The AIFM directive: a critical analysis of systemic risk issues and the directive's potential impact on Malta

Abstract

The contemporary wave of new, comprehensive financial regulation designed to repair consumer confidence, both in Europe and outside, will shape the financial world for many years to come. In this respect, the fund market in Europe is currently being forced to contend with an avalanche of regulation, were a greater emphasis has been put on regulation in terms of mitigating systemic risk. In particular, a profound structural impact of the fund industry in Europe as well as internationally will be seen through the Alterative Investment Fund Managers (AIFM) Directive. The influence of AIFs on financial stability is fairly ambiguous. Whereas on the one hand they provide benefits, the recent financial turmoil illustrated how their increasing significance is associated with the potential of systemic risk and therefore, a potential impact on the wider financial system. Accordingly, the AIFMD was implemented with the aim of establishing a homogenous and consistent regulatory framework across the EU, by facilitating the authorisation and ongoing supervision of AIFMs in a coherent manner. The AIFMD is expected to bring about a shift in the location and domicile of funds and is expected to have an overall positive impact on Malta's fund industry. This will further enhance Malta's reputation as an alternative financial services centre of repute including: enhanced investor protection, increased transparency, strengthening of the economic market, a more secure financial system and standardisation in terms of European-wide regulation. Within this context, Malta, as an international EU-based jurisdiction, represents a compelling proposition for AIFs and AIFMs seeking to redomicile in the EU, as Malta is, to a certain extent, already so-called 'AIFMD ready'.