Proposal for a Directive of the European Parliament and of the Council on Alternative Investment Fund Managers and amending Directives 2004/39/EC and 2009/…/EC {SEC(2009)576} {SEC(2009)577}
Date: 2009-04-30
Institutions: European Commission
Subjects: credit institution, financial instrument, financial market, investment company, provision of services, securities

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.4.2009 
COM(2009) 207 final 

2009/0064 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

on Alternative Investment Fund Managers and amending Directives 2004/39/EC and 
2009/…/EC 

{SEC(2009)576} 
{SEC(2009)577} 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. 

Context, grounds for, and objectives of the proposal 

The financial crisis has exposed a series of vulnerabilities in the global financial system. It has 
highlighted  how  risks  crystallising  in  one  sector  can  be  transmitted  rapidly  around  the 
financial  system,  with  serious  repercussions  for all  financial  market  participants  and  for  the 
stability of the underlying markets. 

The  present  proposal  forms  part  of  an  ambitious  Commission  programme  to  extend 
appropriate regulation and oversight to all actors and activities that embed significant risks1. 
The proposed legislation will introduce harmonised requirements for entities engaged in the 
management and administration of alternative investment funds (AIFM). The need for closer 
regulatory engagement with this sector has been highlighted by the European Parliament2 and 
by the High-Level Group on Financial Supervision chaired by Jacques de Larosière3. It is also 
the subject of ongoing discussion at international level, for example through the work of the 
G20, IOSCO and the Financial Stability Forum. 

The  funds  in  question  are  defined  as  all  funds  that  are  not  regulated  under  the  UCITS 
Directive4. Around €2 trillion in assets are curren tly managed by AIFM employing a variety 
of  investment  techniques,  investing  in  different  asset  markets  and  catering  to  different 
investor populations. The sector includes hedge funds and private equity, as well as real estate 
funds, commodity funds, infrastructure funds and other types of institutional fund. 

The financial crisis has underlined the extent to which AIFM are vulnerable to a wide range 
of risks. These risks are of direct concern to the investors in those funds, but also present a 
threat  to  creditors,  trading  counterparties  and  to  the  stability  and  integrity  of  European 
financial markets. These risks take a variety of forms: 

Source of Risk 

Macro-prudential 
(systemic) risks 

•  Direct exposure of systemically important banks to the AIFM sector  

•  Pro-cyclical impact of herding and risk concentrations in particular market 
segments  and  deleveraging  on  the  liquidity  and  stability  of  financial 
markets 

Micro-prudential risks 

•  Weakness  in  internal  risk  management  systems  with  respect  to  market 

risk, counterparty risks, funding liquidity risks and operational risks 

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Commission Communication for the Spring European Council, March 2009. See 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/351&format=HTML&aged=0&languag
e=EN&guiLanguage=en 
Report  of  the  European  Parliament  with  recommendations  to  the  Commission  on  hedge  funds  and 
private  equity  (A6-0338/2008)  ['Rasmussen'  report]  and  on  the  transparency  of  institutional  investors 
(A6-0296-2008) ['Lehne' report]. 
Report  of  the  High-Level  Group  on  Financial  Supervision  in  the  EU,  25  February  2009,  p.  25.  
See http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf  
Directive 2009/…/EC on the coordination of laws, regulations and administrative provisions relating to 
undertakings for collective investment in transferable securities (UCITS) (recast). 

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Investor protection 

• 

Inadequate  investor  disclosures  on  investment  policy,  risk  management, 
internal processes 

•  Conflicts  of  interest  and  failures  in  fund  governance,  in  particular  with 

respect to remuneration, valuation and administration 

Market  efficiency  and 
integrity  

• 

Impact  of  dynamic  trading  and  short  selling  techniques  on  market 
functioning 

•  Potential  for  market  abuse  in  connection  with  certain  techniques,  for 

example short-selling 

Impact  on  market  for 
corporate control 

•  Lack  of  transparency  when  building  stakes  in  listed  companies  (e.g. 
through  use  of  stock  borrowing,  contracts  for  difference),  or  concerted 
action in 'activist' strategies 

Impact  on  companies 
controlled by AIFM 

•  Potential  for  misalignment  of  incentives  in  management  of  portfolio 

companies, in particular in relation to the use of debt financing 

•  Lack of transparency and public scrutiny of companies subject to buy-outs 

The nature and intensity of these risks varies between business models. For example, macro-
prudential risks associated with the use of leverage relate primarily to the activities of hedge 
funds  and  commodity  funds;  whereas  risks  associated  with  the  governance  of  portfolio 
companies  are  most  closely  associated  with  private  equity.  However,  other  risks,  such  as 
those  relating  to  the  management  of  micro-prudential  risks  and  to  investor  protection  are 
common to all types of AIFM. 

While AIFM were not the cause of the crisis, recent events have placed severe stress on the 
sector.  The  risks  associated  with  their  activities  have  manifested  themselves  throughout  the 
AIFM  industry  over  recent  months  and  may  in  some  cases  have  contributed  to  market 
turbulence. For example, hedge funds have contributed to asset price inflation and the rapid 
growth  of  structured  credit  markets.  The  abrupt  unwinding  of  large,  leveraged  positions  in 
response  to  tightening  credit  conditions  and  investor  redemption  requests  has  had  a 
procyclical  impact  on  declining  markets  and may have  impaired market liquidity. Funds  of 
hedge  funds  have  faced  serious  liquidity  problems:  they  could  not  liquidate  assets  quickly 
enough  to  meet  investor  demands  to  withdraw  cash,  leading  some  funds  of  hedge  funds  to 
suspend  or  otherwise  limit  redemptions.  Commodity  funds  were  implicated  in  the 
commodity price bubbles that developed in late 2007. 

On the other hand, private equity funds, due to their investment strategies and a different use 
of leverage than hedge funds, did not contribute to increase macro-prudential risks. They have 
experienced  challenges  relating  to  the  availability  of  credit  and  the  financial  health  of  their 
portfolio  companies.  The  inability  to  obtain  leverage  has  significantly  reduced  buy-out 
activity  and  a  number  of  portfolio  companies  previously  subject  to  leveraged  buy-outs  are 
reported to be faced with difficulties in finding replacement finance.  

The cross-border dimension of these risks calls for a coherent EU regulatory framework: 

Currently,  the  activities  of  AIFM  are  regulated  by  a  combination  of  national  financial  and 
company law regulations and general provisions of Community law. They are supplemented 
in  some  areas  by  industry-developed  standards.  However,  recent  events  have  indicated  that 
some  of  the  risks  associated  with  AIFM  have  been  underestimated  and  are  not  sufficiently 
addressed  by  current  rules.  This  is  partly  a  reflection  of  the  predominantly  national 
perspective of existing rules: the regulatory environment does not adequately reflect the cross-
border nature of the risks. 

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This  is  particularly  striking  in  relation  to  the  effective  oversight  and  control  of  macro-
prudential  risks.  The  individual  and  collective  activities  of  large  AIFM,  particularly  those 
employing  high  levels  of  leverage,  amplify  market  movements  and  have  contributed  to  the 
ongoing instability of financial markets across the European Union. Yet there are currently no 
effective  mechanisms  for  gathering,  pooling  and  analysing  information  on  these  risks  at 
European level. 

There is also a potential cross-border dimension to the quality of risk management by AIFM: 
investors, creditors and trading counterparties of AIFM are domiciled in other Member States 
and are dependent on the controls implemented by the AIFM. Currently, jurisdictions differ 
widely in the way that they supervise the ongoing operations of AIFM. 

Nationally fragmented approaches do not constitute a robust and comprehensive response to 
risks  in  this  sector.  Effective  management  of  the  cross-border  dimension  of  these  risks 
demands a common understanding of the obligations of AIFM; a coordinated approach to the 
oversight  of  risk  management  processes,  internal  governance  and  transparency;  and  clear 
arrangements  to  support  supervisors  in  managing  these  risks,  both  at  domestic  level  and 
through effective supervisory cooperation and information sharing at European level. 

The current fragmentation of the regulatory environment also results in legal and regulatory 
obstacles  to  the  efficient  cross-border  marketing  of  AIF.  Provided  that  AIFM  operate  in 
accordance with strict common requirements, there is no obvious justification for restricting 
an  AIFM  domiciled  in  one  Member  State  from  marketing  AIF  to  professional  investors  in 
another Member State market. 

It  is  in  recognition  of  these  weaknesses  and  inefficiencies  in  the  existing  regulatory 
framework  that  the  European  Commission  has  committed  to  bring  forward  a  proposal  for  a 
comprehensive  legislative  instrument  establishing  regulatory  and  supervisory  standards  for 
hedge funds, private equity and other systemically important market players. 

While the enhancement of the regulatory and supervisory environment for AIFM at European 
level is important and necessary, it should – to be fully effective - be accompanied by parallel 
initiatives  in  other  key  jurisdictions.  The  European  Commission  hopes  that  the  principles 
embodied  in  this  proposal  will  make  an  important  contribution  to  the  debate  on  the 
reinforcement  of  the  architecture  for  a  global  approach  to  supervision  of  the  alternative 
investment industry. The Commission will continue to work with its international partners, in 
particular  the  United  States,  to  ensure  regulatory  and  supervisory  convergence  of  the  rules 
applying to AIFM and avoid regulatory overlap. 

1.2. 

Preparation of the proposal: consultation and impact assessment 

The  European  Commission  has  consulted  extensively  on  the  adequacy  of  regulatory 
arrangements  for  non-UCITS  fund  managers  and  for  the  marketing  of  non-UCITS  funds  in 
the  European  Union.  It  has  also  consulted  specifically  on  a  series  of  issues  relating  to  the 
activities  of  hedge  funds.  The  numerous  initiatives  and  studies  that  the  Commission  has 
drawn upon for the purposes of this legislative proposal are described at length in the Impact 
Assessment. 

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2. 

GENERAL APPROACH 

This proposal focuses on those activities that are specific or inherent to the AIFM sector and 
hence  need  to  be  addressed  by  targeted  requirements.  A  number  of  the  concerns  that  are 
commonly expressed about the activities of AIFM are linked to behaviours (e.g., short-selling, 
use of stock borrowing or other instruments to build a stake in company) which are not unique 
to  this  category  of  financial  market  participant.  To  be  fully  effective  and  coherent,  these 
concerns  must  be  addressed  by  comprehensive  measures  which  apply  to  all  market 
participants  who  engage  in  the  relevant  activities.  A  number  of  these  issues  will  form  the 
focus of the review of relevant EU Directives, which will determine the appropriate scope and 
content of any corrective measures.  

The present proposal is therefore designed to address matters that call for provisions specific 
to AIFM and their business. The proposed Directive aims to: 

•  Establish a secure and harmonised EU framework for monitoring and supervising the risks 
that AIFM pose to their investors, counterparties, other financial market participants and to 
financial stability; and  

•  Permit,  subject  to  compliance  with  strict  requirements,  AIFM  to  provide  services  and 

market their funds across the internal market. 

The following section sets out the key principles underpinning the provisions of the proposed 
Directive. Specific provisions are described in greater detail in Section 3.5. 

Managers of all non-UCITS funds require authorisation under the Directive 

While  the  focus  is  currently  on  hedge  funds  and  private  equity,  the  European  Commission 
believes  that  it  would  be  ineffective  and  short-sighted  to  limit  any  legislative  initiative  to 
these  two  categories  of  AIFM:  ineffective  because  any  arbitrary  definition  of  these  funds 
might  not  adequately  capture  all  the  relevant  actors  and  could  be  easily  circumvented;  and 
short-sighted because many of the underlying risks  are  also  present  in  other  types  of  AIFM 
activity. The regulatory solution which is likely to prove the most enduring and productive is 
therefore  to  capture  all  AIFM  whose  activities  give  rise  to  those  risks.  Accordingly,  the 
management and administration of any non-UCITS in the European Union must be authorised 
and supervised in accordance with the requirements of the Directive. 

This broad coverage does not imply a 'one size fits all' approach 

A common set of basic provisions will govern the conditions for the initial authorisation and 
organisation of all AIFM. These core provisions will be tailored to the different asset classes 
so  that  irrelevant  or  inappropriate  requirements  are  not  imposed  on  investment  policies  for 
which they make no sense. In addition to these common provisions, the proposal foresees a 
number  of  specific,  tailored  provisions  which  will  only  apply  to  AIFM  that  employ  certain 
techniques  or  strategies  when  managing  their  AIF  (for  instance,  systematic  use  of  a  high 
degree of leverage, acquisition of control of companies) and will ensure an appropriate degree 
of transparency with respect to these techniques.  

De minimis exemption for managers of small asset portfolios 

The proposed Directive contains two de minimis exemptions for small managers. All AIFM 
managing AIF portfolios with total assets of less than €100 m illion will be exempt from the 

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provisions  of  the  proposed  Directive.  The  management  of  these  funds  is  unlikely  to  pose 
significant risks to financial stability and market efficiency. Hence extending these regulatory 
requirements to small managers would impose costs and administrative burden which would 
not be justified by the benefits. However, for AIFM which only manage AIF which are not 
leveraged  and  which  do  not  grant  investors  redemption  rights  during  a  period  of  five  years 
following the date of constitution of each AIF a de minimis threshold of €500 million applies. 
This  significantly  higher  de  minimis  threshold  is  justified  by  the  fact  that  managers  of 
unleveraged  funds  are  not  likely  to  cause  systemic  risks.  Exempted  AIFM  would  have  no 
rights under the Directive, unless they opt to apply for authorisation under the Directive. 

On this basis, supervisory attention will be focused on the areas where risks are concentrated. 
A  threshold  of  €100  million  implies  that  rough ly  30%  of  hedge  fund  managers,  managing 
almost  90%  of  assets  of  EU  domiciled  hedge  funds,  would  be  covered  by  the  Directive.  It 
would capture almost half of managers of other non-UCITS funds and provide an almost full 
coverage of the assets invested in their funds. 

The focus is on the decision making and risk-taking entities in the value chain 

The  risks  to  market  stability,  efficiency  and  investors  stem  primarily  from  the  conduct  and 
organisation of the AIFM and certain other key actors in the fund governance and value-chain 
(depositary  bank  where  relevant  and  valuation  entity).  The  most  effective  way  to  tackle  the 
risks is therefore to focus on these entities which are decisive in terms of the risks associated 
with the management of AIF. 

AIFM will be entitled to market AIF to professional investors  

Authorisation as an AIFM will entitle the manager to market the AIF to professional investors 
only (as defined by MiFID). Many AIF entail a relatively high level of risk (of loss of much 
or  all  of  the  capital  invested)  and/or  have  other  features  which  render  them  unsuitable  for 
retail investors. In particular, they may lock investors in to their investment for longer than is 
acceptable  for  retail  funds.  Investment  strategies  are  typically  complex  and  often  involve 
investment  in  illiquid  and  harder-to-value  investments.  The  marketing  of  these  AIF  will 
therefore  be  limited  to  those  investors  that  are  equipped  to  understand and  to  bear  the  risks 
associated with this type of investment. 

The  limitation  to  professional  investors  is  consistent  with  the  current  situation  in  many 
Member States. However, some of the categories of AIF covered by the proposed Directive – 
such  as  funds  of  hedge  funds  and  open-ended  real  estate  funds  -  are  accessible  to  retail 
investors  in  some  Member  States,  subject  to  strict  regulatory  controls.  Member  States  may 
allow  for  marketing  to  retail  investors  within  their  territory  and  may  apply  additional 
regulatory safeguards for this purpose.  

… including the right to market funds cross-border: 

Compliance  with  the  requirements  of  the  proposed  Directive  would  be  sufficient  to  permit 
AIFM  to  market  AIF  to  professional  investors  on  markets  in  other  Member  States.  Cross-
border marketing would be subject only to the filing of appropriate information with the host 
competent authority. 

AIFM will be permitted to manage and market AIF domiciled in third countries 

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Currently, many EU domiciled managers manage funds which are domiciled in third countries 
and  market  them  in  Europe.  The  Directive  introduces  new  conditions  to  address  any 
additional  risks  to  European  markets  and  investors  that  could  arise  from  such  operations.  It 
also ensures that national tax authorities may obtain all information from the tax authorities of 
the  third  country  which  are  necessary  to  tax  domestic  professional  investors  investing  in 
offshore funds. The activities of management and administration of AIF are reserved to EU 
domiciled and authorised AIFM, with the possibility for AIFM to delegate administration (but 
not management) functions to offshore entities subject to appropriate conditions. In particular, 
depositaries  appointed  to  take  custody  of  money  and  assets  must  be  EU  established  credit 
institutions  which  can  only  sub-delegate  functions  subject  to  strict  conditions.  Valuators 
appointed  in  third  country  jurisdictions  must  be  subject  to  equivalent  regulatory  standards. 
Subject  to  these  strict  conditions,  the  proposals  envisage  that  EU  AIFM  could  market  AIF 
domiciled  in  third  countries  to  professional  investors  throughout  Europe  after  an  additional 
period of three years. In the meantime Member States may allow or continue to allow AIFM 
to market AIF domiciled in third countries to professional investors on their territory subject 
to national law. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1. 

Legal basis 

The proposal is based on Article 47(2) o the EC Treaty. 

3.2. 

Subsidiarity and proportionality 

Article  5(2)  of  the  EC  Treaty  requires  the  Community  to  act  only  if  and  in  so  far  as  the 
objectives of the proposed action cannot be sufficiently achieved by the Member States and 
can therefore, by reason of the scale or effects of the proposed action, be better achieved by 
the Community. 

The activities of AIFM affect investors, counterparties and financial markets located in other 
Member  States  and  hence  the  risks  associated  with  the  activities  of  AIFM  are  often  cross-
border in nature. The effective monitoring of macro-prudential risks and oversight of AIFM 
activity  thus  requires  a  common  level  of  transparency  and  regulatory  safeguards  across  the 
EU.  The  Directive  also  provides  a  harmonised  framework  for  the  safe  and  efficient  cross-
border  marketing  of  AIF,  which  could  not  be  established  as  effectively  through  the 
uncoordinated action of Member States. 

The  proposed  Directive  is  also  proportionate,  as  required  by  Article  5(3)  of  the  EC  Treaty. 
Many  of  the  provisions  of  the  Directive  relate  to  particular  activities;  if  an  AIFM  does  not 
engage  in  these  activities,  the  provisions  shall  not  apply.  Moreover,  the  Directive  provides 
two de minimis exemptions: authorisation requirements are to be waived for AIFM managing 
AIF  below  a  threshold  of  €100  million,  since  thes e  are  unlikely  to  give  rise  to  important 
systemic risks or to be a threat to orderly markets. For AIFM managing only AIF which are 
not leveraged and which do not grant investors redemption rights during a period of five years 
following the date of constitution of each AIF a de minimis threshold of €500 million applies. 

3.3. 

Choice of instrument 

The  choice  of  a  Directive  as  the  legal  instrument  represents  a  sensible  trade-off  between 
harmonisation  and  flexibility.  The  proposed  Directive  provides  a  sufficient  degree  of 

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harmonisation  to  provide  a  consistent  and  secure  pan-European  framework  for  the 
authorisation  of  AIFM  and  their  ongoing  supervision.  The  choice  of  a  Directive  allows 
Member States a degree of flexibility in deciding how to adapt their national legal orders to 
the new framework. This is consistent with the principle of subsidiarity. 

3.4. 

Comitology 

The  proposal  is  based  on  the  Lamfalussy  process  for  regulating  financial  services.  The 
proposed  Directive  contains  the  principles  necessary  to  ensure  that  AIFM  are  subject  to 
consistently high standards of transparency and regulatory oversight in the European Union, 
while  foreseeing  the  adoption  of  detailed  implementing  measures  through  comitology 
procedures. 

3.5. 

Content of the proposal 

3.5.1. 

Scope and definitions 

In  order  to  ensure  that  all  AIFM  operating  in  the  European  Union  are  subject  to  effective 
supervision  and  oversight,  the  proposed  Directive  introduces  a  legally  binding  authorisation 
and supervisory regime for all AIFM managing AIF in the European Union. The regime will 
apply irrespective of the legal domicile of the AIF managed. For reasons of proportionality, 
the Directive will not apply to AIFM managing portfolios of AIF with less than €100 million 
of  assetsor  of  less  than  €500  million,  in  cas e  of  AIFM  managing  only  AIF  which  are  not 
leveraged  and  which  do  not  grant  investors  redemption  rights  during  a  period  of  five  years 
following the date of constitution of each AIF. 

3.5.2.  Operating conditions and initial authorisation 

To operate in the European Union, all AIFM will be required to obtain authorisation from the 
competent authority of their home Member State. All AIFM operating on European soil will 
be  required  to  demonstrate  that  they  are  suitably  qualified  to  provide  AIF  management 
services  and  will  be  required  to  provide  detailed  information  on  the  planned  activity  of  the 
AIFM,  the  identity  and  characteristics  of  the  AIF  managed,  the  governance  of  the  AIFM 
(including  arrangements  for  the  delegation  of  management  services),  arrangements  for  the 
valuation and safe-keeping of assets and the systems of regulatory reporting, where required. 
The AIFM will also be required to hold and retain a minimum level of capital. 

To ensure that the risks associated with AIFM activity are effectively managed on an ongoing 
basis,  the  AIFM  will  be  required  to  satisfy  the  competent  authority  of  the  robustness  of 
internal  arrangements  with  respect  to  risk  management,  in  particular  liquidity  risks  and 
additional  operational  and  counterparty  risks  associated  with  short  selling;  the  management 
and  disclosure  of  conflicts  of  interest;  the  fair  valuation  of  assets;  and  the  security  of 
depository/custodial arrangements.  

Given  the  diversity  of  AIFM  investment  strategies,  the  proposed  Directive  foresees  that  the 
precise requirements, in particular with regard to disclosure, will be tailored to the particular 
investment strategy employed. 

3.5.3.  Treatment of investors 

The proposed Directive provides for a minimum level of service and information provision to 
its (professional) investors, on an initial and ongoing basis, to facilitate their due diligence and 

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ensure an appropriate level of investor protection. The proposed Directive requires AIFM to 
provide to their investors a clear description of the investment policy, including descriptions 
of  the  type  of  assets  and  the  use  of  leverage;  redemption  policy  in  normal  and  exceptional 
circumstances; valuation, custody, administration and risk management procedures; and fees, 
charges and expenses associated with the investment. 

3.5.4.  Disclosure to regulators 

To support the effective macro-prudential oversight of AIFM activities, the AIFM will also be 
required to report to the competent authority on a regular basis on the principal markets and 
instruments in which it trades, its principal exposures, performance data and concentrations of 
risk. The AIFM will also be required to notify the competent authorities of the home Member 
State of the identity of the AIF managed, the markets and assets in which the AIF will invest 
and the organisational and risk management arrangements established in relation to that AIF. 

3.5.5. 

Specific requirements for AIFM managing leveraged AIF 

The  use  of  a  systematically  high  level  of  leverage  allows  AIFM  to  have  an  impact  on  the 
markets in which they invest which may be a multiple of the equity capital of the fund. The 
proposal  empowers  the  Commission  to  set  leverage  limits  through  comitology  procedures 
where  this  is  required  to  ensure  the  stability  and  integrity  of  the  financial  system.  The 
proposed Directive grants additional emergency powers to the national authorities to restrict 
the use of leverage in respect of individual managers and funds in exceptional circumstances. 
It furthermore foresees that AIFM employing leverage on a systematic basis above a defined 
threshold will be required to disclose aggregate leverage in all forms, and the main sources of 
leverage to the home authority of the AIFM. The draft proposal does not impose obligations 
upon  competent  authorities  as  regards  the  use  of  this  information.  It  requires  competent 
authorities for such leveraged funds to aggregate and share, with other competent authorities, 
information  that  is  relevant  for  monitoring  and  responding  to  the  potential  consequences  of 
AIFM  activity  for  systemically  relevant  financial  institutions  across  the  EU  and/or  for  the 
orderly functioning of the markets on which AIFM are active.  

3.5.6. 

Specific requirements for AIFM acquiring controlling stakes in companies 

The  proposal  provides  for  disclosures  of  information  to  other  shareholders  and  the 
representatives  of  employees  of  the  portfolio  company  in  which  the  AIFM  acquired  a 
controlling  interest.  It  foresees  that  the  AIFM  issues  annual  disclosure  on  the  investment 
strategy  and  objectives  of  its  fund  when  acquiring  control  of  companies,  and  general 
disclosures about the performance of the portfolio company following acquisition of control. 
These reporting obligations are introduced in view of the need for private equity and buy-out 
funds  to  account  publicly  for  the  manner  in  which  they  manage  companies  of  wider  public 
interest. The information requirements address the perceived deficit  of  strategic information 
about how private equity managers intend to, or currently, manage portfolio companies.  

For  reasons  of  proportionality  the  draft  proposal  does  not  extend  these  requirements  to 
acquisitions of control in SMEs – and thereby seeks to avoid imposing these obligations on 
start-up or venture capital providers (to the extent that they are not already exempted from the 
scope of the entire Directive). To meet concerns about reduction in information following the 
delisting of public companies by private equity owners, the draft proposal requires that such 
delisted companies continue to be subject to reporting obligations for listed companies for up 
to 2 years following delisting.  

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3.5.7.  Rights of AIFM under the Directive 

In order to facilitate the development of the single market, an AIFM authorised in its home 
Member State will be entitled to market its funds to professional investors on the territory of 
any  Member  State.  As  a  corollary  of  the  high  common  regulatory  standard  achieved  by  the 
proposed  Directive,  Member  States  will  not  be  permitted  to  impose  additional  requirements 
on AIFM domiciled in another Member State insofar as marketing to professional investors is 
concerned.  The  cross-border  marketing  of  AIF  shall  be  subject  only  to  a  notification 
procedure, under which relevant information is provided to the host Member State. 

The  proposed  Directive  does  not  provide  rights  in  relation  to  marketing  AIF  to  retail 
investors. Member States may allow for marketing to retail investors within their territory and 
may  apply  additional  regulatory  safeguards  for  this  purpose.  Such  requirements  shall  not 
discriminate according to the domicile of the AIFM. 

3.5.8.  Third country aspects 

The  proposed  Directive  permits  AIFM  to  market  AIF  located  in  third  country  domiciles 
subject  to  strict  controls  on  the  performance  of  key  functions  by  service  providers  in  those 
jurisdictions.  The  rights  granted  under  the  Directive  to  market  such  AIF  to  professional 
investors will only become effective three years after the transposition period, because of the 
time  needed  to  provide  for  additional  requirements  in  implementing  measures.  In  the 
meantime Member States may allow or continue to allow AIFM to market AIF domiciled in 
third  countries  to  professional  investors  on  their  territory  subject  to  national  law.  The  key 
functions and activities which are likely to give rise to risks for European markets, investors 
or counterparties are required to be undertaken by EU established entities, operating subject to 
harmonised rules. The Directive contains provisions which define the functions which can be 
undertaken  by  third  country  entities  or  delegated  to  them  under  the  responsibility  of  EU 
authorised  institutions.  These  provisions  also  define  the  conditions  (regulatory  and 
supervisory  equivalence)  under  which  limited  functions  can  be  undertaken  by  third  country 
entities. In addition, the draft Directive only permits the marketing of AIF domiciled in a third 
country, if their country of domicile has entered into an agreement based on Article 26 of the 
OECD  Model  Tax  Convention  with  the  Member  State  on  whose  territory  the  AIF  shall  be 
marketed. This shall ensure that national tax authorities may obtain all information from the 
tax authorities of the third country which are necessary to tax domestic professional investors 
investing in offshore funds. Three years after the transposition period the Directive will allow 
AIFM  established  in  a  third  country  to  market  their  funds  in  the  EU  provided  that  the 
regulatory  framework  and  supervisory  arrangements  in  that  third  country  are  equivalent  to 
those  of  the  proposed  Directive,  and  EU  operators  enjoy  comparable  access  to  that  third 
country  market.  In  all  cases,  decisions  on  the  equivalence  of  the  relevant  third  country 
legislation and comparable market access will be taken by the Commission.  

3.5.9. 

Supervisory cooperation information sharing and mediation 

In  order  to  ensure  the  secure  functioning  of  the  AIFM  sector,  competent  authorities  of  the 
Member States will be required to cooperate whenever necessary so as to achieve the aims of 
the Directive. Given the cross-border nature of risks arising in the AIFM sector, a prerequisite 
for  effective  macro-prudential  oversight  will  be  the  timely  sharing  of  relevant  macro-
prudential data at the European, or even global, level. The competent authorities of the home 
Member State will thus be required to transmit relevant macro-prudential data, in a suitably 
aggregated  format,  to  public  authorities  in  other  Member  States.  In  case  of  disagreement 

EN 

10 

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between  competent  authorities  the  matter  shall  be  referred  to  CESR  for  mediation  with  the 
aim to reach a rapid and effective solution. The competent authorities shall duly consider the 
advice of CESR. 

3.6. 

Budgetary Implications 

The proposal has no implications for the Community budget. 

EN 

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2009/0064 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

on Alternative Investment Fund Managers and amending Directives 2004/39/EC and 
2009/…/EC 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
47(2) thereof, 

Having regard to the proposal from the Commission5, 

Having regard to the opinion of the European Economic and Social Committee6, 

Having regard to the opinion of the European Central Bank7, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty8, 

Whereas: 

(1)  Managers of alternative investment funds (AIFM) are responsible for the management 
of a significant amount of invested assets in Europe, account for significant amounts 
of trading in markets for financial instruments, and can exercise an important influence 
on markets and companies in which they invest; 

(2) 

(3) 

The  impact  of  AIFM  on  the  markets  in  which  they  operate  is  largely  beneficial,  but 
recent financial difficulties have underlined how activities of AIFM may also serve to 
spread  or  amplify  risks  through  the  financial  system.  Uncoordinated  national 
responses  to  these  risks  make  the  efficient  management  of  these  risks  difficult.  This 
Directive  therefore  aims  at  establishing  common  requirements  governing  the 
authorisation and supervision of AIFM in order to provide a coherent approach to the 
related risks and their impact on investors and markets in the Community. 

Recent difficulties in financial markets have underlined that many AIFM strategies are 
vulnerable  to  some  or  several  important  risks  in  relation  to  investors,  other  market 
participants  and  markets.  In  order 
to  provide  comprehensive  and  common 
arrangements  for  supervision,  it  is  necessary  to  establish  a  framework  capable  of 

5 
6 
7 
8 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 

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12 

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(4) 

(5) 

(6) 

addressing  those  risks  taking  into  account  the  diverse  range  of  investment  strategies 
and  techniques  employed  by  AIFM.  Consequently,  this  Directive  should  apply  to 
AIFM managing and marketing all types of funds which are not covered by Directive 
2009/…/EC  on  the  coordination  of  laws,  regulations  and  administrative  provisions 
relating  to  the  undertakings  for  collective  investment  in  transferable  securities 
(UCITS) (recast)9, irrespective of the legal or contractual manner in which the AIFM 
is  entrusted  with  this  responsibility.  AIFM  should  not  be  entitled  to  manage  UCITS 
within  the  meaning  of  Directive  2009/…/EC  on  the  basis of  authorisation  under  this 
Directive. 

The  Directive  lays  down  requirements  regarding  the  way  in  which  AIFM  should 
manage  alternative  investment  funds  (AIF)  under  their  responsibility.  It  would  be 
disproportionate to regulate the structure or  composition of the  portfolios  of the AIF 
managed  by  AIFM  and  it  would  be  difficult  to  provide  for  such  extensive 
harmonisation due to the very diverse types of AIF managed by AIFM. 

The  scope  of  this  Directive  should  be  confined  to  the  management  of  collective 
investment undertakings which raise capital from a number of investors with a view to 
investing  it  in  accordance  with  a  defined  investment  policy  on  the  principle  of  risk-
spreading  for  the  benefit  of  those  investors.  This  Directive  should  not  apply  to  the 
management  of  pension  funds  or  managers  of  non-pooled  investments  such  as 
endowments,  sovereign  wealth  funds  or  assets  hold  on  own  account  by  credit 
institutions, insurance or reinsurance undertakings. This Directive should neither apply 
to  actively  managed  investments  in  the  form  of  securities,  such  as  certificates, 
managed  futures,  or  index-linked  bonds.  It  should,  however,  cover  managers  of  all 
collective investment undertakings which are not required to be authorised as UCITS. 
Investment  firms  authorised  under  Directive  2004/39/EC  on  Markets  in  Financial 
Instruments10 should not be required to obtain an authorisation under this Directive in 
order to provide investment services in respect of AIF. Investment firms can however 
only  provide  investment  services  in  respect  of  AIF,  if  and  to  the  extent  the  units  or 
shares thereof can be marketed in accordance with this Directive. 

In order to avoid imposing excessive or disproportionate requirements, this Directive 
provides  for  an  exemption  for  AIFM  where  the  cumulative  AIF  under  management 
fall below a threshold of EUR 100 million. The activities of the AIFM concerned are 
unlikely to have significant consequences for financial stability or market efficiency. 
For AIFM which only manage unleveraged AIF and do not grant investors redemption 
rights  during  a  period  of  five  years  a  specific  threshold  of  EUR  500  million  applies. 
This  specific  threshold  is  justified  by  the  fact  that  managers  of  unleveraged  funds, 
specialised  in  long  term  investments,  are  even  less  likely  to  cause  systemic  risks. 
Furthermore,  the  five  years  lock-up  of  investors  eliminates  liquidity  risks.  AIFM 
which  are  exempt  from  this  Directive  should  continue  to  be  subject  to  any  relevant 
national legislation. They should however be allowed to be treated as AIFM subject to 
the opt-in procedure foreseen by this Directive. 

(7) 

This  Directive  aims  at  providing  a  harmonised  and  stringent  regulatory  and 
supervisory  framework  for  the  activities  of  AIFM.  Authorisation  in  accordance  with 

9 
10 

OJ L […], […], p. […]. 
OJ L 145, 30.4.2004, p. 1. 

EN 

13 

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this  Directive  should  cover  the  services  of  management  and  administration  of  AIF 
throughout the Community. In addition, authorised AIFM should be entitled to market 
AIF in the Community to professional investors, subject to a notification procedure. 

(8) 

This  Directive  does  not  regulate  AIF  and  therefore  does  not  prevent  Member  States 
from adopting or from continuing to apply additional requirements in respect of AIF 
established  on  their  territory.  The  fact  that  a  Member  State  may  impose  additional 
requirements  on  AIF  domiciled  on  its  territory  should  not  prevent  the  exercise  of 
rights of AIFM authorised in other Member States in accordance with this Directive to 
market  to  professional  investors  AIF  domiciled  outside  the  Member  State  imposing 
additional  requirements  and  which  are  therefore  not  subject  to  and  do  not  need  to 
comply with those additional requirements.  

(9)  Without prejudice to the application of other instruments of Community law, Member 
States  may  impose  stricter  requirements  on  AIFM  whenever  AIFM  market  an  AIF 
solely to retail investors or whenever AIFM market the same AIF both to professional 
and retail investors, irrespective of whether units or shares of this AIF are marketed on 
a  domestic  or  cross-border  basis.  These  two  exceptions  enable  Member  States  to 
impose  additional  safeguards  which  they  deem  necessary  for  the  protection  of  retail 
investors. This takes account of the fact that AIF are often illiquid and subject to high 
risk  of  substantial  capital  loss.  Investment  strategies  in  relation  to  AIF  are  generally 
not  adapted  to  the  investment  profile  or  needs  of  retail  investors.  They  are  more 
suitable for professional investors and investors having a sufficiently large investment 
portfolio  so  as  to  be  able  to  absorb  the  higher  risks  of  loss  associated  with  these 
investments.  Nevertheless,  Member  States  may  allow  the  marketing  of  all  or  certain 
types  of  AIF  managed  by  AIFM  to  retail  investors  on  their  territory.  Against  the 
background  of  paragraphs  4  and  5  of  Article  19  of  Directive  2004/39/EC,  Member 
States  should  continue  to  ensure  that  appropriate  provision  is  made  whenever  they 
permit  the  marketing  of  AIF  to  retail  investors.  Investment  firms  authorised  in 
accordance  with  Directive  2004/39/EC  which  provide  investment  services  to  retail 
clients have to take into account these additional safeguards when assessing whether a 
certain AIF is suitable or appropriate for an individual retail client. Where a Member 
State  allows  the  marketing  of  AIF  to  retail  investors  on  its  territory,  this  possibility 
should  be  available  regardless  of  the  Member  State  where  the  AIFM  is  established, 
and any additional provisions should apply on a non-discriminatory basis. 

(10) 

(11) 

(12) 

In order to ensure a high level of protection of clients of investment firms within the 
meaning  of  Directive  2004/39/EC,  AIF  should  not  be  considered  as  non-complex 
financial  instruments  for  the  purposes  of  that  Directive.  That  Directive  should 
therefore be amended accordingly. 

It  is  necessary  to  provide  for  the  application  of  minimum  capital  requirements  to 
ensure  the  continuity  and  the  regularity  of  the  management  services  provided  by  the 
AIFM. The ongoing capital requirements should cover the potential exposure of AIFM 
to professional liability in respect of all their activities, including management services 
provided under delegation or on the basis of a mandate. 

It  is  necessary  to  ensure  that  AIFM  operate  subject  to  robust  governance  controls. 
AIFM should be managed and organised so as to minimise conflicts of interest. Recent 
developments  underline  the  crucial  need  to  separate  asset  safe-keeping  and 
management  functions,  and  segregate  investor  assets  from  those  of  the  manager.  To 

EN 

14 

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this  end,  the  AIFM  has  to  appoint  a  depositary  and  entrust  it  with  the  booking  of 
investor money on a segregated account, the safe-keeping of financial instruments and 
the  verification  of  whether  the  AIF  or  the  AIFM  on  behalf  of  the  AIF  has  obtained 
ownership of all other assets. 

(13)  Reliable and objective asset valuation is crucial for the protection of investor interests. 
Different  AIFM  employ  different  methodologies  and  systems  for  valuing  assets, 
depending  on  the  assets  and  markets  in  which  they  predominantly  invest.  It  is 
appropriate to recognise these differences but to, nevertheless, require the valuation of 
assets to be undertaken by an entity which is independent of the AIFM.  

(14)  AIFM may delegate responsibility for the performance of its functions in accordance 
with  this  Directive.  AIFM  should  remain  responsible  for  the  proper  performance  of 
their functions and compliance with the rules set out in this Directive.  

(15)  Given that AIFM employing high levels of leverage in their investment strategies may, 
under  certain  conditions,  contribute  to  the  build  up  of  systemic  risk  or  disorderly 
markets,  special  requirements  should  be  imposed  on  AIFM  using  certain  techniques 
giving rise to particular risks. The information needed to detect, monitor and respond 
to those risks has not been collected in a consistent way throughout the Community, 
and  shared  across  Member  States  so  as  to  identify  potential  sources  of  risk  to  the 
stability  of  financial  markets  in  the  Community.  To  remedy  this  situation,  special 
requirements should apply to AIFM, which consistently use high levels of leverage in 
their  investment  strategies.  Those  AIFM  should  be  obliged  to  disclose  information 
regarding  their  use  and  sources  of  leverage.  That  information  should  be  aggregated 
and  shared  with  other  authorities  in  the  Community,  so  as  to  facilitate  a  collective 
analysis  of  the  impact  of  the  leverage  of  those  AIFM  on  the  financial  system  in  the 
Community, as well as a common response. 

(16)  Activities of AIFM based on the use of high levels of leverage could be detrimental to 
the stability and efficient functioning of financial markets. It is considered necessary to 
allow the Commission to impose limits on the level of leverage that AIFM could use, 
in  particular  in  those  cases  where  AIFM  employ  high  levels  of  leverage  on  a 
systematic  basis.  The  limits  to  the  maximum  amount  of  leverage  should  take  into 
account  aspects  related  to  the  source  of  leverage  and  the  strategies  employed  by  the 
AIFM.  They  should  also  take  into  account  the  essentially  dynamic  nature  of  the 
management of leverage by most AIFM using a high level of leverage. In this respect 
the limits to leverage could for example either consist in a threshold that should not be 
breached  at  any  point  in  time  or  a  limit  on  the  average  leverage  employed  during  a 
given period (i.e. monthly or quarterly). 

(17) 

It  is  necessary  to  ensure  that  an  AIFM  provides  all  companies  over  which  it  can 
exercise  a  controlling  or  dominant  influence  with  the  information  necessary  for  the 
company to assess how this controlling influence in the short to medium term impacts 
the  company's  economic  and  social  situation.  To  this  end,  particular  requirements 
should  apply  to  AIFM  managing  AIF  which  are in a position to exercise  controlling 
influence over a listed or non-listed company, in particular to notify the existence of 
this position and to disclose information to the company and all its other shareholders 
about the intentions of the AIFM with regard to the future business development and 
other  planned  changes  of  the  controlled  company.  In  order  to  ensure  transparency 
regarding the controlled company, enhanced reporting requirements should apply. The 

EN 

15 

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annual  reports  of  the  relevant  AIF  should  be  supplemented  with  information  that  is 
specific to the type of investment and the controlled company. 

(18)  Many  AIFM  currently  manage  AIF  domiciled  in  third  countries.  It  is  appropriate  to 
allow  authorised  AIFM  to  manage  AIF  domiciled  in  third  countries,  subject  to 
appropriate  arrangements  that  ensure  the  sound  administration  of  those  AIF  and  the 
effective safe-keeping of assets invested by Community investors.  

(19)  AIFM should also be able to market AIF domiciled in third countries to professional 
investors  both  in  the  home  Member  State  of  the  AIFM  and  in  other  Member  States. 
That  right  should  be  subject  to  notification  procedures  and  the  existence  of  a  tax 
agreement  with  the  third  country  concerned  which  ensures  an  efficient  exchange  of 
information with the tax authorities in the domicile of the Community investors. Given 
the fact that such AIF and the third country in which they are domiciled have to meet 
additional  requirements,  some  of  which  first  have  to  be  laid  down  in  implementing 
measures,  the  rights  granted  under  the  Directive  to  market  AIF  domiciled  in  third 
countries to professional investors should only become effective three years after the 
transposition period. In the meantime Member States may allow or continue to allow 
AIFM  to  market  AIF  domiciled  in  third  countries  to  professional  investors  on  their 
territory subject to national law. During this period of three years, AIFM can however 
not market such AIF to professional investors in other Member States on the basis of 
rights granted under this Directive. 

(20) 

It  is  appropriate  to  allow  the  AIFM  to  delegate  administrative  tasks  to  an  entity 
established  in  a  third  country  provided  that  necessary  safeguards  are  in  place. 
Similarly, a depositary may delegate its depositary tasks in respect of AIF domiciled in 
a  third  country  to  a  depositary  domiciled  in  that  third  country,  provided  that  the 
legislation of that third country ensures a level of protection of investor interests which 
is  equivalent  to  that  in  the  Community.  Under  certain  conditions,  it  should  also  be 
possible  for  the  AIFM  to  appoint  an  independent  valuator  established  in  a  third 
country. 

(21)  Subject to the existence of an equivalent regulatory framework in a third country, as 
well  as  of effective  access for AIFM  established  in  the  Community  to the  market of 
that third country, Member States should be allowed to authorise AIFM in accordance 
with the provisions of this Directive, without requiring that it has a registered office in 
the  Community,  after  a  period  of  three  years  as  from  the  end  of  the  transposition 
period. This period takes account of the fact that such AIFM and the third country in 
which  they  are  domiciled  have  to  meet  additional  requirements  some  of  which  first 
have to be laid down by implementing measures. 

(22) 

It is necessary to clarify the powers and duties of competent authorities responsible for 
implementing  this  Directive,  and  to  strengthen  the  mechanisms  needed  to  ensure  the 
necessary level of cross-border supervisory cooperation. 

(23)  The relative importance of the activities of AIFM in some financial markets, especially 
in  those  cases  where  the  AIF  they  manage  do  not  have  a  material  interest  in  the 
underlying  products  or  instruments  from  which  those  markets  derive,  could,  under 
some circumstances, hinder the efficient functioning of those markets. For example it 
could  make  those  markets  excessively  volatile  or  affect  the  correct  pricing  of  the 
instruments  traded  in  them.  It  is  therefore  considered  necessary  to  make  sure  the 

EN 

16 

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competent authorities enjoy the powers necessary to monitor the activities of AIFM in 
those markets and to intervene in those circumstances where it would be necessary to 
protect their orderly functioning. 

(24)  Member States should lay down rules on sanctions applicable to infringements of the 
provisions  of  this  Directive  and  ensure  that  they  are  implemented.  The  sanctions 
should be effective, proportionate and dissuasive. 

(25)  Any  exchange  or  transmission  of  information  between  competent  authorities,  other 
authorities,  bodies  or  persons  should  be  in  accordance  with  the  rules  on  transfer  of 
personal data as laid down in Directive 95/46/EC of the European Parliament and of 
the  Council  of  24  October  1995  on  the  protection  of  individuals  with  regard  to  the 
processing of personal data and on the free movement of such data11. 

(26)  The measures necessary for the implementation of this Directive should be adopted in 
accordance  with  Council  Decision  1999/468/EC  of  28  June  1999  laying  down  the 
procedures for the exercise of implementing powers conferred on the Commission12. 

(27) 

In particular the Commission should be empowered to adopt the measures necessary 
for  the  implementation  of  this  Directive.  In  this  respect,  the  Commission  should  be 
able  to  adopt  measures  determining  the  procedures  under  which  AIFM  managing 
portfolios of AIF whose assets under management do not exceed the threshold set out 
in  this  Directive  may  exercise  their  right  to  be  treated  as  AIFM  covered  by  this 
Directive.  These  measures  are  also  designed  to  specify  the  criteria  to  be  used  by 
competent  authorities  to  assess  whether  AIFM  comply  with  their  obligations  as 
regards  their  conduct  of  business,  the  type  of  conflicts  of  interests  AIFM  have  to 
identify, as well as the reasonable steps AIFM are expected to take in terms of internal 
and  organizational  procedures  in  order  to  identify,  prevent,  manage  and  disclose 
conflicts of interest. They are designed to specify the risk management requirements to 
be employed by AIFM as a function of the risks which the AIFM incurs on behalf of 
the  AIF  that  it  manages  as  well  as  any  arrangements  needed  to  enable  AIFM  to 
manage  the  particular  risks  associated  with  short  selling  transactions,  including  any 
relevant  restrictions  that  might  be  needed  to  protect  the  AIF  from  undue  risk 
exposures. They are designed to specify the liquidity management requirements of this 
Directive  and  in  particular  the  minimum  liquidity  requirements  for  AIF.  They  are 
designed to specify the requirements that originators of securitisation instruments have 
to meet in order for an AIFM to be allowed to invest in such instruments issued after 1 
January 2011. They are as well designed to specify the requirements that AIFM have 
to comply with when investing in such securitisation instruments. They are designed 
to  specify  the  criteria  under  which  a  valuator  can  be  considered  independent  in  the 
meaning of this Directive. They are designed to specify the conditions under which the 
delegation of AIFM functions should be approved and the conditions under which the 
manager  could  no  longer  be  considered  to  be  the  manager  of  the  AIF  in  case  of 
excessive  delegation.  They  are  designed  to  specify  the  content  and  format  of  the 
annual  report  that  AIFM  have  to  make  available  for  each  AIF  they  manage  and  to 
specify the disclosure obligations of AIFM to investors and reporting requirements to 
competent  authorities  as  well  as  their  frequency.  They  are  designed  to  specify  the 

11 
12 

OJ L 281, 23.11.1995, p. 31. 
OJ L 184, 17.7.1999, p. 23.  

EN 

17 

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disclosure  requirements  imposed  on  AIFM  as  regards  leverage  and  the  frequency  of 
reporting to competent authorities and of disclosure to investors. They are designed to 
setting limits to the level of leverage AIFM can employ when managing AIF They are 
designed  to  determine  the  detailed  content  and  the  way  AIFM  acquiring  controlling 
influence in issuers and non-listed companies should fulfil their information obligation 
towards  issuers  and  non-listed  companies  and  their  respective  shareholders  and 
representatives  of employees,  including the information to be provided in the annual 
reports of the AIF they manage. They are designed to specify the types of restrictions 
or conditions that can be imposed on the marketing of AIF to professional investor in 
the home Member State of the AIFM. They are designed to specify general criteria for 
assessing  equivalence  of  valuation  standards  of  third  countries  where  the  valuator  is 
established  in  a  third  country,  the  equivalence  of  legislation  of  third  countries 
regarding depositaries and, for the purpose of the authorisation of AIFM established in 
third  countries,  the  equivalence  of  prudential  regulation  and  ongoing  supervision. 
They  are  designed  to  specify  general  criteria  for  assessing  whether  third  countries 
grant  Community  AIFM  effective  market  access  comparable  to  that  granted  by  the 
Community  to  AIFM  from  third  countries.  They  are  designed  to  specify  the 
modalities,  content  and  frequency  of  exchange  of  information  regarding  AIFM 
between the competent authorities of the home Member State of the AIFM and other 
competent  authorities  where  the  AIFM  individually  or  collectively  with  other  AIFM 
may have an impact on the stability of systemically relevant financial institutions and 
the orderly functioning of markets. They are designed to specify the procedures for on-
the-spot verifications and investigations. 

(28)  Since  those  measures  are  of  general  scope  and  are  designed  to  amend  non-essential 
elements of this Directive, by supplementing it with new non-essential elements, they 
must  be adopted in accordance with the regulatory procedure with scrutiny provided 
for  in  Article  5a  of  Decision  1999/468/EC.  Measures  not  falling  under  the  above 
category  should  be  subject  to  the  regulatory  procedure  provided  in  Article  5  of  that 
Decision. Those measures are designed to state that the fund valuation standards of a 
specific third country are equivalent to those applicable in the Community where the 
valuator is established in a third country. They are designed to state that the legislation 
on  depositaries  of  a  specific  third  country  is  equivalent  to  this  Directive.  They  are 
designed to state that the legislation on prudential regulation and on-going supervision 
of AIFM in a specific third country is equivalent to this Directive. They are designed 
to  state  whether  a  specific  third  country  grants  Community  AIFM  effective  market 
access comparable to that granted by the Community to AIFM from that third country. 
They are designed to specify standard models for notification and attestations and to 
specify the procedure for the exchange of information between competent authorities. 

(29)  Since  the  objectives  of  the  action  to  be  taken,  namely  to  ensure  a  high  level  of 
consumer  and  investor  protection  by  laying  down  a  common  framework  for  the 
authorisation and supervision of AIFM cannot be sufficiently achieved by the Member 
States,  as  evidenced  by  the  deficiencies  of  existing  nationally  based  regulation  and 
oversight  of  these  actors,  and  can  therefore,  be  better  achieved  at  Community  level, 
the Community may adopt measures, in accordance with the principle of subsidiarity 
as  set  out  in  Article  5  of  the  Treaty.  In  accordance  with  the  principle  of 
proportionality,  as  set  out  in  that  Article,  this  Directive  does  not  go  beyond  what  is 
necessary in order to achieve those objectives. 

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HAVE ADOPTED THIS DIRECTIVE: 

Chapter I  
General provisions 

Article 1 
Subject matter 

This Directive lays down the rules for the authorisation, ongoing operation and transparency 
of the managers of alternative investment funds (AIFM). 

Article 2 
Scope 

1. 

This Directive shall apply to all AIFM established in the Community, which provide 
management services to one or more alternative investment funds (AIF) irrespective 
of: 

(a)  whether the AIF is domiciled inside or outside of the Community; 

(b)  whether the AIFM provides its services directly or by delegation; 

(c)  whether the AIF belongs to the open-ended or closed-ended type;  

(d) 

the legal structure of the AIF and of the AIFM. 

An  AIFM  authorised  in  accordance  with  this  Directive  to  provide  management 
services to one or more AIF is also entitled to market shares or units of these AIF to 
professional  investors  in  the  Community  subject  to  the  conditions  laid  down  in 
Chapter VI and, where relevant, Article 35. 

2. 

This Directive shall not apply to any of the following: 

(a)  AIFM  which  either  directly  or  indirectly  through  a  company  with  which  the 
AIFM is linked by common management or control, or by a substantive direct 
or indirect holding, manage portfolios of AIF whose assets under management, 
including any assets acquired through use of leverage, in total do not exceed a 
threshold of 100 million Euro or 500 millions euros when the portfolio of AIF 
consists  of  AIF  that  are  not  leveraged  and  with  no  redemption  rights 
exercisable during a period of 5 years following the date of constitution of each 
AIF; 

(b)  AIFM  established  in  the  Community  which  do  not  provide  management 
services  to  AIF  domiciled  in  the  Community  and  do  not  market  AIF  in  the 
Community; 

(c)  UCITS or their management or investment companies authorised in accordance 

with Directive 2009/…/EC [the UCITS Directive]; 

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(d) 

(e) 

(f) 

credit institutions which are covered by Directive 2006/48/EC of the European 
Parliament  and  the  Council  of  14  June  2006  relating  to  the  taking  up  and 
pursuit of the business of credit institutions (recast); 

institutions  which  are  covered  by  Directive  2003/41/EC  of  the  European 
Parliament and the Council of 3 June 2003 on the activities and supervision of 
institutions for occupational retirement provision13; 

institutions which are covered by the First Council Directive 73/239/EEC of 24 
July  1973  on  the  coordination  of  laws,  regulations  and  administrative 
provisions  relating  to  the  taking-up  and  pursuit  of  the  business  of  direct 
insurance  other  than  life  assurance14,  Directive  2002/83/EC  of  the  European 
Parliament and of the Council of 5 November 2002 concerning life assurance15 
and  Directive  2005/68/EC  of  the  European  Parliament  and  Council  of  16 
November 2005 on reinsurance and amending Council Directives 73/239/EEC, 
92/49/EEC as well as Directives 98/78/EC and 2002/83/EC16; 

(g) 

supranational institutions, such as the World Bank, the IMF, the ECB, the EIB, 
the EIF, other supranational institutions and similar international organisations, 
in case such institutions or organisations manage one or several AIFs. 

Member  States  shall  ensure  that  AIFM  not  reaching  the  threshold  set  out  in 
paragraph  2(a)  are  entitled  to  be  treated  as  AIFM  falling  under  the  scope  of  this 
Directive. 

The Commission shall adopt implementing measures with a view to determining the 
procedures  under  which  AIFM  managing  portfolios  of  AIF  whose  assets  under 
management do not exceed the threshold set out in paragraph 2(a) may exercise their 
right under paragraph 3. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

3. 

4. 

Article 3 
Definitions 

For the purpose of this Directive, the following definitions shall apply: 

(a) 

'Alternative  investment  fund'  or  AIF  means  any  collective  investment 
undertaking,  including  investment  compartments  thereof  whose  object  is  the 
collective  investment  in  assets  and  which  does  not  require  authorisation 
pursuant to Article 5 of Directive 2009/…/EC [the UCITS Directive];  

13 
14 
15 
16 

OJ L 235, 23.9.2003, p. 10. 
OJ L 228, 16.8.1973, p. 3. 
OJ L 345, 19.12.2002, p. 1. 
OJ L 323, 9.12.2005, p. 1. 

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(b) 

(c) 

(d) 

(e) 

'manager of alternative investment funds ' or AIFM means any legal or natural 
person whose regular business is to manage one or several AIF; 

'Valuator' means any legal or natural person or company valuing the assets or 
establishing the value of the shares or units of an AIF; 

'management services' means the activities of managing and administering one 
or more AIF on behalf of one or more investors;  

'Marketing'  means  any  general  offering  or  placement  of  units  or  shares  in  an 
AIF to or with investors domiciled in the Community, regardless of at whose 
initiative the offer or placement takes place; 

(f) 

'Professional  investor'  means  any  investor  within  the  meaning  of  Annex  II  of 
Directive 2004/39/EC; 

(g) 

'Retail investor' means any investor who is not a professional investor; 

(h) 

(i) 

(j) 

(k) 

(l) 

(m) 

'home  Member  State'  means  the  Member  State  in  which  the  AIFM  has  been 
authorised pursuant to Article 6; 

'host  Member  State'  means  a  Member  State,  other  than  the  home  Member 
State, within the territory of which an AIFM provides management services to 
AIF or markets shares or units thereof;  

'Competent authorities' means the national authorities which are empowered by 
law or regulation to supervise AIFM; 

'Financial instrument' means an instrument as specified in Annex I Section C of 
Directive 2004/39/EC; 

'Leverage' means any method by which the AIFM increases the exposure of an 
AIF it manages to a particular investment whether through borrowing of cash 
or  securities,  or  leverage  embedded  in  derivative  positions  or  by  any  other 
means;  

‘Qualifying  holding’  means  any  direct  or  indirect  holding  in  an  AIFM  which 
represents 10% or more of the capital or of the voting rights or which makes it 
possible to exercise a significant influence over the management of the AIFM 
in which that holding subsists. For this purpose the voting rights referred to in 
Articles 9 and 10 of Directive 2004/109/EC of the European Parliament and of 
the  Council  of  15  December  2004  on  the  harmonisation  of  transparency 
requirements  in  relation  to  information  about  issuers  whose  securities  are 
admitted to trading on a regulated market17 shall be taken into account; 

(n) 

'Issuer'  means  any  issuer  of  shares  domiciled  in  the  Community  within  the 
meaning of Article 2(1)(d) of Directive 2004/109/EC; 

17 

OJ L 390, 31.12.2004, p. 38. 

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(o) 

'Representatives of employees' means representatives of employees as defined 
by Article 2(e) of Directive 2002/14 of 11 March 2002 establishing a general 
framework  for 
the  European 
Community18. 

informing  and  consulting  employees 

in 

Chapter II 

AUTHORISATION OF AIFM 

Article 4 
Requirement for authorisation 

1. 

Member  States  shall  ensure  that  no  AIFM  covered  by  this  Directive  provides 
management  services  to  any  AIF  or  markets  shares  or  units  thereof  without  prior 
authorisation. 

Entities which are neither authorised in accordance with this Directive nor, in case of 
AIFM  not  covered  by  this  Directive,  in  accordance  with  the  national  law  of  a 
Member  State,  shall  not  be  allowed  to  provide  management  services  to  AIF  or 
market units or shares thereof within the Community.  

2. 

AIFM  may  be  authorised  to  provide  management  services  either  for  all  or  certain 
types of AIF. 

An AIFM may hold an authorisation pursuant to this Directive and be authorised as a 
management  or  investment  company  pursuant  to  Directive  2009/…/EC  –  [UCITS 
Directive] 

Article 5 
Procedure for granting the authorisation 

An  AIFM  applying  for  an  authorisation  shall  provide  the  following  to  the  competent 
authorities of the Member State where it has its registered office: 

(a) 

(b) 

(c) 

information  on  the  identities  of  the  AIFM  shareholders  or  members,  whether 
direct or indirect, natural or legal persons, that have qualifying holdings and of 
the amounts of those holdings.  

a  programme  of  activity,  including  information  on  how  the  AIFM  intends  to 
comply with its obligations under chapters III, IV and where applicable, V, VI 
and VII; 

detailed information about the characteristics of the AIF it intends to manage, 
including the identification of the Member States or third countries on whose 
territory they are domiciled; 

18 

OJ L 80, 23.3.2002, p. 29. 

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22 

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(d) 

(e) 

the fund rules or instruments of incorporation of each AIF the AIFM intends to 
manage; 

information  on  arrangements  made  for  the  delegation  to  third  parties  of 
management  services  functions  as  referred  to  in  Article  18  and  where 
applicable Article 35; 

(f) 

information on the arrangements made for the safe-keeping of the assets of AIF 
including, where applicable, arrangements made under Article 38; 

(g) 

any additional information referred to in Article 20(1). 

The AIFM must have its head office in the same Member State as its registered office. 

Article 6 

Conditions for granting the authorisation 

1. 

2. 

The competent authorities of the home Member State shall grant authorisation only if 
they are satisfied that the AIFM will be able to fulfil the conditions of this Directive. 

The authorisation shall be valid for all Member States. 

The  competent  authorities  of  the  home  Member  State  shall  refuse  authorisation 
where the effective exercise of their supervisory functions is prevented by any of the 
following: 

(a) 

the laws, regulations or administrative provisions of a third country governing 
one or more natural or legal persons with which the AIFM has close links as 
defined in Article 4(31)of Directive 2004/39/EC; 

(b)  difficulties  involved  in  the  enforcement  of  those  laws,  regulations  and 

administrative provisions . 

3. 

The  authorisation  shall  cover  any  delegation  arrangements  made  by  the  AIFM  and 
communicated in the application. 

The  competent  authorities  of  the  home  Member  State  may  restrict  the  scope  of  the 
authorisation,  in  particular  as  regards  the  type  of  AIF  the  AIFM  is  allowed  to 
manage, as well as the delegation arrangements. 

4. 

5. 

The  competent  authorities  shall  inform  the  applicant,  within  two  months  of  the 
submission of a complete application, whether or not authorisation has been granted. 

Reasons shall be given whenever an authorisation is refused or when restrictions are 
imposed. 

AIFM may start providing management services in the home Member State as soon 
as the authorisation is granted. 

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23 

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Article 7 
Changes in the scope of the authorisation 

AIFM  shall,  before  implementation,  notify  the  competent  authorities  of  the  home  Member 
State  of  any  change  regarding  the  information  provided  in  their  initial  application  that  may 
substantially  affect  the  conditions  under  which  the  authorisation  has  been  granted,  in 
particular changes of the investment strategy and policy of any AIF managed by it, of the AIF 
rules or instruments of incorporation and the identity of any further AIF the AIFM intends to 
manage. 

The competent authorities shall, within a month of receipt of that notification, either approve, 
or impose restrictions, or reject those changes. 

Article 8 
Withdrawal of the authorisation 

The  competent  authorities  may  withdraw  the  authorisation  issued  to  an  AIFM  where  that 
AIFM: 

(1)  has  obtained  the  authorisation  by  making  false  statements  or  by  any  other 

irregular means; 

(2)  no longer fulfils the conditions under which authorisation was granted; 

(3)  has  seriously  or  systematically  infringed  the  provisions  transposing  this 

Directive. 

Chapter III 

Operating conditions for AIFM 

SECTION 1: CONDUCT OF BUSINESS 

Article 9 
General principles 

1. 

Member  States  shall  ensure  that  AIFM  may  provide  their  management  services 
within the Community only if they comply with the provisions of this Directive on 
an ongoing basis. 

The AIFM shall: 

(a) 

(b) 

act  honestly,  with  due  skill,  care  and  diligence  and  fairly  in  conducting  its 
activities; 

act in the best interests of the AIF it manages, the investors of those AIF and 
the integrity of the market;  

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24 

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(c) 

ensure that all AIF investors are treated fairly. 

No  investor  may  obtain  a  preferential  treatment, unless this is disclosed in the AIF 
rules or instruments of incorporation. 

2. 

The  Commission  shall  adopt  implementing  measures  specifying  the  criteria  to  be 
used by competent authorities to assess whether AIFM comply with their obligation 
under paragraph 1. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 10 
Conflicts of interest 

1. 

2. 

Member States shall require AIFM to take all reasonable steps to identify conflicts of 
interest  between  the  AIFM,  including  their  managers,  employees  or  any  person 
directly  or  indirectly  linked  to  the  AIFM  by  control,  and  the  investors  in  AIF 
managed by the AIFM or between one investor and another that arise in the course of 
managing one or more AIF.  

AIFM  shall  maintain  and  operate  effective  organisational  and  administrative 
arrangements with a view to taking all reasonable steps designed to prevent conflicts 
of interest from adversely affecting the interests of the AIF and its investors. 

tasks  and 
AIFM  shall  segregate  within 
responsibilities which may be regarded as incompatible with each other. AIFM shall 
assess  whether  its  operating  conditions  may  involve  any  other  material  conflicts  of 
interest and disclose them to the AIF investors. 

its  own  operating  environment, 

Where  organisational  arrangements  made  by  the  AIFM  to  manage  conflicts  of 
interest are not sufficient to ensure, with reasonable confidence, that risks of damage 
to investors' interests will be prevented, the AIFM shall clearly disclose the general 
nature or sources of conflicts of interest to the investors before undertaking business 
on their behalf, and develop appropriate policies and procedures. 

3. 

The Commission shall adopt implementing measures: 

(a) 

(b) 

further specifying the types of conflicts of interests as referred to in paragraph 
1; 

specifying the reasonable steps AIFM are expected to take in terms of internal 
and  organizational  procedures  in  order  to  identify,  prevent,  manage  and 
disclose conflicts of interest. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

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Article 11 
Risk management 

1. 

2. 

The  AIFM  shall  ensure  that  the  functions  of  risk  management  and  portfolio 
management are separated and subject to separate reviews.  

The  AIFM  shall  implement  risk  management  systems  in  order  to  measure  and 
monitor  appropriately  all  risks  associated  to  each  AIF  investment  strategy  and  to 
which each AIF is or can be exposed to. 

The AIFM shall review the risk management systems at least once a year and adapt 
it, whenever necessary. 

3. 

The AIFM shall at least: 

(a) 

(b) 

(c) 

implement  an  appropriate,  documented  and  regularly  updated  due  diligence 
process  when  investing  on  behalf  of  the  AIF,  according  to  the  investment 
strategy, the objectives and risk profile of the AIF;  

ensure that the risks associated to each investment position of the AIF and their 
overall effect on the AIF's portfolio can be accurately identified, measured and 
monitored at any time through appropriate stress testing procedures;  

ensure  that  the  risk  profile  of  the  AIF  shall  correspond  to  the  size,  portfolio 
structure  and  investment  strategies  and  objectives  of  the  AIF  as  laid  down  in 
the AIF rules or instruments of incorporation.  

4. 

In the case of AIFM which engage in short selling when investing on behalf of one 
or more AIF, Member States shall ensure that the AIFM operates procedures which 
provide it with access to the securities or other financial instruments at the date when 
the  AIFM  committed  to  deliver  them,  and  that  the  AIFM  implements  a  risk 
management procedure which allows the risks associated with the delivery of short 
sold securities or other financial instruments to be adequately managed. 

5. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the 
following:  

(a) 

(b) 

the  risk  management  requirements  to  be  employed  by  AIFM  as  a  function  of 
the risks which the AIFM incurs on behalf of the AIF that it manages;  

any  arrangements  needed  to  enable  AIFM  to  manage  the  particular  risks 
associated  with  short  selling  transactions,  including  any  relevant  restrictions 
that might be needed to protect the AIF from undue risk exposures. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

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Article 12 
Liquidity management 

1. 

2. 

For  each  AIF  it  manages  the  AIFM  shall  employ  an  appropriate  liquidity 
management system and adopt procedures which ensure that the liquidity profile of 
the investments of the AIF complies with its underlying obligations.  

The  AIFM  shall  regularly  conduct  stress  tests,  both  under  normal  and  exceptional 
liquidity conditions and monitor the liquidity risk of the AIF accordingly.  

AIFM  shall  ensure  that  each  AIF  it  manages  has  a  redemption  policy  which  is 
appropriate to the liquidity profile of the investments of the AIF and which must be 
laid down in the AIF rules or instruments of incorporation. 

3 

The Commission shall adopt implementing measures further specifying: 

(a) 

the liquidity management requirements set out in paragraph 1 and 

(b) 

in particular, the minimum liquidity requirements for AIF which redeem units 
or shares more often than half-yearly. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 13 
Investment in securitisation positions 

In order to ensure cross-sectoral consistency and to remove misalignment between the interest 
of  firms  that  repackage  loans  into  tradeable  securities  and  other  financial  instruments 
(originators) and AIFM that invest in these securities or other financial instruments on behalf 
of  one  or  more  AIF,  the  Commission  shall  adopt  implementing  measures  laying  down  the 
requirements in the following areas: 

(a) 

the requirements that need to be met by the originator in order for an AIFM to 
be  allowed  to  invest  in  securities  or  other  financial  instruments  of  this  type 
issued  after  1  January  2011  on  behalf  of  one  or  more  AIF,  including 
requirements  that  ensure  that  the  originator  retains  a  net  economic  interest  of 
not less than 5 per cent; 

(b)  qualitative  requirements  that  must  be  met  by  AIFM  which  invest  in  these 

securities or other financial instruments on behalf of one or more AIF. 

Those  measures,  designed  to  amend  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny 
referred to in Article 49(3). 

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SECTION 2: CAPITAL REQUIREMENTS 

Article 14 
Initial and ongoing capital 

AIFM shall have own funds of at least EUR 125 000. 

Where the value of the portfolios of AIF managed by the AIFM exceeds EUR 250 million, the 
AIFM shall provide an additional amount of own funds; that additional amount of own funds 
shall  be  equal  to  0.02 %  of  the  amount  by  which  the  value  of  the  portfolios  of  the  AIFM 
exceeds EUR 250 million. 

Irrespective of the amount of the requirements set out in the first and second subparagraphs, 
the own funds of the AIFM shall never be less than the amount required under Article 21 of 
Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the 
capital adequacy of investment firms and credit institutions (recast)19. 

For the purposes of the first, second and third subparagraphs the following portfolios shall be 
deemed to be the portfolios of the AIFM: 

(a) 

any AIF portfolios managed by the AIFM, including AIF for which the AIFM 
has delegated one or more functions in accordance with Article 18; 

(b) 

any AIF portfolios that the AIFM is managing under delegation. 

SECTION 3: ORGANISATIONAL REQUIREMENTS 

Article 15 
General principles 

AIFM  shall,  at  all  times,  use  adequate  and  appropriate  resources  that  are  necessary  for  the 
proper performance of their management activities. 

They  shall  have  updated  systems,  documented  internal  procedures  and  regular  internal 
controls of their conduct of business, in order to mitigate and manage the risks associated with 
their activity. 

Article 16 
Valuation 

1. 

AIFM shall ensure that, for each AIF that it manages, a valuator is appointed which 
is independent of the AIFM to establish the value of assets acquired by the AIF and 
the value of the shares and units of the AIF. 

19 

OJ L 177, 30.6.2006, p. 201. 

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2. 

3. 

4. 

The valuator shall ensure that the assets, shares and units are valued at least once a 
year, and each time shares or units of the AIF are issued or redeemed if this is more 
frequent. 

AIFM  shall  ensure  that  the  valuator  has  appropriate  and  consistent  procedures  to 
value the assets of the AIF in accordance with existing applicable valuation standards 
and rules, in order to reflect the net asset value of the shares or units of the AIF. 

The  rules  applicable  to  the  valuation  of  assets  and  the  calculation  of  the  net  asset 
value per unit or share of the AIF shall be laid down in the law of the country where 
the AIF is domiciled or in the AIF rules or instruments of incorporation. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the  criteria 
under which a valuator can be considered independent in the meaning of paragraph 
1. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 17 
Depositary 

1. 

For  each  AIF  it  manages,  the  AIFM  shall  ensure  that  a  depositary  is  appointed  to 
fulfil, where relevant, the following tasks: 

(a) 

receive all payments made by investors when subscribing units or shares of an 
AIF  managed  by  the  AIFM  and  book  them  on  behalf  of  the  AIFM  in  a 
segregated account;  

(b) 

safe-keep any financial instruments which belong to the AIF; 

(c) 

verify  whether  the  AIF  or  the  AIFM  on  behalf  of  the  AIF  has  obtained  the 
ownership of all other assets the AIF invests in. 

2. 

An AIFM shall not act as depositary.  

The depositary shall act independently and solely in the interest of AIF investors. 

3. 

The  depositary  shall  be  a  credit  institution  having  its  registered  office  in  the 
Community  and  be  authorised  in  accordance  with  Directive  2006/48/EC  of  the 
European  Parliament  and  Council  of  14  June  2006  relating  to  the  taking  up  and 
pursuit of the business of credit institutions (recast)20. 

4. 

Depositaries may delegate their tasks to other depositaries. 

20 

OJ L 177, 30.6.2006, p. 1. 

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5. 

The depositary shall be liable to the AIFM and the investors of the AIF for any losses 
suffered by them as a result of its failure to perform its obligations pursuant to this 
Directive. 

In  case  of  any  loss  of  financial  instruments  which  the  depositary  safe-keeps,  the 
depositary  can  only  discharge  itself  of  its  liability  if  it  can  prove  that  it  could  not 
have avoided the loss which has occurred. 

Liability  to  AIF  investors  may  be  invoked  either  directly  or  indirectly  through  the 
AIFM, depending on the legal nature of the relationship between the depositary, the 
AIFM  and  the  investors.  The  depositary's  liability  shall  not  be  affected  by  any 
delegation referred to in paragraph 4. 

SECTION 4: DELEGATION OF AIFM FUNCTIONS 

Article 18 
Delegation 

1. 

AIFM which intend to delegate to third parties the task of carrying out on their behalf 
one  or  more  of  their  functions  shall  request  prior  authorisation  from  the  competent 
authorities of the home Member State for each delegation. 

The following conditions have to be complied with: 

(a) 

the third party must be creditworthy and the persons who effectively conduct 
the business must be of sufficiently good repute and sufficiently experienced; 

(b)  where  the  delegation  concerns  the  portfolio  management  or  the  risk 
management, the third party must also be authorised as an AIFM to manage an 
AIF of the same type; 

(c) 

(d) 

the delegation shall not prevent the effectiveness of supervision of the AIFM, 
and  in  particular  it  must  not  prevent  the  AIFM  from  acting,  or  the  AIF  from 
being managed, in the best interests of its investors; 

the  AIFM  must  demonstrate  that  the  third  party  is  qualified  and  capable  of 
undertaking  the  functions  in  question,  that  it  was  selected  with  due  care  and 
that the AIFM is in a position to monitor effectively at any time the delegated 
activity,  to  give  at  any  time  further  instructions  to  the  third  party  and  to 
withdraw  the  delegation  with  immediate  effect  when  this  is  in  the  interest  of 
investors. 

No  delegation  shall  be  given  to  the  depositary,  the  valuator,  or  to  any  other 
undertaking whose interests may conflict with those of the AIF or its investors. 

The  AIFM  shall  review  the  services  provided  by  each  third  party  on  an  ongoing 
basis. 

EN 

30 

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2. 

3. 

4. 

In  no  case  shall  the  AIFM's  liability  be  affected  by  the  fact  that  the  AIFM  has 
delegated functions to a third party, nor shall the AIFM delegate its functions to the 
extent that, in essence, it can no longer be considered to be the manager of the AIF. 

The third party may not sub-delegate any of the functions delegated to it. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the 
following: 

(a) 

the conditions for approving the delegation; 

(b) 

the  conditions  under  which  the  manager  could  no  longer  be  considered  to  be 
the manager of the AIF as set out in paragraph 2. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Chapter IV 
Transparency requirements 

Article 19 
Annual report 

1. 

An AIFM shall, for each of the AIF it manages, make available an annual report for 
each  financial  year.  The  annual  report  shall  be  made  available  to  investors  and 
competent  authorities  no  later  than  four  months  following  the  end  of  the  financial 
year. 

2. 

The annual report shall at least contain the following: 

(a) 

a balance-sheet or a statement of assets and liabilities;  

(b) 

an income and expenditure account for the financial year;  

(c) 

a report on the activities of the financial year; 

3. 

The  accounting  information  given  in  the  annual  report  shall  be  audited  by  one  or 
more  persons  empowered  by  law  to  audit  accounts  in  accordance  with  Directive 
2006/43/EC  of  the  European  Parliament  and  of  the  Council  of  17  May  2006  on 
statutory  audits  of  annual  accounts  and  consolidated  accounts,  amending  Council 
Directives  78/660/EEC  and  83/349/EEC  and 
repealing  Council  Directive 
84/253/EEC21. The auditor's report, including any qualifications, shall be reproduced 
in full in the annual report. 

21 

OJ L 157, 9.6.2006, p. 87. 

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31 

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4. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the  content 
and  format  of  the  annual  report.  These  measures  shall  be  adapted  to  the  type  of 
AIFM to which they apply. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 20 
Disclosure to investors 

1. 

AIFM shall ensure that AIF investors receive the following information before they 
invest in the AIF, as well as any changes thereof: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

a description of the investment strategy and objectives of the AIF, all the assets 
which  the  AIF  can  invest  in  and  of  the  techniques  it  may  employ  and  of  all 
associated  risks,  any  applicable  investment  restrictions,  the  circumstances  in 
which the AIF may use leverage, the types and sources of leverage permitted 
and the associated risks and of any restrictions to the use of leverage;  

a  description  of  the  procedures  by  which  the  AIF  may  change  its  investment 
strategy or investment policy, or both; 

a  description  of  the  legal  implications  of  the  contractual  relationship  entered 
into  for  the  purpose  of  investment,  including  information  on  jurisdiction, 
applicable law and on the existence, or not, of any legal instruments providing 
for  the  recognition  and  enforcement  of  judgments  on  the  territory  where  the 
fund is domiciled; 

the  identity  of  the  AIF's  depositary,  valuator,  auditor  and  any  other  service 
providers and a description of their duties and the investors' rights should any 
failure arise;  

a  description  of  any  delegated  management  or  depositary  function  and  the 
identity of the third party to whom the function has been delegated; 

a  description  of  the  AIF's  valuation  procedure  and,  where  applicable,  of  the 
pricing models for valuing assets, including the methods used in valuing hard-
to-value assets; 

a description of the AIF's liquidity risk management, including the redemption 
rights  both  in  normal  and  exceptional  circumstances,  existing  redemption 
arrangements  with  investors,  and  how  the  AIFM  ensures  a  fair  treatment  of 
investors; 

(h) 

a  description  of  all  fees,  charges  and  expenses  and  of  the  maximum  amounts 
thereof which are directly or indirectly borne by investors;  

(i)  whenever  an  investor  obtains  a  preferential  treatment  or  the  right  to  obtain 
preferential  treatment,  the  identity  of  the  investor  and  a  description  of  that 
preferential treatment;  

EN 

32 

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(j) 

the latest annual report. 

2. 

For each AIF an AIFM manages, it shall periodically disclose to investors: 

(a) 

the  percentage  of  the  AIF's  assets  which  are  subject  to  special  arrangements 
arising from their illiquid nature; 

(b) 

any new arrangements for managing the liquidity of the AIF; 

(c) 

the current risk profile of the AIF and the risk management systems employed 
by the AIFM to manage these risks. 

3. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the 
disclosure  obligations  of  AIFM  and  the  frequency  of  the  disclosure  referred  to  in 
paragraph  2.These  measures  shall  be  adapted  to  the  type  of  AIFM  to  which  they 
apply. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 21 
Reporting obligations to competent authorities 

1. 

AIFM shall regularly report to the competent authorities of its home Member State 
on  the  principal  markets  and  instruments  in  which  it  trades  on  behalf  of  the  AIF  it 
manages. 

It  shall  provide  aggregated  information  on  the  main  instruments  in  which  it  is 
trading,  markets  of  which  it  is  a  member  or  where  it  actively  trades,  and  on  the 
principal  exposures  and  most  important  concentrations  of  each  of  the  AIF  it 
manages. 

2. 

For  each  AIF  an  AIFM  manages,  it  shall  periodically  report  the  following  to  the 
competent authorities of its home Member State: 

(a) 

the  percentage  of  the  AIF's  assets  which  are  subject  to  special  arrangements 
arising from their illiquid nature; 

(b) 

any new arrangements for managing the liquidity of the AIF; 

(c) 

the actual risk profile of the AIF and the risk management tools employed by 
the AIFM to manage these risks;  

(d) 

the main categories of assets in which the AIF invested;  

(e)  where relevant, the use of short selling during the reporting period. 

3. 

For each of the AIF it manages the AIFM shall submit the following documents to 
the competent authorities of its home Member State: 

EN 

33 

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(a) 

an  annual  report  of  each  AIF  managed  by  the  AIFM  for  each  financial  year, 
within four months from the end of the periods to which it relates;  

(b) 

a detailed list of all AIF which the AIFM manages for the end of each quarter.  

4. 

The Commission shall adopt implementing measures further specifying the reporting 
obligations referred to in paragraphs 1, 2 and 3 and their frequency. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Chapter V 
Obligations regarding AIFM managing specific types of AIF 

SECTION 1: OBLIGATIONS FOR AIFM MANAGING LEVERAGED AIF 

Article 22 
Scope 

This section shall apply only to AIFM which manage one or more AIF employing high levels 
of leverage on a systematic basis.  

AIFM shall assess on a quarterly basis whether the AIF employs high levels of leverage on a 
systematic basis and shall inform the competent authorities accordingly. 

For the purposes of the second subparagraph, an AIF shall be deemed to employ high levels 
of leverage on a systematic basis where the combined leverage from all sources exceeds the 
value of the equity capital of the AIF in two out of the past four quarters. 

Article 23 
Disclosure to investors 

AIFM  managing  one  or  more  AIF  employing  high  levels  of  leverage  on  a  systematic  basis 
shall for each such AIF: 

(a) 

disclose  to  investors  the  maximum  level  of  leverage  which  the  AIFM  may 
employ on behalf of the AIF as well as any right of re-use of collateral or any 
guarantee granted under the leveraging arrangement;  

(b)  quarterly disclose to investors the total amount of leverage employed by each 

AIF in the preceding quarter. 

EN 

34 

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Article 24 
Reporting to competent authorities 

1. 

AIFM managing one or more AIF employing high levels of leverage on a systematic 
basis shall regularly provide, to the competent authorities of its home Member State, 
information  about  the  overall  level  of  leverage  employed  by  each  AIF  it  manages, 
and a break-down between leverage arising from borrowing of cash or securities and 
leverage embedded in financial derivatives. 

That  information  shall  include  the  identity  of  the  five  largest  sources  of  borrowed 
cash  or  securities  for  each  of  the  AIF  managed  by  the  AIFM,  and  the  amounts  of 
leverage  received  from  each  of  those  entities  for  each  of  the  AIF  managed  by  the 
AIFM. 

2. 

The  Commission  shall  adopt  implementing  measures  further  specifying  the 
disclosure  requirements  with  regard  to  leverage  and  the  frequency  of  reporting  to 
competent authorities and of disclosure to investors. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 25 
Use of information by competent authorities, supervisory cooperation and limits to leverage 

1. 

2. 

3. 

4. 

Member States shall ensure that the competent authorities of the home Member State 
use  the  information  to  be  reported  under  Article  24  for  the  purposes  of  identifying 
the extent to which the use of leverage contributes to the build-up of systemic risk in 
the financial system or risks of disorderly markets 

Home  Member  States  shall  ensure  that  all  information  received  under  Article  24, 
aggregated  in  respect  of  all  AIFM  that  it  supervises,  are  made  available  to  other 
competent authorities through the procedure set out in Article 46 on supervisory co-
operation. It shall, without delay, also provide information through this mechanism, 
and  bilaterally  to  other  Member  States  directly  concerned,  if  an  AIFM  under  its 
responsibility could potentially constitute an important source of counterparty risk to 
a credit institution or other systemically relevant institution in other Member States. 

In order to ensure the stability and integrity of the financial system, the Commission 
shall adopt implementing measures setting limits to the level of leverage AIFM can 
employ.  These  limits  should  take  into  account,  inter  alia,  the  type  of  AIF,  their 
strategy and the sources of their leverage. 

Those  measures  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

In exceptional circumstances and when this is required in order to ensure the stability 
and integrity of the financial system, the competent authorities of the home Member 
State may impose  additional limits  to  the level  of leverage that  AIFM can  employ. 
Measures taken by the competent authorities of the home Member States shall have a 

EN 

35 

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temporary nature and should comply with the provisions adopted by the Commission 
pursuant to paragraph 3. 

SECTION 2: OBLIGATIONS FOR AIFM MANAGING AIF WHICH ACQUIRE 
CONTROLLING INFLUENCE IN COMPANIES 

1. 

This section shall apply to the following: 

Article 26 
Scope  

(a)  AIFM managing one or more AIF which either individually or in aggregation 
acquires  30  %  or  more  of  the  voting  rights  of  an  issuer  or  of  a  non-listed 
company domiciled in the Community, as appropriate; 

(b)  AIFM  having  concluded  an  agreement  with  one  or  more  other  AIFM  which 
would allow the AIF managed by these AIFM to acquire 30 % or more of the 
voting rights of the issuer or the non-listed company, as appropriate. 

This  section  shall  not  apply  where  the  issuer  or  the  non-listed  company  concerned 
are  small  and  medium  enterprises  that  employ  fewer  than  250  persons,  have  an 
annual  turnover  not  exceeding  50  million  euro  and/or  an  annual  balance  sheet  not 
exceeding 43 million euro. 

Article 27 
Notification of the acquisition of controlling influence in non-listed companies  

Member States shall ensure that when an AIFM is in a position to exercise 30 % or 
more of the voting rights of a non-listed company, such AIFM notifies the non-listed 
company and all other share-holders the information provided in paragraph 2. 

This  notification  shall  be  made,  as  soon  as  possible,  but  not  later  than  four  trading 
days the first of which being the day on which the AIFM has reached the position of 
being able to exercise 30% of the voting rights. 

2. 

1. 

2. 

The notification required under paragraph 1 shall contain the following information: 

(a) 

the resulting situation in terms of voting rights; 

(b) 

the  conditions  under  which  the  30%  threshold  has  been  reached,  including 
information about the identity of the different shareholders involved; 

(c) 

the date on which the threshold was reached or exceeded. 

EN 

36 

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Article 28 
Disclosure in case of acquisition of controlling influence in issuers or non-listed companies 

1. 

In addition to Article 27, Member States shall ensure that where an AIFM acquires 
30 % or more of the voting rights of an issuer or a non-listed company, that AIFM 
makes the information set out in the second and third subparagraphs available to the 
issuer,  the  non-listed  company,  their  respective  shareholders  and  representatives  of 
employees or, where there are no such representatives, to the employees themselves. 

With  regard  to  issuers,  the  AIFM  shall  make  available  the  following  to  the  issuer 
concerned, its shareholders and representatives of employees: 

(a) 

(b) 

(c) 

the  information  referred  to  in  Article  6(3)  of  Directive  2004/25/EC  of  the 
European Parliament and of the Council of 21 April 2004 on takeover bids22; 

the  policy  for  preventing  and  managing  conflicts  of  interests,  in  particular 
between the AIFM and the issuer; 

the policy for external and internal communication of the issuer in particular as 
regards employees. 

With regard to non-listed companies, the AIFM shall make available the following to 
the  non-listed  company  concerned, 
its  shareholders  and  representatives  of 
employees: 

(d) 

the identity of the AIFM which either individually or in agreement with other 
AIFM have reached the 30 % threshold; 

(e) 

the development plan for the non-listed company; 

(f) 

(g) 

the  policy  for  preventing  and  managing  conflicts  of  interests,  in  particular 
between the AIFM and the non-listed company; 

the policy for external and internal communication of  the issuer or non-listed 
company, in particular as regards employees. 

2. 

The Commission shall adopt implementing measures determining: 

(a) 

the detailed content of the information provided under paragraph 1; 

(b) 

the way the information shall be communicated. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

22 

OJ L 142, 30.4.2004, p.12. 

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37 

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Article 29 
Specific provisions regarding the annual report of AIF exercising controlling influence in 
issuers or non-listed companies 

1. 

2. 

3. 

4. 

23 
24 

Member States shall ensure that AIFM include in the annual report provided for in 
Article  19  for  each  AIF  that  they  manage,  the  additional  information  provided  in 
paragraph 2 of this Article. 

The  AIF  annual  report  shall  include  the  following  additional  information  for  each 
issuer and non listed company in which the AIF has invested: 

(a)  with regard to operational and financial developments, presentation of revenue 
and  earnings  by  business  segment,  statement  on  the  progress  of  company's 
activities  and  financial  affairs,  assessment  of  expected  progress  on  activities 
and financial affairs, report on significant events in the financial year; 

(b)  with regard to financial and other risks at least financial risks associated with 

capital structure; 

(c)  with regard to employee matters, turnover, terminations, recruitment. 

(d) 

statement on significant divestment of assets. 

In  addition,  the  AIF  annual  report  shall,  for  each  issuer  in  which  it  has  acquired  a 
controlling  influence,  contain  the  information  provided  for  in  point  (f)  of  Article 
46a(1) of Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 
(3) (g) of the Treaty on the annual accounts of certain types of companies23 and an 
overview of the capital structure as referred to in points (a) and (d) of Article 10(1) 
of Directive 2004/25/EC. 

For  each  non-listed  company  in  which  it  has  acquired  a  controlling  influence,  the 
AIF  report  shall  provide  an  overview  of  management  arrangements  and  the 
information  provided  for  in  points  (b),  (c)  and  (e)  to  (h)  of  Article  3  of  Second 
Council  Directive 77/91/EEC  of  13  December  1976  on  coordination  of  safeguards 
which,  for  the  protection  of  the  interests  of  members  and  others,  are  required  by 
Member States of companies within the meaning of the second paragraph of Article 
58 of the Treaty, in respect of the formation of public limited liability companies and 
the  maintenance  and  alteration  of  their  capital,  with  a  view  to  making  such 
safeguards equivalent24. 

The AIFM shall, for each AIF it manages and for which it is subject to this section, 
provide  the  information  referred  to  in  paragraph  2  above  to  all  representatives  of 
employees of the company concerned referred to in paragraph 1 of Article 26 within 
the period referred to in Article 19 (1) 

The Commission shall adopt implementing measures specifying the detailed content 
of the information to be provided under paragraphs 1 and 2. 

OJ L 222, 14.8.1978, p. 11. 
OJ L 26, 31.1.1977, p. 1. 

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38 

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Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

Article 30 
Specific provisions regarding companies whose shares are no longer admitted to trading on a 
regulated market  

Where, following an acquisition of 30 % or more of the voting rights of an issuer, the shares 
of  that  issuer  are  no  longer  admitted  to  trading  on  a  regulated  market,  it  shall  nevertheless 
continue to comply with its obligations under Directive 2004/109/EC for two years from the 
date of withdrawal from the regulated market. 

Chapter VI 

Provision of management and marketing services by AIFM 

Article 31 
Marketing of shares or units of AIF in the home Member State  

1. 

2. 

An authorised AIFM may market shares or units of AIF to professional investors in 
the home Member State as soon as the conditions laid down in this Article are met.  

The  AIFM  shall  submit  a  notification  to  the  competent  authorities  of  its  home 
Member State in respect of each AIF that it intends to market. 

That notification shall comprise the following: 

(a) 

identification of the AIF it intends to market and information on where the AIF 
are domiciled; 

(b) 

the AIF rules or instruments of incorporation; 

(c) 

a description of, or any information on the AIF available to investors; 

(d) 

information on the arrangements established to prevent units or shares of that 
AIF  from  being  marketed  to  retail  investors,  including  in  the  case  where  the 
AIFM relies on activities of independent entities to provide investment services 
in respect of its AIF. 

3. 

No  later  than  ten  working  days  after  receipt  of  a  complete  notification  pursuant  to 
paragraph  2,  the  competent  authorities  of  the  home  Member  State  shall  inform  the 
AIFM whether it may start marketing the AIF identified in the notification referred to 
in paragraph 2. 

Subject  to  the  implementing  measures  referred  to  in  the  third  subparagraph,  the 
competent authorities may impose restrictions or conditions on the marketing of AIF 
pursuant to this Article. 

EN 

39 

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The  Commission  shall  adopt  implementing  measures  specifying  the  types  of 
restrictions  or  conditions  that  can  be  imposed  on  the  marketing  of  AIF  pursuant  to 
the second subparagraph of this paragraph. Those measures, designed to amend non-
essential  elements  of  this  Directive  by  supplementing  it,  shall  be  adopted  in 
accordance with the regulatory procedure with scrutiny referred to in Article 49(3). 

4. 

Without prejudice to Article 32(1), Member States shall ensure that AIF managed by 
AIFM are only marketed to professional investors. 

Article 32 
Option for Member States to allow the marketing of AIF to retail investors 

1. 

Member States may allow the marketing of AIF to retail investors in their territory. 

Member  States  may  for  that  purpose  impose  stricter  requirements  on  AIFM  or  the 
AIF. 

2. 

Member States that permit the marketing of AIF to retail investors on their territory, 
shall, within one year of the date referred to in Article 54(1) inform the Commission 
of: 

(a) 

the types of AIF which AIFM may market to retail investors on their territory; 

(b) 

any additional requirements that the Member State imposes for the marketing 
of AIF to retail investors on their territory. 

Member  States  shall  also  inform  the  Commission  of  any  subsequent  changes  with 
regard to the first subparagraph. 

Article 33 
Conditions for marketing in other Member States 

1. 

Where  an  authorised  AIFM  intends  to  market  to  professional  investors  the  units  or 
shares of an AIF it manages in another Member State, it shall submit the following 
documents to the competent authorities of its home Member State:  

(a) 

a notification letter, including a programme of operations identifying the AIF it 
intends to market and information on where the AIF are domiciled; 

(b) 

the AIF rules or instruments of incorporation; 

(c) 

a description of, or any information on the AIF available to investors; 

(d) 

(e) 

the  indication  of  the  Member  State  in  which  it  intends  to  market  the  units  or 
shares of an AIF under its management to professional investors; 

arrangements made for the marketing of AIF and, where relevant, information 
on  the  arrangements  established  to  prevent  units  or  shares  of  that  AIF  from 
being marketed to retail investors.  

EN 

40 

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2. 

3. 

4. 

5. 

6. 

7. 

8. 

1. 

The competent authorities of the home Member State shall, no later than ten working 
days after the date of receipt of the complete documentation, transmit the complete 
documentation referred to in paragraph 1 to the competent authorities of the Member 
State  where  the  AIF  will  be  marketed.  They  shall  enclose  an  attestation  that  the 
AIFM concerned is authorised. 

Upon  transmission  of  the  documentation,  the  competent  authorities  of  the  home 
Member  State  shall  without  delay  notify  the  AIFM  about  the  transmission.  The 
AIFM may start the marketing of AIF in the host Member State as of the date of that 
notification. 

Arrangements referred to in point (e) of paragraph 1 shall be subject to the laws and 
supervision of the host Member State. 

Member States shall ensure that the notification letter and the attestation referred to 
in  paragraph  1  are  provided  in  a  language  customary  in  the  sphere  of  international 
finance. 

Member States shall ensure that electronic transmission and filing of the documents 
referred to in paragraph 2 is accepted by their competent authorities. 

In the event of a change in any of the particulars communicated in accordance with 
paragraph  2,  an  AIFM  shall  give  written  notice  of  that  change  to  the  competent 
authorities  of  its  home  Member  State  at  least  one  month  before  implementing  the 
change. 

The competent authorities of the home Member State shall without delay inform the 
competent authorities of the host Member State of those changes. 

The Commission shall, in accordance with the procedure referred to in Article 49(2), 
adopt implementing measures specifying the following: 

(a) 

the form and content of a standard model of the notification letter;  

(b) 

the form and content of a standard model of attestation. 

AIFM  may  only  market  shares  or  units  of  an  AIF  domiciled  in  a  third  country  to 
professional  investors  domiciled  in  another  Member  State  than  the  home  Member 
State of the AIFM as from the date referred to in the second subparagraph of Article 
54(1). 

Article 34 
Conditions for providing management services in other Member States 

Member  States  shall  ensure  that  an  authorised  AIFM  may  provide  management 
services in relation to an AIF domiciled in another  Member State  either  directly or 
via  the  establishment  of  a  branch,  provided that  the  AIFM  is  authorised  to  manage 
that type of AIF. 

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2. 

Any AIFM wishing to provide management services in relation to an AIF domiciled 
in  another  Member  State  for  the  first  time  shall  communicate  the  following 
information to the competent authorities of its home Member State: 

(a) 

(b) 

the Member State in which it intends to provide management services directly 
or establish a branch; 

a programme of operations stating in particular the services which it intends to 
perform and identifying the AIF it intends to manage.  

3. 

If the AIFM intends to establish a branch, it shall provide, in addition to paragraph 2, 
the following information: 

4. 

5. 

6. 

(a) 

the organisational structure of the branch; 

(b) 

the  address  in  the  home  Member  State  from  which  documents  may  be 
obtained; 

(c) 

the names of persons responsible for the management of the branch. 

The competent authorities of the home Member State shall, no later than ten working 
days after the date of receipt of the complete documentation, transmit the complete 
documentation  referred  to  in  paragraph  2,  and  where  relevant  3,  to  the  competent 
authorities of the Member State where the management services will be provided and 
an attestation that they have authorised the AIFM concerned. They shall immediately 
notify the AIFM about the transmission. 

Upon  receipt  of  the  transmission  notification  the  AIFM  may  start  to  provide  its 
services in the host Member State. 

The host Member States shall not impose any additional requirements on the AIFM 
concerned in respect of the matters covered by this Directive.  

In the event of a change in any of the particulars communicated in accordance with 
paragraph 2, and where relevant 3, an AIFM shall give written notice of that change 
to  the  competent  authorities  of  its  home  Member  State  at  least  one  month  before 
implementing the change. 

The  competent  authority  of  the  home  Member  State  shall  inform  the  competent 
authority of the host Member State of those changes. 

Chapter VII 
Specific rules in relation to third countries 

Article 35 
Conditions for the marketing in the Community of AIF domiciled in third countries 

An  AIFM  may  only  market  shares  or  units  of  an  AIF  domiciled  in  a  third  country  to 
professional  investors  domiciled  in  a  Member  State,  if  the  third  country  has  signed  an 

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agreement  with  this  Member  State  which  fully  complies  with  the  standards  laid  down  in 
Article  26  of  the  OECD  Model  Tax  Convention  and  ensures  an  effective  exchange  of 
information in tax matters. 

Where AIFM market shares or units of AIF domiciled in a third country the home Member 
States  may  prolong  the  period  referred  to  in  Article  31(3),  when  this  is  necessary  to  check 
whether the conditions of this Directive are met. 

Before  allowing  AIFM  to  market  shares  or  units  of  AIF  domiciled  in  a  third  country,  the 
home  Member  State  shall  have  particular  regard  to  the  arrangements  made  by  the  AIFM  in 
accordance with Article 38, where relevant. 

Article 36 
Delegation by the AIFM of administrative tasks to an entity established in a third country 

Member  States  shall  only  allow  an  AIFM  to  delegate  administrative  services  to  entities 
established in a third country, provided that all of the following conditions are met: 

(a) 

the requirements set out in Article 18 are fulfilled; 

(b) 

(c) 

the  entity  is  authorised  to  provide  administration  services  or  registered  in  the 
third country in which it is established and is subject to prudential supervision; 

there  is  an  appropriate  co-operation  agreement  between  the  competent 
authority of the AIFM and the supervisory authority of the entity. 

Article 37 
Valuator established in a third country 

1. 

Member States shall only allow the appointment of a valuator established in a third 
country, provided that all of the following conditions are met: 

(a) 

the requirements set out in Article 16 are fulfilled; 

(b) 

the  third  country  is  the  subject  of  a  decision  taken  pursuant  to  paragraph  3 
stating that the valuation standards and rules used by valuators established on 
its territory are equivalent to those applicable in the Community. 

The  Commission  shall  adopt  implementing  measures  specifying  the  criteria  for 
assessing  the  equivalence  of  the  valuation  standards  and  rules  of  third  countries  as 
referred to in paragraph (1) (b). 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

On  the  basis  of  the  criteria  referred  to  in  paragraph  2,  the  Commission  shall,  in 
accordance  with  the  procedure  referred  to  in  Article  49(2),  adopt  implementing 
measures, stating that the valuation standards and rules of a third country legislation 
are equivalent to those applicable in the Community. 

2. 

3. 

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1. 

2. 

3. 

4. 

1. 

Article 38 
Delegation of the depositary tasks in respect of AIF domiciled in third countries 

By  way  of  derogation  from  Article  17(4),  in  respect  of  AIF  domiciled  in  a  third 
country  Member  States  shall  allow  the  depositary  of  that  AIF  appointed  in 
accordance  with  Article  17  to  delegate  the  performance  of  one  or  more  of  its 
functions to a sub-depositary domiciled in the same third country provided that the 
legislation of that third country is equivalent to the provisions of this Directive and is 
effectively enforced. 

The following conditions shall also be met: 

(a) 

(b) 

(c) 

the  third  country  is  the  subject  of  a  decision  taken  pursuant  to  paragraph  4 
stating  sub-depositaries  domiciled  in  that  country  are  subject  to  effective 
prudential regulation and supervision which is equivalent to the provisions laid 
down in Community law; 

co-operation  between  the  home  Member  State  and  the  relevant  authorities  of 
the third country is sufficiently ensured; 

the  third  country  is  the  subject  of  a  decision  taken  pursuant  to  paragraph  4 
stating  that  the  standards  to  prevent  money  laundering  and  terrorist  financing 
are equivalent to those laid down in Community law. 

The depositary's liability towards investors shall not be affected by the fact that it has 
delegated to a third country depositary the performance of all or a part of its tasks. 

The  Commission  shall  adopt  implementing  measures  specifying  the  criteria  for 
assessing the equivalence of the prudential regulation, supervision and standards of 
third countries as referred to in paragraph 1. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

On  the  basis  of  the  criteria  referred  to  in  paragraph  3,  the  Commission  shall,  in 
accordance  with  the  procedure  referred  to  in  Article  49(2),  adopt  implementing 
measures,  stating  that  prudential  regulation,  supervision  and  standards  of  a  third 
country are equivalent to this Directive. 

Article 39 
Authorisation of AIFM established in third countries 

Member States may authorise, in accordance with this Directive, AIFM established 
in a third country to market units or shares of an AIF to professional investors in the 
Community under the conditions of this Directive, provided that: 

(a) 

the third country is the subject of a decision taken pursuant to paragraph 3 (a) 
stating  that  its  legislation  regarding  prudential  regulation  and  on-going 
supervision  is  equivalent  to  the  provisions  of  this  Directive  and  is  effectively 
enforced; 

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44 

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(b) 

(c) 

(d) 

the third country is the subject of a decision taken pursuant to paragraph 3 (b) 
stating that it grants Community AIFM effective market access comparable to 
that granted by the Community to AIFM from that third country; 

the AIFM provides the competent authorities of the Member State in which it 
applies for authorisation with the information referred to in Articles 5 and 31 ; 

a  cooperation-agreement  between  the  competent  authorities  of  that  Member 
State  and  the  supervisor  of  the  AIFM  exists  which  ensures  an  efficient 
exchange  of  all  information  that  are  relevant  for  monitoring  the  potential 
implications  of  the  activities  of  the  AIFM  for  the  stability  of  systemically 
relevant financial institutions and the orderly functioning of markets in which 
the AIFM is active. 

(e) 

the third country has signed an agreement with the Member State in which it 
applies for authorisation which fully complies with the standards laid down in 
Article  26  of  the  OECD  Model  Tax  Convention  and  ensures  an  effective 
exchange of information in tax matters. 

2. 

The Commission shall adopt implementing measures aimed at establishing: 

(a) 

general  equivalence  criteria  for  the  equivalence  and  effective  enforcement  of 
third  country  legislation  on  prudential  regulation  and  on-going  supervision, 
based on the requirements laid down in Chapters III, IV and V. 

(b)  general  criteria  for assessing whether third countries grant Community AIFM 
effective market access comparable to that granted by the Community to AIFM 
from those third countries. 

Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

3. 

On  the  basis  of  the  criteria  referred  to  in  paragraph  2,  the  Commission  shall,  in 
accordance  with  the  regulatory  procedure  referred  to  in  Article  49(2),  adopt 
implementing measures stating:  

(a) 

(b) 

that the legislation on prudential regulation and ongoing supervision of AIFM 
in a third country is equivalent to this Directive and effectively enforced; 

that  a  third  country  grant  Community  AIFM  effective  market  access  at  least 
comparable to that granted by the Community to AIFM from that third country.  

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Chapter VIII 
Competent authorities 

SECTION 1: DESIGNATION, POWERS AND REDRESS PROCEDURES 

Article 40 
Designation of competent authorities 

Member  States  shall  designate  the  competent  authorities  which  are  to  carry  out  the  duties 
provided for in this Directive. 

Where  a  Member  State  designates  several  competent  authorities  it  shall  inform  the 
Commission thereof, indicating any division of duties. 

Article 41 
Powers of competent authorities 

1. 

Competent  authorities  shall  be  given  all  supervisory  and  investigatory  powers  that 
are necessary for the exercise of their functions.  Such powers  shall be exercised in 
any of the following ways: 

(a) 

directly;  

(b) 

in collaboration with other authorities;  

(c) 

under  their  responsibility  by  delegation  to  entities  to  which  tasks  have  been 
delegated;  

(d)  by application to the competent judicial authorities. 

2. 

The competent authorities shall have at least the following powers of investigation: 

(a) 

have access to any document in any form and to receive a copy of it; 

(b) 

require information from any person and if necessary to summon and question 
a person with a view to obtaining information; 

(c) 

carry out on-site inspections with or without prior announcements; 

(d) 

require records of telephone and data traffic. 

Article 42 
Supervisory powers 

1. 

The  home  Member  State  shall  ensure  that  the  competent  authorities  may  take  the 
following measures: 

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46 

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(a) 

impose a temporary prohibition of professional activity; 

(b) 

take  appropriate  measures  to  ensure  that  AIFM  continue  to  comply  with  the 
relevant legislation; 

(c) 

refer matters for criminal prosecution to the competent jurisdictions.  

Member States shall ensure that the competent authorities have the powers necessary 
to take all measures required in order to ensure the orderly functioning of markets in 
those  cases  where  the  activity  of  one  or  more  AIF  in  the  market  for  a  financial 
instrument could jeopardise the orderly functioning of that market. 

Article 43 
Administrative sanctions 

Without  prejudice  to  the  procedures  for  the  withdrawal  of  authorisation  or  to  the 
right of Member States to impose criminal sanctions, Member States shall ensure, in 
conformity with their national law, that the appropriate administrative measures can 
be  taken  or  administrative  sanctions  be  imposed  against  the  persons  responsible 
where the provisions adopted in the implementation of this Directive have not been 
complied  with.  Member  States  shall  ensure  that  these  measures  are  effective, 
proportionate and dissuasive. 

Member States shall provide that the competent authority may disclose to the public 
any  measure  or  sanction  that  will  be  imposed  for  infringement  of  the  provisions 
adopted  in  the  implementation  of  this  Directive,  unless  such  disclosure  would 
seriously  jeopardise  the  financial  markets  or  cause  disproportionate  damage  to  the 
parties involved. 

2. 

1. 

2. 

Article 44 
Right of appeal 

Member States shall provide that any decision taken under laws, regulations or administrative 
provisions adopted in accordance with this Directive is properly reasoned, communicated to 
the addressee, and is the subject of the right of appeal to the courts.  

That  right  to  appeal  to  the  courts  shall  apply  also  where,  in  respect  of  an  application  for 
authorisation  which  provides  all  the  information  required,  no  decision  is  taken  within  two 
months of the submission of the application. 

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47 

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SECTION 2 
CO-OPERATION BETWEEN DIFFERENT COMPETENT AUTHORITIES 

Article 45 
Obligation to co-operate 

1. 

2. 

3. 

4. 

5. 

The  competent  authorities  of  the  Member  States  shall  co-operate  with  each  other 
whenever necessary for the purpose of carrying out their duties under this Directive 
or of exercising their powers under this Directive or under national law. 

Member States shall facilitate the co-operation provided for in this section. 

Competent authorities shall use their powers for the purpose of co-operation, even in 
cases  where  the  conduct  under  investigation  does  not  constitute  an  infringement  of 
any regulation in force in that Member State. 

The  competent  authorities  of  the  Member  States  shall  immediately  supply  one 
another  with  the  information  required  for  the  purposes  of  carrying  out  their  duties 
under this Directive. 

The Commission shall, in accordance with the procedure referred to in Article 49(2), 
adopt implementing measures relating to the procedures for exchange of information 
between competent authorities. 

Article 46 
Exchange of information relating to the potential systemic consequences of AIFM activity 

1. 

2. 

3. 

The competent authorities responsible for the authorisation and supervision of AIFM 
under  this  Directive  shall  communicate  information  to  the  competent  authorities  of 
other  Member  States  where  this  is  relevant  for  monitoring  and  responding  to  the 
potential implications of the activities of individual AIFM or AIFM collectively for 
the stability of systemically relevant financial institutions and the orderly functioning 
of  markets  on  which  AIFM  are  active.  The  Committee  of  European  Securities 
Regulators (CESR) established by Commission Decision 2009/77/EC of 23 January 
200925  shall  also  be  informed  and  shall  forward  this  information  to  the  competent 
authorities of the other Member States. 

Aggregated  information  relating  to  the  activities  of  AIFM  under  its  responsibility 
shall be communicated on a quarterly basis by the competent authority of the AIFM 
to  the  Economic  and  Financial  Committee  established  by  Article  114(2)  of  the  EC 
Treaty. 

The  Commission  shall  adopt  implementing  measures  specifying  the  modalities, 
content and frequency of the information to be exchanged pursuant to paragraph 1. 

25 

OJL 25, 29.01.2009, p. 18-22 

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Those  measures,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

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Article 47 
Co-operation in supervisory activities  

1. 

2. 

The competent authorities of one Member State may request the co-operation of the 
competent authorities of another Member State in a supervisory activity or for an on-
the-spot  verification  or  in  an  investigation  on  the  territory  of  the  latter  within  the 
framework of their powers pursuant to this Directive. 

Where  a  competent  authority  receives  a  request  with  respect  to  an  on-the-spot 
verification or an investigation, it shall perform one of the following: 

(a) 

carry out the verification or investigation itself; 

(b) 

allow the requesting authority to carry out the verification or investigation; 

(c) 

allow auditors or experts to carry out the verification or investigation. 

In the case referred to in paragraph 1(a) the competent authority of the Member State 
which has requested co-operation, may ask that members of its own personnel assist 
the  personnel  carrying  out  the  verification  or  investigation.  The  verification  or 
investigation  shall,  however,  be  the  subject  of  the  overall  control  of  the  Member 
State on whose territory it is conducted. 

In the case referred to in paragraph 1(b) the competent authority of the Member State 
on  whose  territory  the  verification  or  investigation  is  carried  out  may  request  that 
members  of  its  own  personnel  assist  the  personnel  carrying  out  the  verification  or 
investigation. 

3. 

Competent authorities may refuse to exchange information or to act on a request for 
co-operation  in  carrying  out  an  investigation  or  on-the-spot  verification  only  in  the 
following cases: 

(a) 

(b) 

(c) 

an  investigation,  on-the-spot  verification  or  exchange  of  information  might 
adversely affect the sovereignty, security or public order of the Member State 
addressed; 

judicial proceedings have already been initiated in respect of the same actions 
and the same persons before the authorities of the Member State addressed; 

final  judgment  has  already  been  delivered  in  the  Member  State  addressed  in 
respect of the same persons and the same actions. 

The  competent  authorities  shall  inform  the  requesting  competent  authorities  of  any 
decision taken under the first subparagraph, stating the reasons therefore. 

4. 

The Commission shall adopt implementing measures concerning procedures for on-
the-spot verifications and investigations. 

Those  measures,  designed,  to  amend  non-essential  elements  of  this  directive  by 
supplementing it shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 49(3). 

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1. 

2. 

1. 

2. 

3. 

Article 48 
Mediation 

The  Committee  of  European  Securities  Regulators  (CESR)  shall  establish  a 
mechanism.  
mediation 

In  case  of  disagreement  between  competent  authorities  on  an  assessment,  action  or 
omission  of  one  of  the  competent  authorities  concerned  under  this  Directive, 
competent authorities shall refer the matter to the CESR, where discussion will take 
place in order to reach a rapid and effective solution. The competent authorities shall 
duly consider the advice of the CESR.  

Chapter IX 
Transitional and final provisions 

Article 49 
Committee 

The Commission shall be assisted by the European Securities Committee established 
by  Commission  Decision  2001/528/EC  of  6  June  2001  establishing  the  European 
Securities Committee26.  

Where  reference  is  made  to  this  paragraph,  Articles  5  and  7  of  Council  Decision 
1999/468/EC  of  28  June  1999  laying  down  the  procedures  for  the  exercise  of 
implementing powers conferred on the Commission shall apply, having regard to the 
provisions of Article 8 thereof. 

The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three 
months. 

Where  reference  is  made  to  this  paragraph,  Article 5a(1)  to  (4)  and  Article 7  of 
Decision  1999/468/EC  shall  apply,  having  regard  to  the  provisions  of  Article 8 
thereof. 

Article 50 
Review 

Two years after the date referred to in Article 54, the Commission shall, on the basis of public 
consultation  and  in  the  light  of  the  discussions  with  competent  authorities,  review  the 
application  and  the  scope  of  this  Directive.  This  review  shall  also  take  due  account  of 
developments  at  international  level  and  discussions  with  third  countries  and  international 
organisations. 

It shall submit a report to the European Parliament and the Council together with appropriate 
proposals.  

26 

OJ L 191, 13.7.2001, p. 45. 

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Article 51 
Transitional provision 

AIFM operating in the Community before [the deadline for the transposition of this Directive] 
shall  adopt  all  necessary  measures  to  comply  with  this  Directive  and  shall  submit  an 
application  for  authorisation  within  one  year  of  the  deadline  for  the  transposition  of  this 
Directive. 

Article 52 
Amendment of Directive 2004/39/EC  

The following indent is added in Article 19(6) of Directive 2004/39/EC: 

"-  the  service  does  not  relate  to  an  AIF  within  the  meaning  of  Article  3(a)  of  [Directive 
xx/xx/EC"]. 

Article 53 
Amendment of Directive 2009/…/EC27 

Directive 2009/XX EC shall be amended as follows: 

The following new Article 50a shall be inserted: 

"In  order  to  ensure  cross-sectoral  consistency  and  to  remove  misalignment  between  the 
interest of firms that 'repackage' loans into tradeable securities and other financial instruments 
(originators)  and  UCITS  that  invest  in  these  securities  or  other  financial  instruments,  the 
Commission  shall  adopt  implementing  measures  laying  down  the  requirements  in  the 
following areas: 

(a) 

the requirements that need to be met by the originator in order for a UCITS to 
be  allowed  to  invest  in  securities  or  other  financial  instruments  of  this  type 
issued  after  1  January  2011,  including  requirements  that  ensure  that  the 
originator retains a net economic interest of not less than 5 per cent; 

(b)  qualitative  requirements  that  must  be  met  by  UCITS  which  invest  in  these 

securities or other financial instruments. 

Those  measures,  designed  to  amend  this  Directive  by  supplementing  it,  shall  be  adopted  in 
accordance with the regulatory procedure with scrutiny referred to in Article 107(2)." 

Article 54 
Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by […] at the  latest.  They  shall 
forthwith  communicate  to  the  Commission  the  text  of  those  provisions  and  a 
correlation table between those provisions and this Directive. 

27 

OJ L , , p. . 

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However, they shall apply the provisions transposing Chapter VII as from three years 
after the date referred to in the first subparagraph.  

When Member States adopt the provisions referred to in the first subparagraph, these 
provisions  shall  contain  a  reference  to  this  Directive  or  be  accompanied  by  such  a 
reference on the occasion of their official publication. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 55 
Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 56 
Addressees 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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