The Regulatory Policy Committee has recently published its annual report, which clearly shows that EU regulations are undermining the Government’s plans to cut red tape. The Committee reviewed 36 EU measures in 2013, but the report particularly focus on the Alternative Investment Fund Managers Directive, which had added costs to businesses of £1.24 billion each year.
The Alternative Investment Fund Managers Directive came into force in 2011 and Member States were required to transpose it into national law by July 2013. The directive establishes, for the first time, common requirements governing the authorisation and supervision of AIFM. Managers of all alternative investment funds are required to register to operate in the EU. The directive not only imposes registration but also reporting and capital requirements on AIFM. It imposes therefore further costs on managers since they will be required to implement new fund reporting and risk management systems.
The EU harmonised regime would co-exist with Member State’s national regimes for an additional transitional period of three years, till 2018, then national rules would be abolished and it would be for the Commission to decide which funds may have access to the EU's market.
The UK hedge fund and private equity competitiveness is seriously affected by this legislation, which entails further costs and red tape to the industry for no considerable benefit. Having in mind that almost 60% of the European Private Equity industry is located in the City, the UK has the most to lose if firms choose to move business elsewhere. In fact, according to The Financial Times, “Brevan Howard, the world’s third-largest hedge fund, has moved most of its operations out of the UK, shifting dozens of jobs to the Channel Islands, Switzerland, Asia and the US to escape EU regulation”.
Most hedge funds and private equity that are market within the EU are based and registered in the UK yet the Government could not veto this damaging measure, which went through the ordinary legislative procedure and QMV.
It is important to recall that the European Scrutiny Committee recommended disapplication of EU legislation notwithstanding the European Communities Act 1972 when it is in the national interest to do so. Bill Cash’s Sovereignty Bill includes clauses on disapplication that would enable Parliament to disapply legally binding European Union measures. Bill Cash’s Sovereignty Bill is therefore a fundamental instrument to disapply damaging EU legislation, such as the Alternative Investment Fund Managers Directive and defend Britain's national interest.