Navigating Regulatory Shifts: Key Amendments in UCITS and AIF Rules

By Alexios Kartalis EIMF Trainer, General Manager GMM Global Money Managers Ltd.

The European Parliament approved on 14/2/2024 a new directive amending the existing rules for AIFs and UCITS. Member States will have 24 months after the entry into force to incorporate these changes into their national legislation.

Generally speaking, the changes refer to the assignment of functions (outsourcing), liquidity risk management, supervisory reports, provision of depositary services and provisions are also included for loan originating AIFs.

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In brief, some of the changes refer to the following:

AIFs

• When an AIF originates loans (loan originating AIFs), the notional value of the loan to each individual borrower cannot exceed 20% of the capital of the AIF, when the borrower is a financial undertaking, an AIF, or a UCITS.

• Leverage should not exceed 175% if the AIF is open-end and 300% if it is closed-end.

• AIFMs managing open-ended AIFs should choose at least two suitable liquidity management tools from the ones in Annex II. The AIFM will assess the appropriateness of these tools in relation to the redemptions and liquidity profile of the AIF, its investment policy, etc. The AIFM should integrate these tools into the AIF’s regulatory documents and create specific procedures for activating and deactivating these tools.

• Redemptions in kind should only be activated for professional investors in proportion to the AIF’s assets.

• As an exception, the appointment of a depositary located in another member state will be allowed if the supervisory authorities receive a request from an AIFM and this request proves the lack of domestic depositaries to meet the needs of the AIF with the specific investment strategy. The domestic depositary market for AIFs should also not exceed 50 billion EUR.

• The delegation of activities by a depositary to a Central Securities Depository (CSD) will not be considered as such (i.e. delegation) if it is an ISSUER – CSD. On the contrary, it will be considered an assignment if it is an INVESTOR – CSD

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UCITS

• UCITS should choose at least two suitable liquidity management tools from the ones referred in Annex IIA, after assessing their appropriateness of these in relation to the redemptions and liquidity profile of the UCITS, its investment policy, etc. The UCITS will integrate the tools these in its regulatory documents and will create specific procedures for enabling and disabling these tools. It is not allowed to use only 5 and 6 from the tools in Annex IIA

• The delegation of activities by a depositary to a Central Securities Depository (CSD) will not be considered as such (i.e. delegation) if it is an ISSUER – CSD. On the contrary, it will be considered an assignment if it is an INVESTOR – CSD

• Redemptions in kind should only be activated for professional investors in proportion to the assets of the UCITS.

The above is only a summary for information purposes, we assume no liability and interested people should read the original text. 

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