FCA Publishes Final Rules and Guidance to Implement AIFM Directive

by Dechert LLP
Contact

The UK Financial Conduct Authority (FCA) published its Policy Statement 13/5 on 28 June 2013, containing its (substantially) final rules and guidance to implement the Alternative Investment Fund Managers Directive (AIFMD). The policy statement (392 pages) can be viewed here. We provide some initial commentary below.

Rulebook Amendments

The Policy Statement includes the new Investment Funds sourcebook (FUND), which transposes the majority of the AIFMD’s operating and compliance requirements on alternative investment fund managers (AIFMs). The Policy Statement also sets out the amendments to the SYSC sourcebook (which transpose the AIFMD’s rules on conflicts of interest and remuneration, amongst others), GENPRU (which transpose the AIFMD’s rule on capital and PII), IPRU (INV) and other amendments to GEN, FEES and COBS 18.5. As expected, the FCA has largely taken a “copy-out” approach to transposition.

Marketing

The Policy Statement includes a revised Perimeter Guidance chapter, which contains some important new guidance on the concept of “marketing” under the AIFMD:

  • In construing the term “marketing”, the FCA has clarified that marketing occurs when “an offering or placement takes place where a person seeks to raise capital by making a unit available for purchase”. The FCA has confirmed that an offering or placement does not therefore include secondary trading in an alternative investment fund (AIF). Likewise, the FCA has confirmed that a listing of an AIF (at least on the FCA’s official list) will not in itself constitute an offering or placement, although it may well be accompanied by such an offering or placement.
  • In terms of whether communicating with investors on the basis of draft documentation amounts to marketing, the FCA has reiterated its earlier view that any such communications do not fall within the meaning of “offer” or “placement” for the purpose of AIFMD. Underlining this view, the FCA states that a promotional presentation or pathfinder version of a private placement memorandum would not constitute an offer or placement, provided such documents cannot be used by a potential investor to make an investment in the AIF – with the caveat that a unit in the AIF should not be made available for purchase as part of the capital raising of the AIF only on the basis of draft documentation in order to circumvent the marketing restriction.
  • In response to queries as to whether an AIFM must, in the context of the marketing restriction, look through to the underlying beneficial investor in order to determine who is the investor, the FCA has provided some new guidance. The FCA states its view that the reference to “investor” should be regarded as a reference to the person who will make the decision to invest in the AIF. Accordingly, where the legal subscriber is a nominee or custodian, the FCA states that the AIFM should “look through” to the underlying investor who has made the decision to invest. Where a discretionary manager invests on behalf of an underlying investor, it is not necessary to “look through”, as it is the manager who should be considered as the investor.
  • In terms of passive marketing (marketing at the initiative of the investor), the FCA has taken the view that its earlier guidance was too restrictive. The only guidance which the FCA now offers AIFMs in determining whether marketing has taken place at the initiative of the investor is to state that AIFMs and investment firms may generally rely on a confirmation from the investor that the approach is at the investor’s initiative, with the caveat that this cannot be relied on if it has been obtained to circumvent the requirements of AIFMD. This leaves uncertainty as what an AIFM can do vis-à-vis a prospective investor without casting doubt on whether the investor has genuinely solicited the investment on its own initiative.
Scope and Delegation

The FCA has also finalized its Perimeter Guidance on the meaning of AIF – in line with ESMA’s final guidelines on this topic. Much of its previous draft guidance has made the final text. There is also new guidance on, for example, the position of a limited partnership with a single limited partner and a general partner making a nominal capital contribution; the position of a limited partnership under the joint venture exemption; and the treatment of separate investment compartments or sub-funds.

In terms of finalized guidance on managing an AIF, the FCA notes (per Article 51ZC(3) of the draft updated Regulated Activities Order) that a UK firm will not be “managing an AIF” if it performs functions that have been delegated to it, provided that the delegating entity is not a “letter-box” entity. The FCA notes that the so-called “Level 2” regulations on letter-box entities are not directly applicable to all AIFMs (for example, where the AIFM is outside the EEA). In such situations, whilst those regulations can be used as a form of “safe harbour”, the FCA will not necessarily require firms to demonstrate detailed compliance with them, but will apply a “broad anti-avoidance approach” to the letter-box question. The Perimeter Guidance states that a key consideration will be the importance of the tasks carried out by the delegating manager, along with its right and ability to exercise oversight and control and the degree to which it actually does so.

Remuneration Issues – Still Outstanding

The FCA notes that it is still undecided about whether or not to comply in full with the ESMA guidelines on sound remuneration policies under AIFMD. These guidelines include the potentially problematic requirements as regards the application of AIFMD’s remuneration provisions to delegates. The FCA says that it expects to decide shortly, and will publish a statement when it has. The FCA also notes that it expects to consult on proportionality (in the context of AIFMD’s remuneration restrictions) later this year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP
Contact
more
less

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.