This introduction has been updated in December 2023.

AIFMD II in a nutshell

The European Commission released a proposal to amend the AIFMD along with the UCITS directive and other directives and regulations relating to investment funds on November 25, 2021. Its main aim is to strengthen the EU Capital Markets Union. In particular, the European Commission seeks to address issues relating to the build-up and spread of risks to the broader financial system and to improve investor protection. It argues that changes are needed concerning, inter alia, delegation, liquidity risk management, data reporting and regulatory treatment of custodians. The review of AIFMD and the UCITS regime is an essential part of the CMU project, one of the EU’s biggest ambitions since 2015.

The key takeaways of the Commission proposal deal with additional services and functions that an AIFM may perform, stricter requirements on delegation and substance requirements, a light depositary passport (in practice), new provisions for loan-originating funds, harmonisation of liquidity management tools, an update of the national private placement regime and distribution regime, as well as increased reporting and disclosure obligations.

The European Parliament published a draft report regarding the Commission proposal on May 16, 2022, intended to improve, enhance, and facilitate the growth of the asset management market in Europe, which remains smaller than that in the US. The parliament’s amendments included:

• An extension of the definition of professional investor to semi-professional investors by including a €100,000 investment threshold and self-certified investors within the definition of professional investor.
• A definition of loan origination.
• Amendments relating to loan-originating funds.
• Clarifications of AIFMs’ liability relating to delegation.
• Widening of the range of services and activities that an AIFM may perform.
• Removal of the notification to ESMA regarding delegation of portfolio and/or risk management to third-country institutions.
• Clarification and amendment of the rules relating to LMTs and additional information to be disclosed to investors.

The EU Parliament and the EU Council reached a political agreement on 24 January 2023, and the EU Parliament released its EU Parliament final report on 2 February 2023 with several changes to the EU Parliament draft report. The changes to the EU Parliament draft report are, inter alia, the following:

• No extension of the scope of the definition of professional investors;
• Insertion of precise information required for authorisation relating to delegation and sub-delegation;
• Narrower widening of the range of services and activities that an AIFM may perform;
• Requirement to appoint one non-executive manager if the AIFM manages AIFs marketed to retail investors;
• Increased scrutiny and reporting obligation over certain conflicts of interests;
• An AIF that cannot demonstrate its sounds liquidity management system shall be closed-ended even if its AuM do not exceed EUR 5 billion;
• 5% risk retention requirement until maturity for loan origination;
• Insertion of a transitional period for loan origination;
• Requirement to choose 2 LMTs for open-ended AIFs;
• The notion of ‘distributor’ is defined without any references to the existence of an agreement;
• Stricter rules applicable to the appointment of a depositary in another Member State.

The below sections “EU Parliament final report” only refer to the changes to the initial EU Parliament draft report. Therefore, the changes provided in the EU Parliament draft report sections to AIFMD which are not mentioned in the sections EU Parliament final report remain in the EU Parliament final report.

The EU Council published its position on the Commission’s proposed updating of the AIFMD Commission proposal on June 21, 2022. It stresses the importance of consistent harmonisation in liquidity risk management to improve the use of LMTs, favours the creation of an EU framework for loan-originating funds and clarifies the rules for outsourcing and delegation of certain functions by AIFMs. Although the amendments and additions in the Council position are similar to those in the European Parliament draft report, there are some divergences. On 15 February 2023, the European Parliament confirmed the entry into the trialogue negotiations by plenary vote. The provisional agreement resulting from the trialogues must then be voted on by both Parliament and Council. On 20 July 2023, the press release detailing the Provisional Agreement on new rules for Alternative Investment Fund Managers (AIFMs) was published. On 6 November 2023, the EU Council has published the final compromise text for the new AIFMD 2 directive.

Terms not defined here should be deemed to have the same definition as in the AIFMD. Please also refer to the glossary at the end of this publication.