On 26 March 2024, Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 amending Directive 2011/61/EU ("AIFMD") and Directive 2009/65/EC (the "UCITS Directive") as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds was published in the Official Journal of the EU (the “Directive”).  The Directive, which amends AIFMD and the UCITS Directive to differing degrees, entered into force on 15 April 2024.  Member States now have until 16 April 2026 to transpose the Directive into national law.

Delegation:

The agreement states that a UCITS management company will be required to employ at least two persons full-time or engage two persons, who are not employed by the UCITS management company but nevertheless are committed to conduct that management company's business on a full-time basis and who would be resident in the Union, thus ensuring the minimum, stable substance within the management company. Fund managers will need to provide general information on the delegate and subdelegates such as: (i) a list and description of the activities which are delegated, and (ii) a description of periodic due diligence measures carried out to oversee, monitor and control the delegate. ESMA shall develop draft regulatory technical standards (RTS) specifying the “details of the information” and also “set out the appropriate level of standardisation” of the information to be reported.

In addition to this, quantitative information would also need to be reported by the UCITS management company to regulators. Fund managers would need to disclose the amount and percentage of the fund’s assets which are subject to delegation arrangements as well as the number of full-time employees to monitor the delegation arrangements.

Liquidity Management Tools:

The Directive sets out that a UCITS must select at least two appropriate liquidity management tools from the list set out in Annex V of the Directive. ESMA is tasked with developing draft RTS to provide definitions and specify the characteristics of the LMTs set out in Annex V. The full list is as follows: (i) suspension of redemptions and subscriptions, (ii) redemption gates, (iii) extension of notice periods, (iv) redemption fees, (v) swing pricing, (vi) dual pricing, (vii) anti-dilution levy, (viii) redemptions in kind, and (ix) side pockets). ESMA is also tasked with developing RTS on selecting and using suitable LMTs by the UCITS. National regulators are also empowered to require that a UCITS activates or deactivates a relevant LMT in certain circumstances.

Download the full summary for a more complete discussion of the changes to both AIFMD and the UCITS Directive and the impacts for EU AIFMs, non-EU AIFMs, UCITS and UCITS management companies.

ESMA consultation papers on Liquidity Management Tools:

ESMA has issued two consultation papers. The first proposed draft RTS with further detail on the LMTs listed above. The second has guidelines for the use of LMTs. An AIMA summary of the proposals is available for members to download here.  AIMA's joint responses with the BAI are available here (draft guidelines and RTS).

Please contact Jennifer Wood, Danny O'Connell or Nick Smith with any questions regarding these requirements.

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  Jennifer Wood

  Managing Director, Global Head of Asset Management Regulation & Sound Practices

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  Danny O'Connell

  Director, EU and International Regulatory and Tax Policy

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  Nicholas Smith

  Managing Director, Private Credit, Alternative Credit Council