key: cord-0059357-5zk2faui
authors: Fagetan, Ana Maria
title: Regulation of Hedge Funds in Selected Single European Jurisdictions: Italy, France, Ireland, Luxembourg, Malta, and Switzerland—The Impact of the AIFM Directive
date: 2020-12-29
journal: The Regulation of Hedge Funds
DOI: 10.1007/978-3-030-63706-4_3
sha: 7f5c346d95491162fa16e77b8ca7f667d6b04ddd
doc_id: 59357
cord_uid: 5zk2faui

This chapter examines the laws and regulations governing hedge funds in Italy, France, Ireland, Luxembourg, Malta, and Switzerland in order to contrast and compare, at least to a certain extent, the position in these above-mentioned different jurisdictions. Therefore, this chapter provides a comparative summary of the legal forms applicable to hedge funds in six jurisdictions, five EU member states plus Switzerland. The author has chosen Ireland, France, Luxembourg, Malta, and Italy because they are relevant from the point of view of the diversity of regulatory frameworks that coexist in the EU. In addition, the chosen European countries represent the countries with highly developed financial sectors inside the EU. Although Switzerland is not an EU member, it is also included in the analysis, mainly because, in the international financial world, Switzerland is an important player and accordingly, especially as a consequence of its foreign policy, many, if not all global financial organizations are to some extent present in Switzerland. The analysis focused mainly on the post-crisis period, when the implementation of the AIFMD, UCITS IV and V, and MiFID II has started. Currently regulation turned into a key strategic factor as it enhanced increased transparency, which lead to the enforceability of compliance and thus protects booth clients and investors. In light of this, regulation needs to be comprehended as a major responsibility in risk prevention and investor protection. Particular interest was given to the shaping of the local regulatory framework dealing with hedge funds, focusing mainly on investor protection and transparency, which have climbed up on the international political agenda of each country, in order to comprehend if tighter regulations have a beneficial impact on the hedge funds industry or not. Also, particular attention was paid to Brexit, a subject of fervent discussion for the last four years, at least, and which will continue to be one of the most disputed issues for some years from now on.

Investor protection was a priority throughout 2018, through the implementation of MiFID II and the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, which have prompted operational changes by financial service providers targeting improved transparency, retrocession bans, and more robust suitability assessments. In parallel, the European Commission continues work on reducing barriers to competition in the provision of cross-border financial services in a number of areas.

Elsewhere, market structure is in a period of reform and will adapt as MiFID II continues to bed in. The refinement of the MiFID framework under the new EU legislature is expected, and for financial stability more broadly to remain under discussion at both a regional and global level. Preparations for a post-Brexit financial system in Europe have influenced the regulatory agendas in the United Kingdom, and to a certain extent in the EU27. Since negotiations are still ongoing, it is important to see whether, when the United Kingdom leaves the EU, it will decide to remain in EEA 1 country or not. As a consequence of the United Kingdom's withdrawal from the EU, different EU member states, including those analyzed in the current chapter are competing to attract hedge funds in their financial centers. Brexit prompts hard choices for both the United Kingdom and the EU member states. Policy makers have sought to gain some control of their borders by reviewing the supervisory infrastructure in Europe through the ESA Review, and ensuring alignment of cross-border practices. In this respect, on December 27, 2019, the revised version of ESMA's founding Regulation was published in the EU Official Journal. 2 This chapter provides a comparative overview of how different and diverse the hedge fund regulation throughout Europe is. Even if the author does not go into details when describing the laws identified in the different selected single European jurisdictions: Italy, France, Ireland, Luxembourg, Malta, and Switzerland. The intention is to give the reader an idea of how diverse and dissimilar the different legislators' approaches can be, instead of presenting a detailed description. Also, such a description would not correspond to the scope of this chapter that aims to focus on investor protection principles, not on the detailed international rules.

Italy is among the first European jurisdictions to explicitly adopt, in 1999, specific regulations for hedge funds as well as FoHF. 3 According to statistics, in the first quarter of 2019, the total AUM reached a new record, summing up more than EUR 2 billion-approximately 120% of Italy's GDP. 4 This major growth reflects an equally major growth of wealth of investors', clients, and also investment industry. 5 Over the medium terms, it looks like Italy will maintain this increasing tendency-increase of AUM. 6 Hedge funds represent not a legally defined term under the Italian law, known rather as "speculative funds" ("fondi speculativi"), 7 a designation making no difference between single-manager funds or FoHF. 8 The key norm is Treasury Decree no. 228, as amended (the "Treasury Decree"), 9 further developed, mainly through the 1999 and 2005 Bank of Italy Regulations 10 with the latter indicating the adoption of a somewhat more liberal approach to alternative investment fund regulation. There were several regulations acknowledging hedge funds, or for a better accuracy, their Italian synonym: fondi speculativi/speculative funds in compliance with the Italian regulatory system. These regulations were the Decree n°58/98 and the already mentioned Ministerial Decree n°2

28. 11 Therefore, it was only in 2008, with the enactment of the Law Decree n°185, that the international concept of hedge fund started to be acknowledged in Italy, too. 12 These will be further approached in this chapter. The minimum initial investment or threshold for speculative funds was set at EUR 500,000 while the Italian law also stipulated a 5 Idem. 6 Alvaro, S., & Annunziata, F. (2019) . Shareholdings of alternative investment funds in listed companies and in banks: A legal perspective. 7 Treasury Decree, Article 16. "Decreto del Ministero del Tesoro n o 228" del 1999. 8 In February 2006, almost 97% of the Italian onshore hedge fund market consisted of Fund of Hedge Funds: The effective lack of an Italian single-manager hedge fund market is due to exogenous and endogenous factors. 9 Decreto del Ministro del Tesoro, del Bilancio e della Programmazione Economica del 24 maggio 1999, no 228, G.U. no 164 del 15 luglio 1999, inter alia adopted on the basis of Article 37 of the Decreto Legislativo del 24 febbraio 1998, n o 58 Testo Unico della Finanza. 10 Banca d 'Italia. (1999a) . Provvedimento del Governatore della Banca d'Italia del 20 settembre 1999 (Regolamento recante disposizioni per le società di gestione del risparmio), and to the Banca d 'Italia. (2005) . Provvedimento della Banca d'Italia del 14 aprile 2005 (Regolamento sulla gestione colletiva del risparmio). The latter flashes out several of the provisions of Decreto Legislativo 1 agosto 2003, n o 274, transposing UCTIS III. 11 Of 24 May 1999. maximum of 200 investors per fund. 13 Moreover, speculative funds could only be distributed on a private placement basis, with authorization of CONSOB 14 -the regulator for Italian securities. 15 Hence, while Italian law did not statutorily restrict hedge funds to designated categories of professional investors-the Treasury Decree did not explicitly require that the 200 investors should be "qualified investors"-its effect was to limit the marketing of speculative funds exclusively to those public or private investors having increased net value. In terms of investment policy, speculative funds can invest freely, without any restrictions, adopting the investment strategy of their choice, without being subjected to the prudential supervision rules of the "Bank of Italy" (BoI), which apply to common collective investment schemes. 16 Similarly, there are no restrictions regarding the portfolio diversification applicable to Italian speculative funds.

However, Italy is the only EU jurisdiction examined herein, where the offer of hedge fund products is reserved to specialized asset management companies, appointed as "Società di gestione del risparmio speculative" ("speculative SGRs"), endowed with legal personality and established under the law of contract. 17 The fee rate levied for speculative funds reaches 12.5% in terms of the accumulated managerial outcomes toward the end of the year. According to the Italian main norms, the return acquired through any investment fund is levied before deductions by withholding fees at source or swap fees. Similarly, both the capital subjected to the deduction fee at source 13 Treasury Decree, Articles 16.3 and 16.2. A July 2008 report advocated a decrease by half of the investment threshold and the elimination of the maximum amount of investors allowed within one fund. This threshold was the result of the amendment brought by Ministry of Treasury Decree N o 47 of 2003 (Gruppo di Lavoro sui Fondi Comuni Italiani. [2008] . Fondi Comuni Italiani: Situazione attuale e Possibili Linee di Intervento. ). 14 Commissione Nazionale per le Società e la Borsa. 15 Treasury Decree, Article 16.4. 16 Treasury Decree, Article 16.1. 17 Although speculative SGRs only differ from ordinary ones in terms of their objective, with Italian law prescribing no special requirements for speculative SGRs to secure a BoI management license. Banca d 'Italia. (1999b) . Regolamento della Banca d'Italia 20 settembre 1999, pubblicato nella Gazzetta Ufficiale n o 230 del 30 settembre 1999, sostituito dal provvedimento della Banca d'Italia 14 aprile 2005, pubblicato nel supplemento ordinario alla Gazzetta Ufficiale n o 109 del 12 maggio 2005. and the fee-exempted capital in Italy tend to be removed from the managerial outcome, falling under the 12.5% fee.

Italian law submits the distribution of foreign non-UCTIS funds in Italy to the same BoI prior authorization requirement. The grant of an authorization is explicitly made conditional. 18 Further on, "speculative funds are regulated by article 16 of the Ministry Decree n°228 of 24 May 1999, as amended by the Ministry Decree n°256 of 14 October 2005 and the Ministry Decree n°47 of 31 January 2003 (Decree n°228) that implement article 37, paragraph 1 of the Consolidated Finance Act." 19 Similarly, there are also secondary norms regulating speculative funds, namely: To ensure a very effective operation of Italian hedge funds on the financial industries' liquidity crises but also, simultaneously, to guarantee similar interests and support for all invested individuals, the BoI issued Regulation 785/08 23 on December 16, 2008, adopting "Section 14, paragraphs 6, 7, 8 and 9, of Law Decree n°185 of November 29, 2008." In agreement with Law Decree n°185, 24 taking on Italy's finances and coming up against this financial tumult, 25 several recommendations were made by Italian regulatory texts, up to the end of 2009: i. First, in case the SGRs receive overall redemption requirements higher than 15% of the NAV, 26 at some particular date or extent of time, then the SGRs will be able to perform partial redemptions. According to this, all units that were not repaidsurpassing all thresholds that were previously mentioned, also named entries/gates-are going to be seen like reimbursement requirements that the investors newly submit during the first day following that above-mentioned partial redemptions 27 ; ii. Second, if it is absolutely compulsory for SGRs to satisfy every redemption request, sell "the fund's illiquid assets, and if this may adversely affect the interests of the investors, the SGR can solve a withdrawal thereof and transfer the illiquid assets in a new closedend fund, whose units are assigned to each participant to the original fund proportionally to the amount of units owned in the latter." 28 These newly created funds, also named side-pockets, are not allowed to release new units, while the old ones are going to face reimbursement when the assets liquidation will occur.

Provisions find that an SGR is able to face problems in the reimbursement of customers meaning that these are going to need to divest every illiquid asset. 29 (i) Undertakings for UCITS or other similar financial tools:

• long-term act of suspending regarding calculations of the shares' worth; • sectional or overall act of suspending redemptions; • fund termination;

• making side-pockets/similar tools;

• the act of amending regular buybacks of the shares;

• worth rates instability due to assets difficult to sell, to whom this industry is not pointing out trustworthy costs.

(ii) Secondary financial tools. The following data are considered:

• size, regularity, and trading firm; • a consistent price;

• buying tendency as well as selling costs during a given interval;

• distribution of costs by means of trustworthy materials. 33 These recent rules affect the market for two reasons, especially when the unitary price exceeds EUR 500,000:

(i) The hedge fund can be separated. At that time, the investor, who is by no means guilty of the unitary price decrease, cannot be forced to replace the minimal amount mentioned; (ii) Adding a gate, when the redemption is verified, with regard to the subsequent expiration periods until the last redemption, the only exception accepted is when the investor subscribes for the amount requested to reinstate minimal thresholds. 34 The processes confirming all rectifications of the fund's regulation to the hedge fund's norms regarding the introduction of the so-called gate, regarding the setup of side-pockets, but also/or regarding the cancelation of the norm lowering the upper limit of the amount of hedge funds investors tend to be similar to those for normal amendments to the fund's norms. 35 33 Idem. 34 Idem. 35 Ibid., p. 43.

Due to the financial crisis, as well as to the systemic generated risks bursting out generally due to low mastery instruments for alternative investments, 36 there was a general agreement about EU, which expected to introduce an innovating system of rules. Therefore, the published Directive 2011/61/EC of the European Parliament and of the Council of June 8, 2011 on Alternative Investment Fund Managers, as well as the amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) n°1060/2009 and (EU) n°1095/2010 37 focus on regulating managers of alternative investment funds. These imply the overall collective investment institutions that are not included in the UCITS directive, or in other words, that cannot be defined as harmonized investment funds. 38 The principles governing asset management are contained in the Italian Financial Act, 39 and were implemented-after the adoption of the AIFMD and the UCITS V 40 rules-by Ministerial Decree No. 30/2015, which set out the general criteria applicable to Italian UCIs; the Bank of 36 Catelani, E., & Sequi, G. (2010, October 15-16) . Alternative investment funds: The case of hedge funds, private equity funds and real estate funds in the Italian context. Paper presented at the 10th Global Conference on Business and Economics, Rome, Italy, 10th Global Conference on Business and Economics. 37 AIFM Directive. (2011) . Alternative Investment Fund Managers Directive 2011/61/EU. Official Journal of the European Union L 174/1 of July 1, 2011. 38 The AIFM Directive is analyzed in detail in Chapter 2. 39 Legislative Decree 58. (1998) . Legislative Decree 58/1998 last amended by Italian Decree Law no. 23 of 8.4.2020, in force from April 9, 2020, "Liquidity Decree" published in the Official Gazette General Series no. 94 of 08-04-2020 which provides additional urgent tax measures in response to . 40 The key principles and general rules of the UCITS V (EU Directive 2014/91) were enacted in Italy in June 2016 (Legislative Decree No. 71/2016) when the Italian Financial Act was amended. The main changes concerned cooperation between ESMA and the competent national authorities, activities that can be carried out by a custodian, remuneration policies and sanctions for infringing the relevant legal provisions. After the implementation at primary legislation level through the amendment of the Italian Financial Act by Legislative Decree no. 71/2016, on April 27, 2017 CONSOB approved the amendments to "CONSOB Regulation on issuers" (11971/1999) and to the "Joint CONSOB-Bank of Italy Regulation dated October 29, 2007" on the organization and procedures of intermediaries providing investment services or collective investment management services, as required in order to adapt also the Italian secondary legislation to the European Directive no. 2014/91 relating to the undertakings for collective investment in transferable securities ("UCITS V").

Italy's regulation of January 19, 2015 41 on the collective asset management rules and the relevant explanatory notes; and regulations issued by Consob. 42 The main supervisors on asset management in Italy are:

• the Bank of Italy, which ensures the sound and prudent management of banks and intermediaries 43 ; • the National Commission for Companies and the Stock Exchange (Consob) which supervises, among other things, the provision of investment services, and ensures transparency and correctness of conduct toward investors; • the Institution for the Supervision of Insurance (IVASS) 44 ; and • the Pension Funds Supervisory Commission (COVIP). 45 The marketing of AIF units or shares in Italy fully reflect the regime set out in the AIFMD 46 :

• EU AIFs to professional investors: the EU AIFM must (1) get prior authorization in an EU jurisdiction where the AIFMD is implemented already and (2) notify Consob and • EU AIFs to retail investors: the EU AIFM is required to, additionally to getting the authorization in an EU jurisdiction where the AIFMD is implemented already, ask for Consob's authorization.

The marketing of foreign collective investment schemes under the UCITS framework, the home country regulator is obliged to notify Consob before marketing.

The implementation of MiFID II, which came into force in January 2018 also impacted Italy's asset management companies. During the period of application of the legislative decree n. 129 of 2017, implementing EU Directive 2014/65/EU ("MiFID II") and EU Regulation 2014/600/EU ("MiFIR") in the Italian legal system, national Supervisory Authorities spotted certain issues in the transposing legislation and reported them to the Ministry of Finance ("MEF").

Following a public consultation launched by MEF, the Italian Council of Ministers approved the legislative decree n.165/2019 ("Corrective Decree"), 47 which introduces additional and corrective measures (mainly dealing with organizational and sanctioning framework) to the Italian Financial Act ("TUF") as previously amended to implement MiFID II.

The key amendments are:

1. Repealing of KID filing obligation. 2. Supervisory powers. 3. Off-site offer of financial instruments. 4. Crowdfunding.

An important aspect of the regulatory landscape on hedge funds in Italy is "supervision," divided by purpose between CONSOB and the Bank of Italy. The former carries out checks relating to relations with investors (rules of conduct, disclosure, etc.), while the second authorizes the asset management companies and supervises as regards the prudential and systemic risk profiles, inherent to collective management of savings. In both cases, it involves information, inspection and regulatory supervision, assisted, among other things, by criminal sanctions. 48 47 The amendments introduced by the Corrective Decree, published in the Italian Official Journal n. 6 of January 9, 2020, entered into force on January 24, 2020. 48 Art. 2632 of the Italian Civil Code and art. 170-bis of the Consolidated Law on Finance (TUF). Also, the Italian regulator introduced also several limits that have impacted the distribution of and investment in hedge funds. The main aim was, of course, investor protection from higher risks. In this vein, we mention a fund's regulation which must expressly set out the maximum level of leverage and flag the risks of the investment. At the same time, the initial minimum subscription amount for nonprofessional investors is EUR 500,000, and hedge fund units cannot be exclusively distributed to retail investors through the individual portfolio management service. 49 Due to these structural constraints, hedge funds have developed more slowly in the Italian market compared to other countries and are still mainly targeted to institutional investors.

Also, the MiFID II has the following major objectives: "making the system more transparent and improving service quality." 50

The new regulatory framework implemented by Italy after the 2007-2008 crisis increased transparency toward investors and regulatory authorities through the implementation of the reporting and went on to delineate in a precise way issues hitherto neglected, such as the use of leverage. This legislation at EU level, however, has not hindered the great freedom of management that characterized alternative investment funds, not comparable to that provided to mutual funds (due to the greater level of regulation and supervision that they are required to bear). Furthermore, the introduction of the "European passport," provided for by the AIFM Directive, has had many positive effects in the Italian context where the hedge fund market is still underdeveloped, but has led to greater competition in contexts where this category of funds is more present and well-established. 49 Decree 30. (2015) . The Ministry of Finance Decree no. 30 of March 5, 2015, setting out the general criteria the undertakings in collective investments must comply with, published in the Official Gazette no. 65 of March 19, 2015. 50 Deloitte. (2017) . Asset management in Italy: A snapshot in an evolutive context. https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/int-mar kets/lu-asset-management-italy-snapshot-evolutive-context-whitepaper.pdf. Accessed 12 August 2020.

A major driver of a fund's net performance resides in "the cost that investors must bear to have the fund in their portfolio." 51 According to current research, Italian funds "are generally more expensive than European funds." 52 In the context in which investors are particularly interested of the amount and the nature of fees, high costs are a negative aspect.

Also, there is a tendency to consider that MiFID II polarized the market to the two extremes: pure passive players and pure active fund managers.

During the last decade, particularly after the financial crisis, regulators were very attentive, particularly regarding hedge funds which were always on the top of regulators' agenda. After implementing the provisions of AIFMD, the most debated regulation was the Market in Financial Instruments Directive (MiFID II), which covers many areas of the industry and brings major shifts to the table. The Directive has the following major objectives: "making the system more transparent and improving service quality. To meet the first goal, along with other provisions, regulators have imposed costs and retrocessions disclosure requirements and banned inducements in case of independent advisory. To achieve the second objective, they introduced standards on product governance and imposed minimum qualifications to agents operating as financial advisors." 53 In spite of the fact that most operators strive to be sufficiently ready to implement all the changes implied, there will definitely be unexpected consequences ahead for some players, particularly for the smallest, who could consider compliance, to a certain extent burdensome. The general opinion among investors is that, a more regulated industry at European level could turn into an obstacle to future development of the Italian hedge funds market. Additionally, the more regulated the hedge funds industry will be, the less appealing hedge funds managers will find to settle their funds in Italy. 51 Idem. 52 Idem. 53 Deloitte. (2017) . Asset management in Italy: A snapshot in an evolutive context. https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/int-mar kets/lu-asset-management-italy-snapshot-evolutive-context-whitepaper.pdf. Accessed 12 August 2020.

The AIFM Directive aims to prevent any negative consequences for all financial market participants, as well as the underlying market security through specific rules regarding inter alia, own funds, gearing ratio, conduct of business rules, rules regarding manager's remuneration, information and/or disclosure rules, financial accounts provisions. The transposition of AIFM Directive into the Italian law was characterized by a long regulatory procedure. The Legislative Decree n. 44 of March 4, 2014 initiated the procedure and made profound changes to the Consolidated Law on Finance (TUF), regarding the regulatory framework for the discipline of collective asset management. In this long process many changes have been made to the TUF, including: the introduction of new types of products and subjects (previously not regulated by this regulatory source), the redefinition of the collective asset management service (as required by Article 1, paragraph 1, k 54 of the TUF) and the review of the regulations relating to the depositary (admissible subjects, tasks, and responsibilities). This process of implementation was completed with a series of provisions by CONSOB, by the Bank of Italy and the Ministry of Economy and Finance. Specifically, these Authorities intervened, each in their own areas of competence, in the following documents: 54 Undertaking for Collective Investment (UCI): body set up to provide the service of the collective management of assets, the capital of which is obtained from multiple investors by the issue and offer of units or shares, managed upstream in the investors' interests and independently by the same and also invested in financial instruments, credit, including credit backed, in favor of subjects other than consumers, by the UCITS capital, equity, or other fixed or non-fixed assets, on the basis of a predetermined investment policy. Letter first replaced by Art. 1 of Legislative Decree no. 44 of 4.3.2014 and then amended by Art. 22, section 5 of Italian Decree Law no. 91 of 24.6.2014, converted with amendments by Italian Law no. 116 of 11.8.2014, which after the word "credits" has introduced the words "included those issued from the capital of the UCITS" and by paragraph 1 of art. 17 Legislative Decree no. 18 of 14.2.2016, converted with amendments by Italian Law no. 49 of 8.4.2016, which, after the words: "included in those issued" has included the words "in favour of subjects other than consumers." Law no. 296 of 27.12.2006, as amended by Decree Law no. 133 of 12.9.2014, converted with amendments by Law no. 164 of 11.11.2014, has ruled (with Art. 1, Section 119-ter) that "The SIIQ are not collective investment bodies pursuant to Legislative Decree 58 (1998)". Legislative Decree 58/1998 last amended by Italian Decree Law no. 23 of 8.4.2020, in force from 9 April 2020, "Liquidity Decree". Official Gazette General Series no. 94 of 08-04-2020.

• Regulation on collective asset management ("Bank of Italy Regulation"), as regards the regulation of the various types of UCITS, cross-border operations and the depositary, in addition to the provisions relating to the authorization procedure. • Joint Bank of Italy-CONSOB Regulation ("Joint Regulation"), regarding the organization and controls of intermediaries presenting investment and collective management services; • Intermediaries Regulation, with regard to the rules of conduct that must be observed in the marketing of UCIs; • Issuers' Regulation, regarding the rules relating to the public offer of shares or units of UCIs.

Finally, these changes were followed by the definitive version of the new Decree of the Ministry of Economy and Finance no. 30 of March 5, 2015, in implementation of Article 39 of the TUF, concerning the determination of the general criteria, which Italian UCIs must comply. This Decree, which will be analyzed later, has played a fundamental role in the new legislation relating to hedge funds, in fact, with its entry into force there has been a radical change in the world of collective savings management. The regulation implements Article 39 of the Legislative Decree n. 58 of February 24, 1998, concerning the determination of the general criteria to which the Italian collective investment schemes (UCITS) had to comply. The great importance of the legislation derives from the fact that this decree of April 3, 2015 (date of entry into force), repeals the decree of the Ministry of the Treasury, Budget and Economic Planning n. 228 of May 24, 1999, (regulation relating to the general standardization criteria of mutual investment funds). Above all, it redefines the "structure of the categories of Italian UCIs" by reclassifying the different types of Italian UCIs into five macro-categories: The new category in which hedge funds were reclassified, by virtue of the changes made by the implementation of the AIFMD, was the generic class of "Italian alternative investment funds (AIFs)." If, as a rule, investment in the fund was allowed only to professional investors, the TUF classified the hedge funds in a more specific type known as "alternative Italian AIFs." 55 After the AIFMD was implemented in the Italian law, Italian hedge funds were classified as a subcategory of reserved AIFs (closed-ended or open-ended). Reserved AIFs may carry out a wide spectrum of investment strategies, not limited to the typical policies of hedge funds.

The Italian regulator introduced also several limits that have impacted the distribution of and investment in hedge funds. The main aim was, of course, investor protection from higher risks. In this vein, we mention a fund's regulation which must expressly set out the maximum level of leverage and flag the risks of the investment. At the same time, the initial minimum subscription amount for nonprofessional investors is EUR 500,000, and hedge fund units cannot be exclusively distributed to retail investors through the individual portfolio management service. 56 Due to these structural constraints, hedge funds have developed more slowly in the Italian market compared to other countries and are still mainly targeted to institutional investors.

Through the transposition of the AIFMD in the Italian regulations, Italy shifted from a national regulatory system to a community one. The work carried out by the European legislator had as its ultimate goal the harmonization of the regulatory system at EU level, trying to provide a unitary direction that would regulate the entire sector of alternative investment funds. In addition, it has implemented the protection of savers and investors, introducing rules capable of renewing confidence in the entire financial system after the serious crises of 2007-2008. The receipt of Decree 30/2015, in fact, with the consequent abolition of the previous national discipline that regulated speculative funds (Decree 228/1999), increased transparency toward investors and regulatory authorities through the implementation of the reporting and went on to delineate in a precise way issues either neglected, such as the use of leverage. This legislation at EU level, however, has not hindered the great freedom of management that characterized alternative investment funds, not comparable to that provided to mutual funds (due to the greater level of regulation and supervision that they are required to bear). Furthermore, the introduction of the "European passport," provided for by the AIFM Directive, has had many positive effects in the Italian context where the hedge fund market is still underdeveloped, but has led to greater competition in contexts where this category of funds is more present and well-established.

Summing up, as already stated, according to statistics, in the first quarter of 2019, the total AUM reached a new record, summing up more than EUR 2 billion-approximately 120% of Italy's GDP. 57 This major growth reflects an equally major growth of wealth of investors, clients and also investment industry. 58 Over the medium term, it looks like Italy will maintain this increasing tendency-increase of AUM. 59 This proves a positive effect of the AIFMD implementation in Italy. The implementation of this Directive (AIFMD) has played a key role in increasing investment opportunities for investment funds 60 meanwhile shifting the sector into a more trustworthy one for less sophisticated investors.

All in all, the Italian hedge fund industry is still low, and some scholars consider that this occurs due to the fact that, "traditionally, Italian investors tend to be risk-averse, and although this helped them protect their assets during the financial crisis, it has also hindered Italy's ability to compete in innovative market segments (such as that of hedge funds)." 61 57 Rumi, G., Ubaldini, R., Dimonte, M., Ferrari, C., & Vece, G. (2019) . Italy. In The asset management review (8th ed.). https://thelawreviews.co.uk/edition/the-asset-manage ment-review-edition-8/1197347/italy. Accessed 12 August 2020. 58 Idem. 59 Alvaro, S., & Annunziata, F. (2019) . Shareholdings of alternative investment funds in listed companies and in banks: A legal perspective. Roma: Consob. 60 For instance, by allowing alternative investment funds (AIFs) to acquire loans from non-customer originators against their own capital. 61 Rumi, G., Ubaldini, R., Dimonte, M., Ferrari, C., & Vece, G. (2019). Italy. In The asset management review (8th ed.). https://thelawreviews.co.uk/edition/the-asset-manage ment-review-edition-8/1197347/italy. Accessed 12 August 2020.

The potential effects of Brexit forced the adoption of new regulations on March 23, 2019. 62 This new legislation approves comprehensive provisions aimed at regulating the possible impacts on multiple stakeholders in the event that the United Kingdom (UK) exits from the European Union (EU) without an accord with the EU (UK withdrawal).

The new Law provides that, following the UK withdrawal, UK banks that are authorized to conduct operations in Italy in the same terms that Italian banks are authorized to carry out activities in the United Kingdom may continue carrying out such activities after notifying the Bank of Italy. 63 UK banks and UK investment firms that, on the UK withdrawal date, provide investment services and activities in Italy, may continue to perform the same activities only with respect to qualified counterparties and professional clients as provided in the applicable legislation. 64 Banking, financial, and other related entities operating in Italy remain bound by contractual extrajudicial dispute resolution mechanisms after the date of the UK withdrawal. Alternatively, these entities may adhere to other mechanisms established by the EU Commission-approved Fin-Net network. 65 UK banking institutions operating in Italy through branches will continue to be members of the guarantee systems established for Italian depositors regulated by current banking legislation. 66 UK payment institutions, fund managers, and investment banks operating in Italy under the current freedom of service regime at the time of the UK withdrawal must cease their activities on that date. 67 To avoid prejudice to their existing clients, these institutions are authorized to carry out operations necessary to close their activities within the shortest possible time and within a maximum of six months from the UK withdrawal date, after complying with applicable contractual notices. 68 As an exception, UK banks and investment firms remain authorized to manage existing derivative over-the-counter contracts even if such activities involve the modification of existing contracts or the execution of new contracts. 69 UK payment institutions, fund managers, and investment banks that are registered in Italy and that on the date of the UK withdrawal conduct businesses in the United Kingdom may continue to operate during the transitional period in accordance with UK legislation. 70

In France, the most important authorities of rules which regulate hedge funds are:

• The AMF "replicates the European principles in its General Regulation and its policy," 75 at the same time adapting them to the French asset management perspective. A key place is held by risk management with regard to hedge funds. In this respect, the AMF issued Position-Recommendation 2014-06 76 specifying the requirements dealing with identification and management of the risks to which the funds are potentially exposed. 77 At the same time, Instruction 2012-01 78 (Organization of the UCITS and real estate Collective Investment Undertakings-OPCI-management activity and discretionary portfolio management investment service regarding risk management), applicable from January 31, 2018 to January 23, 2019, required that all AMCs should have a permanent risk management function, 79 provided with the necessary resources to accomplish its mission (Article 2). 73 Fonds professionnels à vocation general. 74 Fonds professionnels spécialisés. 75 Darpeix, P. M., Le Moign, C., Même, N., & Novakovic, M. (2020 Inspired by the Luxembourg special limited partnership, a French new corporate vehicle of limited partnership was introduced by Law 2015-990 dated August 6, 2015 for economic growth, activity, and equal opportunities. This law came into force on August 8, 2015. The main scope was to particularly address the needs of the AIF industry, being restricted to Professional Investors and for specialized professional funds, 80 not for general purpose professional funds. 81 According to this new regulation, these UCIs are very flexible, especially regarding their investment policies. In this vein, general purpose professional funds are allowed to invest 100% of their assets in other UCIs, the main condition being that they invest maximum 20% of their assets in particular types of instruments issued by particular categories of UCIs, comprising (between others):

• Foreign UCIs.

• Undertakings for collective investments in transferable securities (UCITS). • AIFs available to retail to clients. 82 • Venture capital AIFs.

At the same time, professional funds too are more flexible concerning the amount of shares or units to which they can invest. Such an example is that they can invest no more than 50% of their assets in a French UCI, a foreign UCITS, an AIF established under the laws of another EU member state or a foreign UCI; and can invest no more than 35% in liquid instruments of the same issuer. Annual Report. Autorité des Marchés Financiers. https://www.amf-france.org/Publicati ons/Rapports-annuels/Rapports-annuels-de-l-AMF/annee-2015-2019?xtcr=1&isSearch= true&docId=workspace%3A%2F%2FSpacesStore%2F64a1c9f1-dcdd-47b3-a099-d885dfd56 0ed&lastSearchPage=https%3A%2F%2Fwww.amf-france.org%2FmagnoliaPublic%2Famf% 2FResultat-de-recherche%3FTEXT%3DChiffres%2Bcl%25C3%25A9s%2B2019%2Bde% 2Bla%2Bgestion%2Bd%2527actifs%26LANGUAGE%3Dfr%26isSearch%3Dtrue%26simpleS earch%3Dtrue%26valid_recherche%3DValider&xtmc=Chiffres-cles-2019-de-la-gestion-d-actifs&docVersion=1.0. Accessed 31 July 2020.

The advantages of hedge funds are widely recognized. 83 In France, the 1990-2000 period led to significant reforms for the financial industry, concerning deregulating matters, but also liberalizing financial processes. 84 The tendency to become highly diversified financial markets widely accessible for various investment vehicles, starting from a classical bank-fundamental standard, occurred together with different regulatory limitations regarding hedge funds. Besides, this issue resulted in major political debates in France concerning major risks associated to asset industries. Thus, France currently demanded for a tighter legal regime 85 for hedge funds, with the purpose of mitigating the prudential risks associated to extremely leveraged institutions. It is supposed that there are three basic subjects to be regulated in terms of hedge funds. Thus, the primary objective of the strategic plan established by France is the investor protection. The second objective is to reinforce their risk policy, 86 and the third objective is to encourage Paris as a capital, but also France as a financial crossroad develop a fine relation involving the investor security and a dynamic financial market, particularly due to Brexit, as this new opportunity emerged. 87 French hedge funds together with their portfolio management companies (PMCs) must follow several risk control measures, which consist on the one hand in the ratios applicable to the funds and on the other hand, on the type of financial instruments that they are allowed to purchase. 83 All PMCs which manage these funds need to be licensed by the AMF within a particular program of activity having to do with the use of specific financial instruments. 88 In terms of valuation and pricing, the rules are very strict, namely that hedge fund's PMC or an external valuer is obliged to publish the net asset value (NAV) and communicate it to every individual who is interested, if required. At the same time, the AMF must evaluate periodically the PMC's license, and correctly assess if the PMC is able to adequately evaluate the AUMs.

In terms of controls, there are internal controls, according to which the PMC must make sure that it follows ethical rules, 89 which can be done through the appointment of a compliance and internal control officer, who is held responsible for complying and monitoring. 90 In terms of the UCI's depositary, this one needs to view the PMC's decisions and make sure that the hedge fund obeys the law, both internal and external regulations, at the same time reporting to the AMF. 91 Other forms of control over hedge funds are the auditor and also mandatory periodic reporting, the last one done to investors. Auditor can involve the AMF, and reporting also.

With regard to insider dealing and market abuse, the breach of these laws could lead to criminal prosecution and/or administrative proceedings in front of the AMF.

Hedge funds and their PMCs must obey the standard money laundering regulations just like every UCI. In this vein, the PMC must:

• Get and check the identity of each investor before accepting him/her to the hedge fund. • Assess each uncommon or major transaction which seems as having no economic justification. • Report doubtful amounts and transactions.

• Keep written records of the supervising activities. 88 For instance, complex derivatives and credit derivatives. In France, the money laundering regulations were strengthened after Directive 2015/849/EU 92 was adopted, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. Still, these requirements need to fit the PMC's marketing, especially where the PMC does not have a direct relationship with the last investors.

France has always been a regulated country with a fervent legislative agenda, focusing very much on strengthening regulations. 93 Indeed, establishing a hedge fund in France is difficult because France limited very much the establishment of hedge funds on its territory, the manager's biggest advantage being that investors are attracted by "super protective" regulatory regimes. Still, hedge fund managers acknowledge the fact that France is an atypical country to set up a hedge fund, but it can be a good idea as competition is not an issue, since hedge funds managers usually avoid France. At the same time, another negative aspect is, according to Grec and Marquais (2020) , France "failed to take legislative measures and provide judicial guidance, and essentially let professional bodies develop professional and ethical standards to guide counsels in their interactions with funders." 94 On the one hand, AMF makes its presence felt through control rather than proactive attendance in encouraging new fund management business. In this respect, instead of being encouraging, the Financial Markets Authority behaves somewhat impartial while having to do with advancement and ambitious development of hedge fund managers but also it does not look like forthcoming with regard to supporting new arrivals. Thus, it will be extremely difficult for France to compete with major European 92 Fourth EU Anti-Money Laundering Directive. 93 . Investment management and corporate structuring considerations for third-party litigation funders in Luxembourg. ASA Bulletin, 38(2), 296-413. 94 . Do's and don'ts of regulating third-party litigation funding: Singapore vs. France. Asian International Arbitration Journal, 16(1), 49-68. alternative hubs. Therefore, the comparisons between France and other UK or Luxembourg located funds are useless.

Nevertheless, the AMF's reputation for being strict can be beneficial. Many investors, among which "the high net worth individuals" and private investor's targets rely on the French regulatory system and the sense of security that it provides. France also has a good reputation in terms of the quality of its service providers. It is true that France may not be able to compete with England and Luxembourg in terms of numbers, but it could develop a distinct competitive edge.

At the same time, currently, the French AIF industry is also positively impacted by favorable shifts concerning national regulatory aspects. New French laws and regulations enable the creation of new types of investment funds offering incentives to develop the French AIFs industry (such as the new PACTE law in 2019). 95 This positive trend is also supplemented by the regulatory EU framework, since recent EU regulations are also in favor of the creation of new types of investment funds. In this vein, one can mention the recently adopted EU Regulation No. 2019/1238 on the creation of a pan-European Personal Pension Product (PEPP), the ELTIF Regulation, EuVECa and EuSEF Regulations, and others.

The French regulations of hedge funds reduced their development. Nevertheless, if the last improvements were to be taken into account there would be indeed a major shift on behalf of the officials from France. In compliance with these improvements, significant progresses and numerical increases are expected in the future for the French hedge funds market. Accordingly, this particular market has the necessary resources, but also the professionalism to help customers create new funds. Nevertheless, a more regulated industry at European level could lead to a small increase of the sector in Europe, or even to stagnation. However, currently, the regulators' opinion is that, due the highly interdependencies and interactions between the various sectors of the financial world, active discussions developed by the various national regulators "has proved to be a crucial asset. The process of harmonizing the rules and applying them across the different European jurisdictions, along with coordinating efforts effectively, must continue in order to deal effectively with the frequent cases where there is a difference between the asset management company's country of registration, the fund's country of domicile and the fund's country of marketing." 96

France is somehow in the middle of a battle against the United Kingdom due to its over-zealous government controlled by beliefs and national concerns. Some British observers tended to appreciate that the AIFM Directive represents a straight assault on the United Kingdom, orchestrated by French officials. 97 Since around "80% of the hedge fund industry is located in London or more generally in UK," while for France there remain few funds to settle in, it becomes clear why the French did not have too much to lose, 98 at least before BREXIT. At the same time, a French-German alliance (for the single market in financial services they joined forces 99 ) in terms of regulation reform in global finance appeared to be crucial for the AIFM negotiations. If at first, the common concern in hedge fund regulation started in "2007, in Heiligendamm, the city where the G8 summit took place," 100 at the time the French request for a stricter regulatory approach had little impact. Later on, when the financial crisis became visible, French politicians understood this was their chance 96 AMF. (2020). 2020 Markets and risk outlook: Risks and trend mapping. Autorité des Marchés Financiers. https://www.amf-france.org/sites/default/files/2020-07/cartog raphie-2020-consolidee_en_2.pdf. Accessed 12 August 2020. 97 Tait, N. (2011, March 11) . UK nominee grilled on EU markets role. Financial Times. https://www.ft.com/content/3df42a5e-50b8-11e0-9227-00144feab49a. Accessed 17 August 2020. 98 Woll, C. (2011) . Beyond ideological battles: A strategic analysis of hedge fund regulation in Europe. Les Cahiers Européens de Sciences Po, 2, 2-20. 99 Rittelmeyer, Y. S. (2017) . Will Brexit revive the Franco-German engine? https://www. europe-solidarity.eu/documents/ES_brexitfranco-germanengine.pdf. Accessed 16 August 2020. 100 to proclaim their main goals. Nevertheless, in the end, France failed in casting offshore funds out of the European market. It has however acquired a regulatory frame of reference with regard to hedge funds looking very much alike to that which at first supported the structure of the retail mutual funds industry. 101 Still, as the French government insisted, the main issue is not the origin of funds, if legislative requests imposed on "hedge fund managers" are being respected. Accordingly, any comprehensive regulatory framework is appealing, as they hold the minimum number of their industry's financial interests at stake.

The AIFM Directive should not significantly affect French managers because the French regulators already control investment managers. Since French regulatory framework is strict, an even stricter one will not affect managers that much. However, the French authorities are deeply aware of the improvement in the UCITS area, as this is the main cause that makes many French asset managers prefer to move their operations to Luxembourg. With the growing employment of the UCITS tools by alternatives managers, the development of Luxembourg as a major fund center appears quite probable. Against this, France is keen to retain its very large and well-developed funds sector. Several French asset managers are not only major players at home, but the owners of leading asset managers based elsewhere around the world. The interaction between the AFM and these global giants gives the regulator a uniquely well-informed image on developments across the investment management sector.

A recent report from January 2019 states that at the end of 2017 there are 5168 AIFs, representing EUR 688 billion in net assets and EUR 915 billion in exposure. 102 The AMF study was conducted on the basis of AIFM reporting through to the end of 2017 and other data at the disposal of the regulator, and according to it, the following trends can be observed:

• hedge funds represent a small proportion of the AIFs subject to reporting in France (0.6% of total net assets). Most of the AIFs have similar characteristics to those of more traditional, lower-risk funds:

59% of total net assets are made up of equity, bond or diversified funds; • the portfolios are sufficiently liquid to cope with investor redemption frequencies in normal market conditions. With the exception of real estate and private equity funds, whose assets are held on a long-term basis, the AIFs can liquidate the majority of their assets within one day or less; • leverage levels are in line with the investment strategies employed, on the whole; • exposures are consistent with the strategies of the AIFs: for real estate funds, 71% of their exposure is to physical assets, for private equity funds 85% to securities, for funds of funds 58% to collective investment undertakings, and 'other' strategy funds 60% to Securities. 103 In France, the Directive impacted the management companies "domiciled in France and that manage one or more AIFs, regardless of whether these AIFs are French, EU, or third-country AIFs." 104 Table 3 .1 presents the regulatory reporting requirements that these companies must respect. At the same time, the reporting frequency depends on the value of net AUMs.

In terms of regulatory changes impacting France, at the EU level the EU directive 2019/1160 of June 20, 2019 amending the AIFMD can be mentioned. This new directive implies a new definition of premarketing, its key aim being of harmonizing the rules on marketing of AIFs. On August 2, 2019, started a two-year national implementation period for this Directive which must be fully transposed starting with August 2, 2021.

If we consider strictly France, the PACTE law mentions new provisions with major positive impact on investment funds, especially on:

(i) the eligibility of professional AIFs for units account of life-insurance contract and (ii) the possibility for some professional AIFs de jure (FPS, SLP, OFS, and FPCI) to invest straight in crypto-assets.

As far as the AMF is concerned:

• There were brought amendments to the General Regulations of the AMF for including new provisions on OFS-in this respect, a new AMF instruction is going to supplement these new provisions; and • So far, AMF is bringing updates to its documents (instructions, positions, and recommendations) so that it can adapt to the implementation of MiFID 105 into French law.

As a final comment, France will protect national benefits and current industry organizations. Also, the French government is deeply concerned with the industry claims and takes all possible actions to ensure the protection of important components of economy against the supervision recommendations.

In early February 2019, Ordinance no. 2019-750 introduced into legislation rules according to which France does "not offer a broad continuity regime for UK firms. Instead, regulatory authorities devised a small number of targeted concessions especially relevant to the French economy (insurance, derivatives, UK inter-bank settlements, etc.)." 106 Indeed, France was the single EU state "willing to accept the consequences of a no-deal Brexit and maintain a hard-line negotiation stance (excepting, of course, the array of EU-level protections already agreed)." 107 Due to the fact that a last-minute extension was agreed by negotiators to push back the Brexit deadline to October 2019, these plans did not turn into reality.

If we take into consideration the level of the French portfolio management industry, over the past five years, according to AMF, the number of new portfolio management firms appears as remaining stable, in spite of the convergence of portfolio management companies (under the form of either mergers or aggregation). There are done either due to their margins diminishment or due to the powerful competition from the industry. An important trend has, so far, been noticed by the AMF toward the end of 2018: a major growth in the number of authorization requests-more precisely, around 60 authorization requests or even more were filed in 2018. According to the AMF, this growth in authorization requests is due to the political and economic changes around the world, more precisely due to Brexit. In this vein, "Paris benefitted in 2018 and 2019 from Brexit, which has so far led to partial or total relocation of activities of some British investment firms and British investment managers." 108 In the light of Brexit there are major power battles currently taking place over hedge funds. In this respect, France, maintaining its strict regulatory perspectives, has publicly pleaded in favor of tighter regulation within the AIFMD, imposing its own gold plating regarding the third country regime and maintaining that there is need for reinforcing of the existing equivalence framework. 109 In spite of this, it also fights for ensuring "a larger slice of the EU fund management pie in Paris." 110 Indeed, there is currently a "battle emerging amongst the Member States with respect to promoting their financial hubs and competing to attract business from the UK." 111 Referring strictly to hedge funds, due to the fact that France also competes with other countries that already have a firm foot in the door with management companies domiciled in Luxembourg, Dublin, or Frankfurt, this could well add further nuance to its position. 112 In direct competition with Germany, whose domestic politics dominate EU, France was back drowned by Germany, who publicly opposed wider French moves toward greater levels of European integration. 113 In spite of working together in the past decade, lately, "presupposing a commonality of interests between France and Germany can be erroneous." 114 Domestic elections, as well as Brexit, will definitely impact many competing preferences of these two mentioned countries, influencing and affecting the regulatory response of each country. Therefore, given shifting hedge funds landscape, France is expected to adjust its policies.

However, according to the AFG, "the number of asset management companies jumped to 657 at the end of 2019, as a significant number of companies secured licenses during the year (45 compared with 24 in 2018)" 115 ( Fig. 3 .1).

The responsibility for this huge increase falls on the shoulders of "the large number of asset management companies created in France in preparation for Brexit." 116 Currently, French asset management companies are ranked first in continental Europe in the management of investments. 117 Assessments show that French asset managers hold around 27% share of the European market (the United Kingdom not being included). At the same time, when referring to the domicile of the fund, France is ranked second in Europe (the United Kingdom being included) concerning AIFs (16.8% market share) and fourth regarding UCITS (7.5%).

In France, assets invested through foreign funds managed by almost 140 asset management companies increased in 2019 reaching currently EUR 580 billion. This represents a quadruple growth since the 2008 crisis. 118 As a consequence, what the AMF estimated, that 2010 would imply a historic record of new French portfolio management companies, exceeded in 2019, was actually true. France currently has the second highest number of AIFs in Europe (including the United Kingdom).

In terms of regulations, The Central Bank Reform Act 2010 119 was enacted on October 1, 2010. This document merged roles held by "the Central Bank and the IFSRA," 120 setting the foundation for the Central Bank of Ireland. Accordingly, "IFSRA" was dissolved. Therefore, currently, the Central Bank is the regulatory body responsible for the initial authorization and ongoing supervision of all Irish QIAIFs and AIFMs. Also, AIFs established in Ireland are authorized under the following pieces of national regulation:

• the Unit Trusts Act 1990 121 which regulates Unit trusts. 118 Tatar AIFs are authorized in the following categories, both authorized by the Central Bank:

• A Retail Investor AIF ("RIAIF")-which may be marketed to retail investors. • A Qualifying Investor AIF ("QIAIF")-which may be marketed to Qualifying Investors.

In Ireland, UCITS and AIFs can be established as follows ( 127 In June 2019, the Irish Government subsequently approved the publication of the Investment Limited Partnership (Amendment) Bill 2019 ("ILP Bill"). The Irish Minister for Finance & Public Expenditure and Reform, Paschal Donohoe TD indicated that "This is a further step towards ensuring that Ireland remains one of the leading funds domiciles in Europe. The revised Investment Limited Partnership structure will stand alongside the Irish Collective Asset-management Vehicle as a symbol of Ireland's responsiveness to business needs and a sound regulatory environment." Ireland is an alternative asset management jurisdiction, with major global alternative investment administrators who have significant operations in Ireland. The legislation concerning the establishment of non-UCTIS collective investment schemes was introduced in this jurisdiction one year after the transposition of the UCTIS I Directive into the Irish law. 128 The legal alternatives were extended in the middle of 1990s with the enactment of a law regulation Irish non-UCTIS investment limited partnerships 129 and, more recently, through the adoption of a law regulating "Common Contractual Funds " (CCFs). 130 This follows the Central Bank consultation CP119, 132 focusing mainly on:

• general amendments which emerged from a review of the Central Bank UCITS Regulations. • amendments to UCITS Share Class Provisions in order to reflect the ESMA Opinion. • amendments dealing with performance fees of UCITS. . CP119-Consultation on amendments (and consolidation) to the Central Bank UCITS Regulations. https://www.centralbank.ie/pub lication/consultation-papers/consultation-paper-detail/cp119---consultation-on-amendm ents-(and-consolidation)-to-the-central-bank-ucits-regulations. Accessed 13 August 2020. 133 Central Bank of Ireland. (2020b). UCITS questions and answers (29th ed.). https://www.centralbank.ie/docs/default-source/regulation/industry-market-sectors/ funds/ucits/guidance/ucits-qa-29-edition.pdf?sfvrsn=2. Accessed 13 August 2020.

The Q&As clarify the Central Bank's expectations in relation to liquidity stress testing (LST) in UCITS, focusing mainly on the application of the ESMA "Guidelines on liquidity stress testing in UCITS and AIFs."

Currently, Ireland's hedge funds market is a very mature one, in spite of product or regulatory changes. Last year it has seen a remarkable growth not only from the point of view of new market entrants but also from the point of view of continued growth. In this respect, the growing interest in Ireland regarding private debt and private equity fund managers can be mentioned, particularly due to the highly anticipated amended Irish Investment Limited Partnership (ILP) Bill 2019. 134 The Bill's intention is the update of the existing framework for regulated limited partnerships, set out in the ILP Act 1994, for a better reflection of changes in the global private equity market, both in terms of the modernization of the Irish ILP structure and in terms of applicable EU legislation. The Bill intends also to contribute to achieving the Irish Government's aim to convert Ireland into a global location for private equity funds. A major change that the Bill brings to the 1994 Act implies the proposal to allow an Investment Limited Partnership to be structured as an umbrella fund with segregated liability between sub-funds. At the same time the Bill clarifies limited partners' obligations with regard to capital contributions and facilitates the replacement of a General Partner.

AIFs are regulated by the Central Bank pursuant to the AIFMD Regulations, which are supplemented by the Central Bank's AIF Rulebook. 135 The most important documents under which AIFs are regulated are:

• Recently, on July 13, 2020, the Central Bank issued the 34 th edition of the Central Bank AIFMD Q&A, 141 including new Q&A IDs 1131 and 1132 in relation to liquidity stress testing in AIFs.

The hedge funds regulatory background in Ireland is essential in terms of the next dynamics of the funds market. Pragmatic regulation of hedge funds is vital if substitute investment products are to grow in the flexible environment in which they must work to achieve their objectives. In this context, there are several major objectives: first, to make sure that suitable, but also efficient regulation will be enacted for financial entities but also for the entire industry; second, to minimize all risks that might lead to failure. This could be achieved by ensuring the observance of prudential conformation and other requests. 142 The third will be to make sure that all actions will be taken for the well-being and best protection of clients involved in financial services. The certain way to do this is by taking care of clients but also of investors through business norms conduct and other protective procedures. 

Ireland's reputation of international leader in hedge funds and management center for international alternative investment funds (AIFs) signifies that any legislation related to the management of funds will be analyzed to determine whether it will convey negative costs for what has been a flourishing industry in Ireland. Its attractive tax regime, under which UCITS and other alternative funds remain entirely tax free, also offers it a key advantage over its competitors. Irish hedge funds structure alternatives, the present regulatory framework and also the strong management model represent an advantage for investors, to whom Irish regulation of hedge funds offer the necessary transparency 144 and comfort levels. Ireland's regulations offer structures that fit well the different investor profiles, various fund strategies, and aims.

The major issue in maintaining the confidence of hedge funds investors has to be Ireland's ability to control the current wave of international regulatory reform. Currently, Ireland is experiencing what could be called a continuous regulatory change. In this vein, "the Irish Collective Asset Management Vehicle (ICAV) was introduced in 2015 to complement a wide range of Irish-regulated funds and more than 500 have been registered since its launch. There has also been a recent push to enhance the attractiveness of the Irish investment limited partnership (ILP), which will improve the environment for private equity investing." 145 Ireland's success as an onshore domicile for investment funds is wellknown, and the development of Ireland's funds industry continues to be an area of strategic importance for the Irish economy.

Statistics show that Irish-domiciled investment funds had over EUR 3.04 trillion in net assets in 2019 (up 26% from EUR 2.4 trillion at the end of 2018 While the majority of assets under management are held in UCITS funds, Irish-domiciled AIFs had in excess of EUR 748 billion in net assets in May 2020 147 (Fig. 3.4) .

The majority of the investments in these regulated investment funds comes from non-Irish institutional investors (Fig. 3.5) .

In Ireland, AIFs reached almost EUR 1tn, being around 2000 148 in number according to a current report issued by the Central Bank of Ireland. Most of equity, bond, and mixed funds are established under UCITS, while hedge funds, property funds, and "other" funds are typically AIFs.

As on December 2018, Ireland had a total of 13,941 funds, of which 7920 were Irish-domiciled Funds and 6624 were non-domiciled and it distributes its funds to over ninety countries. It has a large range of fund types, an efficient tax structure and puts priority on investor protection. The Central Bank is responsible for the approval and supervision of the Investment funds. Today 75% of Irish-domiciled funds are UCITS and 25% are AIFs (Fig. 3.6) .

Ireland is apprehended in a positive manner, seen as a regulated environment for investment funds, serving diverse forms of funds. It also provides cautious regulatory not only for retail, but also for refined funds. Accordingly, these are crucial reasons setting the basis of their prosperity in Ireland. Moreover, the Irish Financial Regulator tends to be acknowledged as adaptable, accessible, but also as receiving ideas favorable for fixed time limits for exempting the funds. A wide range of persons wishing to invest seek exposure to alternative asset classes. Still, they lack the desire to invest in lightly regulated jurisdictions (for instance British Virgin Islands, Cayman). Apparently, they currently value their status of being under authorization of the Irish Financial Regulator. Therefore, a more regulated industry at European level could lead to a growth of the hedge funds sector in Europe.

The implementation of AIFMD has had a significant impact on the Irish regulatory landscape for alternative investment funds. A key scope of the AIFMD is "to facilitate the harmonization of financial services across EU Member States by giving an AIF managed by an authorized AIFM an 'EU passport,' enabling its units or shares to be marketed and sold in all other EU Member States." 149 This AIFMD passport is restricted to marketing to professional investors only. Taken into account Brexit and that the United Kingdom will become a third country, this passport will be an important aspect, together with general Irish hedge funds regulations, which will impact the relocation of UK hedge funds in Ireland. 150 However, to a certain extent, the AIFMD framework is "in many ways reflective of pre-existing requirements in Ireland relating to supervisory 149 Matheson. (2019) . Ireland as a fund domicile. https://www.matheson.com/ima ges/uploads/publications/Ireland_as_a_Fund_Domicile.pdf. Accessed 14 August 2020. 150 Bisciari, P. (2019) . A survey of the long-term impact of Brexit on the UK and the EU27 economies (Working Paper, No. 366) . Brussels: National Bank of Belgium. https://www.nbb.be/en/articles/survey-long-term-impact-brexit-uk-and-eu27economies. Accessed 12 July 2020. oversight, an independent depositary, corporate governance, valuations and investor disclosure." 151 Current researches state that "EU initiatives have tightened the regulatory apparatus in recent years. Most hedge fund activity is now regulated by the authorities in Ireland or elsewhere, and the Alternative Investment Funds Managers Directive (AIFMD) 2011, among other EU schemes." 152 Both local and European regulations have extended the aim of financial regulation putting some light onto the shadow banking industry. However, according to Griffin and Brenan, "the international scale of finance and the complexity of regulatory jurisdictions demand much more active monitoring and international coordination than national oversight agencies can normally muster." 153 In this vein, experts consider that "there is still considerable scope for international regulatory and tax arbitrage, and the Irish financial services sector has become a significant player in exactly this field." 154

MiFID II/MiFIR applies from January 3, 2018. This new regulation aims at strengthening investor protection and improving the functioning of financial markets. As for Ireland, regulation has increased significantly since the financial crisis. Griffin, D., & Brennan, J. (2016, June 25) . Russian bank collapse shines light into shadowy corners of Irish finance. Irish Independent. https://www.independent.ie/bus iness/irish/russian-bank-collapse-shines-light-into-shadowy-corners-of-irish-finance-344 82531.html. Accessed 11 August 2020. 154 Brennan, J. (2017, September 4). Russia's growing banking crisis to hit IFSC vehicles, experts warn. Irish Times. https://www.irishtimes.com/business/financial-services/ russia-s-growing-banking-crisis-to-hit-ifsc-vehicles-experts-warn-1.3208132. Accessed 15 July 2020. major new rules on MiFID-regulated firms, having to do mainly with (1) product governance rules (according to which firms must define their investor target market), (2) enhanced marketing communication requirements (focusing mainly on the manner in which information regarding past performance can be presented and mandatory disclosure of costs and charges).

Brexit continues to be the most significant development affecting the financial services sector in Ireland and across the EU. Ireland has proven to be a popular destination for UK firms looking to relocate or establish fund management companies in advance of Brexit. In addition, the Irish government has continued to commit its strategic support to the financial services sector. On April 26, 2019, the Irish government unveiled its new "Ireland for Finance" strategy (IFS 2025) 155 for the further development of the financial services sector in Ireland to 2025 (building on its previous IFS 2020 strategy). The vision of the strategy is to continue the development of Ireland as a top-tier location of choice for specialist international financial services. According to this new strategy, 2019 has been very successful for Ireland: "with over EUR 4 trillion in fund assets under administration, Ireland is the 3 rd largest global investment funds domicile, the largest European domicile for ETFs, and a leading location worldwide for hedge fund administration." 156 Therefore, while Brexit has been challenging for the financial services sector, Ireland has been and continues to be well-placed to offer solutions for UK-based financial services firms and, with the strategic support of the Irish government the Irish financial sector is well-positioned to continue its rapid development over the coming years. 157

Ireland is one of the leading EEA jurisdictions for cross-border fund distribution and is home to funds collectively valued at over EUR 2 trillion. Ireland is also a leading location for fund management companies ("FMCs"), particularly Alternative Investment Fund Managers ("AIFMs") and UCITS Management Companies ("UCITS ManCos"), which are drawn by the numerous advantages Ireland has to offer as a domicile for cross-border management companies.

Ireland is a natural home for UK investment managers that wish to continue to avail of UCITS and AIFMD passports post-Brexit and to retain the right to distribute into EEA markets. Recent changes to Central Bank of Ireland regulations around fund governance mean that it is now easier to set up a dual authorized Irish AIFM/ UCITS ManCo, also known under the name of a "Super ManCo." 158 This is expected to become attractive not only for FMCs, but also for some MiFID authorized investment managers. In a similar manner, a UK AIFM cannot benefit anymore after Brexit from the AIFMD passport and could consider establishing an AIFM in an EEA jurisdiction (this could be the case of Ireland) for making sure that the AIFs it manages keep on benefiting from AIFMD passporting rights.

There are several advantages offered by Ireland, which are going to be mentioned further on. Thus, "an Irish UCITS ManCo or AIFM may delegate the day-to-day portfolio management function to an investment manager located outside of Ireland (either within or outside the EU) as long as the investment manager is subject to a comparative level of prudential supervision as that which would exist under the EU MiFID regime. Provided the UCITS ManCo or AIFM does not become a 'letter box entity' as a result of this delegation, the Irish FMC model permits the day-to-day investment decisions to be taken outside of Ireland, while at the same time, enabling the funds themselves (whether UCITS or AIFs) to be passported for sale throughout the EU pursuant to the respective UCITS and AIFMD regimes. UK-based investment managers authorized under MiFID frequently carry out portfolio management on behalf of FMCs located in Ireland and elsewhere in the EEA." 159 At the moment of this writing, MiFID does not regulate the manner in which a third country entity can provide MiFID services into the EEA. Consequently, this is left to the relevant member state. It is true that this is going to be modified under MiFID II, but there will be some time before the MiFID II will apply entirely. Therefore, "both the UCITS ManCo and AIFM regimes permit those entities to apply to be licensed to undertake certain additional MiFID type services such as individual portfolio management, investment advice, and receipt and transmission of orders. In order to continue to access EU markets, a UK investment manager may consider adding those additional MiFID services to an EU entity that has a UCITS ManCo/AIFM authorization." 160 Taking into consideration retaining its current access to the EEA market, UK investment managers could consider the establishment of a Super ManCo in Ireland. As previously mentioned, both the UCITS and AIFM Directives allow dual authorization so that a UCITS ManCo can also be authorized to hold an AIFM license and vice versa. Therefore, this issue is of high importance for investment managers, who can therefore get access to the passporting regimes for UCITS and AIF products without being obliged to establish two separately regulated and capitalized entities. Furthermore, "as the CBI has recently streamlined the authorization, on-going supervision, managerial functions and governance of AIFMs and UCITS ManCos, establishing an Irish Super ManCo is now an attractive option. Overall, depending on the regulated services which a firm intends to carry on, an Irish Super ManCo may offer a regulated solution within a single regulated entity which would allow a UK investment manager to manage and sell AIFs and UCITS funds throughout the EEA on a passported basis while at the same time being authorized to provide individual portfolio management, investment advice and receipt and transmission services to clients throughout the EEA on a passported basis." 161 Therefore, Ireland offers a solution for avoiding the separate establishment of a MiFID firm, a UCITS ManCo or AIFM. Summing up, Ireland stands as a first choice for UK managers, who are trying to retain access to the EEA due to Brexit. Ireland stands out as distinguished distribution hub for both UCITS and AIFs, having a deep and well-established professional services environment, at the same time sharing a language with the United Kingdom, together with a common law legal system. Another important aspect was underlined by S&P Global Ratings' second edition of "Brexit Sensitivity Index 2019: Who Has The Most To Lose?" where Ireland scored 2.9, implying major reverberations in the Irish economy due to Brexit, particularly if this exit would occur without a formal agreement including period of transition (Fig. 3.7) . The Report analyzed several factors which imply Irelands' exposure to the United Kingdom. Putting aside aspects, 162 which although important, are not in focus for the current paper, we consider of major importance "Ireland's financial sector's exposure to the UK," ranking "the fourth highest of all 21 economies surveyed, reflecting the size of Irish banking subsidiaries operating in the UK." 163 Nevertheless, if we compare this position with that held by Ireland in 2016, financial sector claims are lower since the Irish banking system keeps on diminishing its UK footprint.

Summing up, the report concludes that the relationships between Ireland and the United Kingdom would be highly impacted, in a negative (economic point of view) way, in the case of a hard Brexit. Still, authors consider also that "Ireland is well placed to attract some of the FDI displaced from a post-Brexit UK, should UK-based financial subsidiaries and branches lose their coveted EU passporting rights, which currently enable them to sell financial services in the EU market." 164 As a concluding remark, as Brexit plans matured into implemented in late 2019 and early 2020, for many investment firms in the United Kingdom and some global investment firms, Ireland is currently emerging as a favored EU hub due to its relative advantages it has over a number of 162 S&P Global Ratings.(2019). Brexit sensitivity index 2019: Who has the most to lose? www.spglobal.com/ratingsdirect. Accessed 14 August 2020. In this report it is stated that there are several major aspects which put Ireland on top of UK preferences after Brexit, such as: "Ireland's 499-kilometer border with the UK encourages vigorous trade in merchandise and services, as well as substantial migratory flows between the two countries. At 8.5% of GDP, Ireland exports more goods and services to the UK than any other sovereign on the index. Deep supply chains extend between Ireland and Northern Ireland, not least in agro and food processing. Indeed, Northern Ireland is the UK region with the closest trade links with Ireland, making up around 15% of total trade.

Another by-product of Ireland's location is the large bidirectional immigration between it and the UK. The sum of Irish residents in the UK and vice versa totals 16.7% of Ireland's population, according to data from the ONS and the UN's Department of Economic and Social Affairs. That figure is twice that of the next largest bidirectional migratory figure, namely 8.35% for Malta, and far exceeds two-way migratory flows from southern European countries such as Spain (1% of Spain's population), the seventh most vulnerable nation on our BSI." 163 other EU countries across a number of metrics including tax, legal system, labor laws but also regulation. 165 3.5 Luxembourg: Overview of Hedge Funds Regulatory Framework

The Grand Duchy of Luxembourg has built up a strong name as a consequence of the fact that it provides various types of investors with a highly attractive fund product structuring solutions. According to EFAMA, Luxembourg stands as one of the countries which is home to the highest number of asset management companies. 166 As a consequence of the variety of investment vehicles, Luxembourg allows implementation of a large scale of alternative investment strategies. Looking back, Luxembourg has always found investment solutions, having an innovative and consistent regulatory approach. According to Cojocaru and Vostricov (2018) , "apart from maintaining a stable and well-working financial market infrastructure and providing high quality legal services, from the regulatory perspective, Luxembourg's legislator has always been very responsive to the needs of investors providing flexible and attractive investment vehicles, often allowing things that were not permitted in other jurisdictions," 167 for instance, setting up various compartments and sub-funds but also various share classes. 168 In the mid-1980s by anticipating again a new opportunity, Luxembourg was a pioneer being the first country that implemented the UCITS Directive into national law. Thus, in 1983 the first complex "investment fund legislation in Luxembourg" was implemented. Ever since, investment funds developed thoroughly, under the name of "Undertakings for Collective Investment " (UCI). As a consequence of this Directive, Luxembourg initiated to market funds across the EU (European Union) and later across the globe. 169 This is one major reason for Luxembourg's currently second ranking in the world's Investment fund center after the United States, and the global leader in terms of offering cross-border funds. 170 In addition to the foregoing, Luxembourg has also considerable experience in administering non-Luxembourg domiciled hedge funds but also FoHF. The main aspects that attract the international promoters of Luxembourg investment funds are the favorable legal environment, the know-how of well-established service providers, and the pragmatism and reactivity of the supervisory authority.

The establishment of onshore non-UCTIS funds in Luxembourg was made possible with the enactment of the 1988 UCTIS law, 171 complemented soon thereafter by a law on non-publicly traded institutional investor funds (the "1991 Law"). 172 Currently, as shown in Fig. 3 .4, 61% of all UCITS registered in at least 3 countries are Luxembourg funds.

Luxembourg's non-UCTIS legal framework was silence on a number of key issues handled on item-by-item by the CSSF 173 (for example, prime brokerage and short sales) and the discretionary nature of the approval of domestic non-UCTIS collective investment schemes launching. These prompted the Luxembourg's regulatory regime was complemented with the adoption, at the beginning of 2007, of a regulation regarding the specialized investment funds, 175 which repealed "the Law of July 19, 1991." Other significant developments included the abrogation of the restrictions imposed by a 1991 Circular 176 on the listing of offshore funds' units on the "Luxembourg Stock Exchange" (LuSE) and the issuance of a Ministerial Order amending its internal regulations on the listing of foreign funds, 177 as well as the adoption of a subsequent CSSF Circular laying down the contents of the prospectus of foreign funds intending to become listed on the LuSE. 178 This being said, the Luxembourg regulator has created an innovative and flexible framework for qualified investors. The introduction of the new Law on "Specialized Investment Funds " (SIF) in Luxembourg means that there are now the following possibilities for launching an undertaking for collective investment structure.

In Luxembourg, there is no particular type of vehicle dedicated to hedge funds. Luxembourg hedge funds can be classified according to their being regulated and by consequence, subject to the supervision of the financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), or according to their non-regulated nature, being managed by a regulated alternative investment fund manager (AIFM) itself subject to CSSF supervision. In Luxembourg, the hedge fund sector has grown 174 Circulaire CSSF 02/80. 175 rapidly over the last years. Luxembourg "regulated hedge funds are essentially tax-exempt vehicles, with the exception of registration duty and the annual subscription tax." 179 Accordingly, the most common investment fund structures for hedge funds are:

• Strongly regulated investment vehicles, such as:

-undertakings for collective investment in transferable securities (UCITS By now, after four years of existence of RAIFs, nearly 1,000 were established in Luxembourg. 183 -The Law of July 16, 2019 184 aims to designate the competent authority, i.e., the CSSF, and provides supervisory and administrative sanctions powers granted to such authorities for the specific needs of the EU Regulations. In respect to the power of investigation, the Law of July 16, 2019 distinguishes between: -EuVECA, EuSEF, MMF in respect of which the CSSF is vested with the supervisory and investigation powers necessary to perform its functions; -ELTIFs where the CSSF is vested with the supervisory and investigation powers provided by Article 50 of the Law of July 12, 2013 on alternative investment fund managers (the "AIFM Law").

Lately, the vast majority of hedge funds in Luxembourg have been set up as SIFs. However, currently they were highly challenged due to the flexibility offered by the RAIF.

It is worth noting that Part II UCIs, SIFs, and RAIFs fall within the scope of Directive 2011/61/EU on alternative investment fund managers (AIFM Directive). The AIFM Directive was transposed in Luxembourg by the Law of July 12, 2013 on alternative investment fund managers (AIFM Law).

As a result, a Luxembourg hedge fund qualifying as alternative investment fund (AIF) (that is, a collective investment undertaking [but not a UCITS] which seeks to raise capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of such investors) must be managed by an AIFM and must comply with organizational and procedural requirements. 183 Source European Central Bank (2019) Currently, "the Luxembourg hedge fund sector has grown rapidly making Luxembourg a recognized premier hedge fund domicile." 185 Table 3 .2 shows the aggregated national balance sheet of Investment funds in the Euro Area in mid-2019 (billions of euros). Luxembourg surpassed EUR 4500 billion in net assets being, by consequence, the largest investment center in Europe. The second rank is occupied by Ireland (EUR 2584.7 billion), third by Germany (EUR 2341.0 billion), and fourth by France (EUR 1453.6 billion).

As the second-largest fund servicing jurisdiction in the world after the United States, Luxembourg is a favored destination for investment fund managers (IFMs) and investors alike, thanks to its stable political and social environment, versatile fund products, leadership in investor protection, and experienced and responsive regulator and service providers. AuM in Luxembourg-regulated collective investment undertakings reached EUR 4.3 trillion at the end of May 2019. 186 Meanwhile AuM increase during the last period, Luxembourg also consolidated the total number of entities, being currently "3,871 entities that are subject to regulatory supervision, of which 2,513 are umbrella funds consisting of 13,553 sub-funds. In addition, 1,358 entities have adopted a standalone structure, bringing the total number of active fund units to 14,911 as of April 2019." 187 In addition to 14 internally authorized managers, 207 UCITS management companies, 263 authorized alternative investment fund managers (AIFMs), and 165 other IFMs are authorized as of July 2019. 188 There are 570 other IFMs that are registered as below threshold AIFMs.

Over the past few years, government efforts have been mainly directed at increasing transparency, protecting market stability and preventing the build-up of systemic risk in the financial system. Those large-scale reforms have been, to a large extent, driven by European initiatives.

UCITS and Part II UCIs that may be marketed to retail investors in Luxembourg are subject to the UCITS V Directive depositary regime. 189 Their depositary must be a credit institution with its registered office in Luxembourg or a Luxembourg branch of a credit institution with its registered office in another EEA country.

Part II UCIs whose offering documents prohibit marketing to retail investors in Luxembourg are subject to the AIFMD depositary regime. 190 SIFs, SICARs, RAIFs, and other AIFs managed by authorized AIFMs, and internally managed AIFs that are subject to the AIFM Law, are also subject to the AIFMD regime. They must appoint a Luxembourg credit institution or Luxembourg branch of an EEA credit institution, a Luxembourg investment firm, a Luxembourg branch of an EEA investment firm, or-under certain conditions detailed below-a Luxembourg professional depositary of assets other than financial instruments. Introduced by the AIFM Law, professional depositaries of assets other than financial instruments may only be used by AIFs that have no redemption rights for a period of five years from the date of the initial investments and either do not invest in financial instruments that must be held in custody in accordance with the AIFM Law (typically real estate funds), or invest in issuers or non-listed companies in order to potentially acquire control over such companies under the AIFM Law (typically private equity and venture capital funds).

Finally, the CSSF has issued guidance on reverse solicitation and marketing in respect of AIFs in Luxembourg. 191 Luxembourg's fund center has a strong international orientation: over 97% of funds under management in Luxembourg (around EUR 4.2 trillion) are from overseas. In addition, more than 90% of the large-and medium-sized asset management firms in Luxembourg are owned by overseas investors. 192 Luxembourg funds are distributed to investors in more than 70 countries, making the cross-border dimension of Luxembourg's fund center unequaled. 193 Nearly two-thirds of the funds authorized for cross-border distribution are domiciled in Luxembourg. 194 UCITS provide the majority of funds under management in Luxembourg, contributing to more than 82% of total funds in 2018. The share of assets under management of regulated AIFs managed by authorized IFMs is more modest in terms of managed assets (EUR 704. CSSF Circular 02/80 sets forth specific rules applicable to Luxembourg UCIs pursuing alternative investment strategies. The Circular determines the investment restrictions generally applicable to these types of Luxembourg UCIs.

SIFs and RAIFs are not subject to any investment eligibility requirements, and are therefore best suited to accommodate all sorts of alternative strategies. They are both, however, required to diversify their investments to 30% of their assets (except for certain fund of funds or feeder funds) as further set out in CSSF Circular 07/309. CSSF Circular 08/372 specifies the rules on the appointment of prime brokers, the relationship between the depositary and the appointed prime brokers, and the liability of the depositary in that respect.

Over the past few years, the Luxembourg government efforts have been mainly directed at increasing transparency, protecting market stability, and preventing the build-up of systemic risk in the financial system. Those large-scale reforms have been, to a large extent, driven by European initiatives. The "Commission de Surveillance du Secteur Financier" (CSSF) is the Luxembourg regulatory authority which supervises all Luxembourg registered funds. It is a public law body established with legal status by the Luxembourg state. Generally speaking, the CSSF promotes transparency and fairness in the financial products and services, protects the final consumers, and fights against money laundering and the financing terrorism. 195 CSSF. (2018b). Commission de Surveillance du Secteur Financier. Development of Net Assets and Number of UCIs. Commission de Surveillance du Secteur Financier. https://www.cssf.lu/en/supervision/ivm/ucits/statistics/annual-statistics/dev elopment-of-net-assets-and-number-of-ucis-over-the-last-years/. Accessed 13 August 2020.

In view of the alleged Madoff fraud, 196 the Stanford International Bank fraud 197 and the financial crisis, the increasingly regulated funds will be considered by investors the best choice for hedge fund investment. Accordingly, several institutional investors decided to move to onshore vehicles and address the larger, more regulated industries, such as Luxembourg. In this particular situation, it seems that regulation is an advantage, mainly due to this ongoing trend in hedge funds to settle down to better, investor friendly regulated jurisdictions like Luxembourg. Still, even if the measurement of the force of trans-jurisdictional regulations is pursued, most of the time there are concerns regarding the failure to find out overall significant inputs of regulation. The mixture of Luxembourg's pragmatic regulatory expansions, strengthening of efforts between classical and alternative asset classes and new marketing favorable circumstances in areas such as the United Kingdom are all to the country's advantage.

More recently driven by the adoption of the AIFM Directive in 2013, ManCos in Luxembourg have successfully shifted from traditional to alternative strategy assets and even more recently from regulated to unregulated assets. The successes of RAIFs and SCS/SCSps in Luxembourg confirm this trend. Thus, the new regulations positively impacted Luxemburg Assets under Management (AuMs), which reached EUR 4718 billion, representing a year-on-year increase of 16%, according to PwC 2020 Report. 198 198 PricewaterhouseCoopers. (2020). ManCos observatory barometer. https://www.pwc. lu/en/asset-management/docs/pwc-observatory-management-companies-barometer.pdf. Accessed 14 August 2020.

Thus, the year began with positive trends for ManCos, who have assimilated a dense regulatory agenda over the past 18 months with, among others, the implementation of the CSSF Circular 18/698. 199 2020 promised to be a challenging year for ManCos with great opportunities to seize with the development of the alternatives sector. However, it began with an entirely different unpredictable challenge, the COVID-19 pandemic, which presents significant challenges to people and organizations around the globe.

An important challenge for ManCos will be managing their profitability, which, together with a decrease of their AuM following the crisis 200 will be on the top of the ManCos main challenges. Also, according to PwC, "valuation exercises for closing end of March 2020 199 CSSF Circular 18/698 Authorisation and organization of investment fund managers incorporated under Luxembourg law; Specific provisions on the fight against money laundering and terrorist financing applicable to investment fund managers and entities carrying out the activity of registrar agent. 200 AuM in Luxembourg decreased by 12% from December 2019 to March 2020, representing 569bn EUR. and end of June 2020 for Alternative Investments will be crucial in this period of instability and promise to be a very delicate exercise for players exposed to illiquid assets." 201

Luxembourg is appealing because of its background on hedge funds and FoHFs since two models of law are used. The very first is tighter but also strictly controlled by regulations, and this enables their distribution towards an unlimited public while the second, the SIF, stands a flexible system open to qualified investors. 202 Mainly due to the financial crisis, Luxembourg's hedge funds framework and legislation, which used to be perceived by several investors and promoters as quite heavy, operates now to its advantage. At present, both the Luxembourg Government and the CSSF have a good record in implementing EU directives, by regulation and clear understanding, expressing optimism in supporting industry guidance and new best practices. Accordingly, a more regulated industry at European level could lead to an increase of the sector in Europe, particularly in Luxembourg, and this can be seen at the level of RAIF Law. Indeed, "Luxembourg modernized and refined its legal system to offer a unique variety of tools for investors to set up their (regulated or unregulated) structures, with or without a distinct legal personality, allowing managers to set up the vehicle which best fits their needs." 203 Also, from the point of view of litigations and arbitrations, there are many voices who "welcome the addition of this latest tool in Luxembourg's investment fund toolbox as it is perfectly suited to the needs of third-party funders which may be required to react quickly to market trends and dedicate substantial resources to specific types of disputes." 204

Luxembourg has transposed the AIFMD Law into its national law on July 12, 2013 with the major aim of strengthening its position as a global investment fund center. 205 The AIFM Law contains several principle-biased rules as the one laid down in the UCITS Directive. As an example, an AIFM must "act honestly, with due skill, care and diligence and in the best interest of the AIF or its investors and in the integrity of the market." 206 The AIFMs must "manage three internal control functions such as a permanent compliance function, a risk management function and an internal audit function." 207 The AIFM Law applies to Lux/EU AIFMs managing one or more EU AIFs/non-EU AIFs; Non-EU AIFMs managing one or more EU AIFs; Non-EU AIFMs marketing AIFs in the EU (ALFI 2014c). The only scenario which does not fall within the scope of the AIFM regime is the situation of a non-EU AIFM managing and/or marketing a non-EU AIF outside the EU. 208 Authorized AIFMs will be allowed to perform core functions such as portfolio management, risk management, administration, marketing, and activities related to the assets of the AIF. 209 The most important advantage of having an authorized AIFM is the passport it benefits from, a passport which allows it to marketing its EUbased AIFs to professional investors in the EU on a cross-border basis. An authorized Luxembourg AIFM "may also hold a UCITS ManCo 204 Idem. 205 (Management Company) license, and therefore market and manage on a cross-border basis both EU AIFs and UCITS funds." 210 Summing up, the implementation of the AIFMD into Luxembourg legislation was seen as a step forward in stabilizing the key role held by Luxemburg in the global investments industry, therefore it was not an end to the traditional private placement regime. The most important aspect of all is that currently, the two regimes coexist, the distribution passport under the AIFM Law and the private placement regime of EU AIF on the Luxembourg territory. Therefore, "Luxembourg modernized its limited partnership regime, at the same time as transposing the AIFMD into its national law." 211 The Luxembourg regulator of the financial sector ("CSSF") gave some guidance as to when an offering of securities could be considered as not being made to the public (and hence be within the traditional private placement regime):

• whether the offer is made to (i) EU professional investors 212 ; • whether the securities have a high nominal amount 213 ;

• whether the offer is made to a small circle of persons 214 ;

• the form of the offer, e.g., targeting existing customers, high sales amount, no advertisement; • the use of a "wrapper" that is initially offered on a private placement basis, but ultimately offered to the public does not benefit from the private placement regime.

However, within Luxembourg territory, the CSSF must be informed in advance of the marketing of any AIF by non-EU alternative investment 210 ALFI. (2018). Luxembourg investment vehicles: An overview of the legal and regulatory requirement s. Association of the Luxembourg Fund Industry. https://www. alfi.lu/getattachment/9d6077df-e6db-438a-b77a-ba3fd7a39f1d/alfi-alfi-luxembourg-inv estment-vehicles-final.pdf. Accessed 14 August 2020. 211 fund managers ("AIFM"). The CSSF has set out the steps to be followed for such notification procedure for marketing either EU or non-EU AIFs managed by a non-EU AIFM. While there is no statutory time-limit for the administrative procedure with the CSSF, the marketing of the AIFs can start from the date of the notification. The non-EU AIFM is subject to certain reporting obligations to the CSSF, publication of an annual report, and compliance with the Consumer Code.

The introduction of the EU Alternative Investment Management Directive in 2013 boosted the development of hedge funds in Luxembourg. Figure 3 .9 shows market share (in %) of fund initiators' home countries in terms of AuM.

Asset managers from all over the globe perceive Luxembourg as a gateway to the European Union market and the global investment fund industry. Currently, as seen in Fig. 3 .9, fund initiators from the United States and the United Kingdom hold the biggest market shares in terms of AuMs.

The "Brexit sensitivity index" that the rating agency Standard & Poor's calculated in 2019, revealed that, "the three most exposed European countries at Brexit are, Ireland, Luxembourg and the Netherlands and the least exposed countries are Italy, Austria and Finland." 215 Regarding the Grand Duchy, S&P believes that its second position is linked to "Luxembourg's important links with British financial institutions and its high exports (many of which have been rerouted through Luxembourg for tax purposes)." 216 The rating agency also believes that Luxembourg, as a financial intermediary for many international companies, could have significant repercussions in financial services and commerce.

S&P specifies, however, that its index could overestimate Luxembourg's vulnerability to Brexit. Indeed, the rating agency excluded from its calculation of FDI the common funds of claims (or SPE, special purpose entities). However, these represent more than 95% of Luxembourg's FDI in the United Kingdom.

The tight connection between the two is clear. Even from the moment when Brexit was not yet clear to occur, the Luxembourg Government stated that relations with the United Kingdom were of major importance and will remain as such.

The United Kingdom stands as a key partner of Luxembourg since they are both supporters of the economic liberalism, their relationship being also important in the field of transnational European cooperation.

Assuming that the United Kingdom will become the third country after its withdrawal from the EU, the Luxembourg Parliament has passed on April 8, 2019 two laws that aim to mitigate disruptions caused by Brexit: hard versus soft Brexit.

The first Brexit law (hard Brexit) would only apply if the United Kingdom leaves the EU without an agreement. It introduces a form of EU passport for UK financial service providers currently operating in Luxembourg during a transitional period of 21 months in line with EU contingency plans. 217 The bill 7401 "covers services in the financial sector, payment services, the fund industry, hedge funds and the insurance sector. The legislation also concerns the two financial supervisory 215 Fort, L. (2019) . Le Luxembourg, deuxième pays le plus exposé au Brexit. Paperjam Business Zu Letzebuerg. https://paperjam.lu/article/le-luxembourg-2e-pays-leplus. Accessed 12 August 2020. 216 Idem.

bodies in Luxembourg: the Financial Sector Supervisory Commission (CSSF) and the Insurance Commissariat (CAA). They might take temporary emergency measures to ensure the proper functioning of the financial markets, and have the power to issue, on a case-by-case basis, a European passport to UK service providers." 218 The second Brexit law (soft Brexit) applies whether the United Kingdom leaves the EU with or without an agreement with the EU. The law sets out a 12-month grace period for IFMs of Luxembourg UCITS, Part II UCIs and SIFs to address breaches of investment rules resulting from the United Kingdom's withdrawal, such as divesting from positions in UK UCITS which could no longer be deemed compliant due to Brexit. It also authorizes UK UCITS to continue to be marketed to retail investors in Luxembourg during the grace period. Where the UK UCITS is managed from outside the United Kingdom by an EEA IFM also authorized as an AIFM, then the UK UCITS will be considered an AIF for these purposes and permitted to be marketed to retail investors in Luxembourg under local AIF rules after the grace period. 219 The one-year delay enables Luxembourg funds to modify their portfolio composition as well as their investment strategies and prospectuses. 220 The law also allows UK Management Companies, authorized as AIFMs, to continue selling their UK UCITS in Luxembourg for maximum one year, until getting a Management Company in the EU. The law will enter into force starting from the date of the United Kingdom's departure from the EU. 221 Brexit has led investment managers to decide to open their next fund in Luxembourg or Ireland. Luxembourg has a solid reputation as Investment fund domicile and has business-friendly tax systems. UK asset managers may appoint a third-party AIFM in Luxembourg that would 218 Vysotskaya, V., Vukovich, L., Bissinger, J., Sommarribas, A., & Nienaber, B. (2019) . To be or not to be: How the Luxembourgish government is preparing for Brexit. https:// orbilu.uni.lu/bitstream/10993/39325/1/working%20paper%20brexit-lu.pdf. Accessed 15 August 2020. 219 manage their EU-based AIFs to continue to have access to the EU passporting regime. One major advantage for Luxembourg is the SCSp form. 222 On the other side, Luxemburg's Investment funds benefit from increased flexibility due to new laws introduced by the Government. 223 UK funds managers have clear advantages in reallocating their business to Luxembourg as it is the largest Investment fund center in Europe and has adequate international human resources and infrastructures. Moreover, most of the UK fund managers already have subsidiaries located in Luxembourg.

The reallocation of UK fund managers to Luxembourg would increase the attractiveness for multinational companies in Luxembourg. This could also mean for Luxembourg an increase in its population and therefore in the real estate prices, possibly also requiring certain adaptations of the infrastructures.

According to ALFI, a number of 23 asset management companies based in the United Kingdom announced that they will move or strengthen their presence in Luxembourg. And several examples are: "JPMorgan, Blackstone, MJ Hudson, Columbia Threadneedle, M&G Investment Ltd." 224 Since the Brexit referendum, major new inflows reached Dublin and Luxembourg. Thus, "Dublin has received EUR 48 billions of net inflows from the UK since June 2016, with Luxembourg receiving only EUR 23 billion." 225 Reports acknowledge currently "that Dublin comes up as the clear winner in terms of attracting business from the UK, with 100 firms 222 Idem. 223 Idem. 224 Di Pillo, N. (2019) . Pour la première fois depuis plusieurs années, l'industrie luxembourgeoise des fonds d'investissement a enregistré en 2018 une baisse de 2,28% de ses actifs sous gestion. Luxemburger Wort. https://www.wort.lu/fr/economie/fonds-pre miere-baisse-depuis-2011-5c51b659da2cc1784e33cbce. Accessed 12 August 2020. 225 Taylor, C. (2019, April 10). Dublin big winner as UK investors place 'wall of money' in offshore funds. The Irish Times. https://www.irishtimes.com/business/fin ancial-services/dublin-big-winner-as-uk-investors-place-wall-of-money-in-offshore-funds-1. 3855596. Accessed 12 August 2020. choosing the Irish capital as a post-Brexit location. 60 have chosen Luxembourg, 41 Paris, 40 Frankfurt and 32 Amsterdam." 226 More recently, the uncertainties surrounding Brexit caused a number of British and international operators with a significant presence in the United Kingdom to relocate all or part of their operations to Luxembourg or to establish Luxembourg investment funds. Of those firms that have publicly communicated their plans, more than 60 firms-half of which are in the asset management industry-have chosen to relocate to Luxembourg.

Companies from all over the world use Luxembourg as their gateway to Europe and the rest of the world. The two countries with the largest market share of assets under management in Luxembourg are the United States and United Kingdom.

As a concluding remark, after the adoption of the AIFM Directive, Luxembourg proposed a new legal structure to be used by investment funds in order to attract international investors and fund managers, a model which comes very close in terms of flexibility and tax-transparency. In spite of the fact that the management rights of investors are more limited than under the UK model, a Luxembourg special limited partnership provides "an efficient structure as regards the time-to market and the absence of regulatory oversight," which "enables fund managers to quickly set up an investment fund and engage in sophisticated, almost unlimited investment strategies." 227 This stands as very important in the post-Brexit era when fund managers and investors are expected to engage in forum-shopping within the EU. Since after leaving the EU the United Kingdom will be considered a third country, UK fund managers are expected "to look for an EU jurisdiction to move their operations to if they wish to market their funds to the EU investors. It goes without saying that Luxembourg offers an interesting choice in terms of a limited partnership structure, the importance of which will only increase after the UK exits the EU." 228 3.6 Malta: Overview of Hedge Funds Regulatory System

In Malta, ISA 229 enacted in 1994 230 sets up a particularly regime regulating the approval of CIS, but also fund administrators, paving this road for the establishment of "retail funds and local fund managers." Six years later, MFSA 231 issued particular standards for the so-called "Professional Investors Funds " (PIF) with the purpose of putting Malta in the role of "European hedge fund location." Currently, the regulatory body responsible for investment services in Malta is the Malta Financial Services Authority (the "MFSA"). According to MFSA, "the Investment Services Act (the "Act") establishes the framework for two types of licenses: Investment Services Licenses and Collective Investment Schemes Licenses. It also transposes the legislation issued by the EU in terms of investment services, including the Markets in Financial Instruments Directive ("MiFID"), 232 the UCITS Directive and the AIFMD." 233 To this end, the MFSA licenses regulate and supervise investment services providers and collective investment schemes. It has also issued (and continues to issue as circumstances require) various sets of dedicated Investment Services Rules which lay down the requirements and conditions relative both to initial licensing and to license holders' ongoing operations.

Summing up, the law and regulations which regulate hedge funds are:

228 Idem. 229 The Investment Services Act. 

Malta's law on hedge funds is complex and flexible. Most of the island states consider it a model for onshore directive of hedge funds and think international and European measures in regulation of industry would probably bring other countries closer to the Maltese model. Its major advantage is its bilingual legislation. All laws in Malta are issued both in English and in Maltese, 237 the official languages in the Maltese state. 238 This legislation provides clarity and simplicity of understanding, sometimes absent in some other onshore jurisdictions. An advantage resides in the fact that Malta melded the legal traditions of the continent with the Anglo-Saxon model. 239 During the last decade and a half, the Maltese regulatory body was thoroughly modernized. This complex regulatory outcome was meant to attract investments from abroad and firms across Malta.

The country has a single financial services regulator, the MFSA. From November 1, 2018, the MFSA also began regulating virtual financial assets. 240 Until 2018, the MFSA additionally housed the Registry of Companies and the Listing Authority. The structure of the MFSA changed in 2019, when, the Maltese Parliament approved amendments to the MFSA Act and to the Financial Markets Act which, according to the MFSA's 2018 Annual Report, "will strengthen and streamline the MFSA's decision-making processes, and boost the supervision of compliance to prevent money laundering and the financing of terrorism." 241 In implementing these changes, the MFSA established: (i) an Executive Committee; (ii) Services Stakeholder Panel. 242 In contrast to many of its counterparts, it can quickly modify the existing rules and change the old ones in order to make sure that regulation complies with industry innovations. The principal proposer and driver of new financial services legislative initiatives, MFSA succeeds in winning new business within the tough competition by ensuring of both a robust and yet highly flexible regulatory framework.

Generally, the legislation makes available a wide-ranging, flexible regulatory structure for the establishment, licensing, and marketing of all kinds of CIS and institutional funds and investment service providers. The laws also provide a guideline for several selected financial processes of non-credit institutions and for the establishment, but also multinational identification. Maltese company law 243 is side by side with all applicable EU corporation laws. The island state is well-known for the prompt adoption and harmonization of EU directives. This means the state is fully compatible with all EU legislation and that it provides companies established in Malta many of the benefits these laws provide to companies thriving to develop in other EU member states.

In addition to the adoption of EU directives, Malta's laws also comply with OECD provisions on the control and stop of money laundering 244 and insider dealing.

The government considers that foreign investors are completely reassured by the consolidation of the various provisions in Maltese law on professional secrecy, without obstructing the supervision of fiscal and regulatory compliance or the investigation of serious crimes such as money laundering and insider dealing.

Malta encourages an environment that stimulates the development of investment in a professional and sound manner. The protection of 242 Idem. 243 Which is essentially based on the UK's company law. investors' interests is extremely important. This shows that MFSA has been given full powers to act. At the same time, the MFSA understands the importance of enabling the financial services, and especially the fund sector to autonomously innovate but also develop new products.

Whenever pleased with a candidate or firm candidate, the MFSA offers a certificate, each of its principal and secondary connected parts are "fit and proper." Generally, there are three criteria that need to be fulfilled: integrity, competence, and solvency.

In spite of the minute legislation, the culture existing in Malta tends to make things happen rather than stop them. Combined with the accessibility and proactive development at the MFSA, this makes Malta an alternative jurisdiction by many funds, and especially start-ups.

The small Mediterranean financial center of Malta "prides itself on innovation. The latest trend to be embraced is technology-themed investment, with the launch of virtual currency funds, which regulators at the Malta Financial Services Authority (MFSA) hope will attract new business." 245 Hedge funds managers consider that the regulation in Malta is very flexible and also knowledgeable. Its rivals do not look as good as Malta. Although Malta is a long way behind Luxembourg and Ireland, the jurisdiction is moving in the right direction and the country's advantages of low cost and highly skilled workforce, together with an accessible and flexible regulator will attract more funds.

Even if the cost advantage is transitory and will eventually disappear as Malta's economic growth equals that of its EU counterparts, it does provide the jurisdiction a short-term advantage that Malta is eager to exploit. The domicile-related costs in Malta are lower by a half to a third than in the other states of Europe. However, cost is not the only important issue for hedge fund managers and promoters of the island. The MFSA has made a name for flexibility together with meticulous attention to detail. Although the regulation was considered too strict by manyespecially as compared to Luxembourg and even Ireland-in a world distressed by negligent regulation, it is quickly gaining advocates. As an onshore EU authority with advantageous tax rates could make Malta win even more businesses during the next period. Even though the total number of funds domiciled in the jurisdiction is still small as compared to the more established centers, the industry started to grow.

Malta is creating a niche for itself. This state builds its reputation as the jurisdiction chosen by smaller, start-up funds that consider the high costs and crowded service sectors of Dublin and Luxembourg to be unfriendly. Under the circumstances of a cost-dependent world, funds intend to show investors that their goal is to keep management fees low. Indeed, in a recent report, it is stated that "its services sector regarding financial services […] has seen stable growth however financial services have been in focus for the nation considering recent tax avoidance discussions in Europe, due to the countries low tax policies." 246 In Malta, size is not important.

MFSA is considered stricter as compared to Ireland and Luxembourg, although it has a reputation for approachable and flexible authority. Malta's position is very good to capitalize on its reputation, as well as its clear legislation. The real challenge for Malta will be to ensure that it has the necessary skills to provide quality services for the industry. Malta's legislation is pragmatic and well-organized and at the same time it provides strong and efficient regulation. The Maltese regulatory authorities have stated that they are committed to guarantee market participation in compliance with regulations but, at the same time, they have confirmed a pro-business attitude and the adaptability that can only survive in a small-sized jurisdiction. As part of the EU, Malta is almost certainly closer to Ireland or Luxembourg in terms of strength and depth of its rules than Bermuda or the Caribbean jurisdictions. Of course, regulation within the EU is more coherent and stronger than that in more classical "offshore" countries. On the other hand, as mentioned above, Malta enjoys the advantage of being a small jurisdiction, which has the pragmatic complete authority in implementing legislation and regulation. The Maltese regulator continuously encourages more custodians to establish in their jurisdiction.

According to Zerafa and Scicluna, "Malta was the first EU Member State to complete the transposition of the AIFMD into national law and started accepting applications from start-up AIFMs as of the date the AIFMD entered into force." 247 Lately, Malta has a reputation of home-based EU land, which has the ability to draw together investment from funds in Europe. The AIFMD regulation appeared like a major opportunity for Malta to take place as one of Europe's prime financial centers. According to Lawrence Gonzi, in 2012, Malta "ranked among the top five emerging financial centers in the world in the City of London's Global Financial Index." 248 Malta provides a perfect entry opportunity for hedge funds managers who desire to establish an onshore fund, because the Maltese law is strict and in line with EU requirements. Additionally, the MFSA has proved itself practical and business-friendly, providing an active support to find a key within the context of the laws and legislations.

As the Finance Minister, Tonio Fenech, said, "Malta has witnessed a rapid growth in the number of domiciled funds in the past year," 249 a tendency which will probably continue in the years to come. Malta's pragmatic approach to regulating its funds industry, its growing economy, its deep pool of talent (both local and overseas), its small but well-connected ecosystem of high-quality service providers, all of whom understand the cost pressures and demands of hedge fund managers, and its range of fund structuring options to meet the different distribution and marketing 247 needs of managers, are all key ingredients. And as UK fund managers look for a Plan B in response to Brexit, all the signs would appear to be that Malta is primed and ready to welcome UK managers with open arms. 250 In a research 251 which investigates the impact of the Alternative Investment Fund Managers Directive (AIFMD) on the financial services industry after its transposition into Maltese national law, 252 it is stated that the aim of the Directive was that of increasing investor protection and confidence, at the same time being seen as a change that would bring about major shifts not only for local industry investors but for the entire fund industry. According to this study, "so far, the AIFMD has certainly benefitted investors through improved transparency yet it has also significantly increased costs for market players as a result. The growth and reputation of the financial sector appears to have been affected negatively over the short-term. But […] there is still time and the possibility for it to yield further benefits; a view that is strongly endorsed by local entities, who believe that certain benefits have already been gained through features such as the ability to 'passport' alternative investment funds (AIFs) throughout the European Union (EU)." 253 This study also found that major impacts occurred in relation to depository requirements, risk management, valuation, transparency, and marketing.

However, one thing should be remembered: the Maltese hedge funds industry is still significantly small as compared to medium-sized hedge funds markets in Europe and not only. At the same time, Malta's industry attracts especially small hedge funds.

According to a recent article, "Malta's low costs, innovative mindset and robust regulatory environment bode well for its future as a financial center, but the island worries about the potential impact of Brexit shock waves." 254 In a similar line, recent studies found "12 reasons to choose Malta," which can be found in Fig. 3 .10. Therefore, Malta can stand as a viable solution for investors post-Brexit, particularly if we consider "Malta's straightforward and transparent process, constructive attitude and ever-growing financial services industry offers the leanest, pro-business jurisdiction in Europe." In addition, the Maltese legal system is very much based on English common law, which makes this jurisdiction even more appealing for UK hedge fund services managers. Also, this prompts Malta to provide the best of each system and by consequence to offer asset managers "with the opportunity to smoothly continue their activities within the EU." 255 Therefore, it can be said the Single Accessible Regulator is very attractive, being modeled on the then UK FSA: "Credits for Malta's success as a financial services hub merely go the Malta Financial Services Authority ('MFSA'). The adoption of an open-door policy not only provides asset managers with the opportunity to directly and informally communicate with the Regulator, but the latter offers instant advice and is flexible to incentivize those who wish to do business in Malta. Additionally, to decrease bureaucracy, the MFSA is presently improving the manner it regulates and serves individuals and businesses." 256 Malta is currently a niche destination. Still, if we consider Malta's residency scheme, namely the new Golden Visa Programme, 257 this might turn into a key aspect for investors when choosing their next state of relocation. Other way round, Malta has often been named "Europe's gateway" 258 due to offering "third-country nationals with visa-free access to the European Schengen Area." 259 In the MFSA's report "Supervision Priorities 2020," as far as Brexit is concerned, both EU and the MFSA keep on preparing for both soft and hard Brexit scenario, the major focus of the latter being on managing the immediate risks and key aspects. According to this report, the impact of a no-deal Brexit on licensed entities on investment services has been assessed by the MFSA in 2019 and in this respect different circulars on this subject have been issued. According to this report, "the MFSA will continue to monitor the level of preparedness, taking into account the public communications issued by the European Commission and the ESAs. In a no-deal Brexit scenario, the MFSA will focus on ensuring that the immediate risks and issues are managed. In the scenario where a withdrawal agreement is in place, the MFSA will have more time to implement any relevant actions in relation to Brexit, taking into account the discussions on the future relationship being held between the political 256 Idem. 257 Additionally to the citizenship-by-investment program. 258 Goudner, N., & Scicluna, L. (2018) . Malta: UK's gateway to Europe. International Tax Review, 29, 53. https://heinonline.org/HOL/LandingPage?handle=hein.journals/int axr29&div=59&id=&page. Accessed 15 August 2020. 259 Werber & Partner. (2020) . Malta-A viable Brexit solution for businesses. https:// www.drwerner.com/en/malta-a-viable-brexit-solution-for-businesses/. Accessed 12 July 2020.

negotiators." 260 According to the MFSA, the most important priorities for 2020 are going to be: on the one hand relocations and local setups, and on the other hand, the United Kingdom firms passporting in Malta but also Malta firms passporting in the United Kingdom.

For the first priority, the duties of the MFSA are going to be "monitoring and applying a substance-based approach to any applications for entities relocating from the UK to the Malta, withdrawal from the EU. The Authority will also ensure that the business models and structures that involve UK entities can continue to adhere to supervisory expectations. This will be done through meetings and engagement with applicants and licensed entities." 261 As far as the second objective is concerned, the MFSA is going to keep on monitoring important entities which "operate on a cross-border basis and their applications for the domestic or UK TPR, as well as the exposure of local market participants and clients to the UK. This will include the implementation of Malta TPR for securities, engagement with UK authorities on the UK TPR and engagement with affected entities on their contingency plans." 262 3.7 Switzerland: Overview of Hedge Funds Regulatory System

With its long tradition of banking and finance, Switzerland is one of the leaders at the international level in the asset management industry. Swiss asset management constitutes one of the main pillars of the Swiss financial center. The asset management industry in Switzerland is heterogeneous and applies different business models. Large banking institutions active in wealth management (private banking) coexist with a number of smaller niche players.

There is no specific legal regime that applies to hedge funds and private equity in Switzerland. Assets invested in hedge fund products represent approximately 5% of the assets invested in Switzerland at present time. This is partially due to the fact that fewer restrictions are applied to hedge funds than any other investment vehicles in terms of the investment types they can make. 263 The main Swiss legal and regulatory overview in terms of hedge funds is represented by the "Collective Investment Schemes Act " of June 23, 2006 ("CISA") enacted on January 1, 2007 and adopted by the Swiss Federal Council and the "Swiss Financial Market Supervisory Authority" ("FINMA"). 264 FINMA issued several circulars relevant decisions, respectively, on August 29, 2007 updated guides on public offering and private placement enacted on October 1, 2007, regarding the private employment of non-Swiss collective investment schemes.

Up to now, Switzerland has been a less significant domicile for single hedge funds. Still, Switzerland does represent an important market for the placement of funds of offshore hedge fund products and an attractive jurisdiction for the management and distribution of foreign hedge funds. The Cayman Islands stands as the central incorporation place for the biggest part of Swiss-managed hedge funds.

The regulatory framework of hedge funds in Switzerland both for foreign hedge funds as well as Swiss funds are the following:

• Swiss Collective Investment Schemes Act (CISA). 265 • Swiss Collective Investment Schemes Ordinance (CISO). 266 263 Senn, M. (2010) . The revised versions of the CISA, the CISO, and CISBO-FINMA entered into force on March 1, 2013. In addition, "the revised provisions in the law governing qualified investors and the Key Investor Information Document (KIID) replacing the simplified prospectus (Art. 10, 76 and 77 CISA) are also part of this recent revision and entered into force subsequently after a set delay on June 1, 2013. The same applies to the provisions on the duty to keep documentary records when distributing collective investment schemes set out in both the law and the ordinance (Art. 24 para. 3 CISA and Art. 34a CISO), which entered into force on January 1, 2014 and have been added to the Code of Conduct." 268 In addition, FINMA issued several circulars which are also part of the current regulations: • authorization and supervision of fund management companies, asset managers of Swiss collective investment schemes and foreign collective investment schemes, distributors and representatives of foreign collective investment schemes 269 ; • the approval of fund products. 270 SFAMA is the representative industry association of collective investment schemes and their managers in Switzerland. The industry standards of SFAMA are of great significance. Indeed, the importance of SFAMA was admitted by FINMA, which recognized plenty of industry standards as minimum standards for all market participants.

In the past years, the Swiss financial market regulation changed very much. Existing rules already have been complemented or replaced by new laws, and we refer to the following:

The FMIA entered into force on January 1, 2016, while the Swiss Federal Council's dispatch including revised draft bills for the FinSA and FinIA was published in late 2015. The Swiss Parliament adopted both bills in the final votes on June 15, 2018, which are expected to enter into force on January 1, 2020.

The latest regulatory change in Switzerland occurred on January 1, 2020, when, two financial laws: the Financial Services Act (FINSA) and the Financial Institutions Act (FINIA) were enacted. Their enactment was done by taking into account the global trends to regulate and supervise financial services and their providers. 271 This "new Swiss regulation introduces prudential supervision for asset managers and trustees who have only been subject to Anti-Money Laundering (AML) regulation 269 Section 4 FMSA. 270 If approval is required for distributing the respective fund product in or from Switzerland. 271 Such as Markets in Financial Instruments Directive (MiFID) II, Prospectus Directive, Packaged Retail and Insurance-based Investment Products (PRIIPs). in Switzerland until now. Foreign trustees will also be affected by the FINSA/FINIA if they engage in activities in Switzerland." 272 The FinSA 273 stands as "a new modernised prospectus regime" 274 for the capital markets in Switzerland. Summing up some customizations for debt and equity instruments, but also for collective investment schemes, derivatives, and structured products, this new Swiss prospectus regulation intends to be applied to all financial instruments, in a uniform manner.

Current challenges to the asset management industry in Switzerland include a wave of new regulatory activity and regulatory developments occurring at the EU level. The Swiss legal and regulatory framework is being adjusted on an ongoing basis to ensure its euro-compatibility to keep it in line with international standards and to enhance the protection granted to investors. The regulatory framework for the regulated hedge funds focuses mainly on investor protection. This is achieved primarily through transparency and control of the professional qualifications of fund managers and representatives.

The protection of investment advisory and asset managers' clients has been at the top of the Swiss regulator's agenda for several years now, and will be one of the most important legislative projects in the financial services sector for the years to come.

In November 2015, the Federal Council published the draft of the Financial Services Act (FinSA) and the Financial Institution Act (FinIA). The FinSA deals with the relationship between the financial intermediary and investors, essentially provides for rules of conduct aiming at protecting investors upon the provision, upon a professional basis, of financial services or financial instruments in Switzerland. Those rules are primarily based on the EU's MiFID regulations. By contrast, the FinIA includes provisions concerning the relationship between the financial intermediary and the regulatory authority, and imposes general licensing and organizational requirements, irrespective of the authorization regime. The Parliament adopted both bills in the final votes on June 15, 2018. During its meeting on November 6, 2019, the Federal Council brought the FinSA and the FinIA-together with the implementing ordinances-into force with effect from January 1, 2020. 275 Scholars consider that the main aim of the two regulations is to increase "customer protection in the financial market" 276 but also investor protection. 277 Besides increasing investor protection, the FinSA aims at ensuring that "Swiss financial market law complies with applicable international standards and that a level playing field for the supervised financial service providers is created through uniform competitive conditions. Owing to the close intertwining of the Swiss financial market with European financial markets, the rules of the FinSA are based on EU regulations such as the Markets in Financial Instruments Directive II, the Prospectus Directive and the PRIIPs regulation, which simplifies matters for financial service providers serving clients both in Switzerland as well as in the EU." 278 It should also be noted that, although the FinSA tries to intervene intertwine European directives into the Swiss law, it also aims at maintaining special characteristics of the Swiss financial market and as a consequence the simple adoption of the European regulatory is not done as a whole. Under the current law, financial service providers are treated differently with regard to the intensity of the regulation and their supervision. This inconsistent design of the regulatory requirements for financial service providers leads to unequal conditions of competition for the provision of financial services.

Apart from investor protection, transparency was also taken into account, as a means of insuring investor protection. However, under FinSA, disadvantages exist "in the areas of code of conduct and product regulations. For example, it is common that clients are not well-informed about financial service providers and their services or products and are not being asked about their knowledge and experience. Furthermore, prospectuses used in public market transactions are often very detailed and hard for clients to understand. The FinSA addresses this issue by increasing information requirements and financial service providers have to, inter alia, give clients appropriate explanations and advice and to supply a KID to retail clients with regard to financial instruments." 279 This increased client protection raised many controversies, but this new regulation supports clients in a manner which is "more tailored to their needs when engaging in businesses on the financial markets and thereby enhanced level client protection is afforded in comparison to the status quo." 280

Switzerland stands for neutrality and "a strong financial services sector," 281 also being "one of the oldest tax havens in the world. 282 Lighter regulation and less costly compliance in present Switzerland appeared to be an alternative to more strictly regulated EU member states from the perspective of asset management. But with the new regulations enacted, namely FinSA and FinIA and also with the fact that "recognition of Swiss stock market equivalence was discontinued by the European Syeda, A., Syeda, A. F., & Latha, K. (2020) . Impact of loan portfolio diversification on Central Bank performance and risk mitigation. International Journal of Management, 11(5), [644] [645] [646] [647] [648] [649] [650] [651] [652] [653] [654] [655] [656] [657] [658] [659] [660] [661] Idem.

Union on June 30, 2019," 283 new administrative burdens were put on investors.

If we speak of disadvantages, the FINIA "increases the regulatory and compliance burden for foreign trustees in Switzerland. However, the accomplishable standards allow even very small trustees to meet the regulatory expectations of the FINIA in time." 284 On the opposite side, there are also positive aspects of the new legislative measures adopted residing in the fact that they offer more clarity, which is of great help, particularly "in a cross-border context, where expectations by the different competent regulators are sometimes difficult to align. A stringent operational setup (for example in respect to intra-group services) is key to minimize the administrative burden." 285 "Except for the AIFM Directive, Switzerland is a very stable country." 286 It is a country with very stable and static regulatory and tax system.

Switzerland is very important with respect to investor base, enabling hedge funds to be close to their main client segments, which is a vital advantage, especially in times of crisis when demand for accessibility of managers increases. Switzerland hosts a wide range of hedge funds (FoHF), and it also provides managers broad exposure to institutional clients, in terms of sizeable pension funds, family offices and very large diversity of independent asset managers. Apart from this proximity to customers, Switzerland overruns many of its European counterparts in terms of political stability and quality of life, which are frequently considered by managers as a central reason for relocating. The expected hedge funds migration from London to Switzerland and the exodus of entire organizations has not started yet, but managers are expected to keep opening offices in Switzerland. 283 Idem. 284 Blumenfeld, M. (2020) . FINSA/FINIA-new regulation for foreign trustees in Switzerland. Trusts & Trustees, 26(5), 400-403. https://doi.org/10.1093/tandt/ttaa025. 285 Idem.

While profitable functions such as trading will be moved to Switzerland, many hedge funds have started, and are likely to continue, to keep at least parts of their staff in their original locations. Interest in Swiss-domiciled fund structures could increase because Switzerland is not directly under the jurisdiction of the AIFM Directive. The Swiss Collective Investment Schemes Act also provides relevant favorable circumstances with its moderately flexible investment boundaries for alternative funds.

In Switzerland, as in many other jurisdictions, hedge funds were carefully scrutinized after the financial crisis of 2007-2008. Thus, FINMA carefully analyzed clients in Switzerland being impacted by the subsidiaries of Lehman Brothers Holdings Inc. and found that clients were exposed to high risk. 287 Investigations proved "the existence of a big deficiency in the law: the former Swiss Federal Act on Collective Investment Schemes, in force at the time, provided that a simplified prospectus was to be made available at the issuance of a structured product in the secondary market phase." 288 Based on these findings, FINMA reached the conclusion that, at that time, investor protection provisions were not efficient. 289 Thus, after issuing several recommendations, CISA was revised, including Section 5 that is currently found in the law and which entered into force on March 31, 2013. 290 In spite of the regulatory changes from 2013, the framework of financial regulations in Switzerland, including hedge funds regulations were still seen as inconsistent and incomplete, especially those dealing with behavioral rules and the regulation of financial products. prospectus information was seen as divergent and incomplete, too detailed and not clear enough for clients. 292 In respect of the above, the aim of the legislator when adopting FinSA was to provide a clear and comprehensible framework for investors through imposing disclosure requirements on financial service providers. 293 Scholars consider that "the new prospectus regime introduced by FinSA and FinSO will positively impact the Swiss capital markets in the long-run." 294

The AIFM Directive does not apply because Switzerland is not a member of the EU. 295 The AIFM Directive had a direct impact on the Swiss alternative market: Switzerland has become more appealing to the EU managers, mainly to those managers in the United Kingdom that seem to be most adversely affected by the new rules, besides the impending tax reform adopted in the country. Since the implementation of the AIFM Directive, local consultants and lawyers have been overwhelmed with inquiries from UK asset managers questioning about setting up in Switzerland. The Swiss law has become more attractive as a result of its light regulation background. Cantons such as Zug or the city of Pfaeffikon in the canton of Zurich will become more attractive to hedge fund managers from the United Kingdom. Nevertheless, recommended changes to be incorporated within the laws of investment market in Switzerland raised 292 Idem. 293 Abegglen, S., & Bianchi, L. (2016) . Regulation of the point of sale-An update on the rules of conduct of financial services providers under the proposed FIDLEG. CapLaw-2016-3. Swiss Capital Markets Law. https://www.caplaw.ch/2016/regulation-of-thepoint-of-sale-an-update-on-the-rules-of-conduct-of-financial-services-providers-under-theproposed-fidleg/. Accessed 15 August 2020. 294 Weber, Ph., & Del Vecchio, Ch. (2020) . Licensing of the reviewing bodies pursuant to the financial services act-An initial view. CapLaw-2020-21. https://www.caplaw.ch/ 2020/licensing-of-the-reviewing-bodies-pursuant-to-the-financial-services-act-an-initialview/#more-2328. Accessed 16 August 2020. 295 Risoldi, M. (2018) . Distributing foreign investment funds in Switzerland. https:// www.aima.org/article/distributing-foreign-investment-funds-in-switzerland.html. Accessed 13 July 2020. several concerns because European regulation is already very strict and it seems that this country intends to implement even stricter regulations.

Nearly nine years ago, the European legislature responded to the financial market crisis of 2007/2008 with the AIFM Directive, and European Alternative Investment Funds Manager (AIFM) proposed comprehensive and uniform regulation and supervision. The new Swiss regulation enforced on January 1, 2020 should unfold this single legal framework for all AIFM validity, i.e., it will also extend to AIFM, which has its headquarters in a third country (such as Switzerland). The future extension of the passport regime to asset managers from third countries poses numerous challenges for Swiss cross-border asset managers. There is, however, a certain amount of tension, especially Swiss AIFM doubling up and possibly colliding surveillance arrangements.

The AIFMD is, due to its wide scope of application, which regulates the regulation of relations with third countries and the competence of the member states, of great importance also for the Swiss fund industry. The scope of application of the AIFMD on AIFM based outside the EU (so-called non-EU AIFM 296 ), insofar as there is a relevant reference to the EU area. This also affects the asset managers in Switzerland of the third state regulation of the AIFMD. As a non-EU AIFM, they are directly subordinated to the AIFMD. The current rules for market access of AIFM (for example Swiss asset managers) domiciled in third countries provide for the expulsion of the so-called (EU and non-EU) AIF national Private Placement Regimes shares managed by them. However, it is up to the discretion of the member states to allow such private placements at all. 297 In view of Switzerland, ESMA has already made several positive 296 A "non-EU AIFM" is an AIFM that is not an EU AIFM (Art. 4 Para. 1 from AIFMD). The term "EU AIFM" denotes an AIFM with a registered office in one Member State (Art. 4 Para. 1 point 1 AIFMD). 297 See Art. 42 Para. 1 AIFMD. If a member state permits such private placements, the AIFMD sets certain minimum requirements with regard to the third country and the AIFM domiciled there (cf. Art. 42 Paragraphs 1 and 2 AIFMD). The practice of private placement regimes in the individual member states was, however, extremely restrictive even before the AIFM Directive was passed; With the introduction of the AIFMD, various countries have narrowed their previous private placement regimes even more or in fact canceled them (Haldner, F. [2016] . Wie wird Schweizer Private Equity Management recommendations. 298 It is now up to the European Commission to issue a corresponding delegate act and to extend the application of the administrative passport to AIFM from Switzerland (and possibly other states), for which the AIFMD actually had a three-month deadline after the entry of the positive recommendation by the ESMA. 299 In view of the United Kingdom's exit from the EU, the Commission's decision will continue to be delayed. Against the background of Brexit, the whole concept of third country relations should be examined in the light of more integration in supervision within the EU-27. This ensures that all financial sector risks are properly managed. 300 For Swiss asset managers, the extension of the passport regime would be of great benefit if: after approval as a non-EU AIFM in accordance with Article 37 of the AIFMD could, in their reference member state or cross-border with EU passport, either manage EU-AIF and/or shares the AIF managed by them according to the requirements of Article 39 or 40 of the AIFMD after they have passed the notification procedure 301 in the EU.

Swiss AIFMs would be subject to the AIFMD directly if they were to use the EU passport. While the recognition of equivalence provided for in other legal acts implies that the financial market players concerned are generally only subject to their domestic legal system, the future passport regime according to the AIFMD means for Swiss asset managers that they-based on the authorization and supervision by FINMA as well as the approval of the competent authorities of their reference member state-basically have to observe both the requirements of the Swiss collective investment scheme and those of the AIFM Directive. This results in a certain tension, as Swiss AIFMs could possibly be subject to double or even conflicting requirements with regard to authorization, supervision, and enforcement. The double burden of possibly diverging regulations will also (compared to the equivalence approach) cause additional work that will ultimately be passed on to the customer. The less the regulations in the EU and Switzerland congruent with one another, the higher the burden. 302 The expansion of the passport regime to include Swiss asset managers would still result in an enormous improvement in the status of the currently applicable national private placement regimes. This is because such private placements may also involve the simultaneous application of different legal systems. In addition, the effect of the sales opportunity obtained in the context of private placement is limited locally only to the territory of the respective member state. So if a Swiss asset manager wants to work de lege lata in several EU countries, he/she has to keep an eye on several different legal systems.

Since Switzerland in particular should benefit from the expansion of the passport regime-as a result of the already mentioned positive recommendation by ESMA-, against the background of the associated direct subordination of Swiss asset managers to the AIFMD. It is already asked to what extent-despite the partial revision of the CISA of 2013-there will be a need for adjustment and additional compliance costs. In the following, some compliance-relevant requirements of the AIFMD for the operating activities of an AIFM are presented as examples and compared with the requirements of the Swiss Collective Investment Schemes Act (KAG).

With the revision of the Swiss Collective Investments Regulation (KKV) in 2013, the requirements for the operational organization of the licensee 303 were regulated in detail in Article 12 point a. 304 The licensee must in principle have an appropriate risk management system, an internal control system and a compliance office, which cover all business activities. The main focus of the provision is the separation of the operational from control functions. The principle of proportionality should, however, be taken into account-comparable to the AIFM Directive. 305 For example, asset managers with a small organizational structure can apply to FINMA for an exception to the independence requirements. However, the establishment of the compliance office cannot be dispensed within Switzerland either.

It should be noted that Swiss asset managers as financial institutions according to Article 2 Para. 1 point c in conjunction with Article 24 of FinIA will be subject to FinIA. In its Article 9 Paragraph 1, the FinIA lays down the general requirement that all financial institutions must be organized in such a way that they can fulfill their statutory obligations. In addition, all financial institutions (within the meaning of FinIA) must have an effective internal control system in accordance with Article 9 Para. 2 FinIA, which ultimately reflects the provisions of the CISA. The Federal Council will regulate the details of the organization of the financial institutions in accordance with Article 9 Para. 3 of FinIA. The FinSA also provides for general organizational measures in Article 21.

Article 12a of the CISO, which was revised in line with international standards in 2013, provides that the operational organization of each licensee must have an appropriate risk management system, which is intended to cover all business activities. The core elements of the regulation in Article 12a CISO 306 include (i) the separation of the risk management system from operational functions and in particular those of portfolio management as well as (ii) The minimum requirements of Article 12a of the CISO are specified in the completely revised CISO-FINMA, which entered into force on January 1, 2015 whose requirements must be met by January 1, 2017, whereby the international principles (AIFMD and CESR-Guideline 09-963 for UCITS) have been adopted with regard to the desired market access. Since the design of the risk management functions was inconsistent in the past, the definition of the principles of risk management in the ordinance corresponded to a need in practice. 307 As a result of the alignment with international standards, the requirements of Article 67 from CISO-FINMA must meet risk management comparable to that of the AIFMD. The latter, however, devotes significantly more attention to the prevention of conflicts of interest and the independence of the risk management function: The AIFMD required taking special precautions with regard to the independent exercise of risk management measures. In addition, Article 42 of the AIFMD defines how the functional and hierarchical separation of the risk management function is to be carried out. The regulation in Switzerland, on the other hand, is limited to the general requirement of functional and hierarchical separation of control and operational functions 308 and the requirement for the independence of risk control. 309 While FINMA can grant deviations from these requirements in justified cases, 310 the AIFMD in contrast to its provisions on the compliance function, does not provide any exemption options with regard to the independence requirements of the risk management function. 311 In view of the fact that the Swiss asset management industry has not yet established any standards for the implementation of the regulatory requirements in the area of established risk management, SFAMA issued a risk management recommendation on September 7, 2018. The aim of the technical recommendation is to specify the regulatory requirements of the CISO and the CISO-FINMA with regard to the risk management function and to provide the fund and asset management industry with a standard that is compatible with other domestic and foreign rules. These are recommendations for the governance, organization, and positioning of the risk management function, for the delegation of risk and asset management as well as for the identification, assessment, control, and monitoring of risks, whereby a holistic approach is pursued with regard to the last aspect. Both investment and corporate risks must be taken into account. More recently, the risk management function is regulated in the FinIA (and in the ordinance on the FinIA). According to Article 9 Para. 2 of FinIA, a finance institution must measure, manage, and monitor its risks (including legal and reputational risks) and ensure effective controls. The ordinance on the FinIA elaborates on this provision.

A central regulatory area of the AIFMD is the definition of comprehensive information and disclosure obligations, 312 which, in view of their scope and frequency, have posed major challenges for the fund industry. This concerns periodic reporting by means of an annual report, 313 before and post-contractual investor information 314 and, finally, information requirements vis-à-vis supervisory authorities. 315 AIFMs from third countries and therefore also Swiss asset managers must already comply with these transparency requirements if they sell the AIFs they manage in individual EU member states under private placement regimes. 316 For reasons of space, a detailed presentation of the transparency obligations is waived. Only a few special features need to be pointed out. Although the AIFMD only regulates distribution to qualified investors, it provides for a prospectus of minimum information that must be presented to investors in any case before subscribing for shares. 317 the Prospectus, 319 however, there is no standardized disclosure procedure and format for AIFMs across the EU. The individual disclosure modalities are agreed in the respective contractual conditions or articles of association of the AIF. 320 In Switzerland, however, the pre-contractual investor information is provided in the prospectus, 321 which, as a rule, does not have to be actively offered. 322 In terms of content, the prospectus under Swiss law largely corresponds to the information that must be presented to investors prior to subscription under Article 23 (1) of the AIFM Directive, even if the AIFMD attaches greater importance to information on leverage. In contrast to the AIFM Directive, there are no regular subsequent information obligations in Switzerland: the information claims of investors are limited to information in the semi-annual and annual reports as well as individual rights of inspection and information specific to collective investment schemes. 323 The obligation is introduced by the Financial Services Act (FIDLEG) entered into force on January 1, 2020, stipulating to prepare a supplement to the prospectus if new facts arise or are established between the approval of the prospectus and the final closing of a public offer and these facts could significantly influence the valuation. 324

The "Brexit sensitivity index" that the rating agency Standard & Poor's calculated in 2019, revealed that, "Switzerland's exposure to the UK is primarily via sizable FDI holdings and large financial sector subsidiaries and branches in the UK. These entities book trading positions and engage in wholesale funding operations with UK counterparties." 325 In the 2019 Report, Switzerland ranks 5th place, and compared with 2016, "the Swiss financial sector's claims (on an ultimate basis) on UK counterparties have declined by 14%, although the downsizing of Swiss financial operations in the UK predates the Brexit referendum." 326 However, since Switzerland is not in the EU, it does not benefit from the EU passport, as this is available only for EU member countries. Without this passport, investment funds are not likely to move to Switzerland as a consequence to Brexit, in spite of the somewhat lighter hedge funds regulation in this country.

This chapter has examined the laws and regulations governing the marketing of hedge funds in Italy, France, Ireland, Luxembourg, Malta, and Switzerland. Given the lack of harmonization of such laws and regulations, the author raised a series of questions to order and to compare, at least to a certain extent, the position in these different jurisdictions mentioned above. This chapter provides a comparative summary of the legal forms applicable to hedge funds in six jurisdictions. It focuses on and explores five EU member states' hedge fund regulations plus Switzerland.

The author has chosen Ireland, France, Luxembourg, Malta, and Italy because they are relevant from the point of view of the diversity of regulatory frameworks that coexist in the EU. In addition, the chosen European countries represent the countries with highly developed financial sectors inside the EU. Although Switzerland is not an EU member, it is also included in the analysis, mainly because, in the international financial world, Switzerland is an important player and accordingly, especially as a consequence of its foreign policy, many, if not all global financial organizations, are to some extent present in Switzerland.

If before 2008, countries benefitted from high degree of discretion regarding the shaping of their local regulatory framework dealing with hedge funds, currently due to the fact that it was certified that financial institutions can create systemic risk and, consequently, destabilize markets far beyond national boundaries, regulators, clients, and investors are far more prudent. Wishing to avoid situations as the one in 2008, risk mitigation, investor protection, and transparency have climbed up on the international political agenda of each country of those analyzed, and this resulted in the implementation of new, regulatory standards. As seen in this chapter, in the analyzed EU countries, the agenda was dominated by introducing new regulations such as the EU Alternative Investment Fund Managers Directive (AIFMD), the EU European Market Infrastructure Regulation (EMIR), and the revised EU Markets in Financial Instruments Directive (MiFID II). At the same time, Brexit was the subject of fervent discussions for the last four years, at least, and will continue to be one of the most disputed issues for some years from now on.

As already mentioned by the author, in terms of legal regime, regulating hedge funds experienced two phases: before the financial crisis, when the largest part of the jurisdictions had not implemented particular regulations regarding hedge funds, and after the crisis, when the implementation of the AIFMD, UCITS IV and V, and MiFID II has started. Currently, regulation turned into a key strategic factor as it enhanced increased transparency, which lead to the enforceability of compliance and thus protected both clients and investors. In light of this, regulation needs to be comprehended as a major responsibility in risk prevention and investor protection.

The investment funds in the Euro Area in Q2-2020 (billions of euros) reached a total of 13,765.8 (billions of euros). The first rank is occupied by Luxembourg, which surpassed EUR 4500 billion in net assets, consequently being the largest investment center in Europe. Second in ranking comes Ireland (EUR 2905.5 billion), on the fourth France (EUR 1439.5 billion), on the 6th Italy, and on the 12th rank is Malta. Since Switzerland is not an EU member, it is not included in this list (Table 3 .3).

In terms of hedge funds, if we consider investment fund shares issued broken down by investment policy, strictly focusing on hedge funds (Table 3 .4).

The regulatory bodies in the analyzed countries are presented in Table 3 .5.

Currently, none of the countries subjected to study has a clear definition of the term hedge funds, and this conclusion could be applied to all the countries in the world (Table 3 .6). is not. Still, "the EC's Expert Group on hedge funds" 327 proposed to "the EC" to start regulating mainly because this will positively affect the trading of FoHF across frontiers. However, this Group considers that "the EC" should not start the negotiations again regarding essential proposals of the UCITS directive and consequently change it one more time, but instead it should start to authorize "UCITS to invest in derivatives on fund indicators" 328 (Table 3 .7). Every country enables the setting up of funds, by means of its regulation. They do it because there are many returns and knowledge coming from the hedge funds, and if they would not, the market and the investment professionals would abandon the countries moving to a more auspicious location. For this purpose, countries do not wish a tightened hedge funds rule (excerpt for France, maybe, from the analyzed countries), mainly due to their high relevance for liquidity and portfolio diversity (Table 3 .8).

Accordingly, various states anticipate the risks connected to hedge funds in various ways. The only country that does not allow advertising at all is Italy, while countries like France, Ireland, Luxembourg, Malta, and Switzerland do not consider that advertising represents a problem if the funds are properly registered. One can notice in the above table that various states use different standards. Quite often, domestic funds are limited by a certain concentration and therefore have to obey rules concerning risk spreading.

The rules for marketing hedge funds in the local analyzed jurisdictions are presented in Table 3 .9.

However, in order to mitigate risk, limitations can frequently be found in the funds' way of investing their financial assets. All the analyzed states regulate the hedge fund administrator in order to mitigate the risks. The hedge fund manager is regulated in the following countries: France, Ireland, Italy, Luxembourg, Switzerland, and Malta.

All the analyzed states preferred to regulate the funds directly for risk mitigation. The hedge fund itself is regulated in the following countries: France, Ireland, Italy, Luxembourg, Switzerland, and Malta.

Since Luxembourg and Ireland accommodate a significant part of the EU-based investment funds, it is important to provide an efficient framework on their regulatory regime, particularly taking into account Brexit, if they want to attract more hedge funds from the United Kingdom. One should not forget that regulation from Luxembourg and Ireland was introduced with the aim of allowing them to set up and thus re-domicile within their own jurisdictions.

Luxembourg stands as the fastest growing alternative investment funds domicile globally speaking, and the second-largest investment fund center after the United States. This expansion is the consequence of a robust legal and regulatory framework, of the country's economic and fiscal stability, but also due to the fact that Malta recently introduced the special limited partnership structure and the reserved alternative investment fund.

The Irish hedge funds, known as qualifying investor alternative investment funds (QIAIFs) are regulated under the AIFM Directive, as all funds analyzed in this chapter. What needs to be pointed out is that the Central Bank of Ireland (Central Bank) was the first European regulator to implement new rules under the AIFM Directive. This led to Ireland's keeping the leading EU domicile for hedge funds. Ireland was also the first EU member state to introduce a specific regulatory framework for loan origination funds benefitting from the pan-European passport under the AIFM Directive. Also, the Irish hedge funds are regulated by the Central Bank of Ireland (CBI) which ensures a transparent process with clear timelines for fund and promoter authorizations, all these transposing into very fast approval timelines as compared to other EU jurisdictions. Also, the fact the Brexit conducted to an increasing number of AIFMs setting up in Ireland is of major importance. Additionally, the Irish tax regime keeps on playing an important role in the successful growth of the funds industry, being entirely compliant with OECD regulations and EU legislation. At the same time, Irish-domiciled funds are exempt from Irish tax on income and gains derived from their investment not being subject to any Irish tax on their net asset value.

Malta represents one of the EU's top domiciles for asset management and investment funds. Well-established as the jurisdiction of choice for hedge funds and alternative funds within the EU, Malta allows managers to run a wide spectrum of funds, from the national Professional Investor Fund (PIF) regime that is not subject to the EU directives, Alternative Investment Funds (AIF) under the AIFMD, as well as the EU hallmark and internationally recognized UCITS schemes. During the past years, since the Brexit referendum, Malta has witnessed record inflows of license applications to the MFSA on behalf of UK-based funds in search for a post-Brexit strategy.

Many states are very restrictive with hedge funds on their territory, and this is particularly France's case from those analyzed by us. In addition, some countries have enacted detailed regulation, while others have not, and try to preserve their individuality, such as Switzerland, Luxembourg, and to a certain extent, Ireland.

Among the studied countries, the most affected during the last years was Switzerland due to it not being a member of the EU. Thus, even if Switzerland has, for many decades, pursued a successful strategy of implementing efficient regulatory regime governing hedge funds, lately, this approach was not in line with international developments, creating gaps in investor protection. The passporting or third country admission aspect prompted Switzerland (to a certain extent as a consequence of Brexit, also) to adopt new regulation equivalent to that from their home countries. Therefore, major changes took place lately, the legislative framework of Switzerland following a course of harmonization with EU standards.

French hedge funds are historically regulated and follow the general international standards of the EU. Even before the enactment of the AIFM Directive, French hedge funds and their portfolio management companies (PMCs) had to follow a developed set of rules. Indeed, France has always had a fervent legislative agenda, focusing very much on strengthening regulations. Indeed, establishing a hedge fund in France is difficult because France limited very much the establishment of hedge funds on its territory, the manager's biggest advantage being that investors are attracted by "super protective" regulatory regimes.

During the last decade, Italy has strived very much to adopt all regulations that the EU implemented in the hedge funds industry, but there are still uncertainties concerning the readiness of the Italian hedge funds market to address all the changes implied. Thus, all in all, these new regulations are perceived, to a certain extent burdensome or even an obstacle to future development of the Italian hedge funds market. Additionally, the more regulated the hedge funds industry will be, the less appealing hedge funds managers will find to settle their funds in Italy.

The financial industry has become so complicated and innovative that it takes particular amount of intelligence and professionalism to understand it. Innovative services are often discovered and exchanged due to their high request by investors and individuals who try to manage risks. Therefore, is the inability of the officials to regulate rapidly enough or stop financial services from being traded a good enough reason to allow the parliaments and policy makers located in the EU stop the aforementioned individuals from handling their risks? Or is the inability of the former to understand the latter and therefore, their fear of them, a good enough reason?

As amended by Acts: XXIV, XXV of 1995; Legal Notices 191 of

Act XX of2007; Legal Notice 425 of

XLIV of 2018 and V of 2020. 235 By Acts XXIV of

XXXIII of 2015, XIX, XXXVI, LIV of 2016, Act XIXXXI of 2017 and XXXVI of 2018 and XXVI of 2019 and V and XXXI

Admissibility requirements for collective investment schemes

FinSA/FinIA: Follow-up regulation by FINMA. Swiss Financial Market Supervisory Authority (FINMA)

Exchange offers under Switzerland's new prospectus regime: A guide

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and points (a), (b) and (c) of the first subparagraph of Article 1(5) and the second subparagraph of Article

PRIIPs) and must therefore create and publish a basic information sheet (cf. Art. 5 and 14 PRIIPs

75 of CISA; for the SICAF: Art. 116 in conjunction with Art. 75 and 77 of CISA; for the Limited Partnerships: Art. 102 CISA. These principles can be found in Art. 48 of FinSA. 322 The only exception is for other funds for alternative investments, the prospectus of which must be offered to interested persons free of charge

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See Art. 84 Para. 1 and 2 from CISA, Art. 106 from CISA, Art. 697 for shareholders of SICAF

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Risk management organization for collective investment undertaking management activities and discretionary portfolio management investment services

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Arreté ministerial du 11 Juin 2004 portant approbation de modifications du règlement d'ordre intériEuro de la Bourse de Luxembourg (Mémorial A

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Federal Act of 23

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Investor information and reporting

For instance, hedge funds in France are called "multi-market category of funds," while in Italy, they are known as "fondi speculativi" (or speculative funds). It seems that all nations agree on the broad concept that hedge funds represent "other fund additional to the ones defined," which can actually mean anything.The EU can define hedge funds and make a regulation proposal to enable and facilitate hedge funds trading outside borders, similar to UCITS funds. Currently, "a hedge fund" undeniably represents "an investment vehicle." The lack of interdictions is the main reason for not being defined according to its features, but rather according to what it