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.
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.
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.