EFAMA welcomes the decision of the European Commission to adopt a targeted approach in its review of the Alternative Investment Fund Management Directive (AIFMD), along with key harmonising provisions within the Undertakings for Collective Investment in Transferrable Securities Directive (UCITSD). This focus on targeted improvements recognises the role this framework has played in encouraging the growth in the European Alternative Investment Fund (AIF) market over the past decade and its resilience even throughout recent market stresses. EFAMA supports the intent behind the Commission’s proposals in many respects, although certain of the proposed amendments warrant further consideration to ensure against unintended consequences which may outweigh the benefits envisaged. Our key suggestions for the proposed Directive are summarised as follows:
Liquidity Management Tools
While we strongly welcome the list of LMTs included in Annex V to the AIFMD and Annex IIa to the UCITSD, it is critical that the management of liquidity risk remains the responsibility of the manager. Liquidity risk is a function of, and is directly related to, the characteristics of the fund being managed. Removing this function from the manager or imposing prescriptive triggers for activating LMTs risks giving rise to pro-cyclical effects, for example by creating a risk of run on funds where the imposition of a particular LMT is anticipated by investors in the market.
Loan Originating Funds
EFAMA agrees that loan originating funds can provide a tangible benefit for the real economy, as noted in the Commission’s Explanatory Note. It remains unclear, however, as to the rationale behind introducing rules specific only to loans and why the current principles (which have been designed to apply to all asset classes without distinction) are considered insufficient for this category of asset. EFAMA would caution that certain rules in fact contradict established market practice and as such would have the effect of reversing the growth of this industry and potentially making these products less accessible and attractive to investors. We would contend that the current framework is sufficient to regulate originated loans as an asset class.
Supervisory Reporting
EFAMA welcomes the review to be carried out by ESMA as regards opportunities for the sharing of data between different regulators, including giving NCAs access to data reported by managers to national central banks (NCBs). As per the aim of the European Strategy on Supervisory Data in EU Financial Services to modernise EU supervisory reporting while ‘minimising the aggregate reporting burden for all relevant parties’, managers should not be required to report more granular data which would be of no added benefit for supervisors and which may have already been reported to a different supervisor under a separate piece of legislation. The focus should thus remain on communicating meaningful data and not unnecessarily duplicating, or increasing reporting obligations for managers. Any proposal to introduce a supervisory reporting regime for UCITS funds must also recall the stringent rules to which these funds are subject.
Delegation
EFAMA welcomes the acknowledgement that delegation is an important factor for the success of the European fund industry. The targeted amendments proposed by the Commission will increase transparency and supervisory convergence in the area of delegation without undermining the underlying regime. The proposal should nonetheless specify that delegation rules should not apply to tasks for which the management company does not bear direct responsibility. As regards the envisaged delegation-related reporting regime, the objective pursued by this regime should be clearly spelled-out. Moreover, NCAs should be allowed to take into account qualitative criteria when determining which arrangements to report. EFAMA finally questions the appropriateness to mandate regular peer reviews at Level 1 considering that ESMA is supposed to be a risk-based supervisor.
Depositary Services
EFAMA welcomes the decision of the European Commission to not introduce a depositary passport, believing that the requirement for the depositary to share the same domicile as the fund is an essential safeguard for investor protection. We also strongly support the decision to extend the depositary regime to include “investor” CSDs in the custody chain in order to guarantee the same liability standards applied to a fund depositary. When an NCA intends to take advantage of the possibility of appointing a depositary service in another Member State, it should as a precondition prove the lack of sufficient depositary service offer in its own jurisdiction.
Disclosures
EFAMA believes that the existing disclosures through UCITS, PRIIPs and MiFID legislations are already sufficient and allow investors to make informed investment decisions. Adding a new set of rules would only create confusion and complicate fund managers’ task to comply with several, yet overlapping, requirements. In addition, it is crucial to keep in mind that an AIFM needs the necessary flexibility in order to tailor the information provided to the specific needs of its investors. Mandatory retail investor-type disclosure – as established by MiFID – might lead to the situation where non-relevant information is disclosed to professional investors.
Procedural Provisions
The proposed rules will have an impact on all existing AIFMs and UCITS funds active in the EU. As such, certain rules will need to be grandfathered in the interest of legal certainty and to avoid retroactive effects. In addition, the content of a number of the provisions is to be specified via delegated acts or implementing technical standards and should, as such, not apply until an appropriate period of time after the entry into force of these implementing legislative acts.
