The Commission proposal includes clarifications and additions, particularly in cases of delegation where an AIFM delegates more portfolio management or risk management functions to entities located in third countries than it retains.

The Commission proposal clarifies the application of the delegation requirements (article 20 of the current AIFMD) to all functions listed in appendix I and the ancillary services permitted under article 6(4).

Where an AIFM delegates more portfolio management or risk management functions to entities located in third countries than it retains, the regulatory authorities shall, on an annual basis, notify ESMA of all such delegations). Delegation notifications shall include the following information (note that this entire point is deleted from the European Parliament draft report):

• Information on the AIFM and the AIF concerned.
• Information on the delegate, specifying the delegate’s domicile and whether it is a regulated entity or not.
• A description of the delegated portfolio management and risk management functions.
• A description of the retained portfolio management and risk management functions.
• Any other information necessary to analyse the delegation arrangements.
• A description of the regulatory authorities’ supervisory activities, including desk-based reviews and on-site inspections and the results of such actions.
• Any details on cooperation between the regulatory authority of the AIFM and that of the delegate.

ESMA should draw up draft regulatory technical standards to determine the content of delegation notifications and standard forms, templates and procedures for the transmission of delegation notifications in a language customary in the financial sector. Powers are delegated to the European Commission to adopt the RTS.

ESMA shall provide regular reports, at least every two years, analysing market practice regarding delegation to entities located in third countries and compliance with articles 7 (application for authorisation) and 20 (delegation).

ESMA shall conduct a peer review analysis and provide a report on supervisory practices relating to delegation with a particular focus on preventing the creation of letterbox entities at least every two years.

You can access a copy of the directive proposed by the European Commission here.