On 22 October 2020, the European Commission launched a public consultation on the review of the Alternative Investment Fund Managers Directive (AIFMD). The public consultation follows the European Commission’s review report sent to the European Parliament and the Council on 10 June 2020. The review report concluded that, while the AIFMD has contributed to the creation of an EU market for alternative investment funds (AIFs), and provided a high level of protection to investors, a number of areas should be improved. The Commission’s view in the report is based on an earlier report on the functioning of the AIFMD published in January 2019. In addition to the Commission reports, the European Securities and Markets Authority (ESMA) sent a letter to the Commission in August 2020, in which it listed the issues it considered important to be taken into consideration during the AIFMD review.
In the public consultation, the Commission asks for stakeholder feedback on a large number of issues. These include issues regarding the AIFM passport, the scope of the AIFM licence, investor protection, non-EU alternative investment funds (AIFs), financial stability, investment in private companies, sustainability, delegation and alignment with the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) (UCITS).
On the topics covered in the public consultation, it’s worth noting that:
- The Commission aims to improve the utility of the AIFM passport and the overall competitiveness of the EU AIF industry. Views are sought on the scope of the AIFM licence, its potential extension to smaller AIFMs and level playing field concerns in relation to the regulation of other financial intermediaries, like MiFID investment firms, credit institutions or UCITS managers that provide similar services.
- On the topic of investor protection, the Commission asks for stakeholder views on investor access that take into account the differences between retail and professional investors, also in the context of a potential EU law pre-calibration of an AIF that would be suitable for marketing to retail investors. The consultation also covers the adequacy of disclosure requirements, alleged ambiguities in the depositary regime and the lack of the depositary passport. Feedback on the AIFMD rules on valuation is also requested.
- In the section on international issues, the Commission seeks views on how to achieve the equitable treatment of non-EU AIFs and to secure a wider choice of AIFs for investors while at the same time ensuring that EU AIFMs are not exposed to unfair competition.
- In the same section, the Commission discusses the interaction between the EU market and international partners in the area governed by the AIFMD, in particular on the appropriateness of the AIFMD third country passport regime and delegation rules. The Commission asks whether the delegation rules are sufficiently clear to prevent the creation of letter-box entities in the EU, and whether the rules are appropriate to ensure effective risk management. At the same time, the Commission asks whether the delegation rules should be complemented with quantitative criteria, a list of core or critical functions that would be always performed internally and may not be delegated to third parties. These questions are in line with the recommendations posed by ESMA in its August 2020 letter.
- In the public consultation there is a dedicated section on financial stability. In it, the Commission asks stakeholders on how to ensure that national competent authorities and AIFMs have the necessary tools to effectively mitigate and deal with systemic risks. It asks for specific input regarding improvements to the supervisory reporting template provided in Commission Delegated Regulation (EU) No 231/2013, focusing on the increased activities of AIFs in the credit market. The Commission suggests more centralised supervisory reporting and improved information sharing among the relevant supervisors.
- On the issue of supervision, the Commission asks for stakeholder views on possible amendments to the supervision and cooperation regime in general.
- Potential improvements and comments are sought on the effectiveness of the current rules on investment in private companies.
- As this is an important area for the Commission, a special section is dedicated in the public consultation to sustainability covering how the alternative investment sector can participate effectively in the areas of sustainable finance and environmental, social and governance goals.
- The Commission is looking for feedback on possible increased coherence with the UCITS regime. It considers proposing a single licence for AIF and UCITS managers, harmonised metrics for the leverage calculation and the reporting on the use of liquidity management tools.
The deadline for responding to the consultation is 29 January 2021.