The revised Alternative Investment Fund Managers Directive (AIFMD) could lead to a pan-European passport for lending activities, harmonising private credit across the continent.
The updated version of the EU legislation incorporates rules for loan origination funds for the first time, meaning that private credit fund managers will need to comply with stricter requirements.
“AIFMD was first conceived as a manager regime,” said Matthew Keogh, investment funds partner at law firm Linklaters.
“This is principally the first time it’s moved into product regulation, impacting how managers raise private credit funds, the policies and procedures they need to have, gearing limits and the choice of whether they’re open or closed ended.
“There’s the potential promise of a pan-European passport for actual lending activities. It’s not a harmonised regime across the continent, some countries are easier than others to lend in. For instance, the UK is an easy market – unless you’re lending to consumers there is little oversight from the AIFMD. In other countries, it’s harder and requires significantly more structuring and in some it is near impossible without a banking licence.
“The extension regarding loan origination offers some possibility of harmonisation. Some countries could choose to ‘gold plate’ that with extra regulations, but it’s a positive thing.”
However, the revised AIFMD could present challenges for EU fund managers that are lending into the US.
“One of these [complications] is ECI risk – effectively tax leakage for loans coming out of the US,” said Keogh.
“Sponsors use a number of approaches to mitigate this leakage, one of which involves a primary lender holding (or ‘seasoning’) a loan for a period of time and then selling the loan to another vehicle. Under the revised Directive, an EU managed fund will not be able to undertake the seasoning role.”
The European Parliament voted to update the AIFMD on 7 February and the text of the Directive was then adopted by the European Council later that month, before being published in the EU’s official journal. Member states have two years to adopt the rules in national laws and funds then have a further year to meet the additional data reporting requirements.
