ESMA Q&As on the Application of the AIFMD
ESMA's Q&As on the Application of the AIFMD promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures. The content of this document is aimed at competent authorities under AIFMD to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. However, the answers are also intended to help AIFMs by providing clarity as to the content of the AIFMD rules, rather than creating an extra layer of requirements. This is a live document which ESMA update as and when new questions are received.
Review of AIFMD
The text of the updated AIFMD was published on 26 March 2024 with the amended directive coming into force on 15 April 2024. This follows the European Parliament’s (EP’s) approving the updates to AIFMD on 7 February 2024 and the Council of the EU ('Council') adopting the final text on 26 February 2024. Member States will have 2 years to transpose the new rules into national law.
On 28 January 2021, AREF submitted its response to the European Commission consultation on the review of AIFMD.
We would like to thank the AREF AIFMD Working Group (John Forbes, Michael Newell, Ben Robins, Melville Rodrigues and Hanny Tirta) for the time and wisdom they have given to assist us in drawing up this response. Also, thank you to the members who have provided their thoughts, and the other associations that we have collaborated with: INREV, CREFC, the IA, RICS, BVCA, DATA and members of EREF.
AIFMD 2 - New marketing rules - August 2019
Capital Markets Union: New measures published by European Commission
In November 2021 the European Commission adopted a package of measures to improve the ability of companies to raise capital across the EU; this included a proposal for a few targetted amendments to AIFMD.
These include:
Delegation
- Introducing an ‘at least 2-person minimum’ with an associated ‘EU resident’ requirement .
- A specific requirement for NCAs to notify ESMA on a regular basis of any delegation arrangement where risk or portfolio management activity outside of the EU is greater than that retained within.
- Aligning delegation rules within AIFMD to UCITS.
- Reporting by ESMA to the Commission, Council, and Parliament on the performance of delegation arrangements at least on a 2 yearly basis.
Liquidity Management
- In addition to being able to suspend a fund, AIFMs will be required to designate one other tool from a list liquidity management tools harmonised across the EU.
- AIFMs will be required to notify local authorities when any tool is used and ESMA will be expected to produce regulatory technical standards on selecting and then using such tools.
Depositaries
The Commission will be conducting an assessment on the need for and viability of a depositary passport before making recommendations in due course. Whilst this review is occurring, the Commission notes that depositaries should be able to offer their services on a cross-border, temporary basis.
More details can be found here.
Cross-border distribution rules
ESMA - Summary of cross-border marketing and management requirements for investment funds in EU and EFTA countries
As required under EU regulations, ESMA publishes a document detailing cross-border marketing and management requirements for investment funds in EU and EFTA countries. This provides hyperlinks to the websites of competent authorities and summaries of national rules governing cross-border marketing and management requirements for investment funds.
Regulatory Technical Standards
On 25 March 2024 the European Commission published the delegated act: Regulatory Technical Standards (RTS) on the notifications for cross-border marketing and cross-border management of AIFs and UCITS. This had been adopted by the EU on 15 December 2023.
Prior to this, in December 2022 ESMA published its Final Report on Draft technical standards on the notifications for cross-border marketing and cross-border management of AIFs and UCITs. This followed ESMA's consultation over the summer of 2022 to seek views on draft Implementing Technical Standards (ITS) and Regulatory Technical Standards (RTS) in relation to cross-border marketing and management of AIFs and UCITS within the EU. This included proposals for the information to be provided, as well as the content and format of notification letters to be submitted by UCITS, management companies and alternative investment fund managers (AIFMs) to the national competent authorities (NCAs) to undertake cross-border marketing or cross-border management activities in host EU Member States. AREF didn't respond to the consultation.
The ESMA technical standards relate to new rules on the cross-border distribution of alternative investment funds in the EU which came into effect in August 2021. These were part of a wider set of new rules relating to cross-border distribution of funds (CBDF),
External valuer liability
AIFMD allows use of external valuation services. The AIFMD provisions state that “the external valuer shall be liable to the AIFM for any losses suffered by the AIFM as a result of the external valuer’s negligence or intentional failure to perform its tasks”.
In certain jurisdictions the reference to negligence is interpreted as covering not only ‘gross negligence’ but also ‘simple negligence’, acting as a disincentive for external valuers due to liability concerns.
Based on feedback gathered over the recent years, external valuers have been unwilling to accept valuation mandates from AIFMs on the basis that their liability would be unduly extended by the negligence provisions. The liability cannot be insured (or can only be insured at prohibitive cost) as – at least in certain jurisdictions – the reference to negligence is interpreted as covering not only ‘gross negligence’ (as in Anglo-Saxon legal systems), but also ‘simple negligence’.
ESMA believes that the definition of “negligence” could be limited to “gross negligence” in the legislation. ESMA believes it is preferable to address this point directly in the legislation rather than in ESMA guidance, since guidance provided by ESMA might potentially have unhelpful spill over effects on other provisions of the AIFMD, such as the rules on the cover for professional liability risk or on the depositary liability reference to ‘negligence’.
This has been an issue from the implementation of AIFMD. At the time, RICS' main concerns were unlimited liability and AIFMD Article 73 which stated that external valuers must show adequate knowledge of the fund’s investment strategy. AREF has continued to lobby the FCA and HM Treasury on this matter, along with other associations.
Passporting
The requirements for passporting under AIFMD varies from country to country. Some national regulators are imposing “border controls”.
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