Directive (EU) 2024/927 and its commencement dates
Directive (EU) 2024/927 amends AIFMD and the UCITS Directive in five areas: delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services, and loan origination by AIFs. Adopted 13 March 2024, published in the Official Journal 26 March 2024, in force twenty days later.
EU law
The UK has not adopted the Directive and none of it appears in the FCA Handbook. What binds an EU manager is its Member State's transposing measure, at the date that state applied it and with the options it took. Under Article 60 a Member State using one of the permitted options informs the Commission, which publishes it; one option is a prohibition on AIFs lending to consumers.
Routes to a UK firm
An obligation reaches a UK firm by one of four routes.
- A group entity holds a Member State authorisation. That entity is an EU AIFM and its transposing law binds it directly.
- A fund in the structure is established in the Union. There is no EU management passport for a UK AIFM, so an EU AIFM manages it and the route resolves into the first or the third.
- The firm acts as delegate for an EU AIFM. The obligations stay with the AIFM; what crosses the border is the evidence it needs to discharge them.
- The firm markets a non-UK AIF into a Member State under Article 42. The amended conditions test the third country of the AIFM and of the AIF separately, on AML listing, tax cooperation and information exchange.
Delegation, substance and the Article 24 return
An EU AIFM answers for delegated work whatever the delegate's status. Article 20(3a) requires the AIFM to ensure that performance of the Annex I functions and provision of the Article 6(4) services comply with the Directive, irrespective of the regulatory status or location of any delegate or sub-delegate; a London delegate's FCA authorisation does not discharge that duty. The demonstration condition in Article 20(1)(f) and the letter-box test in Article 20(3) now cover those services as well as the Annex I functions. Under Article 20(6a), marketing by distributors acting on their own behalf under MiFID II or through insurance-based investment products is not a delegation, whatever the distribution agreement says.
Article 8(1)(c) sets a minimum on substance: the conduct of the AIFM's business must be decided by at least two natural persons of sufficiently good repute, sufficiently experienced in relation to the investment strategies pursued, employed full-time by the AIFM or committed full-time to its business as executive or governing body members, and domiciled in the Union.
Liquidity management tool selection and notification
An AIFM managing an open-ended EU AIF must select at least two liquidity management tools from Annex V, points 2 to 8, after assessing their suitability against the fund's investment strategy, liquidity profile and redemption policy (Article 16(2b)). The selection may not consist only of points 5 and 6; a money market fund may select one tool. The chosen tools go into the AIF rules or instruments of incorporation, and the selection and the activation and deactivation policies go to the home competent authorities.
Suspension (Annex V point 1) and side pockets (point 9) sit outside the selected two and may be used only in exceptional cases where circumstances require and where justified having regard to investors' interests. Article 16(2d) notification runs without delay for suspension and for any activation or deactivation of tools 2 to 8 outside the ordinary course of business envisaged in the fund rules, and within a reasonable timeframe before activation or deactivation of a side pocket.
Divergence from the UK Handbook
The UK provisions below carry the pre-amendment wording.
| Subject | UK, in force | EU, as amended |
|---|---|---|
| Liquidity tools | FUND 3.6.2R requires strategy, liquidity profile and redemption policy to be consistent. No list, no minimum, no notification duty | Articles 16(2b) and 16(2d): at least two tools from Annex V, written into the fund rules, with selection, policies and activations notified |
| Delegation | FUND 3.10.2R(2)(f) and FUND 3.10.8R test the delegate and the letter-box question against functions alone | Articles 20(1)(f) and 20(3): the same conditions extended to the Article 6(4) services, beside the new Article 20(3a) |
Cross-border depositaries and investor disclosure
Article 21(5a) permits a depositary established in another Member State only on a reasoned request showing that the fund's home Member State lacks depositary services able to meet its needs, and only where assets entrusted for safe-keeping in that national depositary market for EU AIFs managed by EU AIFMs do not exceed EUR 50 billion. Article 23 adds pre-investment disclosure of the fees the AIFM bears in operating the fund and allocates to it, and annual disclosure of the originated loan portfolio's composition and of every parent undertaking, subsidiary or special purpose vehicle used for its investments.
Alongside this module
Where this subject is covered elsewhere in the course.