The European Union's controversial Alternative Investment Fund Managers Directive came into force on 22 July yet complying with national laws is already proving to be a hassle, figures in the Nordic fund management industry say.

The directive sets out detailed rules on matters such as transparency, how businesses are run, leverage and financial reporting. Such EU-based fund managers must also appoint an independent custodian for each alternative investment fund they manage, and have independent risk management and valuation functions. There have been fears that non-EU jurisdictions, such as the Cayman Islands – a major hedge fund hub – could face hurdles in selling into the EU market. 

The benefits of AIFMD may be nullified by national tax laws that aren’t compatible with the EU directive, putting countries complying with the directive at a disadvantage as long as they refuse to alter national laws affected by the new EU rules, said one Danish industry representative.

In Sweden, the Swedish Investment Fund Association said it is “facing substantial challenges, but it also faces new business opportunities”, with the implementation of AIFMD.

For the countries complying to the directive, regulation of alternative investments is being managed on a European scale, rather than by national authorities.

Denmark is one of the few countries choosing to comply with AIFMD from the very beginning. The Federation of Danish Investment Associations has supported the AIFMD, stating that a regulated market for alternative investments would create much-needed competition between complying countries. Similarly, the directive could cause issues for those choosing not to comply.

In this respect, Danish tax laws might become a serious hindrance to compliance, the federation said in a statement.

“We find it crucial that AIFMD be supported by relevant measures implemented by the Danish government, so that investment managers can enjoy the advantages of the directive. Currently, Danish tax laws are curtailing the import and export of investments. We want the politicians to take responsibility for creating a free market by removing these unnecessary laws.” 

As such, the federation has come up with three amendments to Danish law, which could provide international investors with easy access to the Danish alternative investments market. However, at present, the Danish government has not been willing to amend national tax laws in order to accommodate the federation’s suggestions.

Similarly, the Swedish government is still proposing ways in which the AIFMD can be made compatible with Swedish law, without compromising the benefits of the directive. Again, tax laws are the key issue at hand, with no outlook for a solution any time soon, said the Swedish Investment Fund Association.

Meanwhile, many managers and other industry players are still uncertain about which actions to take in order to meet the needs of the new EU regulations. Read more about this latest survey and the AIFM Directive here.