BDO Business Talks

Introducing AIFMD II

Introducing AIFMD II

Interview from 27.06.2024

In the latest Business Talks podcast, BDO’s Jessica Ott, Assurance Partner, and Rafael Aguilera, Partner in Advisory Distribution and Asset Management, discuss the enhanced rules around AIFMD II, how it will impact actors in the EU and beyond, and how the regulation may evolve.

While the new iteration of the AIFMD builds on the first one established in 2011, AIFMD II should enhance transparency, with new reporting requirements, and incorporate more rules to address regulatory gaps related to delegation of functions, governance, and liquidity management, to name but a few.

Market trends, such as “retailisation”, have helped drive the regulation forward. With this sector growth and increased investor appetite for the alternative investment space, Jessica Ott says, “It was necessary for the regulator to improve the directive to have more rules in terms of transparency, product promotion, product marketing, and liquidity rules – to be aligned with the market and protect investors who invest in open-ended funds.”

Rafael Aguilera adds that “retailisation imposes a kind of level playing field between AIFMD and UCITS”, while a passport for custodians will enhance oversight and require new controls, imposing additional challenges on AIFMs, with rules differing from country to country.

“We have to keep the EU competitive”

As Rafael Aguilera notes, discussions on how the directive will apply outside the EU have been happening for over a decade. “Now with AIFMD II, you have this possibility for third countries to offer their funds,” he explains, adding he had “mixed feelings” about this.

While some jurisdictions like the UK or Switzerland don’t have to apply the AIFMD, Rafael Aguilera points out that “there’s no mirroring clause for European funds to be able to be sold directly in the US”, despite the fact that “the US may be able to sell funds in Europe which will not only be equivalent to alternative funds, but which might also be equivalent to UCITS funds under the AIFMD passport, which makes it potentially quite competitive for Europe”.

Jessica Ott notes that many investors and fund managers are attracted by Luxembourg’s AIF space, which is highly visible with the number of cross-border businesses in the country. It means that each new regulation such as AIFMD II is a challenge for those who must analyse the implications of the changes to remain compliant. The challenge also applies to marketplaces in Europe and Luxembourg. Regulations are necessary to keep this space “safe” for investors, but it should not be to the detriment of market competitiveness. Ultimately, “we have to keep the EU competitive in this investment space where there is fierce competition across different jurisdictions in the world.”

Local knowledge with a large network

“If you have a promoter who wants to market non-European funds in the EU or manage European funds while being a non-European AIFM, it’s pivotal, to some extent, to analyse the changes in the directive and the new requirements,” Jessica Ott explains.

While conducting analysis across various jurisdictions can be challenging, BDO Luxembourg’s expertise in Luxembourg is strong when it comes to asset management. BDO also offers a full spectrum of services, from tax structuring to compliance, regulatory, advisory and audit services.

Operating in more than 160 countries in the world, BDO has a large network with a human-centred approach. “We can collaborate with others more easily than bigger organisations,” which Jessica Ott says is “essential when you’re dealing with international, cross-border structures.”

She adds, “Our strength is that we can be responsive to clients. There’s a window of less than two years to be compliant – this will go very quickly.”