The European Commission has recently published a Report on the operation of the Alternative Investment Fund Managers Directive (AIFMD). The report, which has been prepared by KPMG, represents the first step in the AIFMD review process.
In response to the financial crisis of 2008, which exposed a series of vulnerabilities in the global financial system, the European Parliament and the Council of the European Union adopted the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). AIFMD aimed to extend appropriate regulation and oversight to all actors and activities that embed significant risks, by introducing harmonised requirements for Alternative Investment Fund Managers (AIFMs).
The general objective of AIFMD is to create an internal market for EU and non-EU Alternative Investment Funds (AIFs), and a harmonised and stringent regulatory and supervisory framework for AIFMs. Specifically, it seeks to ensure that all AIFMs are subject to appropriate authorisation and registration requirements; that there is proper monitoring of macro- and micro-prudential risks and a common approach to protecting professional investors; that there is greater accountability of AIFMs holding controlling stakes in non-listed companies; and the development of the Single Market in AIFs.
Under Article 69 AIFMD, the European Commission (EC) had to start by 22 July 2017 a review of the application and scope of the Directive, its impact on investors, AIFs and AIFMs, within the EU and elsewhere, and the degree to which its objectives have been met.
In this context, KPMG has been mandated by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (CMU) to conduct a general survey and to carry out an evidence-based study. This survey and study resulted into the Report on the operation of the AIFMD, which was publised by the EC on 10 January 2019.
Key findings of the Report
On the basis of the evidence retrieved and analysis undertaken, as described in the Report, it is clear that AIFMD has played a major role in helping to create an internal market for AIFs and a harmonised and stringent regulatory and supervisory framework for AIFMs. Moreover, most areas of the provisions are assessed as having contributed to achievement of the general, specific and operational objectives, to have done so effectively, efficiently and coherently, to remain relevant and to have EU added value. There are, however, some provisions that have not contributed, or may be counter to, the achievement of these aims – particularly, but not exclusively, in relation to the principles of effectiveness and efficiency. A small number of areas need further harmonisation in order to prevent rule arbitrage and to ensure a common level playing field. The assessment revealed some crucial points which may potentially be the focus of further consideration by the EC. Some selected examples are:
- Marketing: The EU marketing passport is suffering from the different approaches taken by National Competent Authorities (NCAs) (as recognized in the EC Cross-Border Distribution Proposal). In relation to non-EU AIFs and AIFMs, developments vary markedly from one Member State to another. Therefore, it is clearly of EU added value that national private placement regimes (NPPRs) are permitted to continue to operate;
- Reporting to NCAs: Large volumes of data are submitted by AIFMs to NCAs under the AIFMD reporting requirements, but not all the data may be essential, some may be insufficient and some are duplicative. There are also overlapping reporting obligations under other EU legislation;
- Leverage: Survey data indicate that the use of high leverage is rare in AIFs. It would be helpful to harmonize the calculation methodologies for leverage across AIFMD, the UCITS Directive and other relevant legislation;
- Valuation: The binary choice in the valuation rules between internal or external valuation, and the differing national interpretations of the extent of the liability of external valuers, are assessed as having impaired the effectiveness of the rules for some asset classes and in some Member States.
- Investments in non-listed companies: The extent of the notifications to NCAs is viewed as not useful or essential, and overly burdensome (especially given that many private equity/venture capital AIFMs are smaller companies, for whom the administrative burdens may be proportionately greater). Also, there is a lack of clarity in relation to the meaning of “non-listed company” and the application of the rules to investments in unlisted special purpose investment vehicles and unlisted UCITS or AIFs.
The report represents the first step in the AIFMD review process. The EC will continue its review of the AIFMD and next year will report to the European Parliament and the Council, as required by the Directive.
KPMG’s Regulatory Practice
KPMG's Regulatory Practice (part of KPMG Advisory Risk Consulting) provides strategic and technical regulatory and compliance solutions to help financial services providers anticipate and manage their regulatory risk. Our team works to help clients meet regulatory expectations and obligations by strengthening enterprise-wide compliance programs, implementing effective governance and risk management frameworks, enhancing internal controls, and helping create a culture of risk management and compliance. Our international experienced professionals include former regulators, auditors, compliance practitioners and people with extensive in-house expertise gained with leading players in the Belgian financial services industry.
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 KPMG Law Rechtsanwaltsgesellschaft mbH as lead firm, with the subcontractors KPMG AG Wirtschaftsprüfungsgesellschaft, Germany and KPMG LLP, United Kingdom supported by the European network of KPMG.
 Link to the report: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/190110-aifmd-operation-report_en.pdf ; Link to the press release of the EC: http://europa.eu/rapid/midday-express-10-01-2019.htm?locale=en#4.
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