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DRAFT 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

ECON-PR-732549

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

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The rapporteur's draft report sets out Parliament's first-reading position on a Commission proposal to amend Directives 2011/61/EU and 2009/65/EC on delegation, liquidity risk management, supervisory reporting, depositary and custody services and loan origination by alternative investment funds. It deletes the proposed delegation notification regime for AIFMs and UCITS management companies and the related regulatory technical standards, and instead requires managers to report delegation arrangements directly to their competent authorities. It requires open-ended AIFs and UCITS to select at least one liquidity management tool from a harmonised list, allows competent authorities to require activation or deactivation only in exceptional circumstances and after consulting the manager, and keeps primary responsibility for liquidity risk management with the manager. It recognises the right of AIFs to originate loans and trade them on the secondary market, bans originate-to-distribute strategies, deletes the 5% risk retention requirement, and requires closed-ended structures unless the AIFM can demonstrate liquidity robustness to its home competent authority. It clarifies that distributors marketing AIFs or UCITS on their own behalf are not delegation arrangements, and requires the Commission to study a Union depositary passport. It widens supervisory reporting on delegation, leverage and fees, and requires ESMA peer reviews on preventing letter-box entities.

Committee position. The rapporteur proposes to amend the Commission proposal to balance delegation reporting without overburdening managers, keep primary responsibility for liquidity risk management with managers and limit supervisory intervention to exceptional circumstances, remove risk retention for loan-originating funds, and study a depositary passport.

Key points

  1. Extends the list of authorised ancillary services for AIFMs to include benchmark administration, credit servicing and any other unregulated ancillary service that continues existing activities or uses internal competences without unmanageable conflicts of interest.
  2. Deletes the proposed delegation notification regime for AIFMs and UCITS management companies and the related regulatory technical standards, replacing them with direct reporting of delegation arrangements to competent authorities.
  3. Requires AIFMs to report to competent authorities the legal name and LEI of the AIFM, the AIF and each delegate, the delegated functions, whether delegation is partial or full, and the resources used to monitor delegates.
  4. States that marketing by distributors acting on their own behalf is not a delegation arrangement, while marketing on behalf of the AIFM or management company is.
  5. Requires open-ended AIFs and UCITS to select at least one liquidity management tool from a harmonised list, and to notify competent authorities without delay when activating or deactivating certain tools in situations of liquidity stress.
  6. Allows competent authorities to require activation or deactivation of a liquidity management tool only in exceptional circumstances and after consulting the manager, and states that intervention is a last resort.
  7. Requires regulatory technical standards to recognise that primary responsibility for liquidity risk management remains with the AIFM or UCITS manager, and to allow adequate time for adaptation before they apply.
  8. Recognises the right of AIFs to originate loans and trade them on the secondary market, prohibits originate-to-distribute strategies, and deletes the requirement to retain 5% of the notional value of originated loans sold on the secondary market.
  9. Requires AIFs to be closed-ended when the AIFM cannot demonstrate to its home competent authority that the AIF has liquidity robustness, with regulatory technical standards on the criteria for that determination.
  10. Prohibits AIFMs and their staff, the AIF's depositary and its staff, the AIFM's delegates and entities in the same group as the AIFM from receiving loans from the AIFs they manage.
  11. Requires AIFMs to report annually to investors on all direct and indirect fees and charges charged to the AIF and on the portfolio composition of originated loans.
  12. Requires ESMA to conduct peer reviews on supervisory practices for preventing letter-box entities, and the Commission to review the Directive and study a Union depositary passport.

Who is affected

  • AIFMs and UCITS management companies: must report delegation arrangements, select liquidity management tools and meet new reporting duties.
  • Loan-originating AIFs: may originate and trade loans but face a ban on originate-to-distribute and closed-ended requirements.
  • Depositaries and central securities depositories: new rules on delegation of custody functions and cross-border depositary services.
  • Fund distributors: marketing on their own behalf is not treated as delegation.
  • Investors in AIFs and UCITS: receive annual fee and loan portfolio reporting and benefit from liquidity management tools.

Figures and deadlines

  • EUR 100 000: minimum investment commitment for professional investor status.
  • 5%: capital or voting rights threshold for shareholder loan definition.
  • 150%: cap on shareholder loans relative to net asset value for credit origination policies.
  • 20%: maximum loan to a single borrower as share of the AIF's capital, commitments or overall subscriptions.
  • 12 months before the review: deadline for ESMA's first delegation report.
  • 60 months after entry into force: deadline for the Commission's review of the Directive.
  • 24 months after entry into force: deadline for the Commission's study on an EU depositary passport.

Legal basis: Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union.