On 17 June 2020, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published its recommendations for the review of the Alternative Investment Fund Managers Directive (AIFMD) in the form of a position paper: “Views on the review of the Alternative Investment Fund Directive (AIFMD)”. This follows on the European Commission’s AIFMD report, which was published on 10 June 2020.
On the basis of Article 69 AIFMD, the European Commission will be reviewing the application and the scope of the AIFMD, analyzing the experience acquired in applying the directive, its impact on investors, alternative investment funds (AIFs) and alternative investment fund managers (AIFMs), both in the EU and in third countries. It is expected that the public consultation itself will begin in September 2020. The AFM has taken the opportunity to highlight some areas which it considered to be most relevant for the public consultation by the European Commission and for the AIFMD review.
The AFM notes that it is generally satisfied with the AIFMD and the way it works out in practice. However, the AFM still sees room for improvement in a number of areas, including, but not limited to:
- Third Country passport and National Private Placement Regimes (NPPRs): The AFM notes that it is key that European capital markets remain open and attractive for foreign investment. The interaction between European capital markets and global capital markets becomes increasingly relevant now that the UK has left the EU. EU capital markets should remain accessible for third country asset managers (without compromising the integrity of the single market). In the AFM’s view, the most appropriate way to arrange for this is by re-starting the work on the Third Country passport (as foreseen in the AIFMD) which enables third country managers to freely circulate their funds throughout the EU on a cross border basis. Currently – in the absence of the third country passport – third country managers have or may have market access on a country-per-country basis through the National Private Placement Regimes (NPPRs). NPPRs currently prove to be a crucial tool to arrange for effective access to national markets. This is particularly relevant for the Dutch pension sector which is serviced by many third country managers. In the AIFMD it is envisaged that the NPPRs are ultimately replaced (and faded out) when the third country passport will have been established and operational for a period of three years. In contrast to what is currently foreseen in the AIFMD, the AFM would recommend that NPPRs remain in place for a longer period of time and co-exist alongside the third country passport until the passport has proven to work sufficiently adequate in practice.
- One single data point for AIFMD data and improving data quality: To enhance effective and efficient supervision by the national competent authorities (NCAs) the AFM believes it is essential that the Article 24 AIFMD data is readily accessible (no time lags) and of good quality. The AFM believes this can best be accomplished if ESMA or a third party service provider is the single recipient of the AIFMD data and that each NCA (and ESMA) is able to access this database in respect of its ‘own national population’.
- Improvements EU management and marketing passport: To reach a fully internal market for EU AIFMs, it is necessary to ensure a level playing field and to remove restrictions to the free movement of financial services in the Union. The new rules on the cross border distribution of funds (as set out in the Cross Border Fund Distribution Directive and Regulation) which are part of the Capital Markets Union package are a crucial step forward in achieving this. The AFM believes it is a very good development that market participants are well-informed on the specific rules for market access in the relevant marketing jurisdictions, on the information to be produced by them and the relevant fees and charges levied by competent authorities for supervision of cross-border activities and that this information is available on the website of ESMA. In this way, the ESMA website is a central point for information for market parties. Furthermore, the AFM believes that the interactive tool enabling indicative calculations of those fees and charges levied by national competent authorities is a good development to increase the transparency of the fees charged. However, the AFM would welcome further harmonization efforts in this area in the future (both in terms of documentation to be produced and fees and charges levied) so as to procure that AIFMD services can be offered more seamlessly on a cross border basis.
- Private equity transparency notifications and asset stripping: The AIFMD includes certain transparency requirements for private equity managers vis-à-vis NCAs. The AFM questions the relevance of receiving such transparency notifications. AIFMD requires private equity managers that acquire a major holding or control in a non-listed portfolio company to inform the portfolio company and its shareholders of the percentage of the manager’s holding. Where private equity managers acquire control over a non-listed company, the private equity manager must in addition fulfil certain disclosure requirements vis-à-vis the portfolio company and its stakeholders, including the relevant trade union or individual employees. The private equity managers must at the same time also inform its relevant NCA of these transparency notifications. The AFM questions the relevance of receiving these notifications. The mandate of the AFM is confined to protecting investors and the integrity of the financial markets. Accordingly, the AFM would rather not receive these type of notifications, or would at least prefer that the transparency requirements would be confined to the acquisition of control (and not to the acquisition of a major holding). In addition, the AFM also believes that in case the aim of these notifications is to detect the occurrence of asset stripping, more specific reports tailored for that purpose could be designed.