Discover our analysis of the latest developments in the AIFMD II legislative process regarding distribution and national private placement regimes.

We provide a practical explanation of changes, amendments and additions proposed for the revised AIFMD. The analysis is made from three angles: the European Commission Proposal of 21 November 2021, the European Parliament Draft report of 16 May 2022 and the European Council Position of 17 June 2022.

European Commission proposed directive - Distribution and national private placement regimes

Various changes and amendments have been provided by the Commission proposal regarding the marketing of non-EU AIFs in view of strengthening distribution conditions relating to third countries.

More restrictive conditions for the distribution in member states of AIFs managed by a non-EU AIFM, in particular, non-EU AIFs:

  • The third country in which the non-EU AIF or non-EU AIFM is established is not identified as a high-risk third country according to article 9(2) of Directive (EU) 2015/849 (AML Directive IV); and
  • The third country in which the non-EU AIF or non-EU AIFM is established is not mentioned in appendix I to the EU Council conclusions of 2020 on the revised EU list of non-cooperative jurisdictions for tax purposes. The Cayman Islands appears in appendix I, preventing the marketing under national private placement regimes of funds established in the Cayman Islands if this wording is retained in the final version of AIFMD II. However, the Cayman Islands are not mentioned in the most recent conclusions of the EU Council dated October 4, 2022. Note that the European Parliament draft report does not update the reference to the conclusions of 2020, which mention the Cayman Islands.

Some countries and territories have been recently added to the EU list of high-risk third countries by the European Commission, such as the Cayman Islands, Jordan, and Morocco.

The impact of references to the lists of high-risk countries for AML/CFT and tax purposes will depend on how the EU deals with the third countries that raise issues in this regard. The process to be followed by an AIFM when a third country is added to such lists should be clarified.

[1] On 4 October 2022, the Council added the Bahamas, Anguilla and Turks and Caicos in their conclusions. The current EU list of non-cooperative jurisdictions for tax purposes is composed of the following: American Samoa, Anguilla, the Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, Turks and Caicos, US Virgin Islands, and Vanuatu. This EU list is due to be revised in February 2023.

The Council position - Distribution and national private placement regimes

There is no extension of the professional investor definition in the Council position.

The Council position does not refer to the Council conclusions of 2020 on the revised EU list on non-cooperative jurisdictions for tax purposes but only to the Council conclusions on the revised EU list on non-cooperative jurisdictions for tax purposes.

European Parliament Draft Report - Distribution and national private placement regimes

The European Parliament draft report extends the definition of professional investor to investors

  • That have committed to investing a minimum of €100,000 and have stated in writing, in a document separate from the contract incorporating the commitment to invest, that they are aware of the risks associated with the envisaged commitment or investment; or
  • That are executives, portfolio managers, directors, officers, agents or employees of the manager or its affiliates and have sufficient knowledge about the AIF concerned.

These additions widen the scope of the marketing passport and may increase the use of co-investment financing in relation to AIFs. The PRIIPs Regulation should be amended in line with these new categories of professional investor since they may require a KID.

Next steps in the legislative process

The legislation is currently at the committee stage in the European Parliament, and the Committee on Economic and Monetary Affairs will vote on its position for negotiations. The Council must also publish its negotiation mandate. The trialogue negotiations will begin once these positions have been adopted. The provisional agreement resulting from the trialogue must then be voted on by both Parliament and Council.

The amendments and additions provided by the Commission proposal, the European Parliament draft report, and the Council position should lead to the strengthening and growth of the European alternative investment fund sector. They should help to make capital more accessible in Europe. The level 2 legislation should also provide additional clarity. We expect AIFMD II to come into force in 2025.

Discover our AIFMD II timeline and analysis for the latest developments in the AIFMD II legislative process:

This timeline also covers the following areas: liquidity management tools, loan origination, delegation, depositaries, activities and services performed by AIFMs and investor protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.