AIFMD: EC launches key Level 1 consultation
Last week, the European Commission (EC) launched its long-anticipated consultation on potential changes to the Alternative Investment Fund Managers Directive (AIFMD). Open until 29 January 2021, the EC seek to gather stakeholder feedback on issues related to the proportionality, efficiency and effectiveness of the current AIFMD legal framework.
Moving on from the report supplied to the EU Parliament and Council back in June, the latest EC document (87 pages) contains 102 questions addressing a wide range of subjects, including delegation, retail participation, financial stability, sustainability and AIFMD’s interaction with UCITS and MiFID regimes.
Functioning of the AIFMD regulatory framework, scope and authorisation requirements (p5): this section invites views on prospective extended coverage to smaller AIF managers and alignment to UCITS (i.e. where firms already provide similar services)
a) Investor classification and investor access (p20)
b) depositary regime (p22)
c) transparency and conflicts of interest (p30)
d) valuation rules (p32)
This section raises questions on investor access (considering differences between retail and professional clients), adequacy of disclosure requirements (including specific requirements that could be added, changed or removed from the current rulebook) and potential improvements to the AIFMD valuation rules.
International relations (p35): views are sought on the issue of a level playing field, including how best to achieve the equitable treatment of non-EU AIFs and securing a wider choice of AIFs for investors (while at the same time ensuring that EU AIFMs are not exposed to unfair competition). National private placement regimes (NPPR) are also scrutinised.
NB: This chapter is likely to attract significant attention, given the parlous state of the UK-EU Brexit negotiations as they approach an outcome in a matter of weeks.
a) macroprudential tools (p41)
b) supervisory reporting requirements (p. 46 – 67)
c) leverage (p67)
Over a quarter of the EC document is devoted to improvements of the supervisory reporting template provided in the AIFMD regulation (level 2) aka Annex IV reporting. The chapter also outlines potential for more centralised supervisory reporting and improved information sharing among the relevant supervisors, while seeking views on how to ensure AIFMs and their national competent authorities (NCAs) have sufficient tools to effectively mitigate systemic risk (including liquidity).
Investing in private companies (p75): comments are sought on the effectiveness of the current rules (and their potential for improvement).
Sustainability/ESG (p77): this section outlines the integration of sustainability risk factors in the AIFM portfolio selection process, including links to the Sustainable Finance Disclosure and EU Taxonomy regulations (SFDR, TR) developing elsewhere. Respondent input is sought on “how the alternative investment sector can participate effectively in the areas of responsible investing and the preservation of our planet”.
Miscellaneous (p82): respondents are queried whether they approve of the European Securities and Markets Authority (ESMA) and NCAs being granted additional competences and powers, along with suggestions for improvements to intra-EU cross-border supervisory cooperation. They are also asked if UCITS and AIFM frameworks should be merged into a single EU funds rulebook.
On completion of the consultation, the commission are currently expected to publish their proposed changes to the existing legislation (at levels 1 and 2) aka AIFMD II in middle of 2021.
Given the inherent due process – including necessary supporting activities from ESMA, along with eventual ratification by the EU institutions – the earliest legal application of AIFMD II is likely to be end-2023.
Meantime, AIFMD reporting remains a flagship service within the Kneip product catalogue. As always, rest assured we continue to monitor the evolving AIFMD II and will bring to your attention any prospective changes to the Annex IV reporting framework (including any future alignment to UCITS firms) as soon as reliable details emerge in due course.