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REPORT (COM(2021)0721 – C90439/2021 – 2021/0376(COD))

On the proposal for a directive of the European Parliament and of the Council amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds

A-9-2023-0020

Committee on Economic and Monetary Affairs · Rapporteur: Isabel Benjumea Benjumea

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Parliament's amended version of a Commission proposal for a directive amending Directives 2011/61/EU on alternative investment fund managers and 2009/65/EC on UCITS. It lays down rules on delegation, liquidity risk management, supervisory reporting, depositaries and custody, and loan origination by alternative investment funds. It harmonises rules for AIFMs managing loan-originating funds, including a 20% single-borrower limit, a 5% risk retention, a ban on originate-to-distribute strategies and a closed-ended requirement where liquidity risk management is not demonstrated. It requires open-ended AIFs and UCITS to select at least two liquidity management tools from a harmonised list, with one for money market funds, and lets competent authorities require activation or deactivation in exceptional circumstances. It clarifies delegation rules, requires AIFMs and UCITS management companies to justify delegation, prohibits letter-box entities, and excludes distributors acting on their own behalf from delegation rules. It extends the custody chain to central securities depositories, allows case-by-case appointment of depositaries in another Member State, and requires AIFMs to report fees and portfolio composition of originated loans to investors. It aligns third-country access requirements with the EU list of non-cooperative jurisdictions for tax purposes and Directive (EU) 2015/849, and gives ESMA new powers on peer reviews, supervisory cooperation and reporting standards.

Committee position. The Committee on Economic and Monetary Affairs proposes to adopt Parliament's position at first reading, amending the Commission proposal on delegation, liquidity risk management, supervisory reporting, depositaries and loan origination by AIFs, and approves an annexed statement.

Key points

  1. Extends the list of authorised ancillary services for AIFMs to include benchmark administration and credit servicing, and clarifies that management of AIFs includes originating loans and servicing securitisation special purpose vehicles.
  2. Requires AIFMs applying for authorisation to provide information on human and technical resources, with at least two senior managers resident in the Union and at least one non-executive director on the governing body.
  3. Clarifies that delegation rules apply to all functions in Annex I and ancillary services, and that distributors acting on their own behalf are not considered delegates.
  4. Requires AIFMs managing loan-originating AIFs to have effective credit-granting and monitoring policies, to diversify risk where borrowers are financial institutions, and prohibits loans to the AIFM, its staff, depositary, delegates and group entities.
  5. Sets a 20% single-borrower limit for loans to financial undertakings and collective investment undertakings, with temporary suspension for up to 12 months when the AIF raises or reduces capital.
  6. Requires AIFs to retain 5% of the notional value of loans originated and sold on the secondary market until maturity, with exceptions, and bans originate-to-distribute strategies.
  7. Requires loan-originating AIFs to be closed-ended unless the AIFM can demonstrate a sound liquidity risk management system to competent authorities.
  8. Requires open-ended AIFs to select at least two liquidity management tools from a harmonised list, with money market funds selecting one, and to notify authorities when activating or deactivating tools.
  9. Allows competent authorities, in exceptional circumstances, to require AIFMs and UCITS management companies to activate or deactivate liquidity management tools.
  10. Extends the depositary regime to include central securities depositories in the custody chain, exempts them from ex-ante due diligence, and allows case-by-case appointment of depositaries in another Member State.
  11. Requires AIFMs to report to investors on fees and charges, portfolio composition of originated loans, and parent companies or special purpose entities, and to identify fees borne by the AIFM.
  12. Aligns third-country access requirements with the EU list of non-cooperative jurisdictions for tax purposes and Directive (EU) 2015/849, with a two-year grandfathering for closed-ended funds.

Who is affected

  • AIFMs and UCITS management companies, which must meet new authorisation, delegation, reporting and liquidity risk management requirements.
  • Loan-originating AIFs, which face limits on lending, risk retention and closed-ended structure requirements.
  • Depositaries and central securities depositories, which are included in the custody chain and subject to information-sharing duties.
  • Investors in AIFs and UCITS, who receive more information on fees, costs and liquidity management tools.
  • Non-EU AIFs and AIFMs, which must meet third-country requirements on tax cooperation and anti-money laundering.

Figures and deadlines

  • EUR 1,5 trillion collectively invested in Europe by the alternative asset industry.
  • EUR 370 billion invested by Union institutional investors in alternative assets managers.
  • EUR 250 billion provided to European businesses in private credit.
  • 30 % of global capital allocated to the whole industry by European investors.
  • 8 % increase in the size of EU AIFs between 2019 and 2022.
  • 14 % of the net asset value owned by retail investors in AIFs.
  • 20 % limit of the AIF's capital for a loan to a single borrower that is a financial or collective investment undertaking.
  • 5 % of the notional value of loans originated and sold on the secondary market to be retained until maturity.

Legal basis: Article 294(2) and Article 53(1) of the Treaty on the Functioning of the European Union.