AIMA Assesses New E.U. Regulatory Capital Changes

More On Legal & Compliance

from The Advisor's Professional Library
  • Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
  • Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients’ transactions.  If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.

LONDON ( Alternative Investment Management Association, the global trade organization for hedge funds, is highlighting the likely impact of the Capital Requirements Directive being introduced by the European Union. The key changes are to come into effect by Jan. 1, 2007.

The new directive, based in part on the existing regulatory capital directive, applies to banks and investment firms, including hedge funds. AIMA said that most hedge fund managers regulated by the Financial Services Authority will be affected by the new directive.

"The FSA must implement the new directive into its Rules by January 1st next year," Matthew Jones, AIMA's regulatory and legal manager, said in a statement. "Hedge fund managers will need to determine their capital requirements and whether there is a need for further monies. Given the scope of the regulations, certain parent companies will also have to consider their capital situation."

The key changes concern new rules governing the calculation of regulatory capital and amendments to the systems and control governing outsourcing and conflicts of interest. New reporting arrangements will come into effect and existing waivers will cease, meaning that firm will have reapply for new waivers. Also, firms that operate within a U.K. or European Economic Area management group must meet a group capital requirement for the first time.

AIMA urged firms to take advice. It noted that some changes will not affect managers for up to one year from the rules coming into effect, while others will have an immediate impact.

The association has circulated a guidance note, prepared by AIMA's Regulatory Capital Working Group, on the regulatory changes facing its U.K. members. Further notes to be issued shortly will guide firms through the main issues raised by the directive.

Contact Bob Keane with questions or comments at

Reprints Discuss this story
This is where the comments go.