ESMA’s letter

Insights - What we think

By Conor Meehan, Managing Director, Fund Solutions (Ireland)

Proposed amendments to the Alternative Investment Fund Managers Directive

We offer services as Alternative Investment Fund Manager across the UK, Ireland and Luxembourg. Our role is to support investment managers against the challenges involved in managing alternative investment funds, such as increasing global uncertainty and complexity.

We help our range of clients meet the requirements of the AIFMD through a robust governance framework that includes focusing  on liquidity, investment risk and regulatory compliance.

ESMA’s letter

In August, the European Securities and Markets Authority (ESMA) issued a letter to the European Commission, highlighting areas to consider during an upcoming review of the AIFMD.

The Commission is expected to publish a consultation, including a legislative proposal amending the Directive in Q2 2021. ESMA also proposes aligning UCITS legislation with those of AIFMD.

Key points of the letter

The delegation model for third-party AIFMs

ESMA has highlighted matters relating to delegation to third countries:

  • Such delegation may increase operational and supervisory risks. [This raises questions whether those AIFs and UCITS can still be effectively managed by the EU licensed AIFMs]
  • Extensive delegation arrangements could result in the need for third parties outside the EU to [the] maintain people/IT systems needed for day-to-day operations
  • There is concern that the majority of AIFM staff may not be directly employed by the authorised AIFM
  • ESMA has called for legal clarification on the “core” and “critical” functions that cannot be delegated outside of the EU.
  • ESMA has called for further legislative clarity regarding delegation, substance requirements and secondment arrangements

Scope of additional MiFID services and application of rules

ESMA notes that views differ across Europe on whether investment management functions performed on a delegation basis constitute discretionary portfolio management, and whether MiFID or AIFMD/UCITS rules should be applied. ESMA has also sought legal clarification from the European Commission on this matter.


ESMA notes that recommendations by the International Organization of Securities Commissions (IOSCO) trigger a need to amend the current reporting of the gross method calculation exposures of an AIF.

ESMA suggests amending the commitment amount calculation to allow comparability among contracts with different underlying duration, which makes aggregation and comparison possible for systemic risk monitoring purposes.


ESMA notes that a common legal framework governing the liquidity management tools is necessary for UCITS and AIFs. They suggest that the AIFMD should include all liquidity management tools outlined in ESRB recommendation A – and this should similarly be the case for the UCITS Directive, noting that some tools will not be suitable for all types of funds.

Those measures include:

  • Inserting additional liquidity management tools in the constitutional documents of a fund as necessary
  • Conferring powers on national competent authorities (NCAs) to suspend redemptions in situations with cross-border financial stability implications;
  • Giving ESMA the co-ordinator/facilitator role regarding NCAs powers to suspend redemptions.

Semi-professional investors

ESMA has called for a review of various definitions for clarity, but in particular regarding a "professional investor". This may result in the introduction of a new category of "semi-professional investor".

Reverse Solicitation

ESMA requests greater clarity on the definition of reverse solicitation.

Amendments to Annex IV Reporting

Amongst others, ESMA proposes to address reporting issues where improvements could be made, such as:

  • Detailed information on the composition of assets and liabilities of the fund
  • ESMA will produce a Regulatory Technical Standards (RTS), mainly to enhance consistency of the reported information with other reporting regimes such as MiFID / MiFIR, EMIR, SFTR and Securitisation Regulation
  • Reporting in percentages has led to data quality issues – ESMA proposes the use of monetary values instead
  • Requirement to report Environmental, Social and Governance (ESG) metrics
  • ESMA also notes that an Annex IV type reporting requirement, similar to that currently in place for AIFs, should be introduced for UCITS.

We will continue to engage with relevant industry bodies to obtain further clarity on these matters and will keep you advised of any relevant future developments in these areas.

Contact us or visit our website to see how we can help you face complexity and change in alternative investment funds.

Conor Meehan

Managing Director, Fund Solutions (Ireland)

Tel: +353 1 224 0527

Email: Conor Meehan