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What’s New? Analysis of Key Changes

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Background

As noted in our earlier OnPoint, on 25 November 2021 the European Commission (the Commission) set out its proposals1 to amend the Alternative Investment Fund Managers Directive (AIFMD)2 (and, to the relevant extent, the UCITS Directive)3 (the Proposals). The Council of the EU (the Council) formalised its position with regards to the Proposals in June 2022, and the European Parliament (Parliament) finalised its position in January 2023. The next stage was for the Council, Commission and Parliament to debate the various points via the Trilogue process.4 On 19 July 2023, following a final Trilogue meeting, the Council issued a press release confirming that provisional agreement had been reached on the text.

On 28 November 2023, just over two years to the day since the Commission outlined its Proposals, and following intense negotiations during 2023, the Committee on Economic and Monetary Affairs (ECON) in the Parliament voted to approve the AIFMD trialogue agreement (i.e., the provisional agreement resulting from interinstitutional negotiations announced in July 2023). The vote followed the Council’s initial approval of the agreement earlier in November.

The text of the directive to amend the AIFMD (so-called AIFMD 2.0), was published in the Official Journal of the EU5 on 26 March 2024 and will enter into force 20 days later (i.e., 15 April 2024). Member States have 24 months to adopt and publish, the laws, regulations and administrative provisions necessary to comply with AIFMD 2.0, meaning go-live is on 16 April 2026. 

AIFMD 2.0 makes targeted changes to certain provisions of AIFMD. In this OnPoint, we look at the key changes and their impact on AIFMs, which can be broadly broken down into the following:

  1. Delegation, Authorisation, Disclosure to investors and Reporting.

  2. A new Loan Origination regime.

  3. Liquidity Management Tools.

  4. Depositaries.

  5. Non-EU AIFM Marketing under a national private placement regime (NPPR).

  6. Miscellaneous Amendments.

1)  Delegation, Authorisation, Reporting, Disclosure to Investors

Delegation

The current AIFMD delegation structure allows AIFMs to delegate certain tasks if prescribed conditions are met. Prior to publication of the Commission’s 2021 Proposals, there were real concerns in the asset management industry that there would be significant changes to the delegation regime. The good news is that delegation is to remain. In fact, the recitals to AIFMD 2.0 expressly recognise the importance and benefit of allowing delegation, stating “Delegation can allow for the efficient management of investment portfolios and for sourcing the necessary expertise in a particular geographic market or asset class”.

However, the same recital adds “it is important that supervisors have updated information on the main elements of delegation arrangements”.

Consequently, AIFMD 2.0 introduces additional requirements in terms of supervision and administration, but it will still be possible for risk management or portfolio management functions to be delegated.

In more detail, Article 20 of AIFMD requires an AIFM to notify its home national competent authority (NCA) where it intends to delegate ‘functions’ to a third party and to comply with the conditions set out in Article 20(1) of AIFMD before the delegation arrangement becomes effective.

AIFMD 2.0 expands this requirement. AIFMD 2.0 states that the delegation rules laid down in Article 20 will apply to all functions listed in Annex I to AIFMD and to the ancillary ‘top-up’ services referred to in Article 6(4) of AIFMD. The AIFM’s liability to clients, the AIF and its investors is also expanded to include delegated ‘top-up’ services as well as functions and AIFMD 2.0 makes clear that the AIFM cannot delegate the functions or services to the extent that, in essence, it becomes a letter-box entity.

The AIFM must be able to demonstrate that the delegate is qualified and capable of undertaking the functions and providing the services in question, that it was selected with all due care and that the AIFM is in a position to monitor effectively at any time the delegated activity.

In a helpful clarification, AIFMD 2.0 makes clear that “where one or several distributors which are acting on their own behalf” perform the marketing function (as referred to in Annex I, point 2(b)) and which market the AIF under MiFID II6 “such function is not considered as delegation”.

The Proposals originally included a provision that ESMA7 should receive notifications of delegation arrangements where more risk or portfolio management is delegated to third-country entities than is retained. Some stakeholders were concerned that providing numerical data on the portion of EU fund assets managed outside the EU might be used as a basis for limiting delegation practices. However, the requirement in the final agreed AIFMD 2.0 text is not specific to third-country delegation, and the original provision is not included in the final text. The notification requirements in the final text do not differentiate between delegation within the EU or outside the EU.

The general requirement to provide NCAs and ESMA with additional information on delegation arrangements does leave the question open as to what this data will be used for. However, AIFMD 2.0 expressly states “For the sake of clarity, it should be specified that the data collected on the amount and percentage of the assets of the managed AIFs that are subject to delegation arrangements concerning the portfolio management functions are for the purpose of providing a greater overview of the operation of delegation, and are not on their own an evidential indicator for determining the adequacy of substance or risk management, or the effectiveness of oversight or control arrangements at the level of the manager” – which may go some way to allay stakeholders immediate concerns.

Concerns remain that there may be attempts to use the information to curtail delegation in the future and that the mandate given to ESMA to devise regulatory technical standards (RTS) relating to delegation may result in more onerous obligations than those envisaged by the co-legislators in AIFMD 2.0. Again, there is a degree of comfort to be taken from the following statement in AIFMD 2.0: “As regards information to be reported on delegation arrangements, the regulatory technical standards should remain limited to setting out the appropriate level of standardisation of the information to be reported. Those regulatory technical standards should be adopted on the basis of a draft developed by ESMA. The regulatory technical standards should not add any elements that are not provided for in Directive 2011/61/EU.”

Authorisation

With regards to authorisation, under AIFMD 2.0 the AIFM will be required to provide its NCA with more information than is currently the case. This includes more detailed information about the persons effectively conducting the business of the AIFM; more granular information on arrangements made for the delegation and sub-delegation to third parties; a detailed description of the human and technical resources employed by the AIFM for performing day-to-day portfolio or risk management tasks within the AIFM, including the resources for monitoring the delegated activity, in respect of each of the AIFs it manages or intends to manage; a brief description of the delegated portfolio management functions including whether such delegation amounts to a partial or full delegation; and a brief description of the delegated risk management functions including whether each such delegation amounts to a partial or full delegation.

Reporting to NCAs and Disclosure to Investors

Requirements on information to be reported to NCAs following authorisation have also been expanded. AIFMs will need to provide details of the current risk profile of the AIF, including the market risk, liquidity risk, counterparty risk, other risks including operational risk and the total amount of leverage employed by the AIF, detailed prescribed information regarding delegation arrangements concerning portfolio management or risk management functions, including for example: the number of full-time equivalent human resources employed by the AIFM for performing day-to-day portfolio or risk management tasks within the AIFM; a list and description of the activities concerning risk management and portfolio management functions that are delegated; and the commencement and expiry dates of the delegation and sub-delegation arrangements.

In addition, ESMA is mandated to develop implementing technical standards for a new Annex IV reporting template, as well as RTS specifying, amongst other things, reporting frequency and timing. ESMA does not need to submit the draft technical standards to the Commission until 36 months after AIFMD 2.0 has entered into force – which will be 12 months after AIFMD 2.0 ‘go-live’. It remains to be seen what the expectations will be from the Commission during the 12-month period when the new rules are in force if there are no technical standards specifying when those reports need to be made and what information is to be reported.

AIFMD 2.0 also amends the information that must be disclosed to investors both before investment and periodically thereafter. Information to be provided pre-investment now includes: the name of the AIF, a description of the investment strategy and objectives of the AIF, information on where any master AIF is established and where the underlying funds are established if the AIF is a fund of funds, a description of the types of assets in which the AIF may invest, the techniques it may employ and all associated risks, any applicable investment restrictions, the circumstances in which the AIF may use leverage, the types and sources of leverage permitted and the associated risks, any restrictions on the use of leverage and any collateral and asset reuse arrangements, and the maximum level of leverage which the AIFM is entitled to employ on behalf of the AIF. In addition to the current requirement to describe the AIF’s liquidity risk management (including a description of the redemption rights in both in normal and in exceptional circumstances), AIFMs will also now need to disclose the possibility and conditions for using the liquidity management tools selected. One other notable addition is the requirement to provide investors with a list of fees, charges and expenses that are borne by the AIFM in connection with the operation of the AIF and that will be directly or indirectly allocated to the AIF.

Information to be provided periodically post investment includes details of the composition of the originated loan portfolio (this requirement applies to all AIFs, not only Loan Originating AIFs (defined below)) and, on an annual basis, (i) all fees, charges and expenses that were directly or indirectly borne by investors and (ii) any parent company, subsidiary or special purpose entity utilised in relation to the AIF’s investments by or on behalf of the AIFM.

From a practical perspective, Luxembourg and Dublin have a large number of white label AIFMs and AIFMs delegating to their affiliates, often located outside the EU. Additional delegation rules will be reflected in additional compliance costs. However, most of these new rules should have a basis in existing processes and should not be overly onerous. Delegation agreements will also need to be reviewed and possibly amended as a result of the increased oversight obligations for AIFMs, especially when the AIF is the principal in the delegation arrangement.

With regards to the provision of additional services, if an AIFM contemplates providing one or more of these additional services, its programme of activity and consequently its licence are likely to be impacted.

2) A New Loan Origination Regime

For the first time, there are specific product related requirements in what has, to date, been a directive for managers. Rules relating to loan originating funds were probably the hardest fought in the Trilogue negotiations – it was not until the very end on 19 July 2023 that a compromise was found.

The Recitals recognise that AIFs can provide critical funding for EU small and medium sized enterprises for which traditional lending sources are more difficult to access and AIFMD 2.0 should therefore recognise the right to AIFs to originate loans. The new rules aim to establish an efficient internal market for loan origination by AIFs and to allow AIFs to originate loans in all Member States. However, given the fast-growing private credit market, the legislators decided to address the perceived micro- and macro-prudential risks that loan origination by AIFs could pose to the financial system by enacting certain rules described below. While the new rules are striving to harmonise the regime applicable to AIFMs that manage the AIFs originating loans, the Member States are not prevented from laying down national product frameworks that define certain categories of AIFs with more restrictive rules.

Most AIFMD 2.0 loan origination provisions apply to all AIFs when originating loans, with a few additional provisions that only apply to AIFs that originate loans on a significant basis – defined in AIFMD 2.0 as “Loan Originating AIFs”. There are also some exemptions in the case of “shareholder loans”.8

Requirements applicable to all loan origination activity by AIFs Which Originate Loans

AIFMD 2.0 includes new requirements that apply to any and all AIFs that originate loans – not just Loan Originating AIFs (as defined below). AIFMD 2.0 defines “loan origination” or “originating a loan” as “the granting of a loan (i) directly by an AIF as the original lender or (ii) indirectly through a third party or special purpose vehicle, which originates a loan for or on behalf of the AIF, or for or on behalf of AIFM in respect of the AIF, where the AIFM or AIF is involved in structuring the loan, or defining or pre-agreeing its characteristics, prior to gaining exposure to the loan”.

  • AIFM permitted activities AIFMD 2.0 expressly amends Annex I of AIFMD to provide that “Originating loans on behalf of an AIF” is a function that an AIFM may additionally perform in the course of the collective management of an AIF, alongside activities such as portfolio management and risk management. This confirms that the AIFMs shall be able to manage loan-originating AIFs, including on cross-border basis, which is already a current practice in many Member States.

  • No originate to distribute AIFMs are prohibited from managing an AIF that originates loans with the sole purpose of selling them to third parties (‘originate-to-distribute strategy’), regardless of whether those AIFs meet the definition of loan originating AIFs. AIFMD 2.0 is clear – loans should be granted for the sole purpose of investing the capital raised by the AIF in accordance with its investment strategy and regulatory constraints. This is expected to apply to loans originated directly by the AIF and also indirectly, for example, through a special purpose vehicle (SPV).

  • Risk retention Linked to the prohibition of the originate-to distribute strategy, AIFs that originate loans are subject to risk retention requirements – they must retain 5% of the notional value of each loan they originate and subsequently transfer to third parties. That percentage of each loan is to be retained: (i) until maturity for those loans whose maturity is up to eight years, or for loans granted to consumers regardless of their maturity; and (ii) for a period of at least eight years for other loans.

    AIFMD 2.0 also provides a list of derogations from the risk retention requirement to include: where the AIFM starts to sell assets of the AIF in order to redeem units or shares as part of the liquidation of the AIF; where the disposal is necessary for the purposes of compliance with sanctions or with product requirements; and where the sale of the loan is necessary to enable the AIFM to implement the investment strategy of the AIF it manages, in the best interests of the AIF’s investors.

  • Concentration limits To address the risk of interconnectedness among AIFs that originate loans and other market participants, AIFMs of those AIFs are required to diversify their risk and subject their exposure to specific limits. When an AIF originates loans, the AIFM is required to ensure that the AIF does not make loans in excess of 20% of the AIF’s capital (including those made through an SPV) to other AIFs, UCITS and financial undertakings (a broad term which covers a wide range of financial services firms). Importantly, this limit does not apply to other loans, e.g. those made to private companies. In any case, the 20% limit does not apply where the AIF is selling assets to meet redemptions or as part of the liquidation of the AIF and may also be temporarily suspended for up to 12 months where the capital of the AIF is increased or reduced.

  • Restrictions on lending AIFs that originate loans must not make loans to the AIFM (or its staff); the depositary or its delegate; or the AIFM’s delegate (or its staff).

Member States will have the option to prohibit loan origination to consumers (i.e., natural persons acting outside their trade, business or profession).

There are new policies and procedures introduced in relation to loan origination. AIFMs are required to “implement effective policies, procedures and processes” for granting of loans and “shall also implement effective policies, procedures and processes” for assessing the credit risk and for administering and monitoring their credit portfolio. AIFMs are also to keep those policies, procedures and processes up to date and effective and review them regularly and at least once a year.

Also, there is an express provision in AIFMD 2.0 that where an AIF originates loans, the proceeds of the loans, minus any allowable fees for their administration, are to be attributed to that AIF in full.

Requirements applicable to Loan Originating AIFs only

To be a “Loan Originating AIF”, the AIF must meet one of two alternative conditions:

  • a qualitative test when the investment strategy of the AIF is “mainly to originate loans”; or

  • a qualitative test where the AIF’s originated loans “have a notional value that represents at least 50 % of its net asset value.”

  • Closed-ended vs Open-ended Loan Originating AIFs Loan Originating AIFs are required to be closed-ended unless, by way of derogation, the AIFM can demonstrate that its liquidity risk management system is compatible with its investment strategy and redemption policy. These requirements are without prejudice to any thresholds, requirements and conditions set out in the ELTIF Regulation.9

  • Leverage limits Arguably the most contentious point of the AIFMD 2.0 negotiation process was the imposition of leverage limits on Loan Originating AIFs. After a number of proposals and counterproposals, a solution was found that sets a leverage limit – calculated using the ‘commitment’ method10 (and not the gross method) – of:

    • 175% of NAV for open-ended AIFs; and

    • 300% of NAV for closed-ended AIFs.

The Recitals to AIFMD 2.0 describe the commitment method as providing a “comprehensive and robust framework for calculating leverage in accordance with international standards”.

AIFMD 2.0 also allows the AIF to rectify positions “within an appropriate period” in the case of an unintentional breach of the cap that is beyond the AIFM’s control.

Grandfathering In terms of timing and implications for AIFs constituted before the date AIFMD 2.0 enters into force (i.e., before 15 April 2024), AIFMD 2.0 amends Article 61 to provide grandfathering for those AIFs for up to five years after AIFMD 2.0 enters into force (i.e., until 16 April 2029), subject to certain conditions and limitations. AIFMs managing AIFs that originate loans that have been constituted before 15 April 2024 and that do not raise additional capital after 15 April 2024 are deemed to comply with the provisions in AIFMD 2.0 relating to loan origination.

From a practical perspective, the AIFMD 2.0 strives to introduce a harmonized framework for loan origination by eliminating inconsistencies in regulation applicable to funds which originate loans across Member States. However, Member States may still regulate in certain areas and it remains to be seen how efficient the AIFMD 2.0 will be in eliminating differences between applicable regimes.

Existing policies and procedures of AIFMs managing AIFs that originate loans will need to be reviewed and updated as appropriate. However, the extent of necessary changes will not be uniform across the EU. For example, Luxembourg AIFMs managing AIFs that originate loans must already have in place a proper organisational and governance-structure, including processes and procedures for managing loan originating AIFs11 meaning any changes for Luxembourg AIFMs in this area are likely to be minimal as their existing policies and procedures should generally serve.

3) Liquidity Management Tools

The existing liquidity management provisions in AIFMD have been extended, with new obligations and powers for AIFMs that manage open-ended AIFs. Under AIFMD 2.0, an AIFM that manages an open-ended AIF is to select at least two “appropriate” liquidity management tools (LMTs) – based on an assessment of the suitability of those tools to its investment strategy, the liquidity profile and the redemption policy of the AIF. They are to be selected from a list of nine LMTs set out in Annex V:

  1. Suspension of subscriptions, repurchases and redemptions.

  2. Redemption gate.

  3. Extension of notice periods.

  4. Redemption fee.

  5. Swing pricing.

  6. Dual pricing: dual pricing means a pre-determined mechanism by which the subscription and redemption prices of the units or shares of an investment fund are set by adjusting the net asset value per unit or share by a factor that reflects the cost of liquidity.

  7. Anti-dilution levy.

  8. Redemptions in kind.

  9. Side pockets.

Historically not all LMTs have been available in all Member States. However, under AIFMD 2.0 Member States are to ensure that at least the Annex V LMTs are available to AIFMs managing open-ended AIFs, with following specific rules that apply:

  • the AIFM cannot select only the tools set out in points 5 (swing pricing) and 6 (dual pricing).

  • “Redemptions in kind” (point 8) can only be activated to meet redemptions by professional investors and the redemption in kind must correspond to a pro rata share of the AIF’s assets.

  • Money market funds will only be required to choose one LMT from points 2 to 8.

  • With regards to points 1 (suspension of subscriptions, repurchases and redemptions) and 9 (side pockets), an AIFM of an open-ended AIF may, if it is in the interest of AIF investors, temporarily suspend the repurchase or redemption of the AIF units or activate side pockets. Suspensions or side pockets should only be used in exceptional cases where circumstances so require and where justified, having regard to the interests of the AIF investors.

In addition, the AIFM managing an open-ended AIF must implement detailed policies and procedures for the activation and deactivation of any selected LMTs. The LMTs selected and the policies and procedures for their activation and deactivation must be communicated to the NCA of the AIFM’s home Member State.

AIFMD 2.0 requires an AIFM to notify – without delay – its home NCA (a) when the AIFM activates or deactivates the suspension of redemptions and subscriptions LMT listed in Annex V, point 1; (b) when activating or deactivating the side pockets LMT listed in Annex V, point 9, in a reasonable timeframe prior to such activation or deactivation; and (c) when activating or deactivating any other liquidity management tool other than in the ordinary course of business as envisaged in the fund rules or the instruments of incorporation of the AIF. Furthermore, the home NCA is to notify, without delay, the NCAs of a host Member State of the AIFM, ESMA and, if there are potential risks to the stability and integrity of the financial system, the ESRB.12

The LMT provisions in AIFMD 2.0 will be supplemented by RTS and guidelines. More specifically, ESMA is to develop draft RTS requirements to be met by a loan-originating AIF in order to maintain an open-ended structure and to specify the characteristics of the LMTs set out in Annex V.

ESMA will also develop guidelines on the selection and calibration of the LMTs by AIFMs. Interestingly, AIFMD 2.0 includes a statement that “Those guidelines shall recognise that the primary responsibility for liquidity risk management remains with the AIFM”. The guidelines will also indicate the circumstances in which side pockets can be activated and are to allow adequate time for adaptation before they apply, in particular for existing AIFs.

The statement as to primary responsibility resting with the AIFM may be linked to new provisions AIFMD 2.0 adds to Article 46 (Powers of Competent Authorities), which now provides that an NCA can in “exceptional circumstances and after consulting the AIFM, require AIFMs to activate or deactivate the liquidity management tool referred to in Annex V, point 1 [suspension of redemptions and subscriptions LMT], where there are risks to investor protection or financial stability that, on a reasonable and balanced view, necessitate such activation or deactivation”.  

Article 47 (Powers of ESMA) has also been amended to provide that in exceptional circumstances ESMA can, in the interest of investors, where there are investor protection or financial stability risks that, on a reasonable and balanced view, necessitate this requirement, and after consulting the AIFM, require (a) non-EU AIFMs that are marketing AIFs that they manage in the EU or (b) EU AIFMs managing non-EU AIFs to activate or deactivate the suspension of redemptions and subscriptions LMT (point 1 of Annex V).

ESMA will develop guidelines to indicate to the NCAs when they may wish to exercise their powers to require the activation or deactivation of the suspension of redemptions and subscriptions, and when ESMA may be minded to put forward such a request.

Depositaries

Pursuant to Article 21 of AIFMD, an AIF’s depositary must be established, for EU AIFs, in the home Member State of the AIF and for non-EU AIFs, in the third country where the AIF is established or in the AIFM’s home Member State.

The amendment made by AIFMD 2.0 falls short of providing for a “depository passport”, but it does provide that the NCA of an EU AIF’s home Member State may allow institutions established in another Member State to be appointed as a depositary, provided certain conditions are met (for example, if the AIFM has asked the NCA to allow it to appoint a depositary in another Member State and has demonstrated a lack of relevant depositary services to effectively meet the needs of the AIF in the AIF’s home Member State).

The assessment is made on a case-by-case basis, each time an AIFM wishes to appoint a depositary in another Member State. Such depositaries will need to co-operate not just with their own NCA but also those of the AIF and (if different) the EU AIFM.

AIFMD 2.0 introduces some changes to the conditions for appointing a depositary in a third country by a non-EU AIF. There is a new requirement that the third country where the depositary is established is (i) not identified as a high-risk third country pursuant to the EU’s Anti-Money Laundering Directive13 (as opposed to the current AIFMD Article 21(5) requirement that the third country where the depositary is established is not listed as a Non-Cooperative Country and Territory by FATF) and (ii) not mentioned in Annex I to the revised EU list of non-cooperative jurisdictions for tax purposes.

AIFMD 2.0 provides that if the depositary was not in breach of the requirements at the time of authorisation but is subsequently identified as being in a high-risk third country or a country that is added to the so-called tax blacklist, a new depositary must be appointed within an “appropriate” period of time, taking due account of the interests of investors, and within two years in any event.

Non-EU AIFM Marketing an AIF in the EU under an NPPR

Non-EU AIFs and non-EU AIFMs will also be impacted by the changes introduced by AIFMD. Specifically, amendments have been made to Article 42 of AIFMD to provide that (i) non-EU AIFMs should not be located in a high-risk third country pursuant to the EU’s Anti-Money Laundering Directive,14 (ii) the third country where the non-EU AIF is established has signed an agreement with the Member State of reference and with each other Member State in which the units or shares of the non-EU AIF are intended to be marketed that fully complies with the standards laid down in the OECD Model Tax Convention and ensures an effective exchange of information in tax matters, and (iii) the third country is not mentioned on the revised EU list of non-cooperative jurisdictions for tax purposes.

Under Article 42, non-EU AIFMs must comply with AIFMD Article 22 (Annual report), Article 23 (Disclosure to investors) and Article 24 (Reporting Obligations to Competent Authorities). Therefore, the changes AIFMD 2.0 makes to the Articles 23 and 24 will also impact non-EU AIFMs.

From a practical perspective, there is generally an increased focus from supervisory authorities on how a non-EU AIFM markets an AIF in the EU.

Miscellaneous Amendments

Independent Directors In the course of the discussions, Parliament proposed a requirement for the appointment of an independent/non-executive director in the governing body of the AIFM. This proposal did not reach the final text of AIFMD 2.0, but the compromise sees the inclusion of a review clause mandating the Commission to initiate an assessment of the appropriateness and impact on investor protection of the appointment of at least one non-executive or independent director in the governing body of the AIFM where the AIFM manages AIFs that are marketed to retail investors.

From a practical perspective, a large majority of AIFM boards have independent non-executive directors if only to be able to manage conflicts of interest in a more efficient manner and show good corporate governance.

Undue costs Parliament also sought to include specific amendments aimed at enhancing investor protection, in the light of significant discrepancies in costs charged to both retail and professional investors. The Commission stressed it did not favour including rules in AIFMD, not least because undue costs are one of the focus points on the Retail Investment Strategy (RIS).15 The compromise is that ESMA is going to carry out activities to help develop a common understanding of “undue costs”.

Sustainability AIFMD 2.0 makes amendments to Article 23 of AIFMD to require AIFMs of AIFs marketed to retail investors to include the name of the fund in the Key Information Document (KID), combined with a recital saying that such information (i.e. the name of the AIF) should be accurate, fair and clear and does not convey a misleading or confusing message.

With regards to the Sustainable Finance Disclosure Regulation16 (SFDR) compliance, AIFMD 2.0 includes a statement in the recitals that AIFMs should be able to demonstrate that they continuously comply with their obligations under SFDR and an amendment to Article 7(c) AIFMD to include information in the AIFM application for authorisation on how the AIFM intends to comply with its obligations under specific articles of SFDR (Articles 3(1), 6(1)(a) and 13).17

Global context

The UK is not proposing to make the AIFMD 2.0 changes, meaning UK AIFMs will remain subject to the UK version of AIFMD. The FCA is undertaking a review of the asset management regulation and UK AIFMD will be looked at as part of this. The FCA’s stated priorities are to make the regime for AIFMs and investment firms more proportionate to promote the competitiveness of the UK as a jurisdiction for asset managers.

Other initiatives that may impact AIFMD include the RIS, and the work of the FSB18 and IOSCO,19 who have just completed consultation reports on liquidity management initiatives for open-ended funds.

There is also likely to be an increased focus on costs. Just prior to the publication of the RIS in May 2023, ESMA published an Opinion “On undue costs of UCITS and AIFs”.20 This suggested amendments to the AIFMD (and the UCITS Directive) that would require AIFMs (and UCITS ManCos) to prevent undue costs being charged to a fund and its investors; and to develop a pricing process.

The RIS proposes directly to amend the primary texts of various pieces of EU legislation, including AIFMD and the UCITS Directive. Of particular note are the changes involving ‘undue costs’ which, as currently drafted, include a requirement for AIFMs to compensate investors if ‘undue costs’ have been charged. The RIS includes a very broad definition of undue costs – namely anything that is not a due cost.

Conclusion

Member States may have 24 months to transpose the new Directive in preparation for a 16 April 2026 go-live, but given the extent of the changes and the fact that their impact on the activities of certain AIFMs and AIFs may be significant, firms should start familiarising themselves with the detail of AIFMD and, where necessary, updating their systems, policies and procedures. The RTS and Guidelines that supplement AIFMD 2.0 remain to be drafted.

Dechert LLP has been following this file since 2021. Please reach out to any of the Dechert lawyers listed below, or your usual Dechert LLP contact if you would like further information or assistance in understanding the implications AIFMD 2.0 may have on your business operations.



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