EU venture capital proposals “a hindrance”

European Commission proposals for a directive to regulate venture capital funds will hinder rather than benefit venture capitalists, according to David Blair, head of regulation at law firm Osborne Clarks.

The commission says its proposal is designed to boost venture capital investment in Europe through the creation of a European passport allowing fund managers to market their funds without seeking authorisation in each member state. 
This was welcomed by the UK government when it was first announced, said Blair, but if left as currently drafted, the rules will be “more of a hindrance than a benefit to most venture capital fund managers and damage the industry.”

The regulatory regime it creates is lighter than the alternative investment fund managers directive (AIFMD), but it would still impose new burdens on fund managers.

“It substantially raises the bar from the existing UK certified high net worth individual regime that was specifically crafted to assist the venture capital industry,” said Blair.

Under the proposal, funds would need to impose a minimum €100,000 investment level and conduct “nebulous assessments” of the expertise of any individual investors. This opens the door to “regulation by hindsight” and represents a further milestone in developing a European compensation culture to outshine the US. 

The emergence of the European securities and markets authority (Esma) as a super regulator with its own rulebook is also likely to strip the UK courts and the UK’s regulatory bodies of their power very quickly, he said.

Venture capital fund managers can already opt in to passporting their fund marketing activities under the Markets in Financial Instruments Directive (MiFID), so the availability of a new fund manager passport is of limited benefit to the industry, said Blair.

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