Lack of definition sets up AIFMD for failure in implementation, says IMS Group’s Peter Moore

Peter Moore, head of Regulation at the IMS Group, which provides regulatory compliance services, says laws to control dangerous dogs in the UK in the 1990s were drafted better than the AIFMD.

In 1991 the UK’s Parliament passed The Dangerous Dogs Act (“DDA”) in response to a sudden increase in the number of serious dog attacks reported by the UK media. Nowadays, it is often cited as the prime example of a rushed piece of legislation introduced as an overreaction to transient public mood.

Such a phenomenon will be familiar to participants in capital markets, many of whom will have detected how politician-induced overregulation of markets and their participants follows a period of “enlightened” deregulation, as inevitably as bust follows boom. Rather like how some aspects of AIFMD, most notably those relating to depositaries, are an overreaction to Madoff.

Conversely, a significant distinction between AIFMD and DDA is that the latter is targeted at specific dog types regarded in need of greater control to protect the public and in respect of which special measures (court approval, insurance, breeding restrictions, obligatory muzzle and lead) apply. So despite its flaws, the DDA draftsmen did attempt to target its measures towards the specific problem which had manifested.

AIFMD, on the other hand, is a piece of scattergun regulation impacting all those involved in the European alternative asset management industry. In defining the alternatives industry as everything non-UCITS, AIFMD is about as precise in its policy objectives as defining the perimeter of the canine world as everything with “four legs and a tail that’s not a cat”. Whether a dog is controlled by the DDA will depend on a court judgment about its physical characteristics and whether they match the description of the four controlled types. So while the much maligned DDA is able to look past labels in pursuits of its objectives and target its provisions towards characteristics that have actually caused harm, too many financial services regulatory provisions impose burden and costs on a much broader universe than is absolutely necessary.

On the matter of breed labels, this serves to demonstrate how unhelpful, misleading and potentially hurtful it is that the entire alternative investment trading universe, including both the investment managers and all their variety of funds, have wound-up known as “hedge funds”. The danger of using this colloquial label to refer to such an inhomogeneous service industry founds the potential for incongruous association with headlines like “FSA fines Hedge Fund Manager” as occurred last month in relation to Alberto Micalizzi, CEO of investment manager Dynamic Decisions Capital Management.

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