On 22nd October 2020, the European Commission (EC) published the much anticipated consultation on the Alternative Investment Fund Managers Directive (AIFMD).
Background
Under AIFMD Article 69, the EC is required to conduct a review of the Directive. The review was required to be conducted by 22nd July 2017 and provide analysis of:
- The experience of applying the AIFMD;
- Its impact on investors, AIFs or AIFMs, in the EU and in third countries; and
- The degree to which AIFMD’s objectives have been achieved.
In December 2018, a report was prepared by KPMG which provided an assessment and evidence for the European Commission’s review of AIFMD pursuant to Article 69 AIFMD.
In June 2020, the European Commission (EC) published a further report in accordance with Article 69 on the application and scope of AIFMD. The report assessed whether the specific rules of the AIFMD are effective, efficient, coherent and relevant. The report concluded that while the AIFMD has contributed to the creation of the EU AIF market, provided a high-level protection to investors and facilitated monitoring of risks to financial stability, there are a number of areas where the legal framework could be improved.
The AIFMD consultation also follows ESMA’s lengthy letter to the Commission setting out 19 key areas where ESMA believes AIFMD could be improved. Specifically, ESMA’s letter included:
- Harmonising the AIFMD and UCITS regimes;
- Delegation and substance;
- Liquidity management tools;
- Leverage; and
- The harmonisation of supervision of cross-border entities.
More on ESMA’s letter here, here and here:
ESMA’s AIFMD Recommendations – A Specific Look at Delegation
As discussed in our previous blog, ESMA has written to the European Commission…
ESMA’s Proposed Changes to AIFMD
When the European Commission announced back in March 2018, a proposal to amend…
ESMA’s Proposed Changes to AIFMD Reporting Regime
Last week, ESMA published a letter to the Commission setting out 19 key…
Consultation
The consultation is split into 7 sections with a total of 102 questions:
Functioning of the AIFMD regulatory framework, scope and authorisation requirements
This section seeks to gather views on potential improvements to the AIFMD legal framework to facilitate further integration of the EU AIF market. The questions look at the specific regulatory aspects where their potential refining could enhance utility of the AIFM passport, gathering data on concrete costs and benefits of suggested improvements.
Investor protection
Questions in this section cover the topic of investor categorization and the conditions that would make it possible to open up the AIF universe to a larger pool of investors.
Additionally, views of the AIFMD rules on depositaries is sought, and in particular, the introduction of a depositary passport.
International relations
The questions in this section seek views on where to strike the balance of having a functioning, efficient AIF market and ensuring that it operates under the conditions of a fair competition without undermining financial stability.
Perhaps the most polarising section of the consultation, it focuses on the appropriateness of the AIFMD third country passport regime and delegation rules.
Financial stability
This section includes questions around the intervention powers and a tool-kit available to the relevant supervisors are sufficient in times of severe market disruptions.
Additionally, questions are raised as to whether leverage calculation methods could benefit from further standardisation of metrics across the AIF market, and potentially also across the UCITS market for the supervisors to have a complete picture of the level of leverage engaged by the collective investment funds.
Investing in private companies
Questions on investing in private companies focus on whether the current rules are meeting their objectives, and what improvements and potential enhancements could be made. The questions therefore look at whether the AIFMD contains all the relevant regulatory elements that are fit for purpose.
Sustainability/ESG
This section looks at how AIFMD should interact with the Sustainable Finance Disclosure Regulation, sustainability-related impacts outside of current EU Law and the EU Taxonomy.
Miscellaneous
This section contains a few questions on the competences and powers of supervisory authorities, including, the sanctioning regime and the merger of the UCITS and AIFM regulatory frameworks into single EU rulebook.
Next Steps
The deadline for responding to the consultation is 29 January 2021.
It is expected that legislative proposal to amend the AIFMD, in the form of a Directive, will be put forward during Q3 2021.
