Thompson Taraz Depositary Limited is a leading independent full scope UK depositary and has been providing clients with independent depositary services since the inception of AIFMD in 2014.

We are exploring the multitude of changes to AIFMD being mooted at the moment and the key areas Full Scope alternative investment fund managers (“AIFMs”) need to understand to keep marketing throughout the EU.

The European Securities and Markets Authority (“ESMA”) has already made recommendations for changes in 19 areas including harmonising the AIFMD and UCITS regimes; delegation and substance; liquidity management tools; leverage; the AIFMD reporting regime and data use; and the harmonisation of supervision of cross-border entities.

The Commission is expected to issue a consultation on AIFMD in Q3 2020 and any subsequent legislative proposals are likely to follow in mid-2021. These changes have been talked about for the last three years, since July 2017 in fact when AIFMD went under review and follows KPMG’s report to the Commission in January 2019. Some of these proposed changes are;

Marketing
The KPMG report found there was considerable criticism that Member States have adopted different approaches as to which activities constitute “marketing” and there is a lack of transparency with regard to the differing national rules and National Competent Authority (“NCA”) processes. This results in additional costs for the industry and investors and undermines the benefits of the AIF passport and therefore the Single Market. There is a commitment to harmonise this.

National Private Placement Regimes (“NPPRs”)
NPPRs have played an important role in market development, but the KPMG report finds that this has created bias between EU and non-EU (“AIFMs”), notably because NPPRs require non-EU AIFMs to implement only a very limited number of the AIFMD requirements, while EU AIFMs marketing non-EU AIFs remain subject to all the requirements of the AIFMD with the exception of the rules regarding the appointment of a depositary. There are differing views on whether to activate the third-country passports or harmonise NPPRs.

Regulatory reporting
The report says the reporting requirements are necessary but there needs to be streamlining, being mindful of the sunk costs already incurred by AIFMs but beware, ESMA has already called for more detailed information especially with regard to the composition of a fund’s assets and liabilities.

Leverage
The introduction of a definition of “leveraged AIF” and the removal of the current exemption for PE funds to report leverage at the level of the SPV. ESMA has recommended that the definition of “AIF” and “leverage” should be linked and that a “leverage AIF” would mean:

“an AIF whose exposures are increased by the managing AIFM, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means”.

ESMA has also recommended that the reference in the recital to AIFMD that PE funds do not have to report leverage at the level of the SPV be deleted.

As we await the consultation paper on the various proposed changes and amendments, the UK however, being no longer in the EU, would not be subject to AIFMD II; it will be interesting to see what direction the UK takes in relation to the regulation of AIFMs in the future having indicated previously it will adopt a consistent approach.

We continue to recognise the importance of keeping our clients, partners and wider relationship circle updated on regulatory matters and events that could have an impact on their business. It is important we provide direction by presenting the facts whilst providing an appropriate amount of support.