Market participants remain confused over the European Union’s controversial directive that sets out to govern the region’s alternative investment firms.

The Alternative Investment Fund Managers Directive (AIFMD), which is set to be implemented from next year, is the first attempt by Brussels to oversee hedge funds and private equity by harmonizing regulatory standards across the EU.

Although many in the industry are still unsure as to how the new rules will affect firms, and if they actually need to make any structural changes to their businesses.

In April 2009, the European Commission issued the original AIFMD proposals. The final agreement on the Level 1 text was achieved in November 2010 and that text entered into force in July 2011. The European Securities and Markets Authority (Esma), the pan-European regulator, then submitted final technical advice for the more-detailed Level 2 text in November last year, but delays have meant that the European Commission has still, so far, yet to release a final version of the rules. It is thought that the Commission will announce this by September, with national regulators then having until July 2013 to transpose the directive and implement the measures.

“A haze of uncertainty continues to hang over the directive’s impact, not helped by the deferral of the Level 2 measures guidance,” said Jon Wilson, director of project consulting at IMS Group, a consultancy.

The scope and content of the directive has been the subject of much controversy and debate from its inception. Many market participants thought it was a rushed and flawed knee-jerk political response to the global financial crisis. There is still uncertainty as to what the final legislation will look like and what its impact will be due to near-constant political interference and lobbying.

“It is still up in the air,” Guillaume Dehan, director of business development at Molinero Capital Management, a quantitative hedge fund based in London, told Markets Media. “I took great interest in the beginning but they keep changing it so I will wait until it is finalized.”

Two recent surveys, one by IMS and the other from Deloitte, another consultancy, have highlighted the fears of alternative asset managers over AIFMD.

They believe that the directive will turn Europe into something of a fortress for alternative asset managers, with more protection and less competition. Other threats include increased capital requirements, risk management, depository costs and renumeration.

Managers also say that they will be less likely to base themselves in the EU, leading to less choice for investors, while EU-based funds will be less competitive outside Europe as they will face increased compliance costs.

However, there is agreement that the new rules will likely lead to better investor protection and investment transparency.

“We have now been talking about AIFMD for a full Olympiad and the prolonged delay [from the European Commission] fuels needless anxiety,” said Peter Moore, head of regulation and compliance at IMS Group. “Every subsequent publication on AIFMD, from either the EU, the Financial Services Authority or HM Treasury, must be studied as it will help inform the decisions still to be made by alternative managers.”

Earlier this month, a group of 20 fund managers sent a letter to Michel Barnier, the EU’s financial services commissioner, to add to the growing list of critics of AIFMD.

The investment managers, who included Axa, BlackRock, Fidelity, Schroders and Allianz, warned that the technical standards written by Esma would also harm more traditional asset managers and hinder the EU’s single market, with ordinary investors likely to bear the brunt of the changes.

“We are extremely concerned that the AIFMD standards will undermine the single market,” said the letter, which was seen by the Financial Times. “We do not believe that such an outcome was intended by policymakers and fear the adverse consequences for European fund investors.”