Members may be particularly interested in ESMA’s recommendation for change regarding external valuer liability.

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, it appears that external valuers may be unwilling to accept valuation mandates from AIFMs on the basis that their liability would be unduly extended by the negligence provisions. Similarly, it appears that the liability cannot be insured (or could 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’.

AREF's Public Affairs Committee have been working on a number of other issues around AIFMD, including:

The European Commission’s report to the Council and the Parliament on the AIFMD review has been published - 10th June 2020

AIFMD 2 - New marketing rules - August 2019

EU Commision's Report on the operation of AIFMD - January 2019
KPMG Survey on AIFMD - AREF has drafted a response to this survey.

AIFMD Passport & Third Country AIFMs -View AREF's response to ESMA's call for evidence.
External Valuers - Considerable uncertainty exists about the respective roles of the fund manager and the valuer in the performance of the valuation function under the AIFMD. In order to clarify this situation the FCA has proposed guidance to be added to the rulebook in the form of a series of questions and answers. The proposals are contained in a broader consultation paper (CP15/8). AREF responded to this consultation. Prior to responding, AREF met with RICS whose main concerns were unlimited liability and AIFMD Article 73 which states that external valuers must show adequate knowledge of the fund’s investment strategy. AREF and RICS will continue to liaise on this matter with the FCA.
Passporting - The requirements for passporting under AIFMD varies from country to country. Some national regulators are imposing “border controls”.
Lanching new AIF - The Committee are concerned that the launch of all new AIFs was considered by the FCA as a “material change” that required pre-approval from the FCA. It is felt that this goes beyond the requirements of AIFMD and a member of the Committee has been liaising with the FCA on this. They had made the FCA aware that some AIFs were being launched offshore due to this issue.