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Legal & Regulatory Timeline

Source: EMPEA Legal & Regulatory Bulletin, Spring 2013

EMPEA's Legal & Regulatory Timeline details recent and upcoming milestones for key legal and regulatory developments affecting the emerging markets private equity asset class.


1. EU Alternative Investment Fund Managers Directive (AIFM Directive)

Commission Level 2 published in December 2012.

22 July 2013: Implementation date of AIFM Directive by EU Member States.

Mid-2015: Likely phase-in of passport for non-EU managers and non-EU funds AIFs.

2018: Certain national private placement regimes may be phased out or terminated.

The AIFMD will regulate those who manage and/or market private funds in the European Economic Area (EEA)¹, including in certain circumstances non-EEA fund managers. An EEA marketing passport will be available to EU fund managers from implementation (i.e., 22 July 2013) in relation to EU Alternative Investment Funds (AIFs) provided certain conditions are met. However, it would appear that some regulators will not be in a position to accept applications from managers prior to 22 July 2013. This means that such managers will not be authorized for AIFMD purposes until later and the EEA passport will not be available to such managers until they are authorized under the AIFMD. This will have an impact on EEA managers whose assets under management exceed the AIFMD threshold and who wish to market AIFs to investors in the EEA post 22 July 2013 (known as the marketing gap). Existing EEA managers will almost certainly have until 22 July 2014 to comply with the AIFMD and have their authorization in place. Marketing by non-EU fund managers will initially only be possible under Member State private placement regimes, where applicable. The passport is expected (though, not guaranteed) to be phased in for non-EU fund managers and in relation to non-EU funds 2 years following transposition of the AIFMD (i.e., July 2015). Member State private placement regimes may be gradually phased out in 2018.


2. EU Capital Requirements Directive IV (CRD 4)

The European Parliament is expected to consider CRD 4 at its plenary session scheduled to take place between 20 and 23 May 2013.


The provisions in CRD 4 are to be phased in by Member States from 1 January 2014.


CRD 4 is a package of major reforms intended to implement Basel III in the EU. Basel III is the proposed regulatory standard for banks which increases capital adequacy and liquidity requirements. The CRD proposals are not exactly the same as those proposed in Basel III and CRD 4 will also apply to certain investment firms. The implementation of Basel III in the EU will result in amendments to the definition of capital and counterparty credit risk, and the introduction of a leverage ratio and liquidity requirements to the capital requirements directives. It is anticipated that this will impact the ability of institutions with banking arms to allocate assets to private equity and the availability of leverage for private equity investments. CRD 4 was expected to be phased in between 1 January 2013 and 1 January 2019 but the Economic and Financial Affairs Council and the European Parliament failed to reach agreement. It is now expected to be phased in from 1 January 2014.


3. Solvency II Directive

European Parliament expected to consider the proposed Omnibus II Directive at sessions to be held from 10 to 13 June 2013.

2015 or 2016: Full implementation of Solvency II (i.e., Firms’ responsibilities will be switched on).

The Solvency II Directive, adopted in November 2009, is designed to, among other things, harmonize the prudential regulatory framework for EU (re)insurers. It sets out detailed requirements for capital which must be held by EU (re)insurers, as well as how they deal with the various kinds of risks across their business. The new capital requirements might lead many European (re)insurers to reduce their asset allocation to private equity. The Omnibus II Directive, if adopted, will make sweeping changes to the Solvency II Directive. Full implementation of the Solvency II Directive has been delayed. No official statement has been made by EU institutions proposing an alternative implementation timetable. However, officials have indicated that implementation is unlikely to take place prior to 1 January 2015 and is most likely to occur in 2016.


4. Private Fund Investment Adviser Registration Act of 2010


Most investment advisers to private funds were required to be registered with the SEC by 30 March 2012, and are required to update their registration filing on an annual basis by 90 days after the end of the investment adviser’s fiscal year.



30 April 2013: Most investment advisers to private equity funds are required to file their first Form PF.


On 26 October 2011, the SEC adopted rules to require registered investment advisers to private funds with more than US$150 million in regulatory assets under management (AUM) to file Form PF, a lengthy confidential report containing aggregate information on, among other things, exposure to various asset classes and leverage. Large private fund advisers must also complete a more detailed section of the form that is specific to the type of fund advised. While there was an early phase-in for advisers to funds with more than US$5 billion in regulatory assets under management related to private funds of US$5 billion as of 31 March 2012, most registered investment advisers to private funds are required to file their Form PFs on an annual basis starting on 30 April 2013. More detailed requirements apply if the adviser has at least US$2 billion in assets related to private equity funds or US$1.5 billion in hedge fund assets (a “Large Hedge Fund Adviser”).

Registered investment advisers to private equity funds are required to file Form PF within 120 days after the end of the fiscal year. Registered investment advisers to “hedge funds”² with at least US$1.5 billion in regulatory assets under management related to hedge funds or US$1 billion in regulatory assets under management related to liquidity funds must file their Form PFs within 60 or 15 days, respectively, the end of the relevant fiscal quarter. Large Hedge Fund Advisers are required to file Form PF within 60 days after the end of each fiscal quarter.


5. Volcker Rule

21 July 2012: Implementation Date of the Volcker Rule.


21 July 2014 (subject to extension by the Federal Reserve Board): Deadline for compliance with the Volcker Rule, including the divestiture of investments that are not in compliance with the Volcker Rule.

While the implementation dates for “Volcker Rule” contained in Section 13 of the Bank Holding Company Act have been set, final regulations implementing the Volcker Rule have not been finalized. The “Volcker Rule”, contained in Section 13 of the Bank Holding Company Act³, prohibits insured banking entities and their subsidiaries from proprietary trading and from owning or sponsoring private funds. Under the Volcker Rule and its proposed regulations, as they relate to investment in private equity and hedge funds, banking entities will continue to be able to sponsor funds for their clients, retain up to a 3 per cent interest in entities that they sponsor and receive a carried interest (so long as it satisfies certain requirements and is not reinvested). Regulators are expected to finalize the “Level 2 rules” during 2013 and banks will be expected to comply with these requirements by 21 July 2014. However, further delays cannot be ruled out.


6. FATCA / IGA provisions

25 October 2013: FFIs to register on the FFI Registration Portal in order not to be subject to 30% U.S. withholding tax.


1 January 2014: FATCA withholding tax begins on U.S. source FDAP.


1 January 2017: FATCA withholding tax begins on payments of gross proceeds.

The Foreign Account Tax Compliance Act (“FATCA”) rules are designed to crack down on perceived tax avoidance by U.S. persons. The rules impose a new 30% withholding tax on withholdable payments and “passthru payments” to foreign financial institutions (“FFIs”) and certain other foreign entities that do not agree to disclose detailed information about U.S. account holders and investors to the IRS either under FATCA or, where applicable, an intergovernmental agreement implementing FATCA in a particular jurisdiction. The definition of an FFI is broad enough to include foreign private equity funds, hedge funds and other foreign investment vehicles. Withholdable payments generally include U.S. source payments of interest (including portfolio interest and interest paid by foreign branches of U.S. financial institutions), dividends, rents, and other gains, profits, and income, as well as any gross proceeds from the sale of any property that can produce U.S. source interest or dividends. Passthru payments include any payment “to the extent attributable to a withholdable payment.” FATCA withholding tax will not begin on passthru payments until 1 January 2017 at the earliest.


7. Swaps Regulation

31 December 2012: Rescission of CFTC Regulation 4.13(a)(4) requiring operators of commodity pools to either be registered with the CFTC or file for an exemption under 4.13(a)(3).

11 March 2013: Requirement for “active funds” to submit certain interest rate and CDS index swaps entered into with other active funds or with swap dealers or major swap participants for clearing.

10 April 2013: Reporting requirement for swaps.


10 June 2013: Requirement for commodity pools and private funds that are not “active funds” to submit certain interest rate and CDS index swaps entered into with other commodity pools, private funds or any active fund, swap dealer or major swap participants for clearing.

The CFTC rescinded the commonly used exemptions for operators of pools of qualified purchasers, and swaps are now included as commodity interests in determinations of whether a trading pool is a commodity pool.

The CFTC adopted the clearing requirement for certain interest rate swaps and CDX swaps on 13 December 2012. Pursuant to its phased implementation schedule, swaps between “Category 1 Entities,” including “active funds” (private funds that execute 200 or more swaps per month), swap dealers, security-based swap dealers, major swap participants and major securitybased swap participants, entered into beginning 90 days after the publication of the clearing determination, must be submitted for clearing.

Swaps (including pre-existing swaps) will be required to be reported to a swap data repository on 10 April 2013. The obligation to report swaps data is subject to a hierarchy, and, therefore, if a swap is entered into with a registered swap dealer or major swap participant, a private fund will not be required to report data to the swaps data repository. The CFTC staff recently provided no action relief for parties that are not swap dealers and major swap participants that allows them to postpone reporting for certain classes of swaps.

The CFTC adopted the clearing requirement for certain interest rate swaps and CDX swaps on 13 December 2012. Pursuant to its phased implementation schedule, swaps between “Category 2 Entities,” including commodity pools and private funds (other than an active fund) or between a Category 2 Entity and a Category 1 Entity entered into starting 180 days after the publication of the clearing determination must be submitted for clearing.


8. Jumpstart Our Business Startups Act

Expected in 2013: Final rules for lifting the general solicitation ban for private placements in the US so long as all purchasers are accredited investors

On 29 August 2012, the Securities and Exchange Commission proposed rules to permit issuers offering securities in private placements (including private funds) to conduct a general solicitation so long as the issuers took reasonable steps to verify that the investors in the private placement are “accredited investors.” The date for adoption of final rules is uncertain, but the new Chairman of the Securities and Exchange Commission, Mary Jo White, has identified the rules as a high priority.


9. SEBI (Alternative Investment Funds) Regulations

21 May 2012: Notification of SEBI (Alternative Investment Funds) Regulations 2012 by the Securities and Exchange Board of India (“SEBI”).

On 21 May 2012, the Securities and Exchange Board of India (“SEBI”) notified the SEBI (Alternative Investment Funds) Regulations 2012 (“AIF Regulations”) that seeks to introduce a comprehensive regulatory framework for private pools of capital. The AIF Regulations will apply to all alternative investment funds established or incorporated in India which are privately pooled investment vehicles and collect funds from investors, whether Indian or foreign, for investing such funds in accordance with a defined investment policy for the benefit of such investors to the extent that such alternative investment funds are not covered under existing SEBI regulations to regulate fund management activities (including SEBI (Mutual Funds) Regulations 1996 and SEBI (Collective Investment Schemes) Regulations 1999). The AIF Regulations also exclude other pooled investment vehicles such as employee benefit plans, family trusts and other regulated vehicles.

Existing venture capital funds continue to be regulated under the SEBI (Venture Capital Funds) Regulations 1996 (“VCF Regulations”) until such fund is wound up and a new scheme is launched. In order to continue to be under the VCF Regulations such existing venture capital funds shall not increase the targeted corpus of the fund. In any event existing venture capital funds may seek re-registration under the AIF Regulations subject to approval of two-thirds of their investors by value of their investment.


10 . Singapore’s Enhanced Regulatory Scheme for Fund Management Companies

7 August 2012: The implementation of the enhanced regulatory regime for fund management companies (“FMCs”) took effect.

6 February 2013: Last day of the 6-month transitional period for “exempt fund managers” to apply to be registered FMCs (“RFMCs”).

On 6 August 2012, the Monetary Authority of Singapore (“MAS”) announced the implementation of the enhanced regulatory regime for fund management companies which took effect from 7 August 2012 (“Enhanced Regulatory Regime”).

Under the Enhanced Regulatory Regime, then-existing exempt fund managers who manage funds for not more than 30 qualified investors shall either apply for license to conduct fund management or register with the MAS within the transitional period. The RFMCs may serve up to 30 qualified investors and manage up to SGD250 million in assets under management. If any of these thresholds are crossed, the fund manager would need to apply for a Capital Markets Services License to be licensed as an accredited/institutional licensed FMC (“A/I LFMC”).

Registered FMC notices and A/I LFMC applications have to be submitted via a new MAS online system referred to as the Corporate e-Lodgement system.


¹EU member states, Liechtenstein, Norway and Iceland.

²The definition of hedge funds is broad and may capture many funds that would commonly be referred to as “private equity funds” but are permitted to sell securities short or borrow more than one half of the net asset value (including committed capital).

³Section 619 of the Dodd-Frank Act added the Volcker Rule to the Bank Holding Company Act 1956.