‘AIFMD 2.0’ agreement key for stability of EU investment fund industry

The provisional agreement, reached by negotiators from the Council and the European parliament, reviews the Alternative Investment Fund Managers Directive (AIFMD), which governs managers of hedge funds, private equity funds, private debt funds, real estate funds and other alternative investment funds in the EU.

The agreement represents a major milestone on the way to the new AIFMD regime, known as ‘AIFMD 2.0’, will also modernise the rules on the legal framework for undertakings for collective investment in transferable securities (UCITS) – EU-harmonised retail investment funds such as unit trusts and investment companies.

Financial regulation expert Dr. Jan Saalfrank of Pinsent Masons said: “The new provisional agreement represents a milestone of legislative significance on the way to AIFMD 2.0 as it concludes multiple years of intense negotiations between the EU legislative bodies. It also represents a key step in the future evolution of the investment funds landscape on supranational EU level.”

“Although the final text and details still await formal confirmation by the EU legislative bodies before official adoption, it is clear that the contemplated changes on key areas will have a solid impact on the European investment funds market. The provisional agreement will, once confirmed and adopted, provide regulatory certainty and stability for the Europe-wide alternative investment fund industry.”

Under the new regime, negotiators agreed to enhance the availability of liquidity management tools, with new requirements for managers to provide for the activation of these instruments. The parliament and the Council also agreed to proposed reforms of the EU’s framework for funds that engage in loan origination activities. If adopted, the framework will be supplemented with several requirements to alleviate risks to financial stability and to ensure an appropriate level of investor protection.

Negotiators also agreed on enhanced rules for delegation by investment managers to third parties to enable them to better tap the best resources from market specialists, subject to reinforced supervision and preserving market integrity.

Other key components of the agreement include enhanced data sharing and cooperation between authorities, and new measures to identify undue costs that could be charged to funds, and hence their investors, as well as on preventing possible misleading names to better protect investors.  

Saalfrank said: “The new rules on delegation, management of liquidity risks and passporting around loan origination funds are all reasonable on the face of it. The financial industry and we as legal experts in that field are confident that the positive features of the new legislative framework will prevail over the negative ones as the EU considers all of the proposed amendments under the future AIFMD 2.0 regime.”