The European Commission (EC) launched a consultation relating to its review of the AIFMD, the Alternative Investment Fund Managers Directive, in October 2020. This followed an earlier EC report on AIFMD which was reported in our June AMIF bulletin. In August, ESMA wrote a letter to the EC suggesting areas to consider during the ongoing review of the AIFMD. You can find a summary of the ESMA letter below.
The AIFMD consultation invites responses on the following topics:
Scope of the AIFM licence and its potential extension to smaller AIFMs.
Level playing field concerns for the regulation of other financial intermediaries, such as MiFID firms, credit institutions and UCITS managers that provide similar services.
Investor access that takes into account the differences between retail and professional investors.
Potential for an EU AIF that would be suitable for marketing to retail.
Adequacy of disclosure requirements including specific requirements that could be added, changed or removed from the current rules.
Possible ambiguities in the depositary regime and the lack of the depositary passport.
Potential improvements to AIFMD rules on valuation.
How best to achieve the equitable treatment of non-EU AIFs and secure a wider choice of AIFs for investors while at the same time ensuring that EU AIFMs are not exposed to unfair competition or are otherwise disadvantaged. This topic includes questions on delegation, including whether the delegation rules are sufficiently clear to prevent the creation of letterbox entities in the EU and whether delegation rules should be complemented by way of quantitative criteria, or a list of core or critical functions that would always be performed internally.
How to ensure NCAs and AIFMs have the tools necessary to effectively mitigate and deal with systemic risks. Specific input regarding improvements to the AIFMD supervisory reporting template is invited with a particular focus on the increased activities of AIFs in the credit market. The consultation suggests more centralised supervisory reporting and improved information sharing among the relevant supervisors. A revised supervisory structure and cooperation measures among the competent authorities are another focus of this consultation.
Investment in private companies:
Potential improvements, effectiveness of the current rules and their potential enhancement.
How the alternative investment sector can participate effectively in the areas of responsible investing and the preservation of our planet.
A more "coherent" approach may be warranted. This includes the question of a single licence for AIF and UCITS managers, harmonised metrics for leverage calculation and reporting on the use of liquidity management tools. The EC notes that the process may also lead it to adjust the existing EU rules on UCITS.
Stakeholders are invited to raise other AIFMD related issues and submit proposals on how to otherwise improve the AIFMD legal framework with regard to any issues not directly addressed in the consultation.
Next steps for the AIFMD consultation
The consultation closes on 29 January 2021. The Commission intends to put forward a legislative proposal amending the AIFMD in the form of a Directive in Q3 2021.
ESMA letter on AIFMD review
Some proposals in the ESMA letter include:
Harmonisation of AIFMD and UCITS regimes, including that UCITS reporting should ultimately closely match the revised AIFMD Annex IV reporting. Reporting obligations should cover both manager and fund-specific data while also reflecting the specifics of UCITS.
Scope of additional MiFID services and application of rules should be harmonised.
Delegation and substance. ESMA proposes clarification on the maximum extent of delegation to ensure AIFMs and UCITS management companies maintain sufficient substance in the EU.
Liquidity management. ESMA proposes an EU framework governing the liquidity management tools and that AIFMD should include all liquidity management tools outlined in ESRB recommendation A – and this should similarly be the case for the UCITS Directive.
Leverage. ESMA believes IOSCO recommendations trigger a need to amend the current reporting of the gross method calculation. ESMA suggests amending the commitment amount calculation to allow comparability among contracts with different underlying duration, which makes aggregation and comparison possible for systemic risk monitoring purposes.
Harmonisation of supervision of cross-border entities. ESMA proposes clarification of the roles and responsibilities of home and host NCAs where AIFs are managed on a cross-border basis under Art. 33 AIFMD.
Proportionality principle for remuneration requirements. ESMA recommends clarification that the proportionality principle applies to the full set of remuneration requirements in the AIFMD and the UCITS Directive.
External valuer liability. On the basis that external valuers may be unwilling to accept valuation mandates from AIFMs because of the negligence provisions, ESMA proposes that the definition of “negligence” could be limited to “gross negligence” in the legislation.
Semi-professional investors. ESMA has called for a review of the definition of "professional investor" under AIFMD.
Loan origination in AIFMD. ESMA proposes that there should be a specific framework for loan origination within the AIFMD. This reflects earlier commentary from ESMA on this subject.