The European Union is making progress in updating and clarifying rules under the Alternative Investments Fund Manager Directive AIFMD. ESMA recently published their review- the whole ESMA letter can be read here.

Among others ESMA recommends a clarification of the definitions and specifically highlights the use of securitisation vehicles to circumvent the AIFMD by mentioning that examples were reported where investment vehicles makes use of the exemption for securitisation special purpose entities (AIFMD Article 2(3)(g)) while still acting in a similar way to collective investment vehicles that would otherwise fall under AIFMD.

When die AIFMD got introduced the legislator recognised the necessity to exclude securitisation vehicles from the directive. Otherwise all securitisation transactions would have fallen under the directive and subsequently there would have been a massive decline in EU Securitisation Transactions with huge negative impact on the real economy. However, back than there was no clear definition of what "securitisation transaction" shall mean and the only European-wide definition was drafted by the European Central Bank and was and still is very wide. Some member states even included their own definition of securitisation and allowed securitisation vehicles to basically securitise everything  and still enjoy the exemption granted within the AIFMD. No wonder that in such jurisdictions plenty of securitisation companies popped up raising capital from a number of investors - even non-professional investors - with a view to investing it in accordance with a defined investment policy for the benefit of those investors. This rise of a `Securitisation of Everything` or Shadow Fund Management Industry was probably not the original intention of the legislator. When the European Union finally came up with a regulation on securitisation that became crystal clear: The EU defined a securitisation transaction as a transfer of credit risk from an originator to the securitisation special purpose vehicle which refinances this transfer within a tranched transaction. This is a clear definition and limits the scope of securitisations to refinancing facilities for corporates including financials. Furthermore the securitisation transaction made clear that asset backed securities (the securities resulting from a securitisation transaction) shall be eligible for professional investors only.

Conclusion:  The early days of the AIFMD - thanks to the exemption granted for securitisation purpose vehicles - created the `Age of the Securitisation of Everything` in the European Union and with it the rise of a Shadow Fund Management Industry. However this Age - in the European Union, not necessarily in other jurisdictions - is coming to an end anytime soon. I expect that with the next update of the AIFMD the legislator will clarify, that securitisation transactions shall continue to be exempt from the AIFMD - those are important transactions supporting the real economy. However the legislator will clarify, that those securitisation transactions, falling under the definition of the EU Securitisation Directive - and only those - will benefit from this exemption. As a consequence of such a change in definitions securitisations (issuing asset-backed securities) will still benefit from the exemption, but any funds raised granting investors a pooled return paid from the investments made with the money raised under a defined investment strategy will fall under the Collective Investments Directives (AIFMD or UCITS). The issuance of "Certificates" will only be possible by issuing derivative securities, being debt securities linked to a predefined underlying with a separate ISIN staying constant over the lifetime of the derivative security and discretion of the Management of the Issuer on how to invest the issuance proceeds. 

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