7. Activities and services performed by AIFMs
AIFMD II - European Parliament Final Report - Activities and services performed by AIFMs
The list of ancillary services member states may authorise AIFMs to provide is not extended to “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”.
Regarding the information to be provided by the AIFM seeking authorisation from a national regulator, the applicant AIFM shall disclose how it complies with its obligation under SFDR. Also, the list added in the European Parliament draft report of information to be shared by the applicant AIFM is developed with an explanation of the added value of the delegation to the investor and, for each of the following, a description of the human and technical resources:
- employed by or committed to the AIFM for performing day-to-day portfolio or risk management tasks within the AIFM;
- employed by or committed to the delegate for performing those services on a delegated basis; and
- employed by or committed to the AIFM for monitoring and controlling the delegate.
An authorised AIFM shall report to the competent authority any material changes that may affect the scope of the authorisation by that authority and in particular any modification on the arrangements of the delegation and sub-delegation to third parties provided at the time of authorisation. Also, the competent authorities shall, every quarter, inform ESMA of any changes in the scope of authorisations by those authorities, and in particular of material changes to the information provided by applicant AIFMs.
The RTS detailing information to be provided by applicant AIFMs to competent authorities shall specify situations where the name of the AIF(s) an applicant AIFM intends to manage could be materially deceptive or misleading to the investor.
Where an AIFM manages an AIF marketed to retail investors, the AIFM shall ensure that at least one member of its governing body is a non-executive director. The AIFM, in appointing a non-executive director of its governing body, shall determine whether such a member is independent in character and judgement and whether there are relationships or circumstances, which are likely to affect that member’s judgement. The AIFM shall take reasonable steps to ensure that any non-executive directors appointed to its governing body have sufficient expertise and experience to be able to make judgements on whether the AIFM is managing AIFs in the best interest of investors. Non-executive directors shall contribute to ensuring that the AIFM complies with the requirements regarding conflicts of interests and acting in the best interests of the AIFs and their investors, as specified in the AIFMD.
Where an AIFM intends to manage an AIF on behalf of a third party, including, but not limited to, under a mandate given on a discretionary basis for the management of portfolio of investments or under a delegation in accordance with Article 20, and where the third party has significant control over the AIF’s design, distribution and management, the AIFM shall employ heightened scrutiny of the potential for conflicts of interest. AIFMs engaging in such a relationship shall submit detailed explanations and evidence on their compliance in this regard to the competent authorities of their home Member State. In particular, they shall specify how they prevent systematic conflicts of interest or any other material conflicts of interest arising from the relationship, how any existing or potential conflicts are effectively managed in the best interest of investors and how this is clearly and comprehensively disclosed to investors. Therefore, attention should be drawn to the review of the AIFM agreement with such third party and the control over the AIF’s design, distribution and arrangement kept by the third party. As the relevant conflicts of interest shall be disclosed to the investors, the AIFM shall continuously review the actions performed by such third party. ESMA shall develop RTS specifying:
- the types of relationship between the AIFM and a third party when the AIFM manages an AIF on behalf of the third party and of conflicts of interest as referred to in this paragraph;
- the criteria to be used by the relevant competent authorities to assess whether AIFMs comply with the obligations mentioned in this paragraph.
Regarding the obligation for an AIFM to have at least natural two persons conducting the business of the AIFM, the EU Parliament final report adds the option for these two natural persons to be committed on a full-time equivalent basis.
Access the European Parliament Final Report of 2 February 2023 here.
AIFMD II - 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.
Access the European Council position of June 2022 here.
AIFMD II - 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.
Access the draft report of 16 May 2022 from the European Parliament here.
AIFMD II - European Commission proposed directive, November 2021 - 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.
You can access a copy of the directive proposed by the European Commission here.
