- Rules governing Alternative Investment Fund Managers need to be well aligned with the requirements stemming from the EU regulation on sustainability-related disclosures in the financial services sector (SFDR) and the EU Taxonomy Regulation as well as other pieces of the sustainable finance puzzle, says Finance Watch in a recent response to European Commission consultation on the Alternative Investment Fund Managers Directive (AIFMD).
- Reinforce the obligation introduced by SFDR by specifically requiring AIFMs to integrate sustainability risks in investment decision-making process. They also suggest to further extend it to risk management and other relevant processes in line with the forthcoming adjustments to the Delegated Acts on AIFMD. They also argue for use of both qualitative and quantitative approaches to assess sustainability risks. Also, all AIFMs – regardless of their size – should consider potential adverse impacts of investment decisions on sustainability factors, meaning the environment and society.
- On financial stability & supervision, AIFMs operating private debt funds are exposed to many of the same risk drivers as credit institutions and should be supervised accordingly. They also flag that the ESRB noted in its report of 2017, “as the investment funds sector becomes a larger part of the total financial market, so managing systemic risk in that sector becomes more pertinent”.
- Recommendations to aim at enhancing transparency, appropriate tools and improved supervision include: The AIFMD framework should be adjusted to address more effectively macroprudential concerns; the capital requirements established for AIFMs carrying out ancillary services under Article 6 of the AIFMD should correspond to the capital requirements applicable to the investment firms carrying out identical services; and that the ESMA should be granted more competences and powers beyond those already granted to them under the AIFMD.
- On investor protection, Finance Watch argues that the AIFMD should cross-refer to the client categories as defined in the MIFID II.
Regulation(s) covered in this publication
- Alternative Investment Fund Managers Directive (AIFMD)
- MiFID II
- Sustainable Finance Disclosure Regulation (SFDR)
Finance Watch calls for allowing both qualitative and quantitative approaches to assess sustainability risks and requiring all AIFMs – regardless of their size – to consider potential adverse impacts of investment decisions on the environment and society.
Also argue that AIFMD framework needs adjusting to ensure financial stability.