Summary

On July 20, 2023, the Council of the European Union (EU) announced¹ a provisional agreement had been reached with the EU Parliament on the amendments to the Alternative Investment Fund Managers Directive (AIFMD) – commonly referred to as “AIFMD II”. This concludes several years of negotiations between the EU legislative bodies and marks a key step in the evolution of the investment funds landscape in the EU. However, it is important to note that the agreement is provisional and requires formal confirmation by the EU legislative bodies before it can be officially adopted. We await further details and the publication of the final text to assess the full implications of the changes.

Key Highlights of AIFMD II

By way of reminder, AIFMD II will incorporate targeted amendments to various provisions of the AIFMD, including those applicable to non-EU alternative investment fund managers (AIFMs) marketing alternative investment funds (AIFs) in the EU under an applicable national private placement regime (NPPR).

Though we await the final text and details, below is a summary of key areas of change proposed by AIFMD II based on earlier proposals by the EU legislative bodies.

• Broadening the range of ancillary services EU AIFMs can provide to include activities permitted by other EU sectoral law, including the administration of benchmarks or credit servicing.
• Expanding information requirements for EU AIFMs during the authorisation process, including detailed descriptions of their resources, and imposing minimum substance requirements.
• Obligations for EU AIFMs to notify EU regulators of their delegation arrangements, and empowering the European Securities and Markets Authority to present EU legislative bodies with reports on delegation practices.
• Strengthening risk management obligations, particularly for loan granting activities of EU AIFMs.
• New requirements on liquidity management, including for loan origination AIFs to adopt closed-ended structures where the notional value of loans exceeds certain thresholds, and specific tools for open-ended AIFs for managing liquidity risk in exceptional circumstances.
• Expanding the scope of pre-investment disclosures to investors, to include (among others) disclosure of the possibility and circumstances for use of the liquidity management tools noted above and of fees and charges connected to the operation of the AIF and borne by the AIFM. Note: Non-EU AIFMs marketing under NPPR are required to comply with the AIFMD’s pre-investment disclosure requirements.
• Expanding the scope of regulatory reporting (known as “Annex IV”) by AIFMs, including non-EU AIFMs marketing under NPPR, to include more asset and market-related data.
• Updating the statutory pre-conditions for marketing AIFs regarding AML/CFT and tax matters, including marketing of AIFs by non-EU AIFMs under NPPR.
• Empowering competent authorities in certain circumstances to require activation or deactivation of relevant liquidity management tools for AIFMs, including non-EU AIFMs marketing AIFs under NPPR.

1 July 20, 2023, press release from the Council of the EU. Available here.