On 25 November 2021, the European Commission issued a proposal for a Directive amending the Directives 2011/61/EU (“AIFMD”) and 2009/65/EC (UCITS Directive) (the “Proposal”). The Proposal was published further to a public consultation of the Commission that closed on 29 January 2021 on the functioning of the AIFMD, which concluded that generally the AIFMD worked well and achieved its objectives.
Despite overall positive feedback, the following main areas were identified as requiring further improvements to take into account new developments since the entry into force of the AIFMD for the purpose of preservation of financial stability and investor protection:
Introduction of harmonised rules for AIFMs managing funds active in direct lending space (LOFs). Such funds can provide alternative source of financing and absorb shocks when liquidity is constrained by continuing to provide loan financing when traditional lenders pull back from the market. The Proposal aims to make financing more accessible to companies.
Improvement of the supply of depositary services in smaller markets (It should be noted that this does not create a depositary passport): the current AIFMD provisions require that the depositary is appointed in the same Member State as the AIF which appeared difficult for smaller and concentrated markets due to fewer available service providers. The Proposal would enable such markets to access depositary services on a cross boarder level until further harmonisation at the Union becomes feasible.
Inclusion of Central Securities Depositaries (“CSDs”) in the custody chain where they are providing competing custody services to ensure that depositaries can fulfil their duties and safeguard the protection of investors. It was noted that depositaries are sometimes prevented from performing their duties, such as oversight duties, where the fund’s assets are kept by CSDs which are not considered as delegates of the depositary. However, the Proposal does not create additional due diligence requirements on depositaries as the authorised CSDs are already subject to stringent sectorial requirements and supervision.
Further clarification of the requirements for fund managers delegating certain functions to third parties by ensuring that they adhere to high standards applicable across the Union in order to enhance investor’s protection. The proposal foresees the reporting to ESMA on delegation arrangements in cases where risk or portfolio management is delegated outside the Union.
Improvement of the level of data gathered through regulatory reporting by creating a common data space for the reporting by AIFMs and UCITS to enable an efficient reporting and minimise reporting costs and burden; and
Harmonisation of the availability of liquidity management tools (LMTs) across the Union. Fund managers of open-ended funds would be able to suspend the repurchase/redemption of the units or shares temporarily but would also be required to choose at least one other liquidity management tool of their choice.
This Directive, once adopted, would be subject to evaluation 5 years after the date of its transposition.