AFM publishes letter with points for attention to sub-threshold managers under AIFMD

Key findings and regulatory expectations

The AFM’s review revealed that compliance with ongoing regulatory obligations by sub-threshold managers is inadequate in various areas. The Letter addresses the following areas:

AIFMD reporting obligations

Sub-threshold managers must annually report key information to the AFM, including data on financial instruments, risk exposures, and portfolio concentrations. The AFM observed that not all sub-threshold managers submit these reports on time or in full, constituting a breach of Article 2:66a(3)(b) AFS. Non-compliance may lead to enforcement measures.

Retail vs. professional investor classification

The AFM noted misclassifications of investors, particularly where high net worth individuals were incorrectly classified as professional investors. The Letter reiterates that private individuals investing in sub-threshold funds can never qualify as professional investors under Article 1:1 AFS.

Key Information Document

Sub-threshold managers offering funds to retail investors must prepare and publish a Key Information Document (KID) in accordance with the Packed Retail and Insurance-based Investment Products (PRIIPS) Regulation. The AFM found that many sub-threshold managers either failed to publish the KID, keep the KID up-to-date, lacked a website to do publish the KID, or were unaware of the requirement altogether.

Use of the <150 retail investor exemption

When a sub-threshold manager offers a fund to retail investors and uses the condition to offer participation rights to fewer than 150 persons, the offer must be targeted at a clearly defined and limited group of persons. This explicitly refers to the number of persons to whom the offer is made, not to the number of actual participants. If a sub-threshold manager uses this condition, the sub-threshold manager must ensure that the offer is made to fewer than 150 persons. The sub-threshold manager must also be able to demonstrate how it fulfils this condition.

In its thematic review, the AFM has identified that sub-threshold managers who use the condition to offer a fund to fewer than 150 persons are not always able to demonstrate how they fulfil this condition. This is particularly important when a website contains concrete and detailed information about the fund, which website visitors can take note of. In such cases, there is often an offer to more than 150 persons. In addition, the AFM concludes that this condition is circumvented. For example where a sub-threshold manager has two similar funds, both offered to retail investors under different conditions. One fund (fund A) was offered to the public via a website, where investments could be made from €100,000. The other fund (fund B) was offered to fewer than 150 persons.

Wwft and Sw compliance

Sub-threshold managers are subject to the Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme, Wwft) and Sanctions Act of 1977 (Sanctiewet 1977, Sw). The AFM identified deficiencies in risk assessments, client due diligence, and the completion of periodic Wwft questionnaires.

Responsibility and outsourcing: sub-threshold managers remain ultimately accountable

The AFM reiterates that sub-threshold managers remain fully responsible for compliance with all legal obligations, even when certain tasks are outsourced. While outsourcing – particularly for Wwft compliance or fund administration – is common, it does not shift accountability.

Sub-threshold managers must have sufficient knowledge to understand the regulatory framework and to assess whether outsourced tasks are being performed correctly. The AFM observed that some sub-threshold managers rely too heavily on service providers without adequate oversight, especially in areas such as AML risk assessments and client due diligence.

Deregistration

Inactive sub-threshold managers or AIF must deregister promptly via the AFM Portal. Failure to do so may result in continued regulatory obligations and inclusion in supervisory investigations.

Next steps

The AFM urges all sub-threshold managers to carefully review the Letter and assess whether their operations align with the outlined expectations. Where necessary, sub-threshold managers should take corrective action to ensure full compliance.

Contact

Should you require any assistance with assessing the Letter, we are here to support you. Please contact your trusted adviser at Loyens & Loeff or one of our colleagues mentioned below.