Europe: AIFMD II – Proposed Refinements to Loan Originating Fund Proposals
By: Philipp Riedl
On 18 May 2022, the Rapporteur submitted to the Committee on Economic and Monetary Affairs (ECON) a report suggesting changes to the EU Commission’s envisaged regulation of loan originating funds under its proposed AIFMD amendments (AIFMD II). The report includes some proposed relief, notably:
- Retainer of 5%: The ECON’s report opposes the Commission’s demand for a retainer of 5% of the notional value of the originated loans which are subsequently sold on a secondary market. Instead, the ECON prefers that member states prohibit AIFs whose investment strategy is to originate loans with the sole purpose of transferring those loans to third parties.
- Restriction for open-ended funds: The Commission proposed that where the notional value of loans exceeds 60% of an AIF’s NAV, the AIF must be closed-ended. Instead, the ECON suggests that the AIFM should be able to demonstrate to its supervisor that an open-ended AIF could provide sufficiently robust liquidity.
- Shareholder loan exemption: The Commission’s proposal foresees that AIFMs of loan originating funds shall be obliged to implement effective policies, procedures and processes for the granting of loans, for assessing the credit risk and for administering and monitoring the credit portfolio. Now the ECON proposes an exemption with respect to funds making shareholder loans if not exceeding 150% of the NAV of the AIF.
The report also proposes certain stricter positions, including:
- Regulated borrower: So far, it was provided that a loan originated to any single regulated borrower (e.g. credit institution, other AIF or UCITS, insurance company) must not exceed 20 % of the AIF’s capital. The ECON proposes to extend the 20% limit to uncalled commitments and subscriptions.
- Group borrower: To avoid conflicts of interest the list of prohibited borrowers (e.g. AIFM and its staff, depositary) has been broadened to entities within the AIFM’s group and their staff.