ESMA’s Proposed Changes to AIFMD Reporting Regime

In terms of Annex IV reporting, ESMA has recommended changing Article 24(2) of the Directive to establish the minimum content required to allow for the analysis of systemic risks. Currently, the Directive limits the details to be reported on assets held by the AIFs. This lack of detail regarding asset and liability composition, limits the usability of the data to monitor “how the activities of AIFMs may also serve to spread or amplify risks through the financial system” (Recital 2 of the Directive).

ESMA considers the information to be reported shall take into consideration the following principles:

• Comprehensive information regarding assets and liabilities to allow comparison with the aggregated figures on AUM and NAV.
• Detailed information on counterparties and issuers including LEI of the counterparty and issuers
• Data should be a direct extraction or a straightforward transformation of the internal data that AIFMs should maintain for their regular operations.
• The reporting template should consider other reporting regimes to which the AIFMs might be subject (e.g. MiFIR, EMIR, SFTR, ECB statistics on funds)
• Information on the liabilities of the AIFs should include cash/ deposits/ loan held by the funds and the liabilities of the funds, both given short positions, but also, information on shares/ units/ loans, maturity/ liquidity profiles and special arrangements.
• The use of the Securitisation Regulation template as a model for certain type of assets and liabilities relevant to AIFs (e.g. real estate investments, insurance contracts)
• Key information provided by the AIFMs in the Annual Report (Article 22) or disclosed to investors (Article 23) shall be included in the report to the NCA.
• The information on valuation regarding the reporting on assets described above, shall consider, if feasible, the impact of each item on AuM, NaV and leverage metrics.

Due to the definition of leverage under AIFMD being so broad, ESMA has proposed clarifying the appropriate reporting content. In particular, Article 4 provides a definition of leverage that does not exclude a priori any means an AIFM may use to acquire and/or hedge assets:

“Leverage means any method by which the AIFM increases the exposure of an AIF it manages whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means”.

In order clarify to reporting entities and supervisors the appropriate reporting content, ESMA believe that Article 4 AIFMD could clarify the notion of ‘leveraged AIF’ by simply linking the definition of ‘AIF’ and ‘leverage’.

The proposal would include in Article 4, that ‘leveraged AIF’ means an AIF whose exposures are increased by the managing AIFM, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means.

Article 47 of AIFMD provides that all information exchanged between NCAs and ESMA cannot be disclosed unless:

• Disclosure is required for legal proceedings; or
• The NCA gives consent for disclosure.

In practice, this introduces legal uncertainties regarding the possibility for ESMA to share any AIFMD data even when the data is anonymised, and individual AIFs cannot be identified. This is an issue in the context of ESMA’s work with NCAs, as well as with the FSB and IOSCO.

To address this issue, ESMA has proposed aligning Article 47 with ESMA Regulation Article 70(2), accepting use, distribution and publication of the data in summary or aggregated form, such that individual financial market participants cannot be identified.

Currently, the AIFMD reporting template does not contain any fields on ESG data. ESMA has recommended adding a reference in the Directive that ESG factors should be considered in the AIFMD reporting to monitor ESG related risks.

The inclusion of ESG factors in the reporting obligations under Article 24 would be in line with “EU Commission action plan on sustainable finance” and ESMA developed “Strategy on sustainable finance”.