Towards AIFMD II, the ongoing legislative process: where are we?

What is the legislative process for the approval of a European directive?

According to the European legislative procedure, the European Commission (EC) is the only institution allowed to formulate a legislative proposal and to submit it simultaneously to the European Parliament (EP) and the Council of the European Union (CEU). The European legislative process offers the possibility for the EP and the CEU to approve or reject a legislative proposal during three distinct moments: the First Reading, the Second Reading and the Third Reading.

The EP and the CEU can either approve the proposal during the First Reading, in which case the directive enters into force or propose amendments to the text; the aim is that the EP and the CEU agree on the same version of the legislative text. If they propose changes during the First Reading, the text must be approved or rejected during a Second or Third Reading.

To speed up the process, during the First Reading the three institutions (EC, EP and CEU) can set up “trilogues”, i.e. informal consultations between representatives of the three authorities, in order to reach an agreement on a common text more quickly. In this case, when they agree on a version of the directive during the “trilogue”, each of the authorities has to approve the text internally. The directive finally enters into force once the text has been approved by the three authorities, and European States have 24 months to comply.

Where does AIFMD II stand?

As stipulated in the procedure, the European Commission published its proposal for the text of the AIFMD II on 24^th November 2021. During the First Reading, both the EP and the CEU published their own amended version of the text; the last one was published by the Parliament, on 24^th January 2023. The three institutions are currently going through “trilogue” consultations to reach an agreement on a common text. The duration of this consultation phase hasn’t a standard/fixed deadline, as it leaves time for the delegates to reach an agreement. In any case, based on previous experiences, it’s reasonable to expect an agreement to be reached approximately by the end of 2023.

What are the next steps?

Even if the three institutions reached an agreement during the ongoing consultations, it would still be an informal agreement. The final text would then have to be approved internally by each of the three institutions before entering into force. Consequently, we can expect the final text of AIFMD II to be approved between the end of 2023 and the beginning of 2024. If the predictions turn out to be correct, Member States will have to adapt their local legislations by the beginning of 2026.

At the same time, the European Commission will have to approve the necessary Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS); the purpose of ITS and RTS is to facilitate, through harmonised information and common templates, the notification process of cross-border marketing and management activities in relation to AIFs.

The relevant RTS and ITS have already been proposed by ESMA to the Commission and are waiting to be evaluated; the Commission can either approve them or suggest a change. Once approved, they will have to be ratified through a dedicated European regulation and will be applicable 3 months after that regulation enters into force. Since the legislative instrument that will be used for the enactment of RTS and ITS is the regulation, it will not be necessary for Member States to enact or amend any national legislation for the implementation of the European provisions, which come into force directly throughout the Union.

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