The European Securities and Markets Authority (“ESMA”) recently updated its Q&A on Directive 2011/61/EU of the European Parliament and of the Council of June 8th 2011 on Alternative Investment Fund Managers (“AIFM Directive”) regarding the supervisory responsibilities of competent authorities in host Member States when an alternative investment fund manager provides investment services through a branch established in the host Member State.
ESMA clarified that, under both the UCITS and the AIFM Directives, supervisory powers of competent authorities in relation to branches of UCITS management companies or alternative investment fund managers (“AIFMs”) established in a Member State that is not the home Member State are shared. The competent authority of the Member State in which the branch is located (i.e., the host Member State) is responsible for supervising the branch’s compliance with conduct rules referred to in Article 17(5) of the UCITS Directive and Article 45(2) of the AIFM Directive, while the competent authority of the Member State in which the UCITS management company or the AIFM is established (i.e., the home Member State) is responsible for supervising the other requirements provided under the relevant applicable framework.
ESMA concedes that neither the UCITS Directive nor the AIFM Directive provides for an explicit framework for the allocation of supervisory responsibilities and powers for those cases where UCITS management companies or AIFMs are authorised to carry out investment services set out in Article 6(3) of the UCITS Directive and
Article 6(4) of the AIFM Directive and have branches providing those services in other Member States. Still, ESMA’s position is that responsibilities of home and host Member States should be identified similarly to, and consistently with, the general framework established for the provision of activities pursued by UCITS management companies and AIFMs through branches as well as with the MiFID II framework regulating the supervision of the provision of investment services across the EU. Under Article 35(8) of MiFID II, the competent authority of the host Member State is responsible for ensuring that the services provided by the branch of an investment firm or a credit institution in its territory comply with the requirements under Articles 24 (General principles and information to clients) and 25 (Assessment of suitability and appropriateness and reporting to clients) of MiFID II, which also apply to UCITS management companies and AIFMs providing investment services.