UK Regulators Propose Implementing Rules and Regulations on AIFMD

by Proskauer Rose LLP

FSA Second Consultation

On 19 March 2013, the UK Financial Services Authority (FSA) published Part II (CP2) of its three-part consultation series on Implementation of the Alternative Investment Fund Managers Directive (AIFMD). The consultation period closes on 10 May 2013.

CP2 proposes draft rules and guidance covering a broad range of topics, including:

  • scope – the FSA's views on schemes not likely to qualify as alternative investment funds (AIFs);
  • delegation – the extent to which an alternative investment fund manager (AIFM) may delegate its risk and portfolio management responsibilities;
  • reporting frequency (with reporting content to be addressed in future draft rules);
  • application of AIFMD rules to small (sub-threshold) AIFMs;
  • marketing – when sales activities require regulatory permission; and
  • implementation during the one-year AIFMD transition period.

The rules proposed in CP2 would apply to UK-based AIFMs, and the draft marketing and implementation rules also would apply to any AIFM seeking to market an AIF in the UK.

This alert aims to highlight particular areas of importance or interest to private investment fund managers presented in CP2.


In CP2, the FSA sets out its views regarding schemes that are likely not to be AIFs. These include, among others:

  • carried interest vehicles;
  • co-investment vehicles;
  • acquisition vehicles or SPVs set up to facilitate transactions carried out by the AIFMs;
  • timeshare schemes; and
  • pension schemes.

The specific exclusion of carried interest vehicles and co-investment vehicles is particularly good news for AIFMs currently examining their investment structures, potentially leading to less complicated regulatory requirements and supervisory obligations.

The FSA also provides some practical factors to take into account when deciding whether a commercial venture is excluded from the definition of an AIF as a "joint venture". An AIF is more likely to fall under the joint venture exception when (i) the parties come together before the structure of the venture is determined and the capital raised; (ii) the venture relates to a business the parties are already carrying on at the time it is set up; (iii) the parties have an existing relationship; and (iv) the venture has a policy focused on the achievement of the parties' commercial goals as opposed to a defined investment policy.

Further, the FSA has proposed draft guidance in relation to English limited partnerships, providing answers to some of the outstanding questions in relation to the treatment of such partnerships under the AIFMD. According to the FSA, an AIF that is structured as an English limited partnership cannot be an internally managed AIF. However, it is possible for such an AIF to appoint its general partner as the external AIFM. The FSA did not, however, address the issue of migrated partnerships.


Under the AIFMD, an AIFM cannot delegate the core functions of risk management and portfolio management to the extent that the AIFM becomes a "letterbox entity".

This assessment of whether a proposed delegation arrangement is permissible will be done on a qualitative, case-by-case basis. In other words, the Financial Conduct Authority (FCA), which will become the successor to the FSA as of 1 April 2013,[1] will not presume automatically that a UK-authorised AIFM is a "letterbox entity" merely because a percentage threshold has been reached on the investment management tasks proposed to be delegated. Instead, the FCA will look at a range of factors and examine, in each individual case, (i) an AIFM's compliance with the AIFMD's risk management requirements and the efficacy of its governance by the firm's governing body; (ii) control by the firm's senior management or supervisory function; and (iii) the objective and commercial imperatives for the delegation, with reference to specific, real-world operating models.

Currently, the FSA does not plan for the FCA to issue any guidance on how it will assess compliance with the AIFMD's delegation requirements, including the "letterbox entity" test. Firms may, however, make individual requests for guidance to the FCA.

During the AIFMD transitional period from 22 July 2013 to 21 July 2014, the FCA proposes that it will not make supervisory assessments of a firm's delegation arrangements until the firm applies for authorisation or a variation of permission to become an AIFM. However, for firms that do not benefit from the transitional period, the FCA will review their delegation arrangements as part of their application for authorisation as an AIFM.

Reporting to the FCA

The FSA proposes that "sub-threshold AIFMs" (AIFMs with less than €500 million under management that do not use leverage and have at least five-year investor lock-ups) should report to the FCA annually. Other AIFMs will report to the FCA quarterly. For all AIFM reporting requirements, end dates should correspond with the relevant quarterly end dates (for annual reporting, 31 December).

According to the FSA, the European Securities and Markets Authority (ESMA) is expected to publish in the near future a consultation paper regarding draft guidelines on AIFMD reporting obligations. The consultation paper is likely to cover:

  • guidance on the specific data to be reported in accordance with the templates in Annex IV of the Level 2 Regulation;
  • reporting periods and how these might align with the calendar year;
  • reporting for specific types of AIF, such as feeder AIFs and umbrella AIFs; and
  • IT and operational aspects.

Reporting is expected to commence in January 2014 for AIFMs that have been authorised by that point.

Conduct of business for sub-threshold AIFMs

The full AIFMD requirements and Level 2 regulations do not apply to sub-threshold AIFMs. For current operators of unregulated collective investment schemes (CISs) that will be in the category of sub-threshold AIFMs after implementation of the AIFMD (termed "small authorised UK AIFMs of unauthorised AIFs"), the current FSA Conduct of Business Sourcebook (COBS) rules will continue to apply as they do now.

The FSA does not intend to change the regulatory capital regime for small authorised UK AIFMs of unauthorised AIFs or to the operators of unregulated CISs that also are not managing an AIF. This means that current regulatory capital requirements (for example, the £5000 "own funds" regulatory capital requirement applicable to venture capital CIS operators) will continue to apply to these types of firms.


The AIFMD is unclear on the point at which communication with potential investors in an AIF becomes "marketing an AIF" to those potential investors. In the FSA's view, however, communicating with investors in relation to draft documentation is not "marketing an AIF" under the AIFMD. Rather, "marketing an AIF" occurs when a person makes a unit or share of an AIF available for purchase by a potential investor. An AIFM is not able to seek permission to market an AIF without documentation finalised in all material respects, and only after receiving permission to market the AIF can the AIFM make units or shares of the AIF available for purchase by an investor.

In practical terms, this means that communications and negotiations with investors in relation to draft documents will fall outside the scope of the AIFMD.  According to the FSA, the AIFMD's requirements regarding marketing are triggered only at the point when virtually finalised documents are available. Further, an AIFM is prohibited from accepting an investment by an investor on the basis of draft documents (because the AIFM cannot receive permission to market the AIF on the basis of draft documentation). Although communications regarding draft documentation fall outside the scope of the AIFMD's requirements, the UK financial promotions regime will continue to apply to communications which do not amount to "marketing an AIF", including, in all likelihood, communications regarding draft documents. As a result, AIFMs will need to take care to approach only those categories of sophisticated investors to whom marketing is permitted under the UK financial promotions regime.

The FSA also sets out its views on reverse solicitation and passive marketing, which fall outside the scope of marketing under the AIFMD. Only communications which are solicited by the investor should be considered to have occurred at the initiative of the investor. For example, communications which are sent to investors as part of an organised marketing campaign or documentation which is available on a publically accessible website should not be considered as having been sent at the initiative of the investor. However, communications in response to an approach from a potential investor with prior knowledge of the AIF and no previous involvement with the AIFM could be seen as having been at the initiative of the investor.

Additionally, the FSA proposes Chapter 10.5 of the new Investment Funds Sourcebook (FUND), setting out the required notifications and other processes applicable to marketing under the UK's private placement regime. The precise detail and documents to be included in the notifications, as well as instructions on how to submit them, will be set out by the FSA or FCA before 22 July 2013.

Implementation and Transition

The FSA proposes to permit UK AIFMs managing and/or marketing AIFs in the UK to make full use of the 12-month transitional period to 21 July 2014. All firms within the scope of the AIFMD must comply fully with its requirements by that date, whether or not their application to the FCA for the relevant category of permission has been determined by then. This applies regardless of the jurisdiction of the AIF concerned.

Additional Information

For further details on the context of this FSA consultation series and an overview of AIFMD implementing measures from UK and European regulators, please see our alert on Part I of the consultation series (CP1).

HM Treasury Second Consultation

On 13 March 2013, HM Treasury published its second consultation on Transposition of the AIFMD alongside additional draft regulations. The consultation is brief and closes on 5 April 2013.

This consultation covers the following topics:

  • charity and church-run investment funds – charity funds are expected to fall within the AIFMD scope while church-run funds are not, as they do not raise external capital and are not run as businesses;
  • marketing of authorised and recognised schemes (such as NURS, QIS and recognised overseas schemes) to retail investors;
  • legislative changes providing for the application of the "Approved Persons" regime to external AIFMs (including sub-threshold AIFMs), and the disapplication of the "Approved Persons" regime to internally managed investment companies; and
  • extent of the application of the UK Financial Services Compensation Scheme to non-UK AIFMs within the European Economic Area.

Additionally, the consultation clarifies that AIFMs marketing AIFs into the UK under the UK's private placement regime have a continuing obligation to comply with AIFMD's transparency requirements.

Timing and Next Steps

The second HM Treasury consultation period closes on 5 April 2013. The consultation and instructions on how to respond are available on HM Treasury's website. The FSA's CP2 consultation period closes on 10 May 2013. CP2 and instructions on how to respond are available on the FSA's website.

Part III of the FSA's consultation series is due to be published by the FCA in May 2013, and the FSA expects that the FCA will publish a final policy statement in relation to the consultation series in June 2013. However, the FSA intends to confirm some of its final policy positions before June 2013 to give affected firms as much time as possible to continue their AIFMD preparation. The FSA expects these earlier statements to cover whether it will receive potential AIFM authorisation applications and variations of permission before 22 July 2013, taking into consideration the responses received in relation to its AIFMD survey. They also may include the FSA's final decisions in relation to the prudential rules for AIFMs and the requirements for AIF depositaries.

In the interim, firms expecting to be affected by the AIFMD should continue to prepare to be "AIFMD-ready", especially those firms intending to manage AIFs for the first time after 22 July 2013.

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.

© Proskauer Rose LLP | Attorney Advertising

Written by:

Proskauer Rose LLP

Proskauer Rose 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:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. 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. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our 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 are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy 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 our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.