Reforming AIFMD

By: Alastair Hewitt and Justin Meagher

The European Commission will begin to review AIFMD in July, 2017. Managers want some policies eliminated, especially remuneration limits for material risk takers at alternative fund managers (AIFMs). Since this is a politically sensitive subject, it is unlikely to change.

Depositary will also likely remain unchanged; regulators, investors, and managers feel it adds value, even if it does contribute to overall outgoings at firms. Any hope of a pan-EU depositary (an entity that can provide depositary services in any EU jurisdiction even if it is not the domicile of the fund) will likely be abandoned.

There are, however, a few potential areas of change:

  1. Annex IV regulatory reporting: This may be amended to make it more relevant to specific asset classes. Risk determinants that affect the portfolio of a weekly liquidity retail AIFM or hedge fund are in no way comparable to those impacting private equity or alternative credit strategies. Therefore, Annex IV may be altered to account for the diversity of fund managers that are subject to AIFMD.
  2. Leverage and liquidity risk management: The Financial Stability Board [FSB] has been analyzing liquidity risk management at open-ended firms, and has expressed concern about liquidity mismatches, particularly among daily dealing mutual funds. To avoid panic selling (which could further destabilize the financial system) and to deter mass exits by investors in volatile markets, the FSB would like these managers to deploy redemption fees and swing pricing.
  3. Distribution rules for AIFMs: Many EU policymakers recognize there are glaring inconsistencies in how member states apply these provisions, with some guilty of gold-plating. Harmonizing AIFM (and UCITS) distribution requirements was going to be pursued under the Capital Markets Union (CMU), although this initiative has been interrupted by Brexit.

The Regulatory Solutions group at SS&C GlobeOp has more than 90 regulatory analysts that service more than 600 clients across all regulations. We work closely with regulators to monitor potential policy changes so we can move quickly when amendments are put in place. This gives our clients peace of mind and time to focus on generating returns for their investors. To learn how we can help you navigate the AIFMD reforms, contact solution@sscinc.com.

To discover how Brexit affects the implementation of AIFMD policies, read “AIFMD II: What should we expect? – Part 2”.