AFM Light and the SFDR
The introduction of the SFDR fundamentally alters the 'light' AIFM regime's reporting obligations. The category, though usually not subject the AIFMD, is thus required to comply with the provisions of the SFDR.
Light AIFMs are therefore advised to take swift actions to ensure compliance with the Regulation.
Legal Background
On the 22nd of July 2013, the EU introduced Directive 2011/61/EC concerning managers of alternative investment institutions (AIFMD).
The legislation calls for all managers of investment institutions to have a license or registration with the Netherlands Authority for Financial Markets (AFM). This legislative tool was translated into Dutch national law in the Financial Supervision Act (Wft).
While transposing the AIFMD into national law, the Dutch AFM authority created a specific category. The category is codified in Article 2:66a Wft, defining the AIFMD registration regime, also known as the AFM ‘light’ regime.
The AFM Light Regime
Managers who fall within the scope of the category are ‘small’ administrators meeting certain 'de minimis' threshold, pertaining to the asset size of the investment institution.
The threshold depends on the type of investment institution the administrator manages.
In situations in which the manager only manages funds operating without leverage and rights to repurchase or repay units, and who do not grant investors redemption rights for five years, the threshold of the total assets under management is of € 500 million. In cases in which the manager is also responsible for other types of investment institutions, the threshold is € 100 million.
When determining the threshold value of an institution, certain guidelines have been established by the AFM.
First, in case the administrator is associated with one or more other managers through operation of a joint business operation, exercise of control or qualifying holding, the value of the assets managed by those other manager(s) must be added to the value of the assets in question.
EU Exemptions for AFM Light
Pertaining to this, the Commission clarified in a Q&A that the value of assets of exempted investment institutions (i.e. entities who make no additional investments post 21 July 2013) are not to be included in the calculation. The method of calculating the threshold is specified in Chapter II, Article 2 of Delegated Regulation No 231/2013 supplementing the AIFMD.
To fall under the category, further criteria pertain to the type of services the manager provides, and require that they:
Are offered solely to professional, institutional investors;
Hold rights with nominal value of at least €100.000; OR
Are offered to fewer than 150 people.
Although the category in question was created to absolve managers of the various requirements of the AIFMD and thus the group falls outside of its scope of application, such exclusion does not extend to the SFDR.
Following the ESAs questions raised to the Commission in a joint letter on 7 January 2021 regarding the scope of the SFDR, the EC published a Q&A on 26 July 2021 where they provide long-awaited answers on the issue.
(Such clarifications were further popularised through the dissemination of KPMG’s and Houthoff’s publications on the matter.)
The EC clarifies that both entity and financial product-related requirements emanating from the SFDR are applicable to all sub-threshold AIFMs.
The legislative body further specified that all provisions in the SFDR which refer to AIFMD provisions that do not apply to the ‘light’ AIFMs (i.e. information to be included in pre-contractual (prospectus) and periodic (annual) documentation to be made available to investors) should be complied with by the category by analogy.