The European Securities and Markets Authority has published on July 21 the latest update to Question and Answers document on the Alternative Investment Fund Managers Directive, which seeks to ensure the application of common supervisory approaches and practices in the application of the AIFMD and its implementing measures.

The Q&A document, which was last updated in June, offers responses to questions from the general public and national regulators regarding the practical application of the directive. Although primarily designed to ensure that regulators' supervisory actions are in line with ESMA's guidance, the answers also aim to provide alternative fund managers with clarity about the AIFMD rules, and do not constitute fresh requirements.

The Q&A now deals with seven topics: remuneration, notification of alternative investment funds, reporting to national regulators, notification of alternative fund managers, MiFID services under the AIFMD, depositaries, and calculation of leverage.

As regards reporting to national regulators, ESMA's new answers deal with issues including reporting of derivative trade volumes, repo trades, FX spot trades, cross-currency interest rate swaps, the assessment of "substantial" leverage, rehypothecation of collateral, and the currency denomination for reporting on principal markets and financial instruments in which they trade.

In the area of depositary requirements, the clarifications cover cash monitoring and reconciliation obligations, verification of compliance by the fund and manager with AML, employment law and non-management related contractual obligations, verification of ownership of derivatives, custody requirements regard interests in other funds, and the definition of the close of the business day.

Regarding calculation of leverage, ESMA has clarified that debt raised by financial structures controlled by private equity funds for the acquisition of assets should be included in the calculation of leverage where the structure is specifically set up for that purpose, but not where the fund does not have to bear losses beyond its investment in the structure, nor does it have to include debt raised by unlisted companies or issuers subject to the same proviso, even where the debt is raised to pay a dividend enabling the financial structure to repay its acquisition debt.

The ESMA Q&A can be consulted here.

Up-to-date information about the implementation of the AIFM Directive in Luxembourg as well as related regulatory measures, guidance and consultations issued by ESMA and the European Commission is published regularly in the AIFMD blog on the firm's web site here.

Olivier Sciales
Chevalier & Sciales
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