“Don’t try to fix something that’s not broken”, was the message from associations to the European Commission (EC) consultation on the Alternative Investment Fund Managers Directive (AIFMD) Review.
The consultation, which closed on 29 January, focused on how to increase the efficiency of the EU alternative investment fund (AIF) market as a part of a stable financial system.
As part of the responses from the European Fund and Asset Management Association (EFAMA) members, it was suggested that AIFMD has improved the monitoring of risk to the financial system and the cross-border raising of capital for investments in alternative assets.
Following the introduction of the directive which came into effect in 2011, “AIFMs are now operating with greater transparency for investors and supervisors, helping build confidence in financial markets,” according to EFAMA.
In its responses, the association called on the EC to not try and fix something that is not broken.
It was noted that the ongoing review of AIFMD should only be targeting clearly demonstrated material shortcomings that cannot be addressed through supervisory convergence or level 2 harmonisation.
It also asks the EC to keep the AIFMD ‘manager’ regulation as AIFMD was designed as a ‘manager’ regulation, and not as a ‘product’ regulation.
EFAMA explains: “This is because the alternative investment fund management sector is too diverse to include in a regulation product-specific rules for each category of AIFs. National competent authorities (NCAs) need to have the required flexibility to appropriately supervise such a diverse universe.”
Finally, it says the EC should focus on supervisory and enforcement convergence. EFAMA says: “Effective supervision and enforcement across member states is as important as ensuring consistency across national rules.”
The association encourages the EC to ensure that the European Securities and Markets Authority (ESMA) makes full use of all the powers at its disposal to promote greater supervisory and enforcement convergence.
EFAMA suggests these principles are “key to ensure the framework is adequately revised without undermining the robust foundations on which it currently stands”.
Commenting on the recommended changes, Federico Cupelli, senior regulatory policy adviser at EFAMA, says: “The AIFMD facilitated the market integration of EU AIFs and we strongly believe that only a few targeted amendments are necessary to improve the effectiveness of AIFMD as a whole.”
Cupelli adds: “With respect to the introduction of a depositary passport, our views are resolutely against such an option. We believe that the requirement for the depositary to share the same domicile as the fund is an important safeguard in the interest of investor protection. The AIFMD also sets a very clear delegation framework establishing a series of clear parameters against which a third-party could be considered a ‘letter-box’ entity. Such parameters are in our view exhaustive enough, striking an optimal balance between the twin objectives of investor protection and the preservation of a management company’s need to structure its business as most appropriate when serving its investors.”
Sharing similar views was the Association of the Luxembourg Fund Industry (ALFI), who also believe the EC should “not fix what is not broken”.
During an ALFI webinar presentation on the AIFMD Review, speakers explained that AIFMD has been “working well”.
In its responses, the Luxembourg association says that while it is necessary to take into account more recent political, economic and social developments, “one should not deviate from the idea of a targeted review on the application and scope of the AIFMD”.
ALFI refers to the analysis of the experience acquired in applying this directive, its impact on investors, AIFs and AIFMs in the EU and third countries, and the degree to which the objectives of the AIFMD have been achieved.
“This makes it clear that the general concept of a manager directive should not be put into question, e.g. by introducing product specific rules on loan originating funds. Any additional layer of regulation at the level of the funds could impair existing flexibility,” says ALFI.
The AIFMD has played a major role in helping to create an internal market for AIFs and a harmonised and stringent regulatory and supervisory framework for AIFMs.
If the AIFMD standard is still meant to allow the EU fund industry to be competitive and to be exported to countries worldwide, ALFI explains it would be “detrimental to change the basic principle of manager regulation”.
In August, ESMA said the AIFMD review was chance to consider “greater harmonisation” of the UCITS and AIFMD regimes.
In its responses ALFI says the UCITS framework and AIFMD should not be merged, and harmonised rules could only be appropriate in very few selected areas.
It explains: “The AIFMD is already known in many parts of the world, even though we would say that it is not yet at the same level as the UCITS brand. To ensure the development of a brand and the EU’s competitiveness, there is primarily a need for stability.”
“Improvements should at this stage focus on areas where clear issues have been identified. Given the conclusions drawn from the consultancy survey in 2019 and the Commission’s report in 2020, ALFI is of the view that changes should mainly be of a technical nature, and they could be achieved at level 2 and/or level 3 of the Lamfalussy process,” ALFI adds.
ALFI suggests that another option could be to address specific aspects via separate legal instruments.
The Luxembourg association says: “A single rulebook could have been envisaged when fund rules were introduced for the first time. Now we have two different successful brands, which should not be destabilised by creating meaningless general terms and sub-categories."
ALFI explains that the EU must be aware that the choice of investors worldwide for European products and the recognition of UCITS and EU AIFs as attractive investment vehicles are subject to the existence of a competitive regulatory framework combining flexibility and investor protection.
“This has been achieved by both UCITS and AIFMD and should not unduly be put at risk,” ALFI concludes.
