The European Commission is of the opinion that the Alternative Investment Funds Manager or ‘AIFM’ Directive (2011/61/EU), adopted in 2011 as one of the responses to the 2008 financial crisis, contributes effectively to the stability of financial markets by requiring fund managers to understand the risks involved, increasing transparency and better protecting professional investors (see EUROPE 12504/19).
Nevertheless, ten years after the start of the implementation of the rules, the EU institution is also of the opinion that targeted adjustments are needed. On Tuesday 23 November, the Commission will present a revision of the ‘AIFM’ Directive as part of a legislative package designed to stimulate the emergence of a Capital Markets Union less dependent on the City of London.
Once authorised in a Member State, an Alternative Investment Fund or AIF (venture capital, real estate, commodity, etc.), is allowed to operate throughout the EU. The removal of the requirement to have a depository in the same country as the AIF whose assets it holds will help to facilitate market development, especially in smaller countries where fewer providers are active.
In order to strengthen supervisory cooperation, the competent authority of the host country of a fund will be able to ask the competent authority of the home country to carry out supervision by giving reasons for its request, which it will notify to the European Securities and Markets Authority (ESMA).
A competent authority will also be able to require an AIFM to activate a liquidity management tool in case of market stress. Alternative investment funds will no longer be able to sell the entirety of the loan contracts they grant on the secondary markets, but will be able to retain 5% of the notional value.
Concerning loan-originating funds, which constitute an alternative source of financing for economic operators, harmonised provisions will be introduced to ensure that their managers implement credit risk management procedures and ensure adequate and regular monitoring of their portfolio.
Third country AIFs operating in the EU will not be allowed to be established in a third country on the EU blacklist of non-cooperative jurisdictions.
The Commission will also propose to improve the quality of the data collected (exposures, liquidity profile, leveraged debt, etc.) and to remove some of the duplication of reporting requirements arising from different regulatory texts.
The proposal will also amend the Directive (2009/65) governing harmonised ‘UCITS investment funds in the EU to better align its prudential requirements with those of the ‘AIFM’ Directive.
See the proposal for the Directive: https://bit.ly/3cop0MS; and its annex: https://bit.ly/3cFSQgl (Original version in French by Mathieu Bion and Damien Genicot)