On 19 November 2020, the European Securities and Markets Authority (ESMA) published a speech on future challenges for fund managers.
During the course of this speech ESMA’s Executive Director, Verena Ross, provides some thoughts on the outlook for the asset management sector from a supervisory perspective. In particular, the Alternative Investment Fund Managers Directive (AIFMD) review is discussed and pertinent points include:
- ESMA has gathered practical supervisory experience on the functioning of the AIFMD since it was first applied, and shared these experiences with the European Commission in a letter it published in August. In this letter ESMA chose to devote particular attention to the area o delegation and substance requirements.
- ESMA acknowledges the benefits of delegation in terms of enhancing efficiency and scale as well as getting access to more specialised investment expertise. It is aware of the importance of delegation arrangements for the fund industry and the need to keep an open global model and avoid creating unnecessary barriers.
- While acknowledging the benefits, ESMA also recognises the increased operational complexities and supervisory risks that come with large-scale delegation arrangements.
- The AIFMD states that investment management functions delegated shall “not exceed by a substantial margin” the functions retained by the authorised alternative investment fund manager.
- In ESMA’s view it is important to ensure that entities that are authorised and supervised in the EU remain ultimately in charge of the key business functions and decisions. This also requires the implementation and maintenance of sound governance and controls mechanisms in the EU entity including rigorous due diligence and delegation monitoring processes.
- ESMA is not asking the Commission for a complete overhaul of the AIFMD substance requirements but clarification of the existing legal text