On 5 February 2020, the European Systemic Risk Board (ESRB) published a letter to John Berrigan, Director General for Financial Stability, Financial Services and Capital Markets Union at the European Commission, regarding shortcomings of the current framework of the Alternative Investment Fund Managers Directive (AIFMD).
The letter highlights areas for improvement in AIFMD reporting ahead of the AIFMD review to further enhance national competent authorities’ abilities to monitor vulnerabilities in investment funds. The ESRB estimates that half of the funds reporting under AIFMD do not report or possess a legal entity identifier, which it determines as crucial for the analysis of interconnectedness, understanding group structures and linking AIFMD data with other data sources.
Furthermore, the ESRB raises that 60% of investment funds net asset values are classified as “Other”. The ESRB argues that systemic risk analysis would benefit from a revised approach to fund classification that better reflects the type of funds registered as AIFs and where the “Other” category is reduced in size. The ESRB also identifies funds’ interconnectedness, leverage and liquidity risk as potential areas for improvement.
The ESRB also urges to prioritise the operationalisation of existing macro-prudential policy instruments noting that work is ongoing at a European level with the aim of developing the macro-prudential framework for investment firms. However, if this cannot be concluded within the timeframe for the current AIFMD review – there should be a review of the adequacy of the macro-prudential framework in the AIFMD in a subsequent review process.
The letter indicates that the European Commission plans to report on its review of the AIFMD in early 2020.