Changes from report parliamentary committee draft to plenary report

RemovedArticle 2 – paragraph 1 – point 8, Article 84 – paragraph 3c: 3c. Where the competent authority of the UCITS home Member State does not agree with the request referred to in paragraph 3b, it shall inform the requesting competent authority, ESMA and, in case of any potential risk to the stability and integrity of the financial system, the ESRB thereof, stating the reasons for the disagreement.

Addeda) the sale of the loan is necessary for the AIF not to be in breach of its mandate or of one of its investment or diversification rules and such potential breach is unintentional on the part of the manager, for instance as a result of the exercise of subscription or redemption rights;

RemovedDirective 2009/65/EC

Addedb) the disposal is necessary as a result of the Union sanctions;

RemovedArticle 2 – paragraph 1 – point 8, Article 84 – paragraph 3f: 3f. ESMA shall develop draft regulatory technical standards indicating in which situations the competent authorities may exercise the powers set out in paragraph 2, point (b). When developing those standards, ESMA shall consider the potential implications of such supervisory intervention for investor protection and the financial stability in another Member State or in the Union. Those standards shall recognise that the primary responsibility for liquidity risk management remains with the UCITS and that intervention by the competent authorities is a last resort.

Addedc) the AIF needs to dispose of the loans in order to redeem investors' units or shares as part of the wind down of the AIF.

RemovedDirective 2009/65/EC

Added4ea. Member States shall prohibit AIFMs from managing AIFs whose investment strategy is to originate loans with the sole purpose of transferring those loans to third parties (“originate-to-distribute”).’;

RemovedArticle 2 – paragraph 1 – point 9, Article 98 – paragraph 3 – subparagraph 1: The competent authority of the UCITS host Member State may, in exceptional circumstances, request the competent authority of the UCITS home Member State to exercise, without delay, powers laid down in paragraph 2 specifying the reasons for its request and notifying ESMA and, if there are potential risks to the stability and integrity of the financial system, the ESRB thereof.

Added(6) in Article 16, the following paragraphs 2a to 2h are inserted:

RemovedDirective 2009/65/EC

Added‘2a. An AIFM shall ensure that the loan originating AIF it manages is closed-ended when the AIFM is not able to demonstrate to the competent authorities of its home Member State that the AIF has a sound liquidity risk management system that ensures the compatibility of its liquidity management system with its redemption policy.

RemovedArticle 2 – paragraph 1 – point 10, Article 101a – paragraph 1: 1. By … [12 months before the date of the review referred to in Article 110a], and otherwise as necessary, ESMA shall conduct a peer review analysis of the supervisory activities of the competent authorities in relation to the application of Article 13. That peer review analysis shall focus on the measures taken to prevent that management companies, which delegate performance of portfolio management or risk management to third parties located in third countries, become letter-box entities.

AddedThe requirement set out in the first subparagraph shall be without prejudice to the thresholds, restrictions or conditions set out in Regulations (EU) 345/2013, (EU) 346/2013, and (EU) 2015/760.

RemovedDirective 2011/61/EU

Added2aa. ESMA shall develop regulatory technical standards as regards the assessment by competent authorities whether a loan-originating AIF has a sound liquidity management system and may maintain an open-ended structure, having regard to the underlying loan exposure, average repayment time of the loans and overall granularity and composition of AIF portfolios. In drawing up those regulatory technical standards, ESMA shall consider whether that assessment should include specific liquidity management tools including those set out in points 1 and 2 of the list set out in Annex V and also whether such AIFs should be subject to any additional disclosure as regards the specificities of loan-originating funds and their use of liquidity management tools in addition to the requirements set out in paragraph 2b.

RemovedAnnex II, Annex V – title: LIQUIDITY MANAGEMENT TOOLS AVAILABLE TO AIFMs MANAGING OPEN-ENDED AIFs

Added2b. After assessing the suitability in relation to the pursued investment strategy, the liquidity profile and the redemption policy, an AIFM that manages an open-ended AIF shall select at least two appropriate liquidity management tools from the list set out in Annex V, points 2 to 7, for possible use in the interest of the AIF’s investors. That selection shall not prevent an AIFM from using other tools referred to in Annex V, points 2 to 8. The AIFM shall implement detailed policies and procedures for the activation and deactivation of any selected liquidity management tool and the operational and administrative arrangements for the use of such tools.

RemovedDirecitve 2011/61/EU

AddedBy way of derogation from the first subparagraph, an AIFM may select only one liquidity management tool from Annex V, points 2 to 7, for an AIF it manages, if that AIF is authorised as a money market fund in accordance with Regulation (EU) 2017/1131.

RemovedAnnex II, Annex V – point 1: (1) Suspension of redemptions and subscriptions: suspension of redemptions and subscriptions implies that investors are temporarily unable to redeem or purchase fund’s units or shares.

Added2c. An AIFM that manages an open-ended AIF may, in the interest of AIF investors, temporarily suspend the repurchase or redemption of the AIF units or activate other liquidity management tools selected from the list set out in Annex V, points 2 to 8, where those tools are included in the fund rules or the instruments of incorporation of the AIFM.

RemovedDirective 2011/61/EU

AddedThe temporary suspension referred to in the first subparagraph may only be provided for in exceptional cases where circumstances so require and where suspension is justified having regard to the interests of the AIF investors.

RemovedAnnex II, Annex V – point 2: (2) Redemption gates: a redemption gate is a temporary restriction of the right of shareholders to redeem their units or shares. This restriction is partial, so that investors can only redeem a certain portion of their units or shares.

Added2d. An AIFM shall, without delay, notify the competent authorities of its home Member State in any of the following circumstances:

RemovedDirective 2011/61/EU

Added- when, in situations of liquidity stress, an AIFM activates or deactivates one of the liquidity management tools listed in Annex V, points 1 and 2 ;

RemovedAnnex II, Annex V – point 3: (3) Notice periods: a notice period refers to the period of advance notice that investors must give to fund managers when redeeming their units or shares.

Added- when activating or deactivating side pockets as referred to in point 8 of that Annex;

RemovedDirective 2011/61/EU

Added- when activating or deactivating any other liquidity management tool in a manner that is not in the ordinary course of business as envisaged in the fund documentation.

RemovedAnnex II, Annex V – point 4: (4) Redemption fees: a redemption fee is a pre-determined fee charged to investors when redeeming their fund’s units or shares.

AddedThe competent authorities of the home Member State of the AIFM shall notify, without delay, the competent authorities of a host Member State of the AIFM and ESMA ▌of any notifications received in accordance with this paragraph. The competent authorities of the home Member State of the AIFM shall notify the ESRB if there is any potential risk to the stability and integrity of the financial system. ESMA shall have the power to share the information received in accordance with this paragraph with competent authorities.

RemovedDirective 2011/61/EU

Added2e. Member States shall ensure that at least the liquidity management tools set out in Annex V are available to AIFMs managing open-ended AIFs.

RemovedAnnex II, Annex V – point 5: (5) Swing pricing: swing pricing can be used to adjust the price of units or shares in an investment fund so that it reflects the cost of fund transactions resulting from investor activity.

Added2f. ESMA shall develop guidelines to specify best practice as regards the characteristics of the liquidity management tools set out in Annex V taking account of the diversity of investment strategies and underlying assets.

RemovedDirective 2011/61/EU

Added2g. By ... [12 months after entry into force of this amending Directive] ESMA shall develop draft regulatory technical standards on the disclosure to competent authorities and to investors of information related to the selection and calibration of liquidity management tools by the AIFMs for liquidity risk management and for mitigating financial stability risks. Those standards shall recognise that the primary responsibility for liquidity risk management remains with the AIFM. They shall allow adequate time for adaptation before they apply, in particular for existing AIFs.

RemovedAnnex II, Annex V – point 6: (6) Anti-dilution levy: an anti-dilution levy is a charge applied to individual transacting investors, payable to the fund, to protect remaining investors from bearing the costs associated with purchases or sales of assets because of large inflows or outflows. An anti-dilution levy does not involve any adjustment to the value of the fund’s units or shares. The levy shall be calculated taking into consideration ongoing liquidity costs and market conditions.

Added2h. Power is delegated to the Commission to adopt the regulatory technical standards referred to in paragraphs 2aa and 2g of this Article in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

RemovedDirective 2009/65/EC

Added(7) Article 20 is amended as follows:

RemovedAnnex IV, Annex IIA – title: LIQUIDITY MANAGEMENT TOOLS AVAILABLE TO UCITS

Added(a) paragraph 1 is amended as follows:

RemovedDirective 2009/65/EC

Added(a) the introductory phrase is replaced by the following:

RemovedAnnex IV, Annex IIA – point 1: (1) Suspension of redemptions and subscriptions: suspension of redemptions and subscriptions implies that investors are temporarily unable to redeem or purchase fund’s units.

Added‘1. AIFMs, which intend to delegate to third parties the task of carrying out, on their behalf, one or more of the functions listed in Annex I or of the services referred to in Article 6(4), shall notify the competent authorities of their home Member State before the delegation arrangements become effective. The following conditions shall be met:’;

RemovedDirective 2009/65/EC

Added(b) point (f) is replaced by the following:

RemovedAnnex IV, Annex IIA – point 2: (2) Redemption gates: a redemption gate is a temporary restriction of the right of unitholders to redeem their units. This restriction is partial, so that investors can only redeem a certain portion of their units.

Added‘(f) the AIFM must be able to demonstrate that the delegate is qualified and capable of undertaking the functions and providing the services in question, that it was selected with all due care and that the AIFM is in a position to monitor effectively at any time the delegated activity, to give at any time further instructions to the delegate and to withdraw the delegation with immediate effect when this is in the interest of investors.’;

RemovedDirective 2009/65/EC

Added(b) paragraph 3 is replaced by the following:

RemovedAnnex IV, Annex IIA – point 3: (3) Notice periods: a notice period refers to the period of advance notice that investors must give to fund managers when redeeming their units.

Added‘3. The AIFM’s liability towards its clients, the AIF and its investors shall not be affected by the fact that the AIFM has delegated functions to a third party, or by any further sub-delegation, irrespective of the regulatory status or location of any delegate or subdelegate, nor shall the AIFM delegate its functions to the extent that, in essence, it can no longer be considered to be the manager of the AIF ▌and to the extent that it becomes a letter-box entity.’;

RemovedDirective 2009/65/EC

Added‘3a. The AIFM shall ensure that the management of funds for which it is the AIFM complies with the requirements set out in this Directive. That obligation shall apply irrespective of the regulatory status or location of any delegate or subdelegate.’