Fine-tuning AIFMD: what are the key takeaways of the latest review?

On 25 November 2021, the European Commission (EC) published a legislative proposal amending the Alternative Investment Fund Managers Directive.

On 25 November 2021, the European Commission (EC) published a legislative proposal amending the Alternative Investment Fund Managers Directive (AIFMD—Directive 2011/61/EU) that aims to set targeted improvements to key provisions in the current framework.

This legislative proposal also amends the Undertakings for the Collective Investment in Transferable Securities Directive (the UCITS Directive—Directive 2009/65/EC) to align the AIFM and UCITS requirements on some provisions.

 What are the proposal’s key points amending both the AIFMD and UCITS Directives?

  • In addition to suspension of redemption of orders, open-ended funds are required to choose at least one other Liquidity Management Tool (LMT) among a harmonised list of LMTs. National competent authorities (NCAs) are empowered to require the activation/deactivation of an LMT. ESMA will specify the definition of these LMTs as well as the process for choosing and using LMTs. Investors will be informed of LMTs’ conditions of use.
  • Supervisory convergence over delegation arrangements of the asset manager is increased. NCAs will provide ESMA with delegation notifications if an asset manager delegates more of the funds’ portfolio management or risk management functions than it manages in-house to entities located in third countries. ESMA will specify this notification process.
  • Harmonised rules on minimum and stable substance of the asset manager will require that at least two natural persons resident in the European Union should be employed and committed full-time to conducting the business of an asset manager.
  • Supervisory reporting requirements are reviewed for Alternative Investment Funds (AIFs) and introduced for UCITS. The review of the supervisory reporting produced by AIFs and their introduction for UCITS aims to improve the ability of supervisory authorities to identify risks to financial stability and to remove reporting duplication and overlap. ESMA will specify the content of this supervisory reporting process.
  • Central securities depositories (CSDs) will be considered as delegates of the depositary when they do not act as issuer CSD. This occurs when a CSD interposes in the custody chain between the depositary and the issuer CSD of a given security owned by a fund.

What are the proposal’s key points only amending the AIFMD Directive?

  • Originating loans will be recognised as a legitimate activity of AIFMs and common rules are introduced in order to:
    • Improve risk management by requiring AIFMs to implement effective policies, procedures and processes for granting loans, assessing credit risk, and administering and monitoring credit portfolios;
    • Avoid conflict of interest, risk to the financial system and mismatch between redemption and maturity of loans;
    • Improve transparency towards investors.
  • Where there is a shortage of depositaries in an EU member state, the NCAs of this member state may allow an AIF established in this member state to appoint a credit institution established in another member state to act as its depositary.

What are the next steps of the AIFMD review?

The EU Council and Parliament are now starting to consider changes proposed by the Commission with a view to potentially setting forth amendments. If a political agreement is reached between the European Parliament and Council on a common legislative text before the end of 2022, the implementation could take place at the end of 2024 or in early 2025, so 2 years after the publication of the final text in the Official Journal.

Read our regulation memo on Alternative Investment Fund Managers Directive (AIFMD)