On 22 October 2020, the European Commission launched a consultation to review the Alternative Investment Fund Managers Directive1 ("AIFMD"), (the "Consultation"). The Consultation is intended to test market appetite regarding potential changes to AIFMD and to gather views from regulators, investors, asset managers, industry representative bodies, investor protection associations and the general public on the potential risks that might be generated by any proposed changes to AIFMD.
The Consultation follows hot on the heels of a report issued by the European Commission in June 2020 and sent to the European Parliament and Council which assessed the scope and the application of AIFMD (the "AIFMD Report"). The AIFMD Report, mandated by Article 69 of AIFMD, represented the bringing together of more than two years' work and leveraged a lengthy report prepared by KPMG2 regarding the operation of AIFMD since its entry into force on 22 July 2013.
In the time between the AIFMD Report and the Consultation, the European Securities and Markets Authority ("ESMA") issued a letter to the European Commission setting out areas where it felt the European Commission might focus its attention as part of the wider AIFMD review process (the "ESMA Letter"). Our previous advisory provides an overview of the ESMA Letter.
Format of the Consultation
The Consultation is formatted as a questionnaire including multiple choice questions and questions that allow for free form responses.
Respondents also have a choice of formats to submit responses as follows:
- Short Form Questionnaire consisting of 17 Questions (3 general questions and 14 questions on general investor protection topics); or
- Long Form Questionnaire consisting of 102 questions (including the 17 questions in the Short Form Survey and 85 more technical questions on AIFMD).
In a number of areas the European Commission request evidentiary based support for responses provided and / or qualitative or quantitative information on how respondents have arrived at their response.
The deadline for responses is midnight (Brussels time) on 31 January 2021.
Content of the Consultation
The Consultation is broken out into seven separate sections, as follows:
Section I: Functioning of the AIFMD regulatory framework, scope and authorisation requirements
This section of the Consultation covers topics such as the functioning of the AIFMD legal framework, whether market practices or local rules impair an AIFM's effectiveness, the scope and appropriateness of the AIFMD license and capitalisation requirements under AIFMD (including whether there should be a greater alignment between capitalisation obligations and risk).
Respondents are also invited to provide their views on:
- the harmonisation of requirements associated with ancillary (Article 6) services such as individual portfolio management and investment advice and levelling the playing field between firms authorised pursuant to the second Markets in Financial Instruments Directive3 ("MiFID") and AIFMs providing similar services. The focus being on greater regulatory consistency between the AIFMD, MiFID and Undertakings for Collective Investment in Transferable Securities ("UCITS") frameworks to ensure that entities providing similar types of services are subject to similar regulatory standards;
- introducing a supervisory review and evaluation process for AIFMs (similar to those applicable to credit institutions); and
- examining the appropriateness of the assets under management thresholds for small AIFMs (including a question in relation to the lack of an EU passport for those firms).
Section II: Investor Protection
In this section responses are invited in relation to topics such as investor classification and alignment with MiFID, improving AIFMs' access to retail investors and fund structuring considerations associated with that proposal. There is a significant portion of this section dedicated to issues experienced by depositaries, the long discussed depositary passport and issues associated with tri-party collateral managers.
Questions about AIFMD mandatory disclosure requirements, conflicts of interest, the clarity of AIFMD valuation rules (with issues experienced as a result of COVID 19 in focus) and well known issues associated with external valuers and liability are also contained within this section
Section III: International Relations
This section seeks responses which will help the European Commission better understand how to strike the right balance between a functioning and efficient AIF market and ensuring the market does not undermine financial stability or fair competition.
Here the European Commission: (i) asks what changes might be made to the AIFMD legal framework to enhance competitiveness; (ii) examines national private placement regimes and their usefulness in terms of level playing field considerations; and (iii) seeks suggestions from respondents on evening up the treatment and obligations that attach to EU versus non-EU AIFMs.
As expected there are also questions about delegation (and associated risks) and whether or not those rules need to be updated. This section also looks at whether investment managers who provide collective portfolio management services from third countries should be subject to AIFMD standards to canvas views on potential regulatory arbitrage. While no Brexit focus is hinted at, questions in this section are no doubt influenced by Brexit related considerations which have brought issues related to delegation and substance into the spotlight in recent times.
1 Directive 2011/61/EU
3 Directive 2014/65/EU
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.