ESMA has published two new Q&As under the alternative investment fund managers directive (“AIFMD”). These updates address safekeeping of client money and delegation of portfolio or risk management to non-supervised undertakings outside the EU, providing clearer regulatory guidance for AIFMs.
AIFMs cannot safekeep client money
ESMA clarified that AIFMs are not permitted to hold client money. According to Article 6(4)(b)(ii) of Directive 2011/61/EU, AIFMs may only safekeep shares or units of collective investment undertakings. Safekeeping of client money is explicitly excluded.
Impact of new amendments
The revised AIFMD (Directive (EU) 2024/927) does not change this prohibition. AIFMs must maintain their focus on investment management activities, ensuring that their responsibilities do not overlap with those of depositaries or custodians.
Key considerations for AIFMs
- Scope limitations: safekeeping services under AIFMD are limited to shares or units of collective investment undertakings.
- Investor protection: prohibiting client money safekeeping avoids potential conflicts of interest and ensures fund integrity.
- Legislative consistency: this clarification aligns with the broader goals of AIFMD, reinforcing the separation of management and safekeeping roles.
Delegation of functions to non-supervised entities
Delegating portfolio or risk management functions to undertakings established outside the EU is subject to strict regulatory conditions. ESMA highlighted the following:
- cooperation agreements: such delegation requires effective cooperation between the national competent authorities of the AIFM's home Member State and the supervisory authority of the third-country entity;
- regulatory framework: Article 20(1)(d) of Directive 2011/61/EU and Article 78(3) of Commission Delegated Regulation (EU) No 231/2013 outline the conditions for ensuring cooperation.
ESMA clarified that delegation to non-supervised entities outside the EU is not permitted. This prevents regulatory gaps and enhances investor confidence.
Key points for AIFMs
- Compliance with AIFMD: delegation must not undermine the AIFM’s accountability or oversight responsibilities.
- Regulatory oversight: proper supervision is critical for ensuring delegated functions are performed in line with EU standards.
- Investor protection: these measures ensure consistent governance and reduce risks associated with third-country delegation.
No new obligations
These updates do not impose additional requirements on AIFMs. Instead, they clarify the scope and application of current rules, providing guidance for both AIFMs and competent authorities.
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