ESRB response to the European Commission consultation on the review of AIFMD

Commissioner Mairead McGuinness	ECB-PUBLIC
European Commission
Rue de la Loi / Wetstraat 200	ESRB/2021/0007
1049 Brussels
Belgium

ESRB response to the European Commission consultation on the review

of AIFMD

29 January 2021

Dear Commissioner McGuinness, Dear Mairead,

I am writing to you with reference to the consultation your services are conducting on the review of the Alternative Investment Fund Managers Directive (AIFMD)1. This letter sets out the position of the General Board of the European Systemic Risk Board (ESRB) on the AIFMD.

The AIFMD contributes to the safety of the financial system, including by providing the ESRB and supervisory authorities with important data to help analyse systemic risks. Nevertheless, there are some areas in which the regulatory framework could be improved. Many of the shortcomings were previously outlined in the ESRB's letter of 3 February 20202, and the review of the AIFMD provides an important opportunity to address these.

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Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

Seeletter outlining ESRB considerations regarding the AIFMD, ESRB, 3 February 2020.

Address	Postal address
ESRB	ESRB	Tel.: [phone]
Sonnemannstrasse 20	60640 Frankfurt am Main	E-mail: [e-mail]
60314 Frankfurt am Main	Germany	www.esrb.europa.eu
Germany

ECB-PUBLIC

National competent authorities (NCAs) and authorities with a financial stability mandate need to be able to monitor and manage the extent to which the investment fund sector could contribute to systemic risk. The AIFMD has a financial stability objective and provides authorities with a reporting framework to facilitate risk monitoring as well as macroprudential instruments. Where deemed necessary in order to ensure the stability and integrity of the financial system, NCAs can impose leverage limits or other restrictions to limit the extent to which the use of leverage contributes to the build-up of systemic risk in the financial system or risks of disorderly markets. Moreover, in exceptional circumstances NCAs have the possibility to suspend redemptions in the interest of unit-holders or of the public. On all these points, the AIFMD should be improved so that the mandate of the different authorities can be better fulfilled.

The ESRB identified the operationalisation of the existing macroprudential instruments in the AIFMD as a key priority.3 To this effect, the ESRB made several recommendations to the Commission and the European Securities and Markets Authority (ESMA) in 2017.4 5 The importance of having a harmonised operational framework in the EU has increased in the light of the EU's Capital Markets Union initiative, the growing role of the investment fund sector in financial intermediation and the ongoing coronavirus (COVID-19) pandemic. Such a harmonised framework would benefit from the full implementation of the 2017 ESRB Recommendation, including: (i) the development of a common set of liquidity management tools for investment funds across EU jurisdictions, (ii) further setting out the role of NCAs and ESMA when authorities use their power to suspend redemptions, (iii) measures to limit the extent to which the use of liquidity transformation in open-ended alternative investment funds (AIFs) could contribute to systemic risks, and (iv) enhancements of data reporting requirements under both the AIFMD and the Undertakings for Collective Investment in Transferable Securities Directive (UCITSD)6.

Particularly on UCITS reporting, the ESRB highlighted the need for UCITS and UCITS management companies to regularly report data to competent authorities, especially to better assess liquidity risks and

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SeeMacroprudential policy beyond banking: an ESRB strategy paper, ESRB, July 2016.

SeeRecommendation of the European Systemic Risk Board of 7 December 2017 on liquidity and leverage risks in investment funds (ESRB/2017/6) (OJ C 151, 30.4.2018, p. 1).

ESMA has made substantial progress in addressing the ESRB recommendations. It has published Guidelines on liquidity stress testing in UCITS and AIFsconducted a stress simulation exercise for investment fundsand published a Final Report on Guidelines related to the operationalisation of the leverage limit under Article 25 of Directive 2011/61/EU.

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).

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ECB-PUBLIC

leverage. To allow for effective monitoring of systemic risks, such data would need to be reported on a quarterly basis by a sufficiently relevant proportion of UCITS.

The AIFMD review provides an opportunity to further enhance the reporting framework and operationalise the macroprudential framework for investment funds. In line with the letter sent in February 2020, and reflecting on recent developments in the investment fund sector, this letter provides the ESRB's considerations regarding (i) the suitability of the reporting framework and access to data for monitoring systemic risk, (ii) the need to operationalise existing macroprudential policy instruments, and (iii) the ongoing development of the macroprudential policy framework for investment funds. For each of these three focus areas, Section 1 of the enclosed response provides proposals for amending the AIFMD. For each proposal, the relevant AIFMD (or delegated regulation) articles and the rationale are included. Section 2 provides an overview of which parts of this letter address the various questions in Section IV of the consultation concerning financial stability matters.

We remain available to you and your staff should you wish to discuss any of our proposals.

Yours sincerely,

[SIGNED]

Christine Lagarde

Chair of the European Systemic Risk Board

Encl.

ESRB response to the European Commission consultation on the review of the AIFMD

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ECB-PUBLIC

ESRB response to the European Commission consultation

on the review of the AIFMD

1. AIFMD reporting: Outline and rationale for specific proposals

1.1 Suitability of the reporting framework and access to data for monitoring systemic risk

1.1.1 Availability of fund identifiers

Relevant AIFMD provisions

• Directive 2011/61/EU7 Article 3 - Exemptions
• Directive 2011/61/EU Article 24 - Reporting obligations to competent authorities
• Delegated Regulation (EU) No 231/20138 Annex IV - Reporting Templates

Rationale

The availability of unique entity identifiers would substantially enhance financial stability risk monitoring, while entailing few costs for fund managers. First, it would allow authorities to better understand complex fund group structures and interdependencies between funds. Second, because the availability of entity identifiers would facilitate the mapping of investment fund data (AIFMD) with other data sources, such as transaction data under the European Market Infrastructure Regulation (EMIR)9, the

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Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision (OJ L 83, 22.3.2013, p. 1).

Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).

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