[33326]
TO: Global Regulated Funds Committee RE: European Parliament Adopts AIFMD/UCITS Review Negotiating Position
On January 24, the Economic and Monetary Affairs (ECON) Committee of the European Parliament approved (54 votes in favor and 3 against) its version of the legislative proposal revising the Alternative Investment Fund Manager Directive (AIFMD) and associated changes to the UCITS Directive. A copy of the approved text is attached. As we previously informed you,[1] in November 2021 the European Commission published a draft Directive[2] reviewing the AIFMD and amending - where necessary - the UCITS Directive. The Member State representatives in Council agreed on their own position in June 2022.[3]
We are pleased to inform you that the Parliament text adopted by the ECON Committee includes several of the advocacy positions advanced by ICI Global with key MEPs, political advisors, and professional staffers in Brussels. At the time of the European Commission's publication of its proposal, ICI Global welcomed the targeted nature of the proposal and some of the proposed changes. However, we advocated strongly for modifications to the proposed delegation and liquidity management tool (LMT) frameworks. For example, while we support the harmonization of the information being provided to National Competent Authorities (NCAs) on delegation arrangements, we have significant concerns regarding the Commission's proposed requirement to notify the European Securities and Markets Authority (ESMA) about delegation arrangements to third countries in which "more risk or portfolio management is delegated than is retained." With respect to the LMT provisions, we support the broad array of tools proposed by the Commission but disagree with empowering public authorities (whether NCAs or ESMA) to activate or deactivate these tools, or to require a fund manager to select LMTs from a specified list. We provided feedback on the Commission's initial proposal as well as other proposals raised during negotiations.
On delegation, the Parliament text dispenses with the Commission's proposed ESMA notification requirement and requires instead that the management company report to its NCA more detailed, qualitative information on their delegation arrangements with third parties, including changes to the delegation and sub-delegation arrangements that were provided at the time of authorization.
On liquidity management, the Parliament text retains the Commission's proposed harmonization of the availability of the wide array of LMTs in all Member States and leaves the responsibility for managing liquidity risk to the managers, removing ESMA's power to compel activation or deactivation of LMTs. We support this approach. However, the Parliament text requires managers to select two LMTs in addition to suspensions (only one for MMFs), rather than one LMT as is proposed by the Commission. NCAs would be able to enact suspensions or to impose gates under exceptional circumstances. In addition, the Parliament text directs ESMA to develop guidelines on liquidity management best practices and Regulatory Technical Standards (RTS) on the disclosure of the use of LMTs by AIFMs and UCITS management companies to NCAs.
The Parliament text also unhelpfully includes an article on "undue costs" that empowers ESMA to develop RTS determining the criteria for the assessment of undue or inappropriate levels of costs charged to investors. ESMA is also tasked with producing a report assessing those costs and proposing policy or supervisory action to address them.
Now that both the Council and Parliament have agreed on their respective positions, the next step in the process is the trilogue negotiation to reconcile them with the original Commission proposal. The Swedish presidency is eager to start, hoping to be able to reach a final agreement before the end of its mandate in June. We believe this is a reasonable expectation if negotiations can start by March.
We are working on comparing the texts of the Commission, Parliament, and Council and formulating our advocacy strategy for the trilogues. We will reach out to members in due course with further information regarding our next steps and opportunities to provide input for our ongoing advocacy.
Corrado Camera
Director, Public Policy and Regulation, ICI Global
Eva M. Mykolenko
Associate Chief Counsel - Securities Regulation
Notes
[1] See ICI Memorandum 33948, dated December 9, 2021, available at https://www.ici.org/memo33948.
[2] The Commission proposal is available at https://eur-lex.europa.eu/resource.html?uri=cellar:9025e7c1-4de7-11ec-91ac-01aa75ed71a1.0001.02/DOC_1&format=PDF.
[3] The Council text is available at https://data.consilium.europa.eu/doc/document/ST-9768-2022-REV-1/en/pdf