On 11 January 2013, HM Treasury published its first consultation on Alternative Investment Fund Managers Directive (AIFMD) implementation in the UK, entitled "Transposition of the Alternative Investment Fund Managers Directive", following on from its policy discussion paper issued in March of 2012. The consultation closes on 27 February 2013, after which the Treasury will publish a formal response.
The Treasury's current consultation includes draft UK implementing regulations; however, these were prepared before publication of the European Commission's implementing Level 2 Regulation, and therefore the Treasury notes that the draft implementing regulations may require further revisions in due course. Additionally, changes also may be required should the proposed European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) Regulations be adopted.
The Treasury intends to issue a second consultation paper shortly covering the following:
scope of application of the AIFMD, including charity funds;
the EuVECA and EuSEF Regulations;
marketing of EEA retail funds, third country retail funds and sections 270 and 272 of the Financial Services and Markets Act 2000 (FSMA);
application of the approved persons regime to internally managed investment companies; and
application of the Financial Services Compensation Scheme and Financial Ombudsman Service to Alternative Investment Fund Managers (AIFMs).
The following highlights some important points to come out of this consultation.
Regimes Applicable to Sub-threshold AIFMs
The Treasury proposes to take the following approach in relation to AIFMs (Sub-threshold AIFMs) managing alternative investment funds (AIFs) that meet the de minimis exemptions under AIFMD:
apply the full requirements of the AIFMD, with some limited exceptions, to Sub-threshold AIFMs which manage authorised funds in the UK (such as Non-UCITS Retail Schemes or Qualified Investor Schemes);
apply a registration-only regime to internally managed closed-ended investment companies;
broadly retain the status quo for external managers of investment companies by applying a similar level of regulation to external AIFMs of investment companies; and
broadly retain the status quo for Sub-threshold AIFMs which manage unregulated collective investment schemes (CISs) by replicating the current requirements for CIS operators.
In relation to Sub-threshold AIFMs managing unregulated CISs, the Treasury has confirmed that it will not apply AIFMD requirements that go beyond the current requirements for CIS operators. Additionally, the Treasury does not intend to apply the AIFMD's portfolio company and asset stripping requirements to Sub-threshold AIFMs, which should be welcome news for smaller private equity fund managers.
The UK's Private Placement Regime
The Treasury has confirmed in its consultation that it proposes that the private placement regime will be available in the UK for non-EU managers, and that any restrictions will not exceed AIFMD minimum standards.
This approach should ensure that the UK remains an attractive market for non-EU fund managers seeking investors in the UK.
Private Equity and Depositaries
The AIFMD permits EU member states, by way of derogation, to allow certain entities to act as depositaries for certain AIFs with a five-year lock-up period. The Treasury proposes to exercise this derogation, with the aim of supporting a competitive market for private equity managers. Further detail in relation to this regime is provided in the FSA's first consultation paper. (See our prior alert UK FSA Issues First Consultation on AIFMD Implementation).
The Treasury proposes a number of definitional and related legislative changes, the most important being:
the current definition of a CIS in FSMA would remain the same, with the result that an entity which is currently a CIS would remain a CIS, and the tax and other legislation which applies to CISs would continue to apply;
a new regulated activity of "managing an AIF" would be established, and a person with "managing an AIF" permission would not need "establishing etc. a CIS" permission in relation to its management of that AIF (even if the AIF were also a CIS); and
the current regulated activity of "establishing etc. a CIS" would remain, which would be required by a person operating a CIS where that person does not have the "managing an AIF" permission (or a newly proposed "managing a UCITS" permission).
In addition, the Treasury also proposes a transitional period of one month in which a firm would not be carrying on the regulated activity of "establishing etc. a CIS" in respect of a scheme without a manager. According to the Treasury, this is to avoid a circumstance whereby a third party providing administration services for a scheme would be immediately caught by the regulated activity due to circumstances outside of its control (for example, the resignation of the manager).