The Belgian and Luxembourg regulators are requiring US and other non-EU alternative investment fund managers (non-EU AIFMs) to make “Annex IV” reports in respect of master funds if one or more of that master fund’s feeder funds are marketed in Belgium and Luxembourg, respectively.
Who does this affect?
This article concerns US and other non-European* AIFMs of alternative investment funds (AIFs) who market a non-European feeder AIF into Belgium and/or Luxembourg under the national private placement regime (NPPR) established under Article 42 of AIFMD but do not market the corresponding master AIF under that regime.
What is the change?
For Annex IV reports in respect of Q4 2014, the AIFM could report to the Belgian regulator (the FSMA) or the Luxembourg regulator (the CSSF), as the case may be, in respect of the feeder AIF only.
For filings in respect of Q1 2015 and later, however, the FSMA and the CSSF have both confirmed that Annex IV reports should also be made in respect of the master fund.
What should managers do now?
Non-EU AIFMs impacted by these changes will have to put in place systems and procedures to complete the Annex IV reports in respect of master AIF-level data and report the same by the end of April 2015. Clearly, this is a material task with cost implications. These non-EU AIFMs should also contact the FSMA and/or the CSSF, as appropriate, to obtain any information required for filings (FRNs, PRNs or equivalent). (While materials are not currently available from the FSMA, via the FIMIS platform, the FSMA has confirmed orally that these should be available shortly.)
Because the obligation to make an Annex IV report is triggered by marketing, non-EU AIFMs which have not attracted investment should consider whether or not they wish to retain the ability to market the relevant feeder AIFs in Belgium and/or Luxembourg under the relevant NPPR or whether they should retract their registration(s).
Clearly, building out systems to allow reporting in respect of the master as well as the feeder(s) takes time and we are seeking to find out from the FSMA and CSSF what, if any, leeway they are prepared to give managers in this situation. For Belgium, the FSMA has indicated in informal discussions that it would not be prepared to grant a derogation in respect of master fund reporting in respect of Q1 2015 as it did in respect of Q4 2014. We will report back any progress in a further update.
What are the consequences of missing this deadline?
This is difficult to say. A manager who fails to comply with the Belgian or Luxembourg reporting requirements commits a regulatory breach. However, it is unclear what sanctions would result from it - it would appear that, in Belgium and Luxembourg, as in other EEA countries, the regulator would currently not have the authority to fine the manager, nor, crucially, would the breach in itself allow investors the right of rescission.
Are there other changes to come?
While certain regulators such as the United Kingdom FCA, have clearly stated that Annex IV reporting will not be required in respect of the master fund, other regulators, such as the Swedish FSA, which do not currently require master fund reporting by non-EU AIFMs are still in the process of determining whether to change this.
We will update this note whenever we receive new information.
* Note that, in this article, "Europe" or "European" means the 31 countries of the European Economic Area - this does NOT include Switzerland.
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