Alternative Investment Fund Managers Directive (AIFMD) – regulation memo

The AIFMD applies to all managers of non-UCITS investment funds that manage or market those funds in Europe, whether the AIFM and/or the AIF are located in Europe or not.

The Alternative Investment Fund Managers Directive (AIFMD) has introduced a framework to regulate and supervise Alternative Investment Fund Managers (AIFMs) and the distribution of Alternative Investment Funds (AIFs) within the European Union (EU).

The key objectives of the directive are to reinforce investor protection, limit systemic risk, ensure proper risk management by asset managers, provide common rules for authorisation, organisation and supervision of asset managers, and create a single market for these funds in the EU.


The AIFM passport allows marketing of EU AIFs only to professional investors, restricting the cross-border activities of EU AIFMs as semi-professional and retail investors can only be approached under various National Private Placement Regimes (NPPRs). As AIF distribution is subject to MiFID II rules, which differentiate between retail and professional investors, any change to the definitions of the types of investors in MiFID II will affect the marketing of AIFs.

EU AIFMs also benefit from a management passport that allows them to manage AIFs established in another member state than the AIFM’s home country.

The AIFMD contains a review clause which mandates the European Commission (EC) to assess the scope and functioning of this legal framework. On 25 December 2021, the Commission published a legislative proposal amending AIFMD (and the UCITS Directive) to introduce targeted improvements to key provisions in the current framework, namely:

  • harmonised rules for loan-originating AIFs, to prevent potential risks to financial stability;
  • the ability for an AIF to appoint a depositary in another member state in case of shortage of depositaries in the AIF’s home member state;
  • clarification relating to the delegation regimes of asset managers’ functions  under AIFMD and UCITS;
  • the introduction of harmonised liquidity management tools to improve liquidity risk management by managers of open-ended investment AIFs or UCITS;
  • empowering ESMA to improve the data reporting for market monitoring and;
  • addressing the unequal treatment of CSDs and custodians in the custody chain between the depositary and the issuer CSD of a given security owned by an AIF or a UCITS.


The AIFMD applies to all managers of non-UCITS investment funds that manage or market those funds in Europe, whether the AIFM and/or the AIF are located in Europe or not.

Industry implications

AIFMD requires EU AIFMs to:

  • Implement three separate functions: the portfolio function, the risk management function and the valuation function,
  • Comply with specific rules in regards to liquidity management, risk management and reporting to the competent authority,
  • Appoint a single depositary for each EU AIF established in the same member state as the AIF.

In its report published in June 2020 to assess the application and scope of the AIFMD, the EC reported that, since the adoption of the AIFMD in 2011, total net assets of AIFs more than doubled in size, increasing from EUR 2.3 trillion to EUR 5.9 trillion. The cross-border distribution of AIFs almost doubled between June 2017 and October 2019, rising from 3% to 5.8% of AIFs.

The AIFMD has also translated into a harmonised depositary regime requiring an appointed depositary to safe-keep the AIF’s assets and oversee the AIF’s compliance with national legislation and the AIF rules.

Securities Services’ view

We welcome the clarification that CSDs acting as custodians are to be treated as delegates of the depositary, which will allow it to better monitor its custody risks.

We also welcome the decision of the European Commission not to introduce a depositary passport, believing that the requirement for the depositary to share the same domicile as the fund is an essential safeguard for investor protection. Such provision guarantees legal certainty and swift means of redress for investors in case of a loss of the fund’s assets. Concurrently, the proximity between the depositary and the fund facilitates activities such as safe-keeping, oversight and cash monitoring duties, communication with the fund’s manager and respective authorities. The latter also benefit as they can carry out supervisory mandates – inspections, examinations or investigation of any misconduct – in a more efficient way. Therefore, we believe that it is necessary to clarify in Article 61 proposed by the Commission the circumstances, the regulatory framework and the supervision applicable to a depositary which is not established in the same country as the AIF which has appointed that depositary.

Key dates

22 July 2014 – All AIFMs must comply with relevant AIFMD provisions (effective authorisation by national competent authorities)

8 October 2014 – ESMA’s guidelines on reporting obligations under AIFMD apply

30 October 2018 – amendments of AIFMD delegated acts on safe-keeping duties of depositories

1 April 2020 – Entry into application of the Delegate Regulation on safe-keeping duties of depositaries

Sept 2020 – EC consultation on the review of AIFMD

March 2021 – Entry into application of the sustainability-related disclosure regulation

August 2021 – Entry into application of the Cross-border Fund distribution package  

25 November 2021 – The Commission published a legislative proposal amending AIFMD and the UCITS Directive