The AFM has serous doubts about the ability of investment fund managers in cryptos to meet the licence requirements

The AFM has serous doubts about the ability of investment fund managers in cryptos to meet the licence requirements

Published on 18-06-2018

On 14 June, the AFM sent a letter to existing and new market parties that, at this moment, are acting as ‘light’ managers of investment funds engaged in cryptos, or are planning to do so, regarding the AIFMD licence requirements for investment fund managers (see link to press release (in Dutch)).

In this letter, the AFM expresses her doubts about the ability of investment fund managers to meet the strict AIFMD licence requirements since, inter alia, the risk associated with (the management of) cryptos. The AFM notes a sharp increase in the interest among new market parties to set up an investment fund in cryptos. Currently, several parties are active as AIFMD light manager of a crypto fund, benefiting from an exception to the license requirement and full application of the AIFMD.

A light manager has to apply for an AIFMD licence when the relevant threshold of assets under management is met. This threshold for an open-end investment fund (which a crypto investment fund generally is) is EUR 100 million. Moreover, light managers would also have to apply for a licence when one of the other exemption thresholds are no longer met.

In the letter, the AFM mentions a number of important topics that an investment fund manager must in any event be able to address according to AFM-standards if he wants to apply for a licence. Parties have to take into account the requirements regarding liquidity management, the valuation of the participation rights in the fund and the assets of the fund, the appointment of an independent depositary and the product governance process. The AFM also notes that, for the avoidance of doubt, the requirements set out in the Money Laundering and Terrorist Financing (Prevention) Act (‘Wwft’) already apply to light managers.

We note that the requirements referred to by the AFM only form a small part of the applicable requirements under the AIFMD regime. Apart from these requirements, the investment fund manager must also be able to demonstrate compliance with various other requirements, such as with respect to governance, substance, risk management, compliance, outsourcing, mitigating conflicts of interest and sound remuneration rules.