Europe: AIFMD review - brief overview of the amendments proposed by the European Commission

In brief

On 25 November 2021, a new proposal ("Proposal") amending the Alternative Investment Funds Manager Directive (AIFMD) and Directive relating to undertakings for collective investment in transferable securities (UCITS) was released by the European Commission.

Changes proposed to both AIFMD and UCITS cover, among other things, delegation activities, liquidity risk management, data reporting for market monitoring purposes and regulatory treatment of custodians. The Proposal also amends AIFMD as regards activities of loan-originating investment funds and access to depositary services across borders.

The Proposal aims to harmonize the AIFMD and UCITS regimes and to provide legislative clarifications in both frameworks.


Key takeaways

Regarding the AIFMD, the proposed amendments cover in particular

  • Compliance with MIFID: AIFM will have to comply with MIFID for an extended list of ancillary services when related to financial instruments
  • Substance and operational requirements: Enhanced requirements for AIFM applying for an authorisation
  • Lending Activities: Additional requirements in respect of direct lending activities by AIFs (data policies, procedures and processes for the granting of loans, restrictions to avoid conflict of interests, retention requirements to avoid situations in which loans are originated with the sole purpose of selling them. Obligation to have the AIF being closed-ended if the loans originated exceeds 60% of NAV. Diversification rule with loan capped at 20% of AIF's capital.
  • Liquidity Management Tools (LMT): new obligations notably for open-ended AIF to set rules for redemptions and pricing and additional reporting obligations towards investors
  • Delegation: delegation arrangements shall apply to an extended list of ancillary services, additional requirements on substance (two full time senior managers) and notification where more risk or portfolio management is delegated to third country entities. ESMA would conduct peer review on the market and the recourse to delegation
  • Third countries entities: restrictions to access to the internal market for those in the EU list of non-cooperative jurisdictions for anti-money laundering protection and tax purposes
  • Depositaries: Central depositaries shall be involved. No Depositary Passport yet, possibility to provide services across borders with the cooperation of national competent authorities (NCA)
  • Supervisory reporting regime is also extended between NCAs and ESMA
  • Reporting to investors enhanced in respect of fees charges by AIFMs and to the AIF and information on the LMT

All elements of this Proposal will now be discussed by the European Parliament and the Council.

Please contact your Baker McKenzie advisor in case of questions.

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