AIFMD updates

AIFMD reporting update

We updated RegData forms AIF001 and AIF002 to align with ESMA technical guidance[2] from November 2017. This will ensure the quality of the data is kept to a high standard. There were no changes to the reporting requirements or deadlines for submission.

The update also included an upgrade to taxonomy version 1.2. This means that the adjustments needed to comply with taxonomy version 1.1 (for example, as detailed in question 11 of the Q&A[3]) are no longer required.

In 2016, we published a revised AIFMD reporting Q&A[4].

AIFMD (reporting) instrument 2017 (FCA 2017/3) – Further information

Following the publication of this instrument[5], we provided some clarifying information for firms ahead of it coming into force.

The following information does not constitute rules or guidance and does not affect an AIFM’s responsibility to comply with the AIFMD, related delegated or implementing regulations, associated UK regulations, and relevant ESMA guidelines, Q&A and technical standards.

AIFMD: Additional Alternative Investment Fund (AIF) data items request

On 22 August 2014, we asked a subset of firms under AIFMD for additional mandatory information to supplement the AIF schedule. 

Changes to Handbook affecting UCITS managers, AIFMs and Article 36 custodians

We have finalised changes to the Handbook affecting UCITS managers, AIFMs and Article 36 custodians. This work is a result of our consultation in March 2014 (CP14/4, chapter 2[6]) and, with respect to the change in number one below, September 2013 (CP13/9, chapter 15[7]).

We received 7 responses from trade associations, law firms and compliance consultancies. Respondents agreed with the majority of proposals in our consultation. We have briefly summarised the comments received, our responses and the consequential changes to the guidance in the Handbook Notice. The main changes are:

1. Incorporation of amendments to the Financial Services and Markets Act 2000 (Gibraltar) Order 2001, which allows AIFMs to passport between the UK and Gibraltar
2. Incorporation of the ESMA AIFMD key concepts guidelines and the ESMA AIFMD reporting guidelines and opinion
3. Guidance on AIFMD Reporting by AIFMs on their AIF portfolios
4. New rules for AIFMs and UCITS managers around risk management systems related to credit ratings
5. Clarification on how AIF portfolios are valued and how that valuation affects regulatory capital requirements
6. Clarification to requirements governing Article 36 custodians
7. Further detail on certain AIFMD remuneration requirements
8. Modification of the AIFMD notification forms and
9. Additional minor consequential changes as a result of AIFMD.

Handbook Notice 13[8] was published on 1 July 2014 with the instrument updating the Handbook.

AIFs in the form of limited partnerships

We have been asked by various stakeholders how they should determine where an AIF in the form of a limited partnership is established. Specific enquiries on AIFs include:

• a Guernsey limited partnership with its registered office in Guernsey and its principal place of business in the UK, and
• a UK limited partnership with its principal place of business on Guernsey

The Glossary definition of 'established' means, for an AIF, being 'authorised or registered' in a given country or, if the AIF is not authorised or registered, 'having its registered office' in a given country. So, for an AIF that is not authorised or registered anywhere in the EEA and that has a registered office, we consider its place of establishment to be the country or territory where that office is located. An AIF is not authorised or registered unless it is authorised or registered as a fund, which would not be met, for example, by a registration at Companies House. In the first example mentioned above of a Guernsey limited partnership, the AIF has its registered office in Guernsey and is in our view a non-EEA AIF.

A UK limited partnership does not have a registered office as such but is required to register its principal place of business and we regard that as the equivalent of a registered office for these purposes. Accordingly, in the second example above, the AIF is in our view also established in Guernsey and is therefore a non-EEA AIF.

Where there is no registered office, the location of the head office of the AIF is relevant in determining its place of establishment.

These views reflect our understanding of the effect of the AIFM Regulations 2013 (SI 2013/1773).

Alternative Investment Fund Managers Order 2014

The Treasury has now made and laid before Parliament the Alternative Investment Fund Managers Order 2014 and the Alternative Investment Fund Managers (Amendment) Order 2014. Find out what this means for you if you’re an AIFM.

This makes changes to the implementation of the Alternative Investment Fund Managers Directive (AIFMD) in the UK, including:

• Transitional period for AIFMs
• Gibraltar-based firms
• UK registered firm managing an AIF from outside the EEA
• Insurance mediation activities
• Grandfathered AIFs

Direction to recognised funds under s.277A

The Alternative Investment Fund Managers Regulations 2013 allow us to direct new compliance requirements for funds that are recognised under s.272 of FSMA (‘recognised funds’).  

Recognised schemes are schemes managed outside the UK, but that can be promoted to retail investors in the UK as a result of being recognised by the FCA.  However, such schemes must also comply with the AIFMD marketing provisions.

Under s.277A FSMA, we have directed operators to complete and send us an annual compliance certificate relating to the recognised fund under management.  

This certification would prove that the fund continues to comply with equivalent requirements to UK authorised funds and gives adequate protection to UK investors.  This ensures that if we amend our rules, the recognised fund will maintain equivalence.

The 277A Certificate must be sent to us no later than one month following the publication of the annual report and accounts of the fund or, if that publication is delayed, the last day on which it would have complied with applicable regulation, whichever is earlier (its due date).  The operator must initially comply with this direction for any financial year for which the due date falls after 31 August 2014.

We have sent a copy of our final direction under s277A[9] to the operators of recognised funds.

Completing an application: additional activities 

When completing Section 2.5 of the Variation of Permissions (VoP) for full scope AIFMs, firms should only select additional ancillary activities where they are necessary for the activities that the firm intends to carry out, and can be referenced back to their regulatory business plan. These additional activities do not need to be selected if the firm is only managing AIFs and/or UCITS.

AIFMD capital: 'additional own funds' Article 9(3)

Following representations from a number of firms, we have been considering our interpretation of the definition of “funds under management” for the purposes of Article 9(3) AIFMD. This definition is used to calculate the amount of “additional own funds” a manager must hold once the value of the portfolio of AIFs exceeds EUR 250m. This requirement is reflected in Chapter 11 of IPRU(INV)[10].

We decided that the requirement could lead to disproportionate outcomes in certain circumstances.  

In 2014, we consulted[11] on and updated the requirement to allow for derivatives to be valued at their market value rather than requiring them to be converted to their underlying positions when calculating the value of portfolios. 

Update on Article 6(4)

Last year we published a statement on the passporting of services authorised under Article 6(4) of AIFMD (the so-called 'MiFID services'). We explained that the European Commission did not share our view that a passport exists for such services under AIFMD, and that consequently some Host States might refuse our passport notification for the provision of MiFID services by a UK full-scope UK AIFM.

Recently, EU negotiations on the proposed revision of the Markets in Financial Instruments Directive ('MIFID 2') reached an agreement to introduce an amendment to Article 33 of AIFMD. This amendment will make it explicit that the right to passport an AIFM’s services in other Member States extends to any services it provides under Article 6(4) and that Article 33 provides the mechanism for the AIFM to do so by requesting its Home State Regulator to issue a notification to that effect.

Some Member States may have already implemented into their national law the original view of the European Commission services that there is no passport under the AIFMD for the MiFID services, in which case it is likely to take them some time to change the law and begin accepting the passporting of MiFID services. However, we understand that the Commission's revised view is that a notification for a full-scope UK AIFM to provide MiFID services in another Member State should be accepted by the Host State regulator.

Guidance on the AIFM remuneration code

We have finalised our guidance on the AIFM remuneration code. We have implemented this by making change - as published in Handbook Notice 8[12] - to the SYSC 19B and FUND 3.3.5 chapters of our Handbook, and we have introduced a link in SYSC 19B to a non-Handbook document that contains our finalised guidance[13] on the application of proportionality to firms and other aspects of the Remuneration Code.

This work is a result of our consultation, which closed in November 2013. We received 15 responses, mostly from industry trade bodies, law firms and large investment managers.

The respondents overwhelmingly welcomed our initiative to provide guidance on the AIFMD remuneration regime and largely agreed with the content, but also suggested some changes. We have briefly summarised the comments received, our responses and the consequential changes to the guidance in the Handbook Notice 8[12].

AIFMs will need to comply with the relevant remuneration rules in the AIFMD and its implementing measures, such as the ESMA guidelines on sound remuneration policies[14] under the AIFMD. Our guidance will provide more certainty for firms transitioning to the AIFMD regime, and may help them to apply to become authorised in good time.

Policy Statement 13/10

We published Policy Statement 13/10[15] on CRD IV for investment firms in December 2013.

We would like to draw firms’ attention to Annex 3: Prudential classification for UK investment fund managers which has been updated since it was published in PS 13/5: Implementation of the AIFMD.

The table provides clarifications as a result of consequential amendments to the prudential requirements for Collective Portfolio Management (CPM) firms and Collective Portfolio Management Investment (CPMI) firms.

Information required from AIFMs on depositary arrangements

We have received a number of queries relating to depositary arrangements and the Variation of Permission form. To assist firms with this we have published an explanatory note on what we need on AIFM depositary arrangements[16].

Depositary update

We are aware that a number of firms are currently preparing applications for authorisation or variation of permission to carry out the function of acting as depositary or trustee of an Alternative Investment Fund (AIF). Some of those firms may be considering structures where services will be provided to the depositary by other operating units or entities in the same commercial group, or by unconnected persons under an arms’ length contract.

We would like to draw the attention of applicants to the rules on delegation by a depositary; it is vital these rules are followed in order for us to process an application effectively and efficiently.

FUND 3.11.26R specifies that a depositary must not delegate its functions to third parties, except for the safekeeping of assets which may be delegated under a number of conditions. We consider that a ‘third party’ should be understood to mean any party that is not part of the same legal entity as the applicant. The performance of any depositary functions detailed in the Directive itself, or in Articles 85 to 97 inclusive of the AIFMD Level 2 Regulation, is subject to this rule.

Applicants should also refer to Recital 42 of the Directive, which is not reproduced in our Handbook. It includes the statement that “Delegation of supporting tasks that are linked to [the] depositary tasks, such as administrative or technical functions performed by the depositary as a part of its depositary tasks, is not subject to the specific limitations and requirements set out in this Directive”.

However, if applicants intend to outsource any administrative or technical functions, they should take note of the provisions of SYSC 8[17] in our Handbook. Rules in SYSC 8 are binding on firms that are (or will be) common platform firms, but have the status of guidance for all other firms.

We do not propose to issue a comprehensive list of functions that would be considered purely administrative or technical. These will depend on context and the proposed structure of each depositary’s operations. In each case, the applicant must be able to satisfy the FCA that it will have the necessary technical and human resources to perform the core depositary functions of cash monitoring, safekeeping (if it is to be carried out by the depositary without delegation to any third party) and oversight.

An EEA firm that establishes a branch in another Member State, under rights conferred by a single market directive, is not carrying out delegation when providing the services permitted under that directive at or from the office of its branch. However, the points raised above in relation to SYSC 8 would apply to any such arrangement.

Passporting arrangements

ESMA published an opinion[18] that recognises the right of firms to be able to exercise passport rights in Member States that have not yet transposed the directive, assuming the firms’ own home Member State (e.g. the UK) has transposed the AIFMD.

UK firms should be able to exercise passporting rights in all EEA states with the exception of Norway, Liechtenstein and Iceland. UK firms will be able to exercise AIFMD passporting rights in these jurisdictions when the EEA Agreement, to which Norway, Liechtenstein and Iceland are signatories, has been updated to include the AIFMD within its scope. Similarly, UK firms will be able to exercise passport rights in Norway, Liechtenstein and Iceland pursuant to the EuSEF and EuVECA regulations, when the EEA Agreement has been updated to include these regulations within its scope.