ESMA is consulting on a package of measures that are to be made under the Alternative Investment Fund Managers Directive (AIFMD). The paper is over 400 pages long and asks over 70 specific questions. The key areas included in the consultation are:

  • Scope, authorisation and operating conditions: this section covers Article 3 exemptions and the opt-in procedure and registrations with competent authorities. The advice looks at the perimeter of what activities will bring managers within the AIFMD and looks in detail at authorisation criteria and operating conditions. It specifically analyses proper valuation policies and procedures and looks at what is the best approach to assessing when delegation is justified. On delegation, it presents the choice of a flexible approach, or an indicative list of permitted reasons for delegation. Generally, it looks at general principles for and many aspects of operation, including own funds and professional indemnity insurance, risk and liquidity management, conflicts of interest and organisational requirements, and possible rules on investment in securitisation positions.
  • Alternative Investment Fund (AIF) depositories: this part of the advice looks at key contractual terms for contracts with depositories and what a depository’s oversight duties should be. It considers in detail depository functions under the articles on cash monitoring and safekeeping duties as well as oversight duties, and looks at due diligence and the segregation obligation.  It deals in detail with depository liability. It considers when an investment in custody might be considered “lost”, what events could reasonably be said to be outside the depository’s control and when the depository could contractually discharge its liabilities (for instance when relevant law and regulation would require it to act in a certain way).
  • Transparency requirements and leverage: this part of the advice looks at what leverage is, how to calculate it and when regulators should impose limits on permitted leverage. ESMA suggests a choice of calculation methods because of the breadth of funds the AIFMD covers and the diversity of assets they invest in. On transparency, the advice covers the form and content of reports to supervisors and the annual report of each AIF.

ESMA asks for comments by 13 September. It has to advise the Commission on Level 2 measures by 16 November. (Source: ESMA Consults on AIFMD Level 2 Press Release and AIFMD Level 2 ESMA Consultation Paper)