The following is a summary of the most interesting elements from the FCA’s AIFMD Implementation Policy Statement (PS13/5) which they published on Friday 28 June.
In the order they appear in the Policy Statement, reference by chapter and sub-paragraph:
- 1.24: Authorisation of Transitional AIFM and AIFMD Depositaries – The FCA is not expecting either Transitional UK AIFMs or Transitional UK Depositaries to delay their formal application to be Authorised under AIFMD to the last possible point (21 July 2014). The FCA expects applications to be made no later than reasonable time to be formally authorised by 22 July 2014.
- 2.8/9: What is AIFMD Marketing and Secondary Markets? Marketing is deemed to mean Capital Raising. Hence ‘secondary markets’ are not deemed to be Marketing in the AIFMD sense unless the purpose of the listing is to raise capital for an AIF.
- 2.15: Would synchronised individual portfolios constitute an AIF? Individual Portfolio where the Investment Management/Portfolio Management is synchronised does not mean that, together, these individual portfolios are deemed to be an AIF.
- 2.20: Does undertaking an AIFM Function mean it is an AIFM? This clarifies that if an AIFM delegates Portfolio Management and/or Risk Management to a Delegate, that Delegate, simply by means of undertaking an AIFM function, does not mean that the Delegate is an AIFM. This is the case unless the AIFM has delegated to such an extent that it is deemed a ‘letter-box entity’. Importantly, although the ‘letter-box entity’ test does not apply to non-EEA AIFMs, the FCA has stated clearly that if it deems the non-EEA AIFM to be a ‘letter-box entity’ it is possible the FCA may deem its Portfolio Management/Risk Management Delegate, if in the UK, as the AIFM.
- 4.14: AIFM Regulatory Reporting – IRR SUP 16.12 (GABRIEL Reporting), which applies to Authorised AIFMs, does not apply until periods ending on or after 31 January 2014. This, in practice, means that most AIFMs’ first GABRIEL Reporting Date will be 31 March 2014 (the FCA states that this coincided with when GABRIEL will be on stream for these revised/new Data Items).
- 4.15: Transitional UK AIFM Regulatory Reporting – existing firms (e.g. MiFID Investment Firms) which are Transitional AIFMs will continue to submit, so long as its status does not change, the same IRR Data Items as they do as at 21 July 2013 (SUP TO 1.8.2).
- 4:17: Calculation of Funds under Management (‘FUM’) and Assets under Management (‘AUM’) – the FCA has confirmed that for the purposes of calculating the Funds Under Management Requirement, the Professional Negligence Capital Requirement and the PII Capital Requirement, the value of Transitional AIFs (AIFMD 61.3 and 61.4) do not need to be counted.
- 4.18: What Prudential Regime applies to which type of AIFM? What was previously Annex 4 in CP2 is now Annex 3 in PS13/5 and has been updated to properly reflect what Prudential Regime applies to what type of AIFM by way of which type of AIF it Manages.
- 4.20: Requirement on AIFMs to produce an annual Audited Financial Statement and do Reserves count as Eligible Capital? The FCA confirms that because it does not have the power to make Rules outside of UK Law it cannot require CPM AIFMs (this does not apply to CPMIs as they are deemed MiFID Investment Firms) that can take advantage of the SME Exemption to produce Audited Financial Statements (since the Companies Act does not state, as it does for MiFID Firms and UCITS ManCos, that the SME Exemption does not apply). However, the FCA has stated that CPMs which chose to adopt the SME Exemption cannot treat Reserves as Eligible Capital unless they do undertake a formal Audit or undertake an independent verification of profits.
- 6.7: What instruments can a PE Depositary hold? PE Depositaries may hold Financial Instruments in custody or delegate the custody of them to another custodian so they will be granted this additional activity but with a limitation as to what type of AIF it can be Depositary to.
- 6.14/15: UK Article 36 Depositaries – Article 36 ‘Depo-Lite’ Depositaries need now only be subject to the €125k Base Capital Resources Requirement (rather than the €730k Full Scope Requirement). The FCA also confirmed that there is no need to appoint a Single Depositary and that separate Depositaries can undertake each of the three Art.36 Depositary oversight functions (all UK, part UK/Part non-UK/all non UK).
- 7.8: Reverse Solicitation – the FCA has chosen not to provide examples of circumstances where Reverse Solicitation (or unsolicited Marketing) has taken place. Each case will be assessed on a case by case basis. Instead the FCA has simply stated that firms may generally rely on a confirmation [in writing] from an investor that the approach is at their own initiative. However, the FCA will take account of the circumstances which may have led to that investor providing this statement.
- 7.9: Listed AIFs – confirms that secondary markets are not in themselves AIFMD Marketing but if the process of listing taking place is to raise capital this would very likely be deemed an example of where AIFMD Marketing takes place.
- 7.10: Secondary Markets – goes into more detail on secondary markets.
- 7.11: What constitutes Marketing in terms of the AIFMD? AIFMD Marketing is the Offering or Placing of AIF Shares/Units; the FCA’s general interpretation is ‘that [an] offering or placement [which is deemed to be AIFM Marketing is one which] seeks to raise capital in the AIF’.
- 7.12: Territorial Scope when Marketing – Territorial Scope of Marketing and the location of the Investor – the FCA, following a change in direction by HMT, has now limited it’s comments to circumstances where Marketing takes place in the UK. It seems that the UK does not wish to trespass on circumstances where UK Domicile Investors may be located in other EEA States than the UK. It seems that the UK is only now prepared to comment on Marketing to UK Investors which are located in the UK (i.e. Investors which are Domicile, and living, in the UK and those with Registered Offices are in the UK). It does not seem that HMT’s revised stance alters the commonly held view that it is the jurisdiction of the Domicile/Registered Office of the Investor which dictates the law/regulation which applies when AIFMD Marketing but it is simply being cautious – further clarification will, no doubt, follow.
The FCA has, however, confirmed that the term ‘Domicile’ should have the EU meaning attributed to it. This is thought to mean their Residence, not the UK meaning of Domicile.
- 7.14: Use of Draft Documentation – the FCA, inevitably, received comments on their assertion that distributing Draft Offering/Prospectus documentation to potential investors was not AIFMD Marketing. The FCA has further clarified its position in this held belief. The result is that AIFMs may still distribute drafts without it being deemed as AIFMD Marketing but they cannot receive subscriptions as a consequence of such circumstances. Final documentation has to be sent to prospective investors before an investment can take place and therefore immediately they send final Offering/Placing documentation it will be AIFMD Marketing (and they cannot also say that it is now Reverse Solicitation).
- 7.16: Article 36 and 42 Notification Forms – the UK’s Article 36 and Article 42 draft notification forms (i.e. where non-EEA AIFs are to be Marketed to UK Investors by either UK AIFMs, EEA AIFMs or non-EEA AIFMs) were published on 2 July (Article 36 and 42 and Small non-EEA AIFMs) Notification Forms . Most AIFMs will be Transitional AIFMs (both EEA and non-EEA) which are not required to notify the FCA of their intention to Market AIFs to UK Investors while they remain within the Transitional; only formally authorised AIFMs, Small (sub-threshold) AIFMs and non-EEA AIFMs which cannot be regarded as Transitional non-EEA AIFMs will be required to notify the FCA from 22 July 2013 (or at the point they wish to Market).
- 9.7: AIFMD Remuneration Rules – the UK’s implementation of ESMA Guidelines on ‘sound Remuneration policies’ will be subject to consultation. ESMA published its Final AIFMD Remuneration Guidelines on Wednesday 3 July. The UK now has until 3 September to confirm to ESMA how the UK will apply them, EEA States are required to take a ‘comply or explain’ approach: N.B., we understand that the German equivalent of the IMA (the BVI), are strongly of the view that Delegate Portfolio Managers of AIFMs should not be subject to the AIFMD Remuneration Code. The German BVI view is that Delegate Portfolio Managers do not put at risk the Risk Profile of the AIFs they manage because they are required to operate within the investment mandate they have been given and, hence, it is only the AIFMs that should be subject to these AIFMD Remuneration rules as it sets and monitors risk profile.
The FCA confirms that the application of Proportionality in terms of AIFMD Remuneration is challenging but that for those [few] UK AIFMs which will be subject to AIFMD Remuneration rules before the UK has clarified how it will apply the ESMA Guidance, AIFMs must adopt a ‘best efforts’ approach (doing nothing is not acceptable).
- 9.10/9.15: Obligation on Member States to implement AIFMD’s Third Country Passport legislation – AIFMD Third Country Passport – although this may never come into being and if it does it will not do so before late 2015, the UK believes that it is required to put in place relevant Implementing legislation now. The HMT, therefore, plan to lay before Parliament the necessary legislation (Regulation) later this month.
Additionally a revised (PERG 8.37) and a new PERG Chapter (PERG 16) have been created
- PERG 8.37.9: Is there the need to adopt a ‘look through’ approach to the clients of Discretionary Investment Managers when Marketing AIFs to Discretionary Investment Managers? Of specific importance this Guidance states that in the event that the AIFM, or its agent, is Marketing to an Institution which is undertaking Discretionary Investment Management (‘DIM’) services, it is that Institution which should be treated as the Person to whom the AIFMD Marketing is being directed. It is not necessary to adopt a ‘look-through’ approach when Marketing AIFs to Institutions. Hence, the AIFM will classify the DIM as the person, i.e. either a Professional Client or Eligible Counterparty. It will then be for the DIM to determine how it then makes a Financial Promotion of the AIF to its clients. For example, in the UK, revised COBS 4.12 will apply in spirit now and actually from 1 January 2014 (Time Travel COBS 4.12 to 1 January 2014 for full details).
Can an Authorised UK AIFM Passport its MiFID Services?
- The FCA confirmed, in its view, CPMI, i.e. UK AIFMs which have taken on Top-Up Permissions in order to undertake MiFID Services and Activities to the extent AIFMD will permit under Art. 6(4). However, the FCA also stated some caution in this regard. These ‘top-up’ services are:
- Individual Portfolio Management (as opposed to Collective Portfolio Management), e.g. permitting the Investment Management of Managed or Segregated Accounts;
- Safekeeping and administration in relation to shares or units of CIS; and
- Reception and transmission of orders in relation to financial instruments.
It is not possible for AIFMs to be jointly Authorised under AIFMD and MiFID; it is, however, possible for AIFMs to be jointly Authorised under AIFMD and UCITS. It may be possible to Passport MiFID Services under UCITS.
The UK believes that the AIFMD’s AIFM Management Passport will permit AIFMs to Passport these Services to other EEA States. However, this depends on whether the Host State to which the FCA has sent the passport notification is prepared to accept it.
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