EUROPE: AMIC Views on ESMA’s Letter Regarding the AIFMD Review

Tuesday October 13 2020

The International Capital Market Association(ICMA) AMIC has published its views on ESMA’s letter regarding the AIFMD review.

ICMA stated that re-writing AIFMD and UCITS as suggested by ESMA is not only unnecessary, it would also be a major distraction for policy makers, supervisors and asset managers at a time when collective energy should be devoted to the post-COVID 19 recovery, the Sustainable Finance action plan and the Capital Markets Union

Main Concerns on ESMA’s letter:

Harmonisation of UCITS and AIFMD: UCITS and AIFs were intentionally created as distinct labels/vehicles. It is therefore not surprising to find different requirements and the harmonisation of both regulatory frameworks should not be an objective per se It is important to avoid a harmonisation exercise which would fail to recognize the diversity of underlying asset classes and asset management structures and undermine both labels and the Capital Markets Union.

Delegation: ICMA believes that the risks of loopholes, regulatory arbitrage and lack of substance are already being tackled by existing regulation and supervisory action by NCAs and ESMA. Curbing delegation beyond what is currently authorised would not be in the interest of EU investors, since it would leave them with narrower diversification and investment options. It would also put asset managers with a European footprint at disadvantage vis-à-vis overseas competitors, because of increased costs and the inability to leverage internal and external expertise.

Leverage: AIFMD already provides the necessary reporting on leverage to comply with IOSCO recommendations (GNE and commitment approaches) and there is therefore no need to amend this directive for that purpose as suggested by ESMA. That being said, AMIC members would be able to report the GNE broken down by positions as recommended by ESMA. ICMA also stated they were sympathetic to the suggestion to adjust the notional amount of interest rate derivatives as proposed by ESMA. These two elements could be achieved via level 2 and 3 measures.

AIFMD reporting: ICMA also believes that AIFMD already sets out extensive reporting requirements (around 300 fields) including data on the characteristics of each AIF (type, strategy, concentration of investors) along with detailed information on assets (principal exposures, exposures by asset type and regional investment focus), as well as several risk features (market risk, liquidity profile, use of leverage and stress test results). We believe these comprehensive reporting requirements, which come on top of leverage, liquidity stress testing, SFTR, EMIR and MiFID reporting, are sufficient to perform an adequate supervision of AIFs and monitor potential systemic risks. One simpler way to upgrade the current reporting framework would be for instance to ask central banks to share in real time information they receive directly from fund managers with securities regulators instead of requiring AIFs to report it twice and potentially in different formats (see Regulation ECB/2013/38 of 18 October 2013 concerning statistics on the assets and liabilities of investment funds, which leads to the provision of fund inventories to ECB and national central banks).

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