Navigating the AIFMD

Asset managers need to be familiar with the latest regulatory developments, but with the recent European Commission and ESMA initiatives, navigating the various changes surrounding the AIFMD can be a complex task. Here are just some of the recent developments addressed by Imogen Garner as part of Norton Rose Fulbright LLP’s global webinar series on asset management regulation.

AIFMD Review

Following its mandate from the Commission, KPMG published its review of the AIFMD in January this year. The key findings of the report suggest that the application of the AIMFD is still a work in progress. While the AIFMD has helped create an internal market for alternative investment funds and a harmonious regulatory regime, some of its provisions have failed to contribute – or even hindered – the achievement of the AIFMD’s objectives.

Needless to say, the Commission has not agreed with all of KPMG’s findings, and intends to continue its own work on reviewing the AIFMD. The Commission currently plans to publish its own report over the course of 2020, which will focus on areas that were not analysed in detail by KPMG such as leverage, reporting and diverging rules across Member States.

Sustainability Risks

ESMA’s technical advice on the integration of sustainability risks and environmental, social and gonernance (ESG) factors has now been submitted and the Commission is expected to adopt it by the end of this year.

This technical advice entails a suite of changes across MiFID II, UCITS and AIFMD which may have a large impact primarily on the daily operations and organisational set-up of asset managers. Once implemented, new delegated regulations will, amongst other things, require managers to take into account ESG considerations when complying with organisational requirements and consider sustainability risks in risk management policies and procedures.

Omnibus Regulation

The Omnibus Regulation, which entered into force in August this year, is expected to bring significant changes to marketing restrictions on investment funds. The legislative changes implement a controversially limited definition of “pre-marketing” under the AIFMD which essentially restricts the distribution of draft offering documents to potential investors.

The new rules on pre-marketing become applicable in August 2021 by which point the rules must be implemented into domestic law by Member States.

Liquidity Stress Testing

ESMA has released its finalised guidelines on liquidity stress testing (LST) which notably require managers to build LST models, increase the frequency of testing and document any testing in LST policies. The changes are due to take effect from 30 September next year, which gives managers little more than a year to prepare.

Industry feedback has been muted, with industry associations citing tight deadlines, unavailable data and excessive cost. The reality, however, is existing LST practices are incredibly varied and while some managers may be able to comply with the guidelines by making minor amendments, some managers will have to rebuild their LST models from scratch.

More detail can be found on Norton Rose Fulbright LLP’s global asset management regulation webinar series, which explores the key issues and requirements firms should be considering when looking to launch an overseas fund in Europe, Asia Pacific, the US and Canada. To access the webinar series, please register on our NRF Institute webpage. Once registered, the webinars can be found on our asset management regulation hub.