Discover our analysis of the latest developments in the AIFMD II legislative process regarding activities and services performed by AIFMs.

The below provides 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 - Activities and services performed by AIFMs

The list of ancillary services member states may authorise AIFMs to provide is extended to benchmark administration and credit servicing.

Originating loans and servicing securitisation special purpose entities are activities added in Appendix I.

An AIFM applying for authorisation shall provide the following additional information to the regulatory authorities of its home member state:

  • Information about the persons effectively conducting the business of the AIFM, in particular concerning the functions referred to in appendix I, including:
    - a detailed description of their role, title and level of seniority.
    - a description of their reporting lines and responsibilities within and outside the AIFM.
    - an overview of their time allocated to each responsibility.
    - a description of the technical and human resources that support their activities.
  • A detailed description of the appropriate human and technical resources to be used by the AIFM to comply with its obligations relating to the authorisation, operating conditions, transparency requirements and, where applicable, the specific types of AIFs, the rights of an EU AIFM to market and manage EU AIFs, the specific rules relating to third countries and marketing to retail investors.
  • A detailed description of the human and technical resources to be used by the AIFM for monitoring and supervising its delegate(s).

The business of the AIFM shall be conducted by at least two individuals who are either employed full-time by the AIFM or committed full-time to running its business, and who are EU residents. Please note that a similar requirement in CSSF Circular 18/698 applies, inter alia, to authorised AIFMs.

European Parliament draft report - Activities and services performed by AIFMs

The European Parliament draft report has added the following ancillary service:

Any other ancillary service that is not regulated as an investment service under Directive 2014/65/EU (MiFID II), which represents a continuation of services already undertaken by the AIFM or use of internal capabilities, and which does not create conflicts of interest that cannot be managed by additional rules. The scope of this extension is not clear and should be clarified.

Regarding the information to be provided by an AIFM seeking authorisation from a national regulator, the requirements are similar to those in the Commission proposal but the description of the role, title and level of seniority of persons effectively conducting the business of the AIFM does not have to be set out in detail. Regarding information on arrangements made for delegation and sub-delegation of functions to third parties, a description of the human and technical resources to be used by the AIFM is also required in the European Parliament draft report. However, the following list of required information is added by the European Parliament draft report:

  • The legal name and legal entity identifier of the AIFM.
  • The legal name and LEI of the AIF and its investment strategy.
  • The legal name and LEI of each delegate, the jurisdiction in which it is established and, where relevant, its supervisory authority.
  • A brief description of delegated risk management functions, including whether each such delegation amounts to partial or full delegation.
  • A brief description of delegated portfolio management functions, by investment strategy and relevant geographical areas, including whether each such delegation amounts to partial or full delegation.
  • A brief description of other functions listed in appendix I that the AIFM additionally performs.

The Council position - Activities and services performed by AIFMs

The addition of benchmark administration and credit servicing  to the list of ancillary services is also found in the Council position, but the following clarification is added: "Member states may prohibit AIFs from servicing credits granted to consumers in their territory."

AIFMs should not be authorised to provide only the activities of points 2, 3 and 4 of appendix I. The change consists of a reference to the two new services, loan origination and servicing securitisation special purpose entities.

AIFMs should not be authorised to administer benchmarks used in the AIFs they manage. Neither the Commission proposal nor the European Parliament draft report prohibits AIFMs from administering benchmarks used by the AIFs they manage.

An AIFM applying for authorisation should provide the information described above in the Commission proposal to the regulatory authorities of its home member state and keep this information updated.

As in the Commission proposal, the business of the AIFM should be conducted by at least two individuals who are either employed full-time by the AIFM or who are committed full-time to conducting its business and who are resident in the EU. There is a similar requirement in CSSF Circular 18/698 applying, inter alia, to authorised AIFMs.

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: https://www.cs-avocats.lu/publications/aifmd-ii-latest-developments/

This timeline also covers the following areas: liquidity management tools, loan origination, delegation, distribution and national private placement regimes, depositaries, 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.