On 17 December 2020, the European Securities and Markets Authority (ESMA) published a final report containing guidelines on Article 25 of the Alternative Investment Fund Managers Directive (AIFMD).

The objective of the guidelines is to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision (ESFS) and to ensure the common, uniform and consistent application of Article 25 of the AIFMD. In particular, they relate to the assessment of leverage-related systemic risk and aim to ensure that Member State competent authorities adopt a consistent approach when assessing whether the condition for imposing leverage-related measures are met.

In April 2018, the ESFS issued a set of recommendations to address liquidity and leverage risk in investment funds. The recommendations included a request to ESMA to provide guidance on Article 25 of the AIFMD and, inter alia, recommending ESMA to:

• Give guidance on the framework to assess the extent to which the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system.
• Give guidance on the design, calibration and implementation of macro-prudential leverage limits.

On 27 March 2020, ESMA published a consultation paper containing draft guidelines. The consultation closed on 1 September 2020. The final report provides an overview of the feedback received through the responses to the consultation paper and explains how ESMA took this feedback into account. It also contains the final guidelines.

The guidelines will be translated into the official EU languages and published on ESMA’s website. The publication of the translations will trigger a two-month period during which Member State competent authorities must notify ESMA whether they comply or intend to comply with the guidelines. The guidelines will apply from the end of this two-month period.