South East Oxfordshire Liberal Democrats

Speech to AIFM Conference in London

Hello.

You have come to the end of your conference, so now I reckon you know everything and maybe we can go for an early lunch.

I am sorry I was not here earlier but with Eurostar problems I got stuck - again - in Brussels yesterday and have had to fly over today.

As you may now be aware we have got to the stage of amendment of this Directive in the Parliament, but maybe first I should do a bit of history and explain my role.

As many of you know, last July I became the new Chair of the Economic and Monetary Affairs Committee in the European Parliament.

That committee is colloquially known as ECON - so if I slip to calling it that you will know what I mean.

The committee has among its responsibilities all financial markets legislation. We also do Tax, IFRS, Competition and monetary policy. So we are rather busy.

On financial markets we are the co-legislator with the Council and for those of you who may not be steeped in the European legislative process, this means that both the Council and Parliament each review and amend the legislation independently. Then eventually come together and have a face to face negotiation to reach a compromise.

The Commission drafts and proposes legislation, and usually there is a significant consultation period before a draft of legislation emerges, and the first controversy surrounding the AIFM was the absence of this consultation or of a proper impact assessment.

In the ECON committee we usually aim for a first reading agreement. You could have a whole conference on whether this is a good idea, but broadly speaking I think it works for us.

So what happens is that the Council and the Parliament each take their deliberations to a provisionally agreed position - which for us is a vote in Committee and for the Council is known as a general approach - then meet together to try and obtain an agreement between Council and Parliament. These meetings are called trialogues and usually have present from the Council side the Presidency negotiating team and an observing team from the next in line to be President. So right now if we had a trialogue the Spanish would be there to negotiate with Belgium observing.

The Parliament side negotiating team is the Chair, so me, the rapporteur and shadows. Also present in an advisory capacity is the Commission. And the idea is that we go through the texts line by line, compare amendments and see whether we can agree or draft new compromise versions. When everything is agreed, we go to take our respective final votes on the agreed texts. This is quite a dynamic process, done face to face, rather than sterile exchange of texts.

Some people have drawn a parallel between the US House and Senate amending legislation separately and then having to agree with one another. Indeed in some ways it is simpler because we can not add in lots of unrelated bits and pieces.

If we can not agree, then we vote different texts and have to attempt a second reading and go round the loop again.

As I am sure you know the Commission produced the draft AIFM proposal in April last year, which was just in time for the Parliament to shut down for the European elections!

This meant that while MEPs were off campaigning for re-election, the Council were left in Brussels working on the proposal under first the Czech and now the Swedish Presidency. Consequently, they had a head start.

The Parliament only resumed its work schedule at the end of August and, since then we have four debates on the topic. Two on the Commission proposal, one on the Rapporteur's report, and one this week on the amendments.

I must admit that I have not been able to analyse every one of the 1669 amendments. The large number has caused various debates in my office about what happened in the year 1669 - Mount Etna, the end of the Peypes diaries and the Bengal famine - but I can also observations on the main areas of contention.

First, many of the amendments are very similar to each other or indeed the same. So while the huge number of amendments is initially daunting, I think they can be much more easily compressed than it first appears.

The similarity of amendments has caused comment by some of the new members, mainly on the left, complaining about lobbyist activity. On the other hand, this suggests that industry have been successful in engaging with the amendment process, rather than just complaining as happened at first. So their message on this very complicated and badly drafted directive has been delivered.

Of course too many amendments all the same can also suggest a lack of imagination in those drafting and tabling the amendments and those individuals may not be up to the job of defending them in negotiations. But I consider it part of the democratic process that amendments are there to be considered and if there is anything good in someone else's amendments I have always fought for them even when the author is not able or not there.

On this count, I the Liberal amendments have stood up well and introduce some good thinking.

For example Wolf Klinz's introduction of 'functional regulation' for the valuation and depositary requirements is a good example of unique and thoughtful drafting.

My second observation is that a consensus has emerged on certain issues which will substantially improve the text and where cross-party support is attainable. One example is on the structure of funds. I tabled an amendment exempting funds such as UK investment trusts which I do not believe should be covered in the scope of this directive.

However, the emerging political consensus seems to be for an all-encompassing approach. Maybe this does not seem promising as a first thought - but they are accompanied by scores of amendments to make the Directive more flexible. This is of course essential if there are no or fewer exemptions. And it is also what the Parliament has asked for in the past.

These amendments accommodate structures such as those used by investment trusts which differ from the simple UCITS manager model employed by the Commission. This should allow investment trusts and similarly structured funds to avoid costly changes to their business model. I am confident that on this issue and many others that we will find a satisfactory result.

Unfortunately, not everything is not as good or clear. There are several issues where the point of consensus is difficult to identify and MEPs have tabled opposing amendments. These also happen to be on extremely significant issues such as third country funds and managers, controlling influence and takeover requirements, and depositaries.

MEPs have tabled amendments on both extremes of the argument and everything in between. Hence we have controlling influence in takeovers set at varying levels by members - 50%, 30%, 25% or aligned with company law while one amendment sets it as 10%, 20%, 30% and 50% all in one. Finding a compromise that satisfies everyone is going to be very difficult for the rapporteur, Jean-Paul Gauzès. And in this area we also have to contend with the intervention of the Legal Affairs Committee because it overlaps with their remit of company law.

Third countries will be a particularly problematic issue and seems to be one area where the Spanish Presidency are also unpicking some of the work done under the Swedish presidency. The ECON amendments seem to be split evenly across the political lines. In the committee this week the Rapporteur said he now favours an equivalence regime with third countries. He also said he would allow national private placement regimes to continue. But then he said that there should be a fixed time for equivalence to happen that is for the rules to be set (good news), and then national private placement regimes would end (bad news) and then some grandfathering would be needed for existing funds (medium good news).

Finally, I would like to remind you all that the ECON amendments are not the end of the story. We have plenty more amendments to come in the JURI committee where I have personally tabled 117 amendments as ALDE shadow rapporteur. It will be important to pay attention to this Opinion which has competence in areas such as depositary liability and aspects of takeover requirements. I have endeavoured to cover all relevant aspects in my amendments.

Now I have here my latest sheet of where I think various things are going, comparing and contrasting all the texts, but it would take a long time to read out and will be different by next week anyway.

Timetable and Process

The process from here is that the rapporteur, Jean-Paul Gauzès, will draft compromise suggestions. He promised a first draft of these by mid march for our next discussion on 17th march. These will then also be debated and further amended in a series of meetings between MEPs. Once he has formed a coalition around his compromise, these amendments will be taken to a vote in committee which is scheduled for 12th April.

At the same time, a similar process will be taking place in the JURI committee. They will vote in advance of the ECON vote on 22nd or 23rd March. In areas where JURI have full competence, their amendments will be taken on by ECON. In other areas, some JURI amendments will have to be voted by ECON members.

By the time ECON votes, the Council should also have agreed a 'general approach'. The Parliament, Council and Commission will then enter trialogue negotiations to see if they can reach a 'first-reading agreement'. If agreement is reached, this will be voted through by the whole Parliament during a plenary session. At present this is still pencilled in for July. It could get delayed but the rapporteur is keen to press on.

There is not an implementation date suggested by the Parliament amendments. The Spanish Presidency text has one year after publication in the Official Journal. So I guess that would be 2012.

ENDS