AIFMD proposals and the Capital Markets Union legislative package

Proposals for revisions to AIFMD were published as part of the EU Capital Markets Union package. Here is a summary of those proposals:

Delegation

Delegation of both portfolio and risk management is expected to be able to continue. AIFMs may delegate more portfolio management or risk management than they retain. The AIFM must employ or commit at least 2 natural persons who are resident in the EU on a full time basis.  Delegation to third countries will be subject to increased reporting and supervisory engagement. Specifically, NCAs will have to send annual notifications of delegation arrangements where more risk management or portfolio management is delegated to a third country entity than is retained. ESMA is empowered to conduct peer reviews every two years to monitor the application of the delegation requirements with respect to third country delegation. Sub-delegation is explicitly banned to non-authorised entities.

National Private Placement Regimes: Articles 36 and 42

A non-EU AIF cannot be domiciled in either:

  • a non-cooperative jurisdiction as defined by the EU Council from a tax perspective or
  • a “high risk country” pursuant to the AML Directive.

Liquidity

The proposal would allow fund managers of open-ended AIFs/UCITS to temporarily suspend the repurchase or redemption of fund units or shares in situations of market stress. Managers would be required to select at least one other LMT from a new defined list that would need to be included in the fund rules or the instruments of incorporation of the AIFM. Funds can select from suspension of redemption and subscriptions, gates, notice periods, redemption fees, swing pricing, anti-dilution levies, redemption in kind and side pockets. Managers would be required to notify NCAs when activating or deactivating. The proposal goes on to provide the possibility for NCAs to force the activation or deactivation of LMTs, not limited to those in the fund rules or instruments of incorporation.

Data reporting

Limitations to data reporting are removed which could result in full portfolio reporting rather than reporting on "main instruments traded". ESMA has a mandate to amend the Annex IV reporting template.

Loan funds

Loan origination is listed as a regulated activity that AIFMs should be permitted to engage in. Specific new requirements for loan origination funds are included in the proposals.

Fees and charges

A list of operational fees and charges is proposed.

Depositary

A depositary passport is not proposed. NCAs are to allow depositary services to be procured in other member states until the introduction of a depositary passport. For depositaries established in a third country, these should not be established in:

  • a non-cooperative jurisdiction as defined by the EU Council from a tax perspective or
  • a “high risk country” pursuant to the AML Directive.

SSPEs

AIFMs are specifically permitted to service securitisation special purpose entities.

AIFMD and UCITS Directive

The European Commission intends to harmonise rules on delegation, liquidity risk management and reporting for both AIFMD and the UCITS Directive, so any changes on those topics will also be relevant for UCITS Mancos and UCITS funds.

Timing

This is the start of the legislative process for the proposed amendments.  There will be significant debate at European level in the next 12 – 18 months. It is anticipated that a political agreement between the European Council and the European Parliament will be reached mid to end 2022, which could lead to publication in the EU Official Journal in early 2023.  ESMA would then engage in its level 2 rulemaking between 2023 - 2025.

ELTIFs, MIFIR, ESAP

The package also included proposals on:

  • European Single Access Point (ESAP). The ESAP will offer a single access point for public financial and sustainability-related information information about EU companies and EU investment products
  • Review of the Markets in Financial Instruments Regulation (MiFIR) Enhancing transparency by introducing a “European consolidated tape” for easier access to trading data by all investors
  • Review of the European Long-Term Investment Funds (ELTIFs) Regulation. To increase the attractiveness of ELTIFs for investors and their role as a complementary source of financing for EU companies. It will also make it easier for retail investors to invest in ELTIFs, in particular by removing the minimum €10,000 investment threshold

The proposals deliver on several key commitments in the 2020 capital markets union (CMU) action plan​. 

For more information please contact a member of the Asset Management & Investment Funds team.

Date published: 26 November 2021