Time to assess the potential impact on your EU distribution strategies and EU operations 10 min read
On 26 March 2024, the final text of the amendments to the EU Alternative Investment Fund Managers Directive (AIFMD), known colloquially as 'AIFMD 2.0', was published in the Official Journal of the European Union, and AIFMD 2.0 entered into force on 15 April 2024.
EU member states have two years after publication to transpose the rules into national law. AIFMD 2.0 will therefore apply in each member state from 16 April 2026 at the latest, although some rules will be subject to a transitional period.
In this Insight, we provide a round-up of these latest developments and explain the key issues of concern for Australian fund managers who are marketing their products to EU investors.
Key takeaways
- AIFMD 2.0 is not a replacement for AIFMD. Instead, it incorporates amendments to specific provisions of AIFMD, with a particular focus on: (i) harmonising rules for alternative investment fund managers (AIFMs) managing alternative investment funds (AIFs) that originate loans; (ii) clarifying standards applicable to AIFMs who delegate functions to third parties; (iii) heightening liquidity management rules; and (iv) increasing certain investor and regulatory reporting in order to optimise supervisory data collection.
- EU member states have until 16 April 2026 to transpose AIFMD 2.0 into national law, subject to certain exceptions as detailed below. As with AIFMD, since each EU member state needs to pass its own national implementing legislation, this could result in the 'gold-plating' of AIFMD 2.0 in certain jurisdictions, which may lead to divergences and varying interpretations of AIFMD 2.0 by national supervising authorities.
- For Australian fund managers seeking European capital, either under national private placement regimes (NPPRs) or through third party 'host-AIFMs' or affiliated EU AIFMs, AIFMD 2.0 imposes additional investor disclosure and regulatory reporting requirements on fund managers. Access to NPPRs will also be further restricted.
- For Australian fund managers seeking European capital via third party 'host-AIFMs' or affiliated EU AIFMs, new rules on loan origination funds, shareholder loans, liquidity management and delegation will apply to such 'host-AIFMs' or affiliated EU AIFMs.
- While much of AIFMD 2.0 may not have a direct, significant impact on Australian fund managers, it is worth undertaking an assessment of the impact of AIFMD 2.0 on fund distribution strategies (and other operations) in the EU.
What is AIFMD 2.0 and how will it be implemented?
The publication of AIFMD 2.0 in the Official Journal of the European Union concludes the AIFMD review process that formally began in 2020, which has been subject to extensive negotiations and debate between European regulatory authorities, EU member states and the wider funds management industry.
The AIFMD 2.0 legislation comprises a series of amendments to the original AIFMD text. This amending Directive is known as 'Level 1' framework legislation. It empowers the European Securities and Markets Authority (ESMA) and the European Commission to develop directly applicable 'Level 2' measures, through which the framework legislation is implemented (eg by way of regulatory technical standards and implementing technical standards—in Australian parlance, regulations that supplement statute), and 'Level 3' measures, which provide for non-binding guidelines and recommendations (broadly equivalent in status to regulatory guides in Australia).
European directives such as AIFMD 2.0 are not directly effective in each EU member state, which means each jurisdiction must pass its own national implementing legislation. There is therefore a potential for divergence as AIFMD 2.0 is implemented into national law, as some jurisdictions may choose to 'gold-plate' certain provisions (ie extending the powers of an EU directive when it's transposed into the national laws of a member state). We note in particular that AIFMD 2.0's new loan origination rules (discussed below) specifically allow for EU member states to impose their own stricter rules with respect to consumer lending.
EU member states have until 16 April 2026 to adopt and publish the laws, regulations and administrative provisions necessary to comply with AIFMD 2.0. ESMA is expected to begin consulting on Level 2 measures during the course of 2024.
How will AIFMD 2.0 impact Australian fund managers seeking European capital via national private placement regimes?
Many Australian fund managers access European capital from professional investors, either via passive marketing (reverse solicitation) exemptions in the applicable European jurisdictions (which are narrow in scope and, therefore, limited in their utility) or by complying with jurisdiction-specific NPPRs.
Currently, Article 42 of AIFMD, which sets out conditions for non-EU AIFMs that wish to market AIFs in the EU, requires, among other things, the non-EU AIFMs or non-EU AIFs to not be established in countries listed as Non-Cooperative Countries and Territories by the Financial Action Task Force. This is being replaced with a requirement to not be established in countries which are identified as high-risk third countries under the EU anti-money laundering legislation (Directive (EU) 2015/849) (the EU AML List).
There is also a new condition for a non-EU AIFM's eligibility to market AIFs under NPPRs, which is that third countries where the non-EU AIFMs or non-EU AIFs are established must:
- have signed an agreement with each relevant EU member state (eg where marketing will take place) that fully complies with the standards laid out in Article 26 of the OECD Model Tax Convention on Income and on Capital, and ensures an effective exchange of information in tax matters, including any multilateral tax agreements; and
- not be on the EU’s Annex I list (ie the 'blacklist) of non-cooperative jurisdictions for tax purposes.
We do not expect these amendments to be an issue for Australian fund managers marketing fund vehicles established in Australia. However, it is worth noting that the Cayman Islands was only removed from the EU AML List in February 2024, so changes to these lists (which are decided at an EU political level) may impact Australian fund managers who choose to establish fund vehicles in other typical fund domicile jurisdictions.
Australian fund managers that have registered non-EU AIFs for marketing via the NPPRs are required to make certain disclosures to investors under Article 23. This is typically satisfied by inclusion of the disclosures in the private placement memorandum or other offering document of the fund, or by way of an AIFMD-specific wrapper document.
Article 23 is being amended to include new pre-investment and ongoing disclosures to investors.
The following new pre-investment disclosures must be made available to investors before they invest:
- the name of the AIF;
- for open-ended funds, the possibility of, and conditions for, using liquidity management tools; and
- a list of fees, charges and expenses that are borne by the AIFM in connection with the operation of the AIF and that are to be directly or indirectly allocated to the AIF.
The following new disclosures must be made periodically to investors on an ongoing basis:
- the composition of the loan origination portfolio; and
- on an annual basis:
- all fees, charges and expenses that were directly or indirectly borne by investors; and
- any parent undertaking, subsidiary or special purpose vehicle used by or on behalf of the AIFM in relation to the AIF’s investments.
Australian fund managers marketing under NPPRs should therefore expect to increase investor disclosures of this nature, although we expect fees, charges and expenses that are borne by the investors would already be included in most investor reporting.
ESMA is required to develop guidelines (by 16 April 2026) to specify the circumstances in which the name of an AIF is unfair, unclear or misleading, and recently published final guidelines on the use of ESG or sustainability-related terms in fund names (Guidelines) for this purpose.
The Guidelines do not directly address the applicability of non-EU managers marketing funds in the EU under NPPRs, but given the mandate for such Guidelines is in Article 23—which covers the disclosures to be provided to investors for non-EU AIFs marketed into the EU under NPPRs—we anticipate that the application of the Guidelines as incorporated into national legal and/or supervisory frameworks would likely bring non-EU AIFs being marketed in the EU into scope. It will be up to individual EU member states to determine their approach to complying with, and implementing, the Guidelines.
We will monitor developments in these areas as they progress, but Australian fund managers launching new sustainability focused products in the EU may wish to consider the Guidelines if a significant portion of capital raised will be from the EU.
Australian fund managers that have registered non-EU AIFs for marketing via the NPPRs are required to submit periodic reports (known as 'Annex IV' reporting) under Article 24.
The Article 24 requirement to report information is being generally expanded to remove references to 'principal' and 'main' with respect to the markets, instruments and exposures in which the AIFM trades on behalf of the AIFs it manages. It is also clarified that reported information must include identifiers that are necessary to connect the data provided on assets, AIFs and AIFMs to other supervisory or publicly available data sources.
Additionally, reporting on the risk profile of an AIF will need to include the total amount of leverage employed by the AIF, and reporting on delegation arrangements concerning portfolio management or risk management functions will have a much greater prescribed detail. AIFMs will also need to provide the list of EU member states in which the AIF is actually marketed by the AIFM or by a distributor which is acting on behalf of that AIFM.
AIFMD 2.0 includes new liquidity management rules, and rules in respect of matters such as loan origination. Although ESMA is empowered under Article 47 to request an EU regulatory authority to require non-EU AIFMs that are marketing AIFs in the EU (or EU AIFMs managing non-EU AIFs) to activate or deactivate certain liquidity management tools, this will only occur in exceptional circumstances and after consulting the AIFM, so in practice we do not expect these rules to be of broader applicability to Australian fund managers who do not access European capital by engaging an affiliated EU AIFM or a 'host-AIFM'.
Linklaters' resources
Although we have provided key updates of relevance to Australian fund managers above, additional detail on the operation of AIFMD 2.0 (in addition to AIFMD and the application of each in the UK) can be found through Linklaters and in their recent publication AIFMD 2.0 – Level 1 complete; Level 2 loading….
Do these changes apply to the UK?
The UK implemented AIFMD into domestic law when it was part of the EU. AIFMD 2.0 will not update the corresponding rules in the UK, and there is currently no indication the UK will follow any of these amendments. However, the UK's Financial Conduct Authority is considering changes it may wish to make to the UK rules and will be consulting on amending the UK AIFMD this year.
We will provide updates on any potential changes that may affect Australian fund managers as they are known.
Actions you can take now
- Undertake an analysis of the potential impact of AIFMD 2.0 on your EU distribution strategies and EU operations (if any).
- Monitor Level 2 legislation and implementation of AIFMD 2.0 in EU member states where you engage a 'host-AIFM', have an affiliated EU AIFM or market your funds in the EU.
- If you are designing new products that could be affected by these rules, consider taking steps to future proof those funds to ensure compliance once the rules are operative.