Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

Added(i) the competent authorities have received a motivated request by the AIFM for the appointment of a depositary in another Member State; that request shall demonstrate the lack of the relevant depositary services able to meet the needs of the AIF having regard to its operational strategy; and

RemovedBackground to the Commission proposal

Added(ii) the national depositary market of the home Member State of the AIF fulfils at least one of the following conditions:

RemovedThe Alternative Investment Fund Manager Directive (AIFMD) was adopted in 2011 in the wake of the global financial crisis, to achieve coherent supervision and management of the risks that alternative investment funds (AIFs) may generate, and to afford protection to investors.

Added- that market consists of fewer than seven depositaries providing depositary services to EU AIFs, authorised or registered under the applicable national law in accordance with Article 4, point (k), point (i) of this Directive, and managed by an EU AIFMs authorised in accordance with Article 7(1) of this Directive, and none of those depositaries has assets safekept within the meaning of Article 21(8), points (a) and (b) exceeding EUR 1 billion or the equivalent in any other currency. Assets held by a depositary acting under Article 36(1a) of this Directive and the own assets of a depositary shall be excluded from the determination whether this condition is met;

RemovedArticle 69 of the Directive calls for a review of its application, impact and scope. In this context, the European Commission presented in June 2020 a report and a detailed assessment to the European Parliament and the Council of the EU. The ‘back to back’ evaluation of the AIFMD contained in the Commission Impact Assessment finds that the Directive largely achieved its objectives, but could benefit from some improvements in areas that were either not sufficiently addressed in 2011 or that have evolved considerably since then.

Added- the aggregate amount in that market of assets safekept, in the meaning of Article 21(8), points (a) and (b), on behalf of EU AIFs, authorised or registered under the applicable national law in accordance with Article 4, point (k), point (i) of this Directive, and managed by an EU AIFM ,authorised in accordance with Article 7(1) of this Directive, does not exceed the amount of EUR 60 billion or the equivalent in any other currency. Assets safekept by depositaries acting under Article 36(1a) of this Directive and the own assets of depositaries shall be excluded from the determination whether this condition is met.’;

RemovedAgainst this backdrop, the Commission also adopted a new Capital Markets Union (CMU) action plan on 24 September 2020.

Added(a) in paragraph 6, points (c) and (d) are replaced by the following:

RemovedThe Commission has pointed out that completion of the CMU is needed more than ever in the current context. In order to support the economic recovery following the COVID-19 pandemic and the ongoing Russia aggression against Ukraine, the EU needs the sort of deep, competitive, efficient and reliable sources of funding and investment that integrated capital markets can offer.

Added‘(c) the third country where the depositary is established is not identified as a high-risk third country pursuant to Article 9(2) of Directive (EU) 2015/849 at the time of the AIFM’s application for authorisation in accordance with Article 7(1);’;

RemovedIn accordance with the conclusions of its report, its assessment and its CMU action plan, the Commission unveiled on 25 November 2021 its proposal for amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds.

Added(d) the Member States in which the units or shares of the non-EU AIF are intended to be marketed, and, in so far as different, the home Member State of the AIFM, have signed an agreement with the third country where the depositary is established which fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters including any multilateral tax agreements and the third country is not mentioned in Annex I to the relevant last updated version of the Council conclusions ▌on the revised EU list on non-cooperative jurisdictions for tax purposes;’ If a third country where the non-EU AIF is established is added to that annex after the time of the AIFM’s application for authorisation in accordance with Article 7(1), closed-ended funds shall continue to be considered to meet the criteria of this paragraph for a period of two years.

RemovedThis Commission proposal is a regulatory fitness and performance programme (REFIT) initiative, part of the 2021 Commission work programme and the joint declaration on legislative priorities. Some elements are also relevant for retail collective investment schemes, regulated by the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, which is therefore also proposed to be amended in order to ensure coherence with the AIFMD.

AddedFor the purposes of this paragraph, a third country that has been continuously mentioned in Annex II to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes for a period of over three years shall be considered to be mentioned in Annex I to those conclusions.’;

RemovedThe review of AIFMD together with the UCITS Directive is an essential part of the CMU project, one of the EU's greatest ambitions since 2015.

Added(b) paragraph 11 is amended as follows:

RemovedThe Commission proposal

Added(i) in the second subparagraph, point (c) is replaced by the following:

RemovedThe proposal of the European Commission, who, for the first time since its political response to the global financial crisis, has sought to review the functioning of these instruments in the Union with the purpose of strengthening the European financial system. The rapporteur welcomes the European Commission's commitment to the launch of the Capital Markets Union legislative package last November 2021 and considers it a necessary step towards the completion of the Capital Markets Union.

Added‘(c) the depositary has exercised all due skill, care and diligence in the selection and the appointment of any third party to whom it wants to delegate parts of its tasks, except where that third party is a central securities depository acting in the capacity of an issuer CSD as defined in the delegated act adopted on the basis of Articles 29(3) and 48(10) of Regulation (EU) No. 909/2014, and keeps exercising all due skill, care and diligence in the periodic review and ongoing monitoring of any third party to whom it has delegated parts of its tasks and of the arrangements of the third party in respect of the matters delegated to it;

RemovedThe global crisis caused by COVID-19 pandemic has made even more evident the intrinsic value that capital markets have for our households and businesses as a means of financing. A robust banking system in Europe has proven itself to be essential, but not enough for a strong response from our markets to unexpected shocks or crisis. Capital markets are a fundamental tool for the recapitalisation of our companies and to support the recovery of our European economy in these critical moments.

Added▌

RemovedWith regard to this proposed revision, it is worthy to note the benefits of alternative investment funds and collective investment vehicles in transferable securities as tools for diversifying investment portfolios and as an instruments for promoting savings for investors. In short, this Directive is intended to meet some of the major challenges and objectives set out in the European Commission's 2020 action plan since the launch of the CMU project.

Added(ii) the fifth subparagraph is replaced by the following:

RemovedThe market of asset managers in Europe is functioning well and the European Union is a region that attracts large operations and international managers who want to invest in our markets. According to 2022 ESMA report Annual Statistical Report on EU Alternative Investment Funds, the size of the EU Alternative Investment Funds (AIF) market continued to expand to reach 5.9tn EUR in net asset value at the end of 2020, which represents one-third of the European Economic Area fund industry at the same date.

Added‘For the purposes of this paragraph, the provision of services by a central securities depository acting in the capacity of an issuer CSD as defined in the delegated act adopted on the basis of Articles 29(3) and 48(10) of Regulation (EU) No 909/2014 shall not be considered a delegation of the depositary’s custody functions. The provision of services by a central securities depository acting in the capacity of an investor CSD as defined in that delegated act shall be considered a delegation of the depositary’s custody functions.’;

RemovedBeing aware of the growing trend of this industry, which has increased by 8% over the same period in 2019, but is still below other markets such as the US, it is essential to reflect on how to continue facilitating this sector to grow in volume and quality at a pace that will make the EU a more competitive region.

Added(c) paragraph 16 is replaced by the following:

RemovedEuropean capital markets have grown in volume over the past few years, but there is still plenty of room for growth. The European Union operates and competes in a global market and the development of its industry must go a step further.

Added‘16. The depositary shall make available to its competent authorities, to the competent authorities of the AIF that has appointed it as a depositary and to the competent authorities of the AIFM that manages that AIF, ▌all information that it has obtained while performing its duties and that may be necessary for the competent authorities of the AIF or the AIFM. If the competent authorities of the AIF or the AIFM are different from those of the depositary, the competent authorities of the depositary shall share the information received without delay with the competent authorities of the AIF and the AIFM, and the competent authorities of the AIF or the AIFM shall share without delay with the competent authorities of the depositary any information relevant for the exercise of those authorities’ supervisory powers.’;

RemovedPosition of the Rapporteur

Added(9) Article 23 is amended as follows:

RemovedThe amendments proposed by the rapporteur in this draft report are the result of an in-depth study of the subject matter and extensive discussions with various regulators, supervisors and stakeholders. The ultimate objective of the rapporteur's proposal is no other than to improve, enhance and facilitate the growth of the asset manager market in Europe.

Added(a) paragraph 1 is amended as follows:

RemovedWith the amendments contained in this draft report, the rapporteur expects that the European capital markets, in particular with regard to alternative investment funds and undertakings for collective investment in transferable securities, can improve their functioning by encouraging their growth and global competitiveness.

Added(i) point (h) is replaced by the following:

RemovedThis draft report responds to the Commission's proposal, seeking to complete and contribute to the integration objective of European capital markets. In this sense, the main areas of improvement for the rapporteur are:

Added‘(h) a description of the AIF’s liquidity risk management, including the redemption rights both in normal and in exceptional circumstances, disclosing the possibility and conditions for using liquidity management tools selected in accordance with Article 16(2b), and the existing redemption arrangements with investors.’;

Removed Delegation and supervisory reporting. The rapporteur considers that delegation is an essential part of the activity of AIFMs. Delegation allows asset managers to set up a fund in the EU and carry out portfolio management or risk management from other jurisdictions. In order to promote this activity, this draft report tries to strike a balance not to burden this process, while at the same time granting comprehensive reporting powers to competent authorities.

Added(ii) point (ia) is inserted:

Removed Liquidity management tools (LMTs). The rapporteur welcomes that these tools are extended and available on a pan-European basis to make markets more liquid and attractive to investors. The proposed changes to the European Commission proposal aims to clarify that the decision of liquidity management tools’ primary responsibility is a task for the manager. Consequently, any role of the competent authorities to activate or deactivate LMTs should be limited to extraordinary circumstances, after consultation with the manager.

Added‘(ia) a list of fees and charges that will be applied in connection with the operation of the AIF and that will be borne by the AIFM▌.’;

Removed Loan origination funds. The rapporteur welcomes the fact that European markets are potentially developing this area. Loan originating funds have positioned themselves as a very positive alternative financing instrument for real economy, SMEs and other investors. For that reason, the amendments proposed in this draft report aim to do away with unnecessarily risk retention and to caution against creating product specific rules.

Added(b) in paragraph 4, the following points (d), (e) and (f) are added:

Removed Depository services. The rapporteur is aware of the core function that depository services have for the well-functioning of the funds industry. Inspired by the principle of competitiveness and integration of the markets, the proposed changes intend to set the path toward a more efficient depository services among Member States. The rapporteur encourages the European Commission to launch a comprehensive study on the cost, benefits and feasibility of a depository passport in the EU.

Added‘(d) portfolio composition of originated loans;

Removed Transparency, data collection and disclosure. The rapporteur encourages a full transparent regime in which data collection and disclosure to investors is fully guaranteed but without undermining the growth and competitiveness of European capital markets. Cooperation between NCAs and ESMA should be improved and simplified in order to avoid duplications, granting quality of information reported and making a more efficient supervisory convergence regime.

Added(e) on an annual basis, all direct and indirect fees and charges that were directly or indirectly charged ▌to the AIF▌;

RemovedStarting from this draft report and with the further collaboration of the rest of political groups, the rapporteur is confident that the outcome of this process will lead to the strengthening of the European sector and the growth of the alternative investment fund industry and undertakings for collective investment in transferable securities.

Added(f) on an annual basis, any parent company, subsidiary or special purpose entity established in relation to the AIF’s investments by the AIFM▌.’;

RemovedThe European Parliament's response will be firm and targeted towards the goal of making capital more accessible in Europe, to ensure that managers have sufficient incentives to get their operations off the ground and to achieve the most efficient mode of supervision to ensure stability in the markets and a safe environment for investors.

Added(10) Article 24 is amended as follows:

Added(a) paragraph 1 is replaced by the following:

Added‘1. An AIFM shall regularly report to the competent authorities of its home Member State on the markets and instruments in which it trades on behalf of the AIFs it manages, and on other relevant economic and accounting information set out in paragraph 2.

AddedIt shall provide information on the instruments in which it is trading, on markets of which it is a member or where it actively trades, and on the exposures of each of the AIFs it manages.’; (b) in paragraph 2:

Added(i) point (d) is deleted;

Added(ii) the following points are added:

Added‘(ea) the total amount of leverage of the net asset value employed by the AIF;