17 June 2022

EFAMA welcomes adoption by Council of its General Approach to AIFMD & UCITS Reviews

We commend the swift progress made by the French Presidency in this regard and its thorough approach to the review. The initial proposal of the Commission was designed as a targeted review of a well-functioning framework, an approach which the Council has continued and carried through in its report.

The Council’s proposed amendments serve as a recognition of the resilience and efficacy of the existing framework while proposing key improvements which we believe will make strides in ensuring the achievement of the CMU goals and supporting the growth of a stronger and more inclusive European economy. 

 

More specifically:

 

Liquidity Management Tools – EFAMA fully supports the Council’s decision to maintain the central role of the asset manager in the management of liquidity risk.

 

As noted by Tanguy van de Werve, EFAMA Director General: “In recent years, asset managers have ensured the resilience of their funds to severe shocks caused by disturbances in the real economy. Strengthening their toolkit with a broader range of liquidity management tools is the best means of improving both investor protection and financial stability for the future.”

 

We wholly commend the recognition given by Council to the dangers of trying to predict and prescribe the management of liquidity risk, particularly in light of the heterogenous nature of investment funds and the unpredictability of the risks they face. Substituting the knowledge and discretion of an asset manager for that of a third party or requiring the automatic triggering of a given LMT in a pre-defined situation would risk giving rise to procyclical effects which ultimately undermine investor protection and the stability of the financial system as a whole.

 

Delegation and Outsourcing – EFAMA is supportive of the Council’s decision to exclude distribution from the scope of the delegation regime and to remove the annual notification by NCAs to ESMA. As regards delegation reporting, EFAMA nonetheless recommends to the co-legislators to harmonise the notifications to NCAs foreseen under Articles 20 AIFMD / 13 UCITS instead of introducing supervisory reporting requirements as is currently the case. Moreover, a more in-depth discussion is warranted on the necessity of including quantitative information in the supervisory reporting regime, such as for instance the level of assets subject to delegation arrangements, as asset managers already provide – and will continue to provide – information on the level of substance they maintain in their home jurisdictions.

 

Loan-originating funds – EFAMA expresses concern with the Council’s decision to maintain product-specific rules in what is designed to be a managers’ directive. In particular, the creation of a separate leverage limit applicable to any fund which originates a loan creates a cliff-edge effect which fails to have regard to the purpose and source of leverage and the extent and purpose for which the fund engages in loan origination. The inclusion of carve-outs designed to exclude real estate and private equity funds exemplifies the need for a nuanced approach to this topic which is ill-suited to Level 1 legislation. EFAMA firmly believes the existing leverage limit, which is subject to regular monitoring by the relevant NCAs, is best suited to address any risks and can, if necessary, be supplemented by ESMA guidance. We welcome the proposed revisions made to allow for open-ended loan originating funds and to the risk retention requirement, though we continue to question the rationale for these requirements in light of existing rules applicable to all asset classes.

 

Depositary passport - Finally, we fully support the Council’s decision to not introduce a depositary passport in the revised AIFMD regime. The requirement for the depositary to share the same domicile as the fund should be preserved as it represents an important safeguard for investor protection. We also welcome the decision of the Council to require AIFM to prove the lack of relevant depositary services in its own Member State, before taking advantage of the appointment of a depositary in another jurisdiction.

 

EFAMA looks forward to continuing our engagements with the EU co-legislators, maintaining its key messages as set out in our position paper, Tweaking the AIFMD/UCITS Framework.

 

EFAMA

© EFAMA - European Fund and Asset Management Association