoid distractions.
- Best endeavours? Decide on the date of your data and give yourself some space to deliver.
- Test the delivery portal. Make sure you know how to upload the XML file well in advance of the deadline.
- Get the right version of XML – it’s different for some Regulators. Also, make sure you have any additional requirements factored in, such as secure data card readers in Sweden, Security Certificates in Belgium and the eFile technology in Luxembourg.
- Get comfortable with the questions and the required answer formats. Opposite are links to useful information sources.
Q. What is XML format?
A. XML stands for Extensible Markup Language and is a markup language that is used to describe data rather than display data. It is a system to system data transfer which allows information from one computer to be sent to another computer. The language defines a set of rules with which to annotate a document in order to distinguish the text from the markups.
Q. How do I report in XML format?
A. It is possible to convert data into XML format from other programs, such as Excel, with the help of a developer. The production and submission processes are discussed in this document.