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Magazine Issues » September 2021

Luxembourg talking heads: Regulatory responsibilities

LuxembourgAhead of ALFI’s Global Distribution Conference in September, we ask industry experts about the importance of harmonisation, future challenges, and whether AIFs sold in multiple countries should be the responsibility of one regulator.

LAURENT VAN BURIK, HEAD OF INTERNATIONAL, REGULATION AND ENFORCEMENT, CSSF

Passporting
The AIFMD [Alternative Investment Fund Managers Directive] regime is, as it is the case also historically with the Ucits framework, built on the basis of the passporting concept. In an AIFM context, such passports (management and marketing) are attached to the AIFM. Under this framework, the national competent authority (NCA) of the jurisdiction in which a given AIFM is established, has the responsibility regarding the initial authorisation and ongoing supervision of a given AIFM, focusing beside others on the internal organisation of the AIFM, which then in turn benefits from a marketing passport for all AIFs it manages.

The existence of this passporting regime has been a key driver of the success of the European fund industry since the mid-1980s in relation to Ucits and after 2011 in an AIF/AIFM context. Given the well-functioning of this passporting regime, the splitting of the responsibility regarding AIFs sold in multiple jurisdictions between several regulators would not be a step in the right direction and any initiatives to weaken the functioning of the passport regime would ultimately weaken the basis of the European AIF(M) and also Ucits framework. It should be noted that recent European legislation, such as the EU regulation on facilitating cross-border distribution of collective investment undertakings of June 2019, has confirmed such centralised responsibility by extending it to marketing communications.

The current regime is supported by an adequate existing supervisory convergence toolkit comprising a variety of tools such as the Esma [European Securities and Markets Authority] multilateral memorandum of understanding dated May 29, 2014, and the related guidelines, Esma guidelines and supervisory briefings as well as peer reviews and common supervisory actions.

Priority areas for harmonisation
Priority areas for the harmonisation of the Ucits and AIFMD framework should notably encompass the following aspects:

  • Supervisory reporting requirements for Ucits and AIFs: Implementing an improved Ucits reporting based on a harmonised EU framework, which would allow to collect and aggregate consistent and uniform data for micro- but also macroprudential purposes while allowing to benefit from scaling effects across all Ucits domiciles. Such harmonisation would allow to build a consistent picture of the risks in the asset management industry.
  • Risk and liquidity management: We welcome further harmonisation of available liquidity management tools (LMTs) across regulations and across European jurisdictions, as also highlighted in the ESRB [European Systemic Risk Board] recommendations. While a large set of LMTs is already locally available, further harmonisation would be beneficial. Existing international work, e.g. IOSCO [International Organization of Securities Commissions] liquidity recommendations/ good practices, should serve as a solid basis and the revised regime should apply equally, to the extent possible, to AIFMs and Ucits, with certain provisions to be tailored more closely to specific asset classes and set-ups. Further European guidance on the use and application of these LMTs would also be helpful.
  • Harmonise leverage definition and leverage calculation methods for Ucits and AIFs: The AIFMD review provides a unique opportunity to define consistent metrics for assessing leverage. As long as the sources of leverage can be identified (financial, derivatives-based and enterprise performance management-based), the metrics should be the same to ensure a consistent monitoring of leverage for micro- and macroprudential purposes. Ideally, an alignment of the currently diverging AIFM and Ucits leverage calculation methods should be put in place.
  • Other aspects would be the harmonisation of delegation and remuneration rules as well as permitted activities and the tied agent regime.