On the evening of Wednesday 19 July, negotiators from the Council of the European Union and the European Parliament reached a provisional political agreement on the revision of the Directives on Alternative Investment Fund Managers (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) governing mutual funds for retail investors.
“We will pave the way for a significant step towards the completion of the Capital Markets Union with stronger and more ambitious regulation in this sector to compete with counterparts in the US and Asia. Although our European markets have grown significantly in recent years, there is still plenty of room for improvement and growth. This provisional political agreement on these two directives is in line with this objective”, commented Isabel Benjumea (EPP, Spanish).
The new rules, which still have to be formally adopted by the Parliament and then by the Council of the EU, include a set of provisions aimed at completing the Capital Markets Union (see EUROPE 13220/31), notably by removing the provisions that allowed Member States to adopt their own rules, resulting in divergences within the EU.
At the European Parliament’s request, the rules on funds making loans should apply differently to funds that partly own the companies to which they lend (‘shareholder loans’). MEPs also won their case on harmonised rules concerning the notifications to be made on the use of liquidity management tools.
The revision of these directives also provides for enhanced investor protection and improved access for businesses to finance from sources other than banks. Investment fund managers who delegate their functions to third parties will have to adhere to the same high standards applicable throughout the EU. When a fund manager is authorised, more information will automatically be provided on the delegation arrangements it intends to put in place.
Greater liquidity security in the event of large-scale buy-backs
The future rules also address the management of liquidity risk by managers of open-ended alternative investment funds and retail funds. The text would require them to have at least two liquidity management tools to cover situations where liquidity problems arise, such as when a large number of investors want to redeem their investments at the same time.
The dossier also contains a range of measures to combat greenwashing. Several provisions are included to ensure that investors are not encouraged to invest in funds that claim to be environmentally- and climate-friendly but are not. The European Securities and Markets Authority (ESMA) would, for example, be tasked with drawing up guidelines on cases where the names of funds could give a false impression that they are ‘green’.
In addition, the provisional agreement reached by the co-legislators provides for common minimum rules to be put in place for direct lending by hedge funds to companies. This, the Parliament argues, will enable loan funds to operate cross-border and ensure that they can provide an alternative source of finance for businesses, in addition to bank loans. (Original version in French by Thomas Mangin)