AIFMD II – what you need to know

AIFMD II introduces several significant changes to the existing regulatory regime, the key changes focus on the following:

1. loan origination and liquidity management;
2. substance and delegation;
3. depositaries;
4. disclosure and reporting;
5. national private placement regimes; and
6. third-party AIFMs.

In this analysis, we discuss the main variations on Annex IV reporting that will apply.

Regulatory Reporting

AIFMD II proposes a material increase in the granularity of Annex IV reporting for EU AIFMs and non-EU AIFMs. In addition, a similar regime has been introduced for UCITS Managers for the first time by adding a new Article 20a to the UCITS Directive.

1. AIFMD Article 24 reporting currently covers "principal markets" and "main instruments" traded in and "principal" exposures. Under the Directive, it is now set to become reporting on ‘ALL’ markets and instruments and exposures, including identifiers to connect this data to supervisory/public data sources. The format and content of the new Annex IV reporting regime (and the UCITS equivalent) is to be set out in due course.
2. Reporting requirements for market risk, liquidity risk, counterparty risk, and other risks including operational risk, are being updated for AIFMs other than sub-threshold AIFMs and will apply to UCITS Managers as well.
3. Reporting on the amount of total leverage employed by the funds is set to change with respect to amendments to Article 24(2)(c) of AIFMD.
4. Managers (other than sub-threshold AIFMs) will also be obliged to provide a list of Member States in which the units or shares of each fund are “actually” marketed by the manager or by a distributor acting on its behalf.
5. AIFMD II is also set to introduce reporting requirements regarding delegation/sub-delegation arrangements to NCAs, including on resources allocated to retained and delegated portfolio management and the amount and percentage of assets under delegation. At a granular level, this will include the following:
   • The delegates' and sub-delegates' name, domicile, supervisory authority and regulatory status and whether they have any close links with the manager;
   • The number of full-time equivalent human resources employed by the manager for performing day-to-day portfolio or risk management tasks within the manager;
   • A list and description of the activities concerning risk management and portfolio management functions which are delegated or sub-delegated;
   • The amount and percentage of the fund’s assets which are subject to delegation or sub-delegation arrangements concerning the portfolio management function;
   • The number of full-time equivalent human resources employed by the manager to monitor the delegation arrangements; the number and dates of periodic due diligence reviews carried out by the manager to monitor the delegated activity, a list of issues identified and, where relevant, of the measures adopted to address those issues and the date by which those measures are to be implemented; and
   • The commencement and expiry dates of the delegation and sub-delegation arrangements.

The above amendments are sure to create an additional burden not just on the reporting itself, but the time needed for data gathering relating to the new data items on the return. As mentioned, later in 2024, we will see FCA’s consultation on the AIFMD II changes which will define the ‘new’ Annex IV reporting requirements for UK AIFMs. Stay tuned and contact us if you have any questions.