Industry wary of AIFMD reform
Asked for their wish list on AIFMD reform, a panel representing a broad range of industry opinion were unanimous in their call for as little to be done as possible. “We don't want to see something that is operating very well being changed, with the risk of unintended consequences” said Agathi Pafili, head of Europe government relations with the US asset manager Capital Group. “AIFMD provides all the necessary safeguards for financial stability and investor protection,” she added.
“Yes some simplification of the rules would be good, but is simplification so important that we want to see the text of the AIFMD reopened? No!” added Martin Bresson, public affairs director of Invest Europe, the group with represents the private equity sector.
“It's really been a very successful directive and our investors do, by and large, feel a lot more comfortable as a result of AIFMD,” said Jeff Rupp, director of public affairs with European investor advocacy group INREV. The panel noted that the regulation had become a globally recognised brand that helps build trust and generate business with new investors.
Commission backs AIFMD, but eyes reform
The messages from Ugo Bassi, head of the department for financial stability and capital markets at the European, – who is responsible for the AIFMD review – would have given the panel some comfort but also some concern. Mr Bassi began by saying AIFMD “works really well” and “we do not intend to make a revolution.”
Yet he then went on to list areas that he considers could benefit from “targeted improvements and clarification”. A depository passport would help prevent the development of national markets which could “lead to concentration risk, and a lack of choice for managers,” he said. The COVID crisis had highlighted significant differences across the EU of: “the availability and application of liquidity management tools.” On reporting he sees “potential data gaps” and “overlaps” that could be eliminated. Consideration is also being given to the role of central securities depositories.
Other potential changes
Regarding other potential reforms, Mr Bassi suggested exploring whether loan origination could be extended beyond AIFs. He also expressed disappointment that uptake of the European Long Term Investment Funds had been disappointing. It was designed to give retail investors access to some alternative strategies, as well as being attractive to institutions. Ways are being sought to reduce barriers to entry. Further AML reform is being discussed, and new attempts to integrate money markets being envisaged with a revamp of the Capital Markets Union concept.
CSSF sees greater AIFMD/UCITS alignment
Marco Zwick, director of local regulator CSSF confirmed that the potential for significant AIFMD reform is being discussed at EU level, including greater alignment with UCITS. “The push is to have one framework going forward, especially in terms of governance,” he said. However, an over aggressive move to mix product and manager regulations could be problematic he suggested.
ESG and lesson from the Covid crisis
On ESG, Mr Zwick said the CSSF had no plans to add extra standards to EU rules. However, there would be a review of the 18/698 fund governance circular to see if it could better reflect ESG goals. To help the regulator’s work on this topic he said the CSSF is planning a survey of local players. He also noted that the CSSF would be reforming its internal procedures to streamline their regulatory approach to SFDR, including how they monitor and report so-called light green (article 8) and dark green (article 9) funds.
Commenting on lessons from the Covid crisis, Mr Zwick was pleased how well the sector had managed liquidity, with very few funds having been suspended. “Now, I do not want to be complacent,” he said, recognising the need to put the 2020 experience to good use as regulators review liquidity rules.
On costs, he noted ESMA’s work on this last year. While conclusions have not been drawn so far, he said “I could imagine that one of the ideas would be to say we do want to regulate charges, but we just want that charges are fair and are disclosed.”
On Brexit he found the initial phase “went as smoothly as it could go,” but he recognised that questions about the delegation of portfolio management and around 40 equivalence decisions remain open. “If there is a debate to be had, it's maybe about oversight rather than the concept of delegation per se,” Mr Zwick said. He added the CSSF’s room for manoeuvre was limited regarding UK players access to European markets via Luxembourg.