Over the past decade, financial EU and national legislators have increasingly imposed requirements and obligations on ‘exempted’ AIFMD light managers. National regulators are also paying more attention to this group and expect them to professionalise. A justified question is therefore: Can AIFMD light still be called ‘light’?
The AIFMD directive came into force in 2014, and introduced a requirement for managers of hedge funds, private equity funds, and real estate funds to obtain a licence. Under this licensing obligation, managers of investment funds must comply with numerous requirements, which have only increased over the years. Smaller investment fund managers are exempt from the licensing requirement, but under the AIFMD, they must register with their national regulator. This regime is also referred to as AIFMD-light, but nowadays it includes much more than just a limited set of obligations.
Ten years ago, the obligations for AIFMD light managers were limited to mandatory registration and the annual submission of the so called Annex IV report. However, new obligations soon emerged.
One significant requirement was that AML/CDD obligations also became applicable to AIFMD light managers. Anno 2024, it would be surprising if such obligations were not applicable, but in 2014, this was less obvious.
Then, in mid-2016, the Market Abuse Regulation (MAR) came into effect, requiring AIFMD light managers to comply with several provisions from this regulation. Shortly thereafter, the PRIIPs Regulation entered into force, which required investment funds that could be offered to non-professional investors to have a Key Information Document (KID).
In 2018, the General Data Protection Regulation (GDPR) came into effect, requiring AIFMD light managers to have policies and procedures in place to protect personal data. Since March 2021, AIFMD light managers have been required to comply with the European Regulation on Sustainability-related Disclosures in the Financial Services Sector (SFDR).
As a result of the substantial increase in requirements and obligations, regulators are paying increasing attention to AIFMD light managers. In the Netherlands, for example, with regard to some requirements, such as CDD and PRIIPS, the AFM no longer makes a distinction between licensed investment fund managers and AIFMD light managers in its supervision.
This growing focus by the AFM is also reflected in a market scan of AIFMD light managers published in October 2024. For the first time, the Dutch regulator mapped the sector of AIFMD light managers. The publication shows, among other things, that the number of AIFMD light managers registered with the AFM has increased by 50% in the last five years to almost 750 entities by the end of 2023. Most of these are small entities, as most parties manage only one investment fund, and 70% of them manage less than €20 million in assets. Perhaps the most surprising finding is that many more firms are registered as AIFMD light managers in the Netherlands than in much larger countries like Germany and France.
Following these findings, the AFM has decided to take an even closer look at the AIFMD light manager sector. As a starting point, the AFM has initiated an exploratory investigation into an unknown number of AIFMD light managers. The aim is not only to gain an understanding of the nature of these firms, but also to pay particular attention to the risks within this market segment. Topics the AFM is addressing with these AIFMD light managers include governance and organisational structure, compliance and risk management, outsourcing, asset valuation, and disclosure to participants.
The AFM has not yet indicated what it will do with the findings of the exploratory investigation. However, based on previous similar investigations, it is expected that the AFM will eventually publish a generic report with recommendations for the entire sector. It is also possible that the AFM will ask the legislator to impose additional requirements and obligations on AIFMD light managers.
When AIFMD light came into force, it could still be considered ‘light’, but that is no longer the case today. Every few years, new regulations are applied to these market participants, and supervisors are paying increasing attention to AIFMD light firms. Today, much more is expected from AIFMD light managers than simply registering with the national regulator; they are expected to have their organisation in order to adequately fulfil their legal obligations and meet the expectations of regulators.
At Projective Group, we support AIFMD licence holders and AIFMD light managers in adequately fulfilling their legal obligations. We also provide support to improve governance and organisational structure, ensuring compliance with the expectations of regulators. A further advantage for larger AIFMD light managers is that these steps also prepare them for a potential future AIFMD licence application.
