1.1 ESMA's guidance to address leverage risk in the AIF sector

On 23 June 2021, ESMA published the translations for the guidelines on Article 25 of AIFMD. The guidelines will become applicable from 23 August 2021.

By way of reminder, these guidelines aim to promote supervisory convergence in the way national competent authorities ("NCAs") assess how the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system, as well as how they design, calibrate and implement leverage limits. The guidelines will apply to NCAs and seek to ensure the common, uniform and consistent application of Article 25 of AIFMD.

Our April 2020 advisory looks at the proposals set out in the draft guidelines and their possible impact on leverage in this sector.

1.2 ESMA updates its opinion on reporting information under AIFMD

On 28 May 2021, ESMA published an updated version of its opinion on AIFMD reporting information. The opinion relates to the collection of information for the effective monitoring of systemic risk under the first subparagraph of Article 24(5) of AIFMD.

The updated opinion provides details of additional information that, in ESMA view, NCAs could require AIFMs to report on a periodic basis pursuant to Article 24(5), first sub-paragraph of AIFMD. In particular, the updates seek to provide clarifications in relation to three risk measures (Value-at-Risk, Net FX delta and Net commodity delta) which are already dealt with in the opinion, in the section entitled "Information on risk measures". This section has been amended to provide guidance to AIFMs, with definitions of the above-mentioned risk measures and practical examples for the reporting. ESMA notes that the content of the opinion that does not refer to these measures is maintained as published in 2013.

1.3 ESMA's AIFMD Q&As updated

On 28 May 2021, ESMA published updates to its AIFMD Q&As to complement the information set out in the updated opinion referred to in section 1.1 above. The new Q&As (section III questions 84, 85 and 86) provide clarification on the reporting of three risk measures included in AIFMD: Net DV01, NET CS01 and Net Equity Delta.

In addition, the AIFMD Q&As have been updated to include three new questions in section XV relating to ESMA's guidelines on performance fees:

  • question 4 relating to registered AIFMs which confirms that the guidelines don't apply to registered AIFMs;
  • question 5 which sets out details on how the performance reference period for the benchmark model should be set; and
  • question 6 dealing with how the performance reference period should be set in the case of a merger where the receiving AIF is a newly established fund with no performance history.

1.4 Central Bank AIFMD Q&As updated

On 24 June 2021, the Central Bank published an updated version of its AIFMD Q&As. Two Q&As have been updated Q&As as follows: (i) ID 1021 has been updated generally and to clarify the extent to which an Irish entity can perform duties for non-EU AIFs pursuant to Article 36(1)(a) of the AIFMD and (ii) ID 1136 updates the types of AIF for which a Depositary of Assets other than Financial Instruments ("DAoFI") can act.


Q. May an Irish authorised entity provide the safe-keeping and oversight duties set out in Article 21(7)- (9) of the AIFMD in respect of non-EU AIF as set out in Article 36 (1)(a)? If so is a specific authorisation required?

A. Article 36(1)(a) does not set out eligibility criteria for entities, who will provide the safe-keeping and oversight duties prescribed in Article 21(7), (8) and (9), in respect of non-EU AIF where Article 36 applies.

Irish non-bank entities authorised to provide safe-keeping

I. If such an entity proposes to provide "safe-keeping" so that the duties set out in Article 21(8) can be met, it must have authorisation to provide "custodial operations involving the safekeeping and administration of investment instruments" under the Investment Intermediaries Act 1995 or be an investment firm under the European Communities (Markets in Financial Instruments) Regulations 2007 and authorised to carry out safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management.

II. Such an entity will perform the duties in Article 21(7) and Article 21(9) as constituent parts of the safe-keeping and custodian functions for which it is authorised. While the duties in Article 21(7) and Article 21(9) are not subject to separate authorisation requirements, they must be carried out by the regulated entity in compliance with relevant regulations. As such, the performance of duties Article 21(7) and Article 21(9) are under the regulatory purview.

III. Where the entity performs only the duties in Article 21(7) and Article 21(9) in respect of an AIF, the Central Bank expects these duties to be provided to the same standard irrespective of whether the AIF is regulated or not by the Central Bank.

Irish non-bank entities authorised to provide "the administration of collective investment schemes, including the performance of valuation services or fund accounting services or acting as transfer agents or registration agents for such funds"

I. An Irish entity authorised under the Investment Intermediaries Act 1995, to provide fund administration services, may be appointed by an AIF to provide the services set out in Article 36(1)(a) where these refer to Article 21(7) and 21(9) without seeking additional authorisation.

II. In accordance with Regulation 4 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 an investment firm shall consult with the Central Bank before -

  1. Engaging in any new area of business or field of activity,
  2. Establishing a branch, office or subsidiary; or
  3. Introducing material changes to the investment firm's operating model.

Submissions to the Central Bank in this regard will be asked to demonstrate their capacity to provide the proposed activities without inappropriate conflicts.

Irish entities which are not authorised as above

I. Where an entity is only providing one or both of the services referred to in Article 21(7) and Article 21(9), the Central Bank will not issue an authorisation under the IIA.

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