4. Delegation

AIFMD II - European Parliament Final Report - Delegation

The AIFM's liability towards its clients, the AIF and its investors shall not be affected by the delegation and sub-delegation(s), irrespective of the regulatory status or location of any delegate or subdelegate. The obligation for the AIFM to comply with the requirements of the AIFMD is irrespective of the regulatory status or location of any delegate or subdelegate.

The report analysing market practices regarding delegation and compliance with Articles 7 and 20 shall be provided by ESMA 24 months after the date of application of AIFMD 2, not 12 months.

Where the marketing function is performed by one or several distributors which are acting on their own behalf and which market the AIF under MiFID II or through insurance-based investment products in accordance with the Insurance Distribution Directive, such function is not a delegation subject to the other rules of Article 20 irrespective of any distribution agreement between the AIFM and the distributor. This change is in line with the fact that MiFID II and the Insurance Distribution Directive provide for distribution safeguards and with the Council position. The EU Parliament draft report refers to the contractual agreement with the distributor to assess whether there is a delegation of the marketing activity by the AIFM, but not the EU Parliament final report.

The peer review of the application of the delegation regime to be conducted by ESMA shall be conducted as a one-off comprehensive peer review analysis, whereas the EU Parliament draft report stated that ESMA may conduct such peer reviews as necessary.

Access the European Parliament Final Report of 2 February 2023 here.


AIFMD II - The Council position - Delegation

Before the review by the European Commission of the functioning of the rules laid down in the AIFMD and experience acquired in applying them, ESMA shall provide a report analysing market practice regarding delegation and compliance with articles 7 (AIFM authorisation) and 20 (delegation of AIFM functions), based, inter alia, on data reported to regulatory authorities in accordance with point (d) of article 24(2) and on the exercise of its supervisory convergence powers. The difference between the Council position and the Commission proposal as well as the European Parliament draft report on this point is the absence of a time period stipulated for ESMA to provide such a report in the Council position.

Article 20 relating to delegation is also amended by the Council position, including the same amendments as those in the Commission proposal. However, the following addition in the Council position does not appear in the Commission proposal:

Where the marketing function is performed by one or multiple distributors that are acting on their own behalf and that market the AIF under Directive 2014/65/EU (MiFID II) or through insurance-based investment products in accordance with Directive 2016/97/EU (Insurance Distribution Directive), this should not be considered delegation subject to the requirements laid down in the above paragraphs irrespective of any distribution agreement between the AIFM and the distributor. This addition is broader than that included in the European Parliament draft report, since the performance of the marketing function would not be considered delegation irrespective of the existence of a distribution agreement between the distributors and the AIFM.

The Council position does not refer to a peer review of the application of the delegation regime, focusing on measures to prevent AIFMs that delegate portfolio management or risk management functions to independent entities in third countries from becoming letter-box entities. There is no new article 38a referred to in the Commission proposal.

Access the European Council position of June 2022 here.


AIFMD II - European Parliament draft report - Delegation

The European Parliament draft report has modified the Commission proposal by removing the reporting by national regulators to ESMA of situations in which an AIFM delegates more portfolio management or risk management functions than it retains. The second point of the delegation section in the  Commission proposal is completely deleted in the European Parliament draft report, including the reference to draft RTS to be drawn up by ESMA and adopted by the Commission in relation to delegation notifications and their transmission.

Regarding reports analysing market practice regarding delegation to entities in third countries, the European Parliament draft report specifies only one report 12 months before the five-year review by the European Commission of the functioning of the rules laid down in the AIFMD and experience acquired in applying them.

If the marketing function is performed by one or multiple distributors not acting on behalf of the AIFM, under an agreement between the AIFM and these distributors, this function shall not be considered to constitute delegation subject to the delegation provisions of the AIFMD. The provisions relating to delegation (article 20 of the AIFMD) should not apply to such arrangements. This exemption is not included in the Commission proposal.

Access the draft report of 16 May 2022 from the European Parliament here.


AIFMD II - European Commission proposed directive, November 2021 - Delegation

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.