FINANCE - EU asset management

AIFMD review shows that overall, the rules are working well, but that some areas could benefit from targeted improvements.

date: 29/04/2021

By Lina Vatenaite

The year 2021 brings a number of reviews of the EU asset management regulation. The sector is expecting Commission proposals amending the AIFMD, MiFID and ELTIF rules. The work is still ongoing, and it is felt that overall, the Alternative Investment Fund Managers Directive (AIFMD) works well and a major overhaul is not needed. However, a number of potential areas that could benefit from targeted improvements have been identified based on the feedback received during a recent public consultation.

Positive contribution

The consultation, which ran until the end of January 2021, yielded 130 responses to a range of questions covering international competition, investor protection, the level playing field among different financial intermediaries, financial stability and sustainable investing. The Commission is still analysing the feedback received. The Commission is also assessing the impact of the potential policy responses to the issues highlighted in the report evaluating the effectiveness of the AIFMD that it published on 10 June 2020.

There is a general agreement among different stakeholders that the AIFMD has made a positive contribution to the development of the single market for alternative investment funds (AIFs). The directive has helped to establish an effective supervisory regime, improved transparency for investors and regulators, and improved monitoring of market developments. It has also allowed, where necessary, regulatory intervention when new risks to investors or market stability have emerged.

The European Securities and Markets Authority’s second statistical report on the EU AIF market, issued in 2020, indicated that the market grew to € 5.8 trillion in 2018, representing an 11% increase from 2017 and reaching nearly 40% of market share of the EU fund industry. The increase was driven primarily by the launching of new funds. The success of the AIFMD lies in its focus on setting high standards for fund managers. This is more aligned with the approach taken in MiFID, and differs from the product focus of other frameworks such as the UCITS directive.

Stakeholders have also expressed their support for the current AIFMD delegation regime, which allows alternative investment fund managers of AIFs to delegate the carrying out of functions to third parties. In their view, the regime allows for the efficient management of AIF portfolios by relevant market experts in a particular geographic market or asset class. The Commission is assessing how best to preserve the advantages of the AIFMD legal framework, while at the same time implementing the targeted amendments needed to improve the clarity of the current rules and filling in any regulatory gaps that have been identified.

Possible improvements

Following recommendations by the European Systemic Risk Board, the Commission is considering increasing the availability and use of liquidity management tools for the discretionary use of managers of open-ended funds. The Commission is looking into the possibility of enabling the cross-border provision of depositary services and ensuring the equal treatment of custodians of AIF assets. Establishing and levelling the playing field for AIFMs managing loan-originating funds is also being considered by the Commission, which is conscious of the potential risks to financial stability that the activities of such funds could pose.

Finally, the Commission is preparing the ground for a common data space in the financial sector by using the Commission Delegated Regulation supplementing the AIFMD (AIFMR) requirements as a part of an integrated data collection system. Such a system would deliver accurate, comparable, and timely data to supervisory authorities at EU and national level, while minimising the aggregate reporting costs and administrative burden for all parties.

The AIFMD is still a relatively new framework that has generally functioned well, and any proposed changes will be targeted and proportionate. Ensuring adequate levels of investor protection will remain the Commission’s key priority. However, it will also support further development of the EU AIF market, to provide investors with access to a wide range of investment opportunities while ensuring a level playing field for EU managers.