What changed between the draft committee report and the plenary report

Added:6. ▌

Removed:Recital 46: (46) To support market monitoring by the supervisory authorities, the information gathering and sharing through supervisory reporting should be improved by subjecting UCITS to supervisory reporting obligations, in particular as regards the delegation of functions. The ESAs and the ECB should be requested, with the support of national competent authorities where necessary, to assess the data needs of the different supervisory authorities considering the existing reporting requirements under other Union and national legislation, in particular Regulation (EU) No 600/2014, Regulation (EU) No 2019/834, Regulation (EU) No 1011/2012 and Regulation (EU) No 1073/2013. The outcome of this preparatory work would permit an informed policy decision as to what extent and in which form UCITS should be reporting to the competent authorities on their trades.

Added:7. ▌

Removed:Recital 50: (50) To support supervisory convergence in the area of delegation ESMA should conduct a peer review on the supervisory practices particularly focusing on preventing creation of letter-box entities. ESMA’s analysis of the peer review would feed into the review of the measures adopted in this Directive and inform the European Parliament, the Council and the Commission what additional measures may be needed to support effectiveness of the delegation regime laid down in Directive 2009/65/EC.

Added:(7a) The marketing of AIFs is not always conducted by the AIFM directly but by one or several distributors either on behalf of the AIFM or on their own behalf. There could also be cases where an independent financial advisor markets a fund without the AIFM’s knowledge. Most fund distributors are subject to regulatory requirements pursuant to Directives 2014/65/EU or 2016/97/EU, which define the scope and extent of their responsibilities towards their own clients. Directive 2011/61/EU should therefore acknowledge the diversity of distribution arrangements and distinguish between arrangements whereby a distributor operates on behalf of the AIFM, which should be considered to be a delegation arrangement, and arrangements whereby a distributor acts on its own behalf, in which case the provisions of that Directive regarding delegation should not apply.

Removed:Recital 52 a (new): (52a) In carrying out its functions under Directives 2009/65/EC and 2011/61/EU, ESMA should follow a risk-based approach.

Added:(8) To enhance the uniform application of Directive 2011/61/EU it should be clarified that the delegation rules laid down in Article 20 apply to all functions listed in Annex I to that Directive and to the ancillary services referred to in Article 6(4) of that Directive.

Removed:Directive 2011/61/EU

Added:(9) Investment funds providing loans can be a source of alternative financing for the real economy. Indeed, such funds can provide critical funding for Union small and medium-sized enterprises for which traditional lending sources are more difficult to access. Moreover, it should be recognised that the existence of sources of private credit promotes investor confidence in the Union market. However, diverging national regulatory approaches hinder the establishment of an efficient internal market for loan-originating AIFs by promoting regulatory arbitrage and varying levels of investor protection. Common rules should also be laid down to establish an efficient internal market for loan-originating AIFs, to ensure a uniform level of investor protection in the Union, to make it possible for AIFs to develop their activities by originating loans in all Member States of the Union and to facilitate the access to finance by EU companies, a key objective of the Capital Markets Union (‘CMU’). However, given the fast-growing private credit market, it is necessary to address the potential micro risks and macro prudential risks that loan originating AIFs could pose and spread to the broader financial system. The rules applicable to AIFMs managing loan-originating funds should be harmonised in order to improve risk management across the financial market and increase transparency for investors.

Removed:Article 1 – paragraph 1 – point -1 (new), Article 4 – paragraph 1 – point ag: (-1) in Article 4(1), point (ag) is replaced by the following: / ‘(ag) ‘professional investor’ means an investor: / - which is considered to be a professional client or may, on request, be treated as a professional client within the meaning of Annex II to Directive 2014/65/EC; or / - which has committed to investing a minimum of EUR 100 000 and has stated in writing, in a separate document from the contract to be concluded for the commitment to invest, that they are aware of the risks associated with the envisaged commitment or investment; or / - which is a member of senior staff, portfolio manager, director, officer, agent or employee of the manager or of an affiliate of the manager and has sufficient knowledge about the AIF concerned.’

Added:(10) To support the professional management of AIFs and to mitigate risks to the financial stability, AIFMs that manage AIFs that engage in lending activities, including purchasing loans on the secondary market, should have effective policies, procedures and processes for the granting of loans, assessing credit risk and administering and monitoring its credit portfolio, which should be reviewed periodically.

Removed:Directive 2011/61/EU

Added:(11) To contain the risk of interconnectedness among loan-originating AIFs and other financial market participants, AIFMs of those AIFs should, where a borrower is a financial institution, be required to diversify their risk and subject their exposure to specific limits.

Removed:Article 1 – paragraph 1 – point 1 – introductory part, Article 4 – points ap a (new) and ap b (new): (1) in Article 4(1), the following points are added:

Added:(12) In order to limit conflicts of interest, AIFMs and their staff should not receive loans from loan-originating AIFs that they manage. Similarly, the AIF’s depositary and its staff or the AIFM’s delegate and its staff and entities within the same group as the AIFM should be prohibited from receiving loans from the associated AIFs.

Removed:Directive 2011/61/EU

Added:(13) Directive 2011/61/EU should recognise the right of AIFs to originate loans and trade those loans on the secondary market. To avert moral hazard and maintain the general credit quality of loans originated by AIF’s, such loans should be subject to risk retention requirements. AIFs should not follow an originate-to-distribute investment strategy, namely an investment strategy under which loans are originated with the sole purpose of selling them.

Removed:Article 1 – paragraph 1 – point 1, Article 4 – point ap a (new): (apa) ‘loan origination’ means the granting of loans by an AIF as the original lender;

Added:(14) Long-term, illiquid loans held by AIF might create liquidity mismatches if the AIFs open-ended structure allows investors to redeem their fund units or shares on a frequent basis. Therefore, where an AIFM is not able to demonstrate to the competent authorities of its home Member State that the AIF has a sound liquidity risk management system, it is necessary to mitigate risks related to maturity transformation by imposing a closed-ended structure for AIFs originating loans because close-ended funds would not be vulnerable to redemption demands and could hold originated loans to maturity. In order to ensure consistent criteria for the determination by competent authorities of whether a loan-originating AIF can maintain an open-ended structure, power should be delegated to the Commission to adopt regulatory technical standards by means of delegated acts pursuant to Article 290 of the Treaty on the Functioning of the European Union (TFEU) in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council1a to establish those criteria. Those regulatory technical standards should be adopted on the basis of a draft developed by the European Securities and Markets Authority (ESMA).

Removed:Directive 2011/11/EU

Added:(15) It should be clarified that where an AIFM is subject to the requirements laid down in Directive 2011/61/EU in relation to its managed AIF’s lending activities and to the requirements laid down in Regulations (EU) 345/2013, (EU) 346/2013 and (EU) 2015/760 of the European Parliament and of the Council, the specific product rules laid down in Article 3 of Regulations (EU) 345/2013 and Article 3 of Regulation (EU) 346/2013, Chapter II of Regulation (EU) 2015/760, should override more general rules set out in Directive 2011/61/EU.

Removed:Article 1 – paragraph 1 – point 1, Article 4 – paragraph 1 – point ap b (new): (apb) ‘shareholder loan’ means a loan granted by an AIF to an undertaking in which it holds directly or indirectly at least 5 % of the capital or voting rights, where the loan cannot be sold to third-parties independently of the capital instruments held by the AIF in the same undertaking.

Added:(16) To support market monitoring by the supervisory authorities the information gathering and sharing through supervisory reporting could be improved. Duplicative reporting requirements that exist under Union and national legislation, in particular Regulation (EU) No 600/2014 of the European Parliament and of the Council, Regulation (EU) 2019/834 of the European Parliament and of the Council, Regulation (EU) No 1011/2012 of the European Central Bank and Regulation (EU) No 1073/2013 of the European Central Bank, could be eliminated to improve efficiency and reduce administrative burdens for AIFMs. The European supervisory authorities (‘ESAs’) and the European Central Bank (ECB), with the support of national competent authorities, where necessary, should assess the data needs of the different supervisory authorities so that the changes to the supervisory reporting template for AIFMs are effective. The reporting requirements on the obligation to report information on the assets and liabilities of investment funds to the national central bank should be aligned.

Removed:Directive 2011/61/EU

Added:(17) In preparation for the future changes to the supervisory reporting obligations the scope of the data that can be required from AIFMs should be widened by removing the limitations, which focus on major trades and exposures or counterparties, and by adding other categories of data to be supplied to competent authorities. If ESMA determines that a full portfolio disclosure to supervisors on a periodic basis is warranted, the provisions of Directive 2011/61/EU should accommodate the necessary broadening of the reporting scope.

Removed:Article 1 – paragraph 1 – point 2 – point a – introductory part, Article 6 – paragraph 4 – points c, d and da (new): (a) in paragraph 4, the following points (c), (d) and (da) are added:

Added:(18) In order to ensure consistent harmonisation of the supervisory reporting obligations, power should be delegated to the Commission to adopt regulatory technical standards by means of delegated acts pursuant to Article 290 of the Treaty on the Functioning of the European Union (TFEU) in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council to set out the contents, forms and procedures to standardise the supervisory reporting process by AIFMs. The regulatory technical standards should set out the contents, forms and procedures to standardise the supervisory reporting process, thus replacing the reporting template laid down in the Commission Delegated Regulation (EU) 231/2013. Those regulatory and implementing technical standards should be adopted on the basis of a draft developed by ESMA.

Removed:Directive 2011/61/EU

Added:(19) To standardise the supervisory reporting process the Commission should also be empowered to adopt implementing technical standards developed by ESMA as regards the forms and data standards, reporting frequency and timing to reporting by AIFMs. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010.

Removed:Article 1 – paragraph 1 – point 2 – point a, Article 6 – paragraph 4 – point d a (new): (da) any other ancillary service which is not a service listed in Section A of Annex I to Directive 2014/65/EU, which represents a continuation of the services already undertaken by the AIFM or a use of internal competences and which does not create conflicts of interest that could not be managed by additional rules;

Added:(20) In order to ensure a more effective response to liquidity pressures in times of market stress and to protect investors better, rules should be laid down in Directive 2011/61/EU to implement the recommendations of the European Systemic Risk Board (ESRB).

Removed:Directive 2011/61/EU

Added:(21) To enable managers of open-ended AIFs based in any Member State to deal with redemption pressures under stressed market conditions, they should be required to choose at least two LMTs from the harmonised list set out in the Annex, with the exception of money market funds in accordance with Regulation (EU) 2017/1131 which can select only one liquidity management tool in addition to the possibility to suspend redemptions. When an AIFM takes a decision to activate or deactivate certain LMTs in situations of liquidity stress or in other defined circumstances, it should notify the supervisory authorities. This would allow supervisory authorities to better handle potential spill-overs of liquidity tensions into the wider market.

Removed:Article 1 – paragraph 1 – point 3 – point a, Article 7 – paragraph 2 – point a – subpoint i: (i) a description of their role, title and level of seniority;

Added:(22) To be able to make an investment decision in line with their risk appetite and liquidity needs, investors should be informed of the conditions for the use of LMTs.

Removed:Directive 2011/61/EU

Added:(23) In order to ensure consistent harmonisation in the area of liquidity risk management by the managers of open-ended funds, power should be delegated to the Commission to adopt regulatory technical standards by means of delegated acts pursuant to Article 290 of the Treaty on the Functioning of the European Union (TFEU) in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council to specify the rules on disclosure to competent authorities and investors of information related to the selection and calibration of▌ LMTs to facilitate market and supervisory convergence. Those regulatory technical standards should be adopted on the basis of a draft developed by ESMA. Those standards should recognise that the primary responsibility for liquidity risk management remains with the AIFM.

Removed:Article 1 – paragraph 1 – point 3 – point a, Article 7 – paragraph 2 – point e: (e) information on arrangements made for the delegation and sub-delegation to third parties of functions as referred to in Article 20 comprising: / (i) the legal name and legal entity identifier (LEI) of the AIFM; / (ii) the legal name and LEI of the AIF and its investment strategy; / (iii) the legal name and LEI of each delegate, its jurisdiction of establishment and, where relevant, its supervisory authority; / (iv) a brief description of the delegated risk management functions, including whether each such delegation amounts to a partial or full delegation; / (v) a brief description of the delegated portfolio management functions, by investment strategy and relevant geographies, including whether each such delegation amounts to a partial or full delegation; / (vi) a brief description of other functions listed in Annex I which the AIFM additionally performs; / (vii) a description of the human and technical resources to be used by the AIFM for monitoring and controlling the delegate.

Added:(24) To ensure investor protection where there are financial stability risks, in exceptional circumstances and after consulting the manager concerned, the competent authorities should be able to request that a manager of an open-ended fund activate or deactivate the appropriate LMT.

Removed:Directive 2011/61/EU

Added:(25) Depositaries play an important role for safeguarding the interests of investors and should be able to perform their duties regardless of the type of the custodian that safe keeps the funds’ assets. Therefore, it is necessary to include central securities depositories (CSDs) in the custody chain when they provide custody services to AIFs in order to ensure that, in all cases, there is a stable information flow between the custodian of an AIF’s asset and the depositary. To avoid superfluous efforts, the depositaries should not perform ex-ante due diligence where they intend to delegate custody to CSDs.

Removed:Article 1 – paragraph 1 – point 3 – point b, Article 7 – paragraph 5: deleted / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted) / (deleted)

Added:(26) In order to improve supervisory cooperation and effectiveness, the host competent authorities should be able to address a reasoned request to the competent authority of an AIFM to take supervisory action against a particular AIFM.

Removed:Directive 2011/61/EU

Added:(27) Furthermore, to improve supervisory cooperation, ESMA should be able to request that a competent authority presents a case before ESMA, where that case has cross-border implications and may affect investor protection or financial stability. ESMA analyses of such cases will give other competent authorities a better understanding of the discussed issues and will contribute to preventing similar instances in the future and protect the integrity of the AIF market.

Removed:Article 1 – paragraph 1 – point 3 – point c – introductory part, Article 7 – paragraph 8 and 9: (c) the following paragraph 9 is added:

Added:(28) To support supervisory convergence in the area of delegation ESMA should conduct peer review on the supervisory practices with a particular focus on preventing the creation of letter-box entities. ESMA’s analysis of the peer reviews will feed into the review of the measures adopted in this Directive and inform the European Parliament, the Council and the Commission of any additional measures that may be needed to support the effectiveness of the delegation regimes laid down in Directive 2011/61/EU.

Removed:Directive 2011/61/EU

Added:(28a) AIFs can make an important contribution to the development of the CMU. The growth of the market for AIFs also needs to be consistent with other Union objectives and that market should therefore be encouraged to be smart, sustainable and inclusive. AIFMs are required to comply with Regulation (EU) 2019/2088 and should also ensure that their remuneration policies are consistent with long-term risks, including environmental, social and governance risks (ESG risks) and sustainability goals. This is even more important where AIFMs make claims as to the sustainable investment policies of the AIFs that they manage. ESMA should update its guidelines on sound remuneration policies under Directive 2011/61/EU as regards aligning incentives with ESG risks in remuneration policies.

Removed:Article 1 – paragraph 1 – point 3 – point c, Article 7 – paragraph 8: deleted / (deleted)

Added:(28b) The marketing of UCITS is not always conducted by the management company directly but by one or several distributors either on behalf of the management company or on their own behalf. There could also be cases where an independent financial advisor markets a fund without the management company’s knowledge. Most fund distributors are subject to regulatory requirements pursuant to Directive 2014/65/EU or 2016/97/EU, which define the scope and extent of their responsibilities towards their own clients. Directive 2009/65/EC should therefore acknowledge the diversity of distribution arrangements and distinguish between arrangements whereby a distributor operates on behalf of the management company, which should be considered to be a delegation arrangement, and arrangements whereby a distributor acts on its own behalf, in which case the provisions of that Directive regarding delegation should not apply.

Removed:Directive 2011/61/EU

Added:(29) Some concentrated markets lack a competitive supply of depositary services. To address this shortage of service providers that can lead to increased costs for AIFMs and a less efficient AIF market, Member States should be able to authorise, on a case-by-case basis, AIFMs or AIFs to procure depositary services located in other Member States while the Commission assesses, in the context of its review of Directive 2011/61/EU, whether it would be appropriate to propose measures to achieve a more integrated market. As part of that review, the Commission should carry out a comprehensive study on the potential benefits and risks of introducing a Union depositary passport, in particular in terms of reducing costs, allowing the choice of more competitive depositary services from other Member States and extending the choices available to managers.

Removed:Article 1 – paragraph 1 – point 3 – point c, Article 7 – paragraph 9: 9. By … [12 months before the date of the review referred to in Article 69b] ESMA shall provide the European Parliament, the Council and the Commission with a report analysing market practices regarding delegation to entities located in third countries and compliance with Articles 7 and 20.;

Added:(30) Opening up the possibility to appoint a depositary in another Member State should be accessible on a case-by-case basis accompanied by increased supervisory reach. Therefore, the depositary should be required to cooperate not only with its competent authorities but also with the competent authorities of the AIF that has appointed it and to the competent authorities of the AIFM that manages the AIF, if those competent authorities are located in a different Member State than that of the depositary.

Removed:Directive 2011/61/EU

Added:(31) In order to better protect investors, the information flow from AIFMs to AIF investors should be increased. To allow an AIFs investors to better track the investment fund’s expenses, AIFMs should identify fees that will be borne by the AIFM or its affiliates as well as periodically report on all fees and charges that are directly or indirectly allocated to the AIF or to any of its investments. AIFMs should also be required to report to investors on the portfolio composition of originated loans.

Removed:Article 1 – paragraph 1 – point 5 – point a, Article 15 – paragraph 3 – point d: (d) for loan originating activities, other than in respect of shareholder loans where such loans do not exceed in aggregate 150% of the net asset value of the AIF, implement effective policies, procedures and processes for the granting of credit, for assessing the credit risk and for administering and monitoring their credit portfolio, keep those policies, procedures and processes up to date and effective and review them regularly and at least once a year.;

Added:(32) To increase market transparency and effectively employ available AIF market data, ESMA should be permitted to disclose the market data at its disposal in an aggregate or summary form and therefore the confidentiality standard should be relaxed to permit such data use.

Removed:Directive 2011/61/EU