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AIFMD in the Netherlands (Alternative Investment Fund Managers Directive)

  • Netherlands
  • Banking and finance
  • Financial services and markets regulation - UCITS V

22-07-2014

1. Introduction

The Alternative Investment Fund Managers Directive (“AIFMD”) entered into force on 21 July 2011 and the Netherlands implemented the laws and regulations necessary to comply with the AIFMD in the Dutch Financial Supervision Act (Wet op het financieel toezicht, “FSA”) and lower regulations on 22 July 2013.

In summary, the purpose of the AIFMD is to provide a comprehensive and secure framework for the supervision and oversight of alternative investment fund managers (“AIFMs”) that are active in the European Economic Area (“EEA”). The AIFMD provides stricter European Union regulation on AIFMs offering alternative investment funds (“AIF”), ranging from hedge and private equity fund products to real estate investment funds. Furthermore, the AIFMD sets out harmonised rules on the marketing of AIFs to professional investors (as defined in the Directive 2004/39/EC (MiFID)) and creates a European passport system for AIF managers that offers units or shares to professional investors.

AIFMs who carried out activities that require authorisation under the FSA must adapt their activities to meet the requirements and, if the AIFM is established in the Netherlands, notify the FSA of the AIFs that will be marketed in the Netherlands or in other EEA countries. By 22 July 2014 at the latest, AIFMs must either apply for authorisation or registration with the FSA. Managers that were authorised by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, “AFM”) to manage AIFs before 22 July 2013 will still be authorised, however they must alter their internal process and documentation to comply with the specific AIFMD rules (therefore ultimately 21 July 2014). For the applicability of the AIMFD provisions during the transitional period, we refer to the latest Q&A of the European Securities and Markets Authority (“ESMA”) dated 21 July 2014

1.1 Other Regulations

In addition to the AIFMD, it should be noted that on 19 December 2012, the European Commission issued the Commission Delegated Regulation supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage transparency and supervision (the “Delegated Regulation”). The Delegated Regulation contains the level 2 measures clarifying several important elements of the AIFMD. The Delegated Regulation contains detailed provisions in relation to the following matters:

  1. Delegation Provisions;
  2. capital requirements for AIFMs;
  3. conditions and procedures in relation to the authorisation of AIFMs;
  4. reporting requirements and leverage calculation methodology;
  5. requirements for cooperation agreements with third countries;
  6. rules on depositaries, including details relating to their obligations and liability;
  7. conditions for delegation of functions; and
  8. requirements in relation to operating conditions for AIFMs, including remuneration provisions, conflicts of interest, valuation provisions and risk management requirements.

Also the ESMA has published relevant documentation. On 14 August 2013 the ESMA published the final "Guidelines on key concepts of the AIFMD" and on 17 December 2013 the final report draft regulatory technical standards on types of AIFMs. ESMA will continue to publish relevant documents on the AIMFD related subjects and it is advisable to check their website on a regular basis (latest Q&A has been updated on 21 July 2014).

ESMA considers that the characteristics of AIFs, that make it possible to distinguish whether an AIFM is managing an AIF of the open-ended or closed-ended type, should be defined in order to ensure that the rules on liquidity management, the valuation procedures, and the transitional provisions of the AIFMD are applied to AIFMs in a uniform manner.

Furthermore the ESMA helps clarify the concepts in the definition of AIFs in the AIFMD by setting out the criteria for (i) capital raising, (ii) a collective investment undertaking, (iii) whether a "number of investors" exists and (iv) defined investment policy.

1.2 Transitional period

The FSA provides for a transitional period running from 22 July 2013, to the earlier of the date that an AIFM registers with the AFM and to ultimately 22 July 2014. AIFMs managing an AIF immediately before 22 July 2013 and, in the case of non-EEA AIFMs, marketing an AIF in the EU before 22 July 2014, may benefit from this transitional period, but must apply for a licence before 22 July 2014.

This means that:

  • AIFMs that start AIFMD activities and were not active prior to 22 July 2013 in the Netherlands will need a license from (or a registration with) the Dutch regulator;
  • AIFMs that were active prior to 22 July 2013 in the Netherlands on the basis of an exemption or exception, may benefit from a transitional period of one year, but will have a best efforts obligation to ensure that it will meet the AIFMD requirements as of 22 July 2014 (i.e. 21 July 2014 at the latest);
  • AIFMs that were active prior to 22 July 2013 in the Netherlands on the basis of a license may also benefit from a transition period of one year and such license will automatically be transferred into a AIMF license. The AIFM is not required to apply for a new license, however, it must comply with the requirement as laid down in the AIFMD before 22 July 2014.

1.3 How can we help?

Due to the complexity of the AIFMD and lower regulations and the volume of other relevant documents (e.g. guidelines and a continuing stream of updated Q&A of the ESMA and national legislation), published in relation thereto, we understand it may be difficult to assess the necessary steps for an AIFM to comply with this.

Eversheds has extensive experience in regulatory and in corporate matters concerning the AIMFD. We will gladly assist you in connection with your application for authorisation or registration both in the Netherlands as well as in any other jurisdiction through one of our international Eversheds offices.

In this newsletter we elaborate on some of the key elements of the AIFMD (and the legislative implementation in the Netherlands). Please note, however, that due to the vast number of provisions of the AIMFD, this newsletter is not exhaustive. Furthermore, despite a regulatory update information may be outdated as a result of e.g. new guidance by ESMA. We shall not elaborate on all the elements contained in the Delegated Regulation and documents issued by the ESMA, however, where relevant we have included reference thereto.

2. Scope of AIFMD

The AIFMD applies to AIFMs located in the European Union and to AIFMs located outside the European Union who manage European Union based AIF. Lastly, the AIFMD may also apply to non-European Union AIFMs managing a non-European Union AIF that is marketed in the European Union. In principle, the AIFMD introduces a harmonised authorisation and supervisory regime for AIFM managing and marketing AIF.

An AIF is defined as a collective investment undertaking, having any investment sections, which (i) raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors and (ii) is not subject to Directive 2009/65/EC (Undertakings for Collective Investment in Transferable Securities Directive, the “UCITS Directive”).

ESMA clarifies in its “Guidelines on key concepts of the AIFMD” the definition of AIFs in the AIFMD by setting out the criteria for (i) capital raising, (ii) a collective investment undertaking, (iii) whether a "number of investors" exists and (iv) defined investment policy. We will not elaborate on these subjects in this newsletter.

Though the AIFMD was initially intended to regulate the management of private equity and hedge funds, the scope has become much wider. The AIFMD is applicable to any investment institution that does not fall under the scope of the UCITS-Directive.

An AIFM is defined as a legal person whose regular business is managing one or more AIFs.

2.1 Exemptions under AIFMD

The AIFMD does not apply to:

(i) holding companies;
(ii) (managers of) institutions for occupational retirement provision;
(iii) supranational institutions;
(iv) national central banks;
(v) national, regional and local governmental bodies or other institutions supporting social security and pension systems;
(vi) employee participation/saving schemes;
(vii) securitisation special purpose vehicles; and
(viii) an AIFM managing an AIF whose only investors (not being AIF) are the AIFM or the AIFM’s group companies.

2.2 De minimis exemption

The AIFMD licence requirement will apply to most private equity fund managers unless they fall within exemptions as described in section 2.1, or in the event they only manage “small” funds. The AIFMD contains an exemption for AIFMs with assets under management that do not exceed EUR 100 million or EUR 500 million where the AIFs they manage are not leveraged and investors have no redemption rights for five years and no rights are offered to retail investors.

The Delegated Regulation establishes the procedure to be followed by an AIFM when calculating its assets under management and the methodology to be used for specific categories of assets.

It should be noted, however, that AIFMs that fall within the scope of the de minimis exemption will still have to register with the relevant authority in their home Member State and are subject to regular reporting requirements. In the Netherlands that would be the AFM. Also certain reporting obligations are imposed if registered. In the Netherlands each AIFM is obliged to provide the Dutch Central Bank (De Nederlandsche Bank, “DCB”) on a periodical basis with information on e.g. type of assets managed.

3. Netherlands

As a starting point we note that in principle, according to section 2:65 FSA no party may manage a Dutch collective investment scheme, offer units in a collective investment scheme in the Netherlands, or as NL AIFM manage an collective investment scheme or offer units in a collective investment scheme if the management company of the collective investment scheme and/or the investment company itself have not been licensed by the AFM. In accordance with the AIFMD, specific types of AIFMs are excluded from the scope of the FSA ex article 1:13a FSA (these are described under paragraph 2.1).

The minimis exemption of the AIFMD for AIFMs that manage small funds has been introduced. The exemption will only apply to Netherlands-based AIFMs if the total of the assets under management does not exceed EUR 100 million or EUR 500 million where the AIFs they manage are not leveraged and investors have no redemption rights for five years (article 2:66a FSA).

In addition, the participation right must be offered to less than 150 investors or be of a nominal value per participation right or of a consideration per investor of at least EUR 100,000 (retail). These last two requirements do not apply if the right of participation is offered to professional investors only.

Furthermore, AIFMs that will fall under this exemption will need to register with the AFM, perform regular filings concerning their activities with the DCB and must notify the AFM if they no longer meet the conditions of this exemption. We are of course happy to provide you any advice or assistance you require in this respect.

3.1 Opt in

The AIFMs relying on the de minimis exemption do not benefit from any rights granted under the FSA, including a passport as described in section 4. However, an AIFM may choose to make use of the opt-in right. This means that an AIFM, which could benefit from a de minims exemption, may nonetheless voluntarily apply for a license with. It should be noted that an AIFM which opts-in will be subject to all requirements under the AIFMD, including the obligation to appoint a depositary.

3.2 Capital requirements

An AIF without a separate AIFM is required to have an initial capital of at least EUR 300,000 and an AIFM appointed as an external manager of one or more AIFs is required to have an initial capital of at least EUR 125,000. Additional minimum “own funds” requirements may also apply. It should be noted that the requirements for these own funds are an additional 0.02% of the amount by which assets under management of the AIF(s) managed by the AIFM exceeds EUR 250,000,000 (up to a maximum of EUR 10,000,000).

The AIFMs are required to hold appropriate additional own funds or professional indemnity insurance to cover potential liability risks arsing from professional negligence. The Delegated Regulation specifies the appropriateness of such additional own fund or professional indemnity insurance to ensure the AIFMs hold sufficient coverage to protects investors.

The capital requirements do not apply to an AIFM which is also authorised as a management company for the purposes of the UCITS Directive.

3.3 Operating conditions

An authorised AIFM must, on an ongoing basis, comply with certain operating or conduct of business rules. These rules include (i) procedures that must be put in place regarding the prevention, management and monitoring of conflicts of interest, (ii) obligations to comply with all applicable regulatory requirements so as to promote the best interests of each AIF, its investors and the integrity of the market, including obligations to provide certain information to clients and the relevant regulatory authorities, (iii) obligations to take all reasonable steps to avoid conflicts of interests and to identify and manage any conflicts of interests ensure that the interests of each underlying AIF and its investors are not adversely affected, (iv) specific remuneration policies and practices to ensure staff, whose professional activities have a material impact on the risk profiles of AIF, promote sound and effective risk management and do not encourage risk-taking which is inconsistent with the AIF’s risk profile, (v) having in place a liquidity management system and procedures and (vi) ensuring adequate risk management systems in order to identify, measure, manage and monitor risk and separation of risk management and operations from the portfolio management operations.

3.4 Organisational requirements

Valuation

An AIFM for each AIF that it manages must ensure that appropriate and consistent procedures are in place to ensure that annual proper and independent valuation of the assets of the AIF can be performed in accordance with the AIFMD, the applicable national law and the AIF’s own rules. The AIFM must also at least once a year calculate the net asset value per unit or share

Furthermore, the valuation must also be done at a frequency which is both appropriate to the assets held by an open-ended AIF and its issuance and redemption frequency and in case of a closed-ended AIF at an increase or decrease of the capital by the relevant AIF. The AIFM is obliged to mention in its instrument of incorporation in which way the investors will be informed about the valuations and calculations.

The valuation may either be performed by the AIFM or by an independent external valuer. In case of an external valuer the AFM must be informed. Where the AIFM acts as valuer, the valuation task must be functionally independent from its portfolio management and the remuneration policy tasks. Furthermore, measures must be in place to ensure that conflicts of interest are mitigated and undue influence in respect of staff undertaking valuations is avoided. It is even possible for the appointed depository to act as external valuer, but that is only possible when it has functionally and hierarchically separated the performance of its depositary functions from its tasks as external valuer and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF.

Pursuant to the Delegated Regulation an AIFM is required to establish, maintain and implement for each AIF it manages policies and procedures for the valuation of assets. Furthermore the Delegated Regulation lays down the main features of such valuation policies and procedures. Specific rules are laid down when models for valuing assets are used.

Delegation

An AIFM may delegate management functions. However, certain requirements on delegation to third parties, including those located outside the European Union, apply such requirements relate to, amongst other, (i) notification to the competent authorities in the home Member State, (ii) justifications for the delegation structure, (iii) the expertise of a delegate and (iv) review of the services provided by a delegate.

The AIFM’s liability toward the AIF and its investors shall not be affected by delegation to a third party. Furthermore, the delegation by the AIFM may not result in the AIFM becoming a ‘letter-box entity’ and therefore the AIFM will need to carry out some functions to retain some substance. The AIFM shall be deemed a letter-box entity in several, non-limitative, situations where the AIFM:

(i) no longer retains the necessary expertise and resources to supervise the delegated tasks effectively and manage the risks associated with the delegation;

(ii) no longer has the power to take decisions in key areas or no longer has the power to perform senior management functions;

(iii) loses its contractual rights to inquire, inspect, have access or give instructions to its delegates or the exercise of such rights becomes impossible in practice; or

(iv) delegates the performance of investment management functions to an extent that exceeds by a substantial margin the investment management functions performed by the AIFM itself.

The AIFM must perform at least functions relating to risk or portfolio management. It should be noted that the European Commission is to review the letter-box entity conditions in 2015 and may take further measures to specify additional conditions.

Furthermore the Delegated Regulations sets forth the criteria that competent authorities in the Netherlands (either the AFM of DCB) will have to take into account when assessing the extent of delegation. The competent authorities shall asses the entire delegation structure taking into account not only the assets managed under delegation but those criteria as well.

Depositary

The AIFMD requires that the manager must ensure that a single depositary is appointed for each AIF it manages. The main tasks of the depositary come down to: monitoring the AIF’s cash flow (ii) safe keeping of the assets of the AIF in accordance with the procedures set out in the AIFMD (iii) ensuring that the valuation, sale, issue, re-purchase, redemption and cancellation of units of the AIFMD are carried out in accordance with AIFMD and the AIF’s constitutional documents (iv) carrying out the instructions of the AIFM unless they conflict with applicable law or an AIF’s constitutional document; and (v) ensuring that an AIF’s income is applied in accordance with AIFMD.

Each AIF must have a depositary regardless of whether an AIF has legal personality or not. An AIFM may not act as depositary. In principle, only a limited type of entities may be appointed as depositary. Only EU authorised credit institutions (banks), certain investment firms (beleggingsondernemingen) or an alternative depositary that complies with certain requirements to be set by law, including requirements relating to independence, financial safeguards and expertise, may act as depositary. The role of the depositary under the regime of the AIFMD differs substantially from the role that a depositary may currently have in the structures of some Dutch funds. For non-EEA AIFs, Dutch AIFMs may use a local depositary, subject to certain minimum requirements.

In addition, a strict liability standard for depositaries is introduced and they will be liable to the AIF and its investors for the loss by the depositary or a third party delegate of financial instruments in its custody (there are however some exculpation possibilities for the depositary). Where financial instruments are lost, the depositary will be obliged to return a financial instrument of identical type or the corresponding value to the AIF. The depositary will not be liable where it can demonstrate that the loss was as a result caused by an external event beyond its reasonable control, the consequences of which were unavoidable despite all reasonable efforts to the contrary. In addition, the depositary is liable to the AIF or to its investors for losses suffered as a result of the depositary’s negligence or intentional failure to properly fulfil its obligations under the AIFMD.

AIFMs of closed-end (five year) AIFs and with assets that generally are not required to be held in custody, such as investments in non-listed companies may, appoint another type of entity than described above, subject to certain minimum conditions. The depository can be an entity which carries out depositary functions as part of its professional or business activities and is subject to mandatory professional registration recognized by law or to legal or regulatory provisions or rules of professional conduct. The specific requirements for rendering such depositary services will be set out in the Dutch Market Conduct Supervision Financial institutions Decree (Besluit gedragstoezicht financiele ondernemingen Wft, “Bgfo”)

It should be noted that a depositary of an EU AIF must be located (i.e. either have its registered office or branch) in the AIF’s home Member State.

Furthermore, there are additional requirement applicable to depositaries of non-EU AIFs. The depositary of a non-EU AIF must be established in the third country where the AIF is established, in the home Member State of the AIFM managing the AIF, or in the Member State of reference of the AIF. The AIFMD provides that, where a non-EU AIFM intends to market several AIFs in the EU, that non-EU AIFM's "Member State of reference" is the Member State in which that AIFM intends to develop effective marketing for most of those AIFs, i.e. conduct most of it business in Europe.

The Delegated Regulation sets out provisions regarding the obligations and rights of depositaries, including the scope of custody requirements. These provisions will require current custodians to review internal processes, risk assessments and policies as well as their documentation with clients and any delegates.

3.5 Transparency

The transparency requirements relate to making available an annual report for each financial year no later than 6 months following the end of the financial year to investors (upon request) and to the AFM. The AIFMD describes the minimum requirements of the annual report. Furthermore, an AIFM must disclose (through a prospectus) the specific information as stated in article 23 of the AIFMD to investors prior to investment. This include, among other, a description of the investment strategy and objectives of the AIF and procedures regarding a change of investment strategy, the identity of the AIFM, the AIF’s depositary, auditor and any other service providers and a description of their duties and the investors’ rights, a description of delegated functions and any conflict of interest relating thereto, the valuation procedure and the pricing methodology for valuing assets, a description of liquidity risk management and redemptions arrangements, fees, charges and expenses and the maximum amount thereof, a description of how the AIFM ensures a fair treatment of investors, the latest annual report, the procedure and conditions for the issue and sale of units or shares, the latest net asset value of the AIF or latest market price of the unit or share and, if available the historical performance. The AIFM has regularly reporting obligations to the competent authorities of its home Member State.

In addition, the Delegated Regulation provides with additional clarifications and requirements in relation to the transparency and disclosure issues to investors and regulators.

The AIFMs that are required to obtain a license must comply with certain obligations regarding operational or conduct of business, transparency and several other requirements.

3.6 Netherlands specific regulations

The Dutch legislator has made use of the possibility to make additional specific national regulations. Under Dutch law, additional regulations will apply to the marketing of AIFs to non-professional investors in the Netherlands, regardless of the country of establishment of the AIFs and that of the manager. These regulations are further elaborated in the Bgfo and will relate to additional investor disclosures and further investor protection rules.

4. European Passport

Subject to prior notification to the AFM, the AIFM may activate a ‘passport’ to market the AIFs to professional investors and/or to manage an AIF established in another country of the EEA. This may also be done through a local branch. Of course, AIFMs established in another EEA country that have been granted a license of the competent authorities of their home state may make use of this passport to offer units or shares in the Netherlands. It should be noted that this passport currently does not apply to AIFMs that market in another EEA country to retail investors as local rules may apply.

The European passport will however be available for AIFMs that are established outside the EEA (“non-EEA AIFM”), two years after the AIFMD has been implemented into national law; that is at the latest on 22 July 2015 (this remains subject to positive advice from the ESMA).

Furthermore, existing national private placement rules in relation to non-EEA AIFs may continue to be in place until 2018. Such rules will be subject to additional conditions.

At the time of this writing the Dutch Ministry of Finance has introduced a bill that will amend the private placement rules to allow marketing by EEA AIFMs with an AIFMD license to non-professional investors in the Netherlands. The aim is to amend the current rules as of January 2015. Additional requirements apply however, including the Dutch regulations for the marketing to non-professional investors, which includes extra information obligations to the non-professional investors.

5. Third Country Regime

Non-EEA AIFM will be able to market to investors across the EAA without obtaining a license from each Member State. However, additional requirements may apply and may differ depending on the actual circumstances (the AIFMD distinguishes seven scenarios).

Pursuant to article 1:13b FSA, non-EEA AIFMs that wish to market AIF, and (licensed) EU AIFMs that wish to market non-EU AIFs (provided that the below requirements see to the AIF) (and feeders into non-EU AIFs/AIFs managed by non-EU AIFMs) in the Netherlands may do so if:

  • The offering is made to qualified investors;
  • appropriate cooperation arrangements are in place, as applicable, between the regulators of the Member States where the AIFs are marketed and the supervisory authorities of the non-EU country where the non-EU AIF or AIFM is established; and
  • the third country where the non-EU AIF is established must not be listed as a non-cooperative country or territory by the Financial Action Task Force on anti-money laundering and terrorist financing.

The Delegated Regulation specifies several aspects of the cooperation arrangements mentioned above in order to design a common framework to facilitate the establishment of such cooperation arrangements with such third countries.

The Netherlands have elected to apply a national private placement regime to non-EEA AIFMs until 2018. Certain transparency / information requirements do apply. Non-EU AIFMs that rely on the Dutch private placement regime, must comply with the transparency requirements set by articles 22, 23 and 24 as well as articles 26 to 30 AIFMD, as implemented in the Netherlands in 3:74c, 4:37l – 4:37o, 4:37q – 4:37z, 5:19a, 5:25c FSA and the Bgfo (to the extent applicable). These ongoing obligation requirement for non-EEA AIFMs relate to reporting obligations to the DCB on the manner in which it manages the AIFs, the main instruments in which it will be trading, on markets of which it will be a member or where it will actively trade, and on the principal exposures and most important concentrations of each of the AIFs it will manage.

In addition, the non-EEA AIFMs must make available certain financial information to investors at their request.

It should be noted that that a notification to the AFM is required, to use the national private placement regime in the Netherlands. AIFMs must notify the AFM if they intend to market certain types of AIFs. Such notification does not follow from the FSA, but the AFM requires this nonetheless.

Under Dutch law an adequate supervision regime remains in place for AIFMs that are domiciled in a designated state appointed by the Dutch Minster of Finance (currently the United States of America (but only if the AIFM is subject to SEC regulation), Jersey and Guernsey) until July 2018. This means that such AIFMs may offer to professional and/or retail investors provided a notification to the Dutch regulator is made and additional requirements for the marketing to non-professional investors must be met, which includes extra information obligations to the non-professional investors.

The adequate supervision regime that was in place for EEA AIFs with seat in Ireland, Luxembourg, France, Malta and the United Kingdom was cancelled as from 22 July 2013 and these EEA AIFs will be forced to have an AIFM that is licensed in the Netherlands or has an European passport as of 22 July 2014.

6. Conclusion

The AIFMD is a regulatory development of major significance for fund managers based in the EEA or for those that raise capital in the EEA. Eversheds can assist and advise you in finding your way to deal with this. Should you have any questions or would like to discuss any of the above mentioned, please do not hesitate to contact Matthijs Bolkenstein or Michiel Jaeger.

For more information contact

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