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.
AREF responded in January 2021 to the European Commission’s consultation on the review of AIFMD.
The European Commission’s report to the Council and the Parliament on the AIFMD review was published in 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.
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.
AREF’s Public Policy Committee will keep an eye on how these proposals progress.
Cross-border distribution rules
In August 2021, as part of wider set of new rules relating to cross-border distribution of funds (CBDF), new rules on the cross-border distribution of alternative investment funds in the EU came into effect. More details can be found here.
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. In order to clarify this situation, back in 2015, the FCA proposed guidance should 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 has continued to liaise on this matter with the FCA and is now lobbying the FCA and HM Treasury, with INREV and BPF, to provide clarity in UK AIFMD on the liability of external valuers.
Passporting
The requirements for passporting under AIFMD varies from country to country. Some national regulators are imposing “border controls”.
View AREF's response to ESMA's call for evidence on the AIFMD Passport & Third Country AIFMs.
Launching new AIF
There was concern that the launch of all new AIFs was considered by the FCA as a “material change” that required pre-approval from the FCA. It was felt that this went beyond the requirements of AIFMD and the FCA were made aware that some AIFs were being launched offshore due to this issue.
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