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Alternative Market Briefing

EU Considers changes to AIFMD and UCITS Directive

Monday, November 29, 2021

Bailey McCann, Opalesque New York:

The European Commission is taking up a new legislative package that could change the rules for alternative investment funds. The package includes four bills that would amend the AIFMD and UCITS Directive.

The measures are designed to streamline regulatory reporting and improve harmonization between both directives. If the measures pass, EU member states will have 24 months to update and implement the new rules. All of the proposed changes apply to funds regardless of whether they fall under the AIFMD or the UCITS Directive.

Some of the changes will give European regulators more teeth. Part of the harmonization effort is designed to push back against the creation of so-called "letter box entities" or firms that have a mailing address on the continent but not much else. One of the proposed measures would require that funds have at least two senior managers that are employed on a full time basis and reside in the EU. Alongside this rule another gives more power to ESMA, the European financial regulator, to work with local supervisors to understand what they are doing to prevent the creation of letter box entities by requiring thorough delegation member reporting. Delegation arrangements must be reported if risk or portfolio management is given to third-country entities.

The package is also pushing to standardize the liquidity management tools (LMTs) available to fund managers and investors during times of market stress. The EU......................

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