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European Commission introduces proposals to amend the AIFMD

Insight 1 December 2021

European Commission introduces proposals to amend the AIFMD

On 25 November 2021, the European Commission introduced long-awaited proposals to amend the Alternative Investment Fund Managers Directive (AIFMD), months after an initial consultation.

The so-called AIFMD II brings several proposals, several of which are listed below:

Delegation of risk or portfolio management has been at the core of some of the changes made by the Commission.

The proposal specifies that all activities listed in Annex I of AIFMD, where delegated by the AIFM, are in scope of the delegation requirements listed in Article 20 of the AIFMD. A new obligation will come into force for AIFMs delegating more portfolio or risk management than they retain to third countries, as National Competent Authorities (“NCA”) will now need to notify ESMA[1] these delegation arrangements. ESMA is set to publish regulatory standards on the contents of the notification form which will cover:

  1. Information on the AIFM and the AIF concerned
  2. Information on the delegate, its domicile and if it is a regulated entity
  3. Description of the delegated portfolio and risk management functions
  4. Description of the retained portfolio and risk management functions
  5. Any other information necessary to analyse the delegation arrangements
  6. Description of the competent authorities’ supervisory activities, including desk-based reviews and on-site inspections and the results of such activities
  7. Any details on the cooperation between the competent authority of the AIFM and the supervisory authority of the delegate.

With substance being a key driver behind some of the delegation oversight, AIFMs will need to employ at least two natural persons in the EU on a full-time basis or who are committed to conduct business on a full-time basis. AIFMD II also introduces human and technical monitoring requirements for AIFMs that delegate to a third party. ESMA will also conduct peer reviews on the delegation regime with the objective of preventing delegates from becoming letter box entities.

[1] European Securities and Markets Authority

A second key change brought in by AIFMD II focuses on liquidity risk management tools.

Open-ended AIFs generating loans will see a 60% of net asset value limit on the notional value of loans generated. Anything above this threshold will see the requirement for the AIF to be closed-ended. In addition, open-ended AIFs will be subject to a new Annex V listing their liquidity management tools, which will include:

Not all tools may currently be available in all Member States and ESMA has indicated each Member State will need to have the above tools in place for their local AIFMs.

Additional characteristics relating to AIFMs managing open-ended AIFs:

  • Select at least one of redemption gates, notice period or redemption fees tools for possible use
  • Implement detailed policies and procedures for the activation and deactivation of any selected liquidity management tool, as well as the tool’s operational and administrative arrangements
  • Temporarily suspend the repurchase or redemption of the AIF units or activate other liquidity management tools included in the fund rules or the instruments of incorporation of the AIFM
    • However, the suspension is only limited to exceptional cases where circumstances justify it and acts in the investors’ best interests.
    • AIFMs will be required to notify their home Member State when activating liquidity management tools. Such home Member States will then be required to notify other host Member States, ESMA and the ESRB[2] with any notifications received.

Draft regulatory technical standards will be created to define the characteristics of the liquidity management tools and the criteria for their selection and use. The standards will also include investor disclosure specifications, considering the capability of those tools to reduce undue advantages for investors that redeem their investments first.

[2] European Systemic Risk Board

AIFMD II adds loan origination as an activity that AIFMs are permitted to do, as the European Commission recognised the importance of such financing means especially in the context of the post-COVID-19 recovery.

AIFMs will need to implement effective policies and procedures for loan granting funds, covering:

Policies and procedures will need to be kept up-to-date and reviewed at least annually.

In addition to this, the proposal also includes restrictions on origination. More specifically, AIFs will not be able to originate loans in excess of 20% of their capital to a single borrower if the borrower is:

  • a financial undertaking[3];
  • an AIF or a UCITS.

Application timeline:

  • Apply from the date specified in the rules or instruments of incorporation of the AIF
  • Can be temporarily suspended for up to 12 months when the AIF is raising or reducing capital
  • Cease to apply once the AIF starts selling assets to redeem investors’ units

The Commission added restrictions where an AIF will not be able to grant loans to its AIFM (or the AIFM staff), its depositary or an entity which the AIFM has delegated functions to.

Finally, AIFMs will be required that for each AIF managed, that it retains on an ongoing basis 5% of the notional value the loans it has originated and subsequently sold on the secondary market[4].

[3] as defined under Solvency II

[4] This will not apply to the loans that the AIF has purchased on the secondary market

AIFMD II introduces tighter conditions relating to AIFMs using the NPPR. A non-EU AIF or AIFM domiciled in one of the below will now be unable to use the NPPR:

  1. A non-cooperative jurisdiction from a tax perspective, as defined by the EU Council[5]; or
  2. A high-risk country, as defined in the AML Directive[6].

The proposals do not mention ending the National Private Placement Regime.



The AIFMD II proposal would allow national competent authorities to appoint a depositary in another member state than the AIF. However, the proposal does not formally include a depositary passport, although it is worth noting ESMA plans to review a depositary passport framework.

In addition, third country depositaries are also faced with similar requirements than non-EU AIFs and AIFMs using the NPPR (i.e., adding the EU AML Directive and the EU list of non-cooperative tax jurisdictions), specifically around Article 21(6) focusing on the domicile of such depositaries. Below is a table indicating those changes:

In addition, Central Securities Depositaries (“CSD”) can now be considered as delegates to a depositary and thus be included in the custody chain. Depositaries will also not be under the obligation to perform due diligence on European CSDs. The proposal also notes the impact of bringing CSDs in the custody chain as a positive development for ELTIFs.[7] On that last point, the Commission also released proposals to amend the ELTIF regime.

[7] European Long-Term Investment Fund

In a similar fashion to loan origination, the servicing of a securitisation special purpose entity (SSPE) is added to the Annex I of the AIFMD as a permitted activity by AIFMs.

Annex IV reporting will likely change to go into more granularity around data reported. For example, the proposal removes the “main” in main instruments in which the AIF is trading. ESMA will develop regulatory technical standards to specify the extent to which Annex IV reporting will be changed.

AIFMD II also introduces several disclosure requirements:

The proposals are expected to be discussed by the EU legislative bodies during the first half of 2022, after which Member States will have 24 months to implement the AIFMD II into national law. It is currently expected for AIFMD II to come fully into effect in late 2024 or early 2025. Within 2 years of AIFMD II coming into force, ESMA will also submit to the Commission a report for the development of an integrated supervisory data collection

  1. Reduce areas of duplications and inconsistencies between asset management reporting frameworks and other sectors of the financial industry
  2. Data standardisation and efficient sharing data already reported within any Union reporting framework by any relevant competent authority, at Union or national level

Within 5 years of AIFMD II coming into force, ESMA will run several reviews:

  1. Impact of liquidity management tools on financial stability
  2. Effectiveness of the AIFM authorisation requirements and delegation regime
  3. Appropriateness of the requirements on loan originating AIFs
  4. Appropriateness of introducing a depositary passport.
  1. Investment management functions which an AIFM shall at least perform when managing an AIF:
    1. portfolio management;
    2. risk management.
  2. Other functions that an AIFM may additionally perform in the course of the collective management of an AIF:
    1. Administration:
      1. legal and fund management accounting services;
      2. customer inquiries;
      3. valuation and pricing, including tax returns;
      4. regulatory compliance monitoring;
      5. maintenance of unit-/shareholder register;
      6. distribution of income;
      7. unit/shares issues and redemptions;
      8. contract settlements, including certificate dispatch;
      9. record keeping;
    2. Marketing
    3. Activities related to the assets of AIFs, namely services necessary to meet the fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF and the companies and other assets in which it has invested.
  3. Originating loans.
  4. Servicing securitisation special purpose entities.

How can Sanne assist?

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Should you require any further details, we would be delighted to speak with you. Please reach out to Rolf, Christian, Paul and Roberta directly.

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