On October 22, the European Commission (Commission) launched its formal public consultation (Consultation) on its review of the Alternative Investment Fund Managers Directive (AIFMD).

The Consultation follows the Commission’s June 10 report on the application and scope of the AIFMD (see the June 12, 2020 edition of Corporate & Financial Weekly Digest) and aims to achieve a more efficient, effective and competitive European market for alternative investment funds (AIFs) as a part of a stable financial system. The Consultation also notes that it may result in adjustments the existing European mutual fund rules (UCITS).

The Consultation asks 102 questions on seven topics:

  1. Scope and authorization. This section contains the Commission’s questions on improvements to the AIFM passport and whether there is a level playing field between EU AIFMs and other financial intermediaries.
  2. Investor protection. In this section, the Commission questions (1) if it is possible to enable access to AIFs to a wider pool of investors; (2) whether investor disclosures are redundant or insufficient; and (3) whether the depositary rules require clarification (noting that a depositary passport is desirable).
  3. International relations. This section asks about (1) non-EU AIFMs and national private placement regimes; and (2) asks thinly veiled Brexit-related questions about delegation rules and the prevention of ‘letterbox entities’ in the EU, asking if specific core or critical functions should always be performed by AIFMs in the EU.
  4. Financial stability. This section focuses on the exposure of funds to the leveraged loan and collateralized loan obligation markets, and leverage calculation methods.
  5. Investing in private companies. In this section, the Commission questions whether the AIFMD rules on AIFs investing in private companies, and the associated ‘asset-stripping’ rules, are fit for purpose.
  6. Sustainability/ESG. The Commission asks whether AIFMs should quantify sustainability risks, and if AIFMs should be required to take account of sustainability-related impacts beyond what is currently required by EU law.
  7. Miscellaneous. This section focuses on the role and powers of the European regulator-of-regulators, the European Securities and Markets Authority (ESMA), and if it should authorize and supervise all European AIFMs. It also asks if the UCITS and AIFM rules should be merged.

The deadline for responses is January 29, 2021. The Commission intends to put forward an amending directive (i.e., AIFMD II) in mid-2021.

The Consultation is available (with ancillary materials) here.