The 2010 law, known as the Alternative Investment Fund Managers Directive, or AIFMD, will apply to hedge funds, private equity funds and real estate funds but not to governments' managing funds that support social security and pension systems.
Originally due to take effect next July, the directive was moved up after the Commission on Wednesday adopted technical rules on how it should be implemented. The rules are still subject to scrutiny by the European Parliament and the Council of the European Union. If neither raises any objections over the next three months, the directive will enter into force the end of the first quarter.
The Commission said that the AIFMD "is part of the Union's response to the financial crisis, and aims to create a comprehensive and effective regulatory and supervisory environment for alternative investment fund managers in Europe."
The move comes more than two years after the directive was adopted under a cloud of controversy, including U.S. opposition to the initial proposal, which would have allowed only EU-based fund managers to market funds within the bloc.
In the end, the rules opened the door to funds from outside the EU as long as "appropriate cooperation arrangements" are in place with the relevant supervisory authorities of the home country following an initial transition period.
As soon as the new law kicks in, fund managers already based in Europe will be able to more easily sell their services across the entire EU, since an authorization in one country will allow them to do business in all 27 countries under a single "passport."
But authorization will only be granted if a fund manager meets a host of new requirements designed to protect investors. These include adequate systems to manage risks, and having valuations performed "properly and independently."
For the first time, the industry will also be supervised at the European level, with the Paris-based European Securities and Markets Authority and the Frankfurt-based European Systemic Risks Board monitoring cross-border risks.
They are among the new financial watchdogs set up in 2011 to detect threats to the financial system and prevent them from deteriorating into full-blown crises.
Despite lingering reservations about some parts of the regulation, industry groups pledged to meet their obligations.
"It is now vital that the AIFMD is implemented consistently across the member states without any gold-plating to ensure a level playing field," said Dörte Höppner, secretary-general of the Brussels-based European Private Equity and Venture Capital Association.
In a separate statement, Andrew Baker, CEO of the London-based Alternative Investment Management Association, said the green light from Brussels "will enable the global industry to make its final preparations" for implementing the directive.
Separately on Wednesday, the Commission adopted technical rules on implementing another agreed law on trading in over-the-counter derivatives. Those rules, designed to improve transparency in derivatives trading, concern the handling of transactions outside regulated markets by clearinghouses and trade repositories, central collection points for records of OTC derivatives trades.
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