2. www.cummingslaw.com
Introduction
Further to its first consultation paper published
earlier this year on 11 January, HM Treasury has
now published its second consultation paper
(CP2) on transposing the AIFMD into national
law, which considers those issues it was unable
to address previously. CP2 was accompanied by
draft Regulations (The Alternative Investment
Fund Managers Regulations 2013), which
are intended to be combined with the draft
Regulations attached to CP1.
The issues addressed in CP2 cover matters
concerning common investment funds, the
recognised scheme regime, the financial
compensation scheme and the approved
persons regime and are briefly described in the
following summary.
Common Investment Funds (CIFs)
and Common Deposit Funds (CDFs)
CIFs and CDFs are funds established under
charities legislation and fall within the UCIS
definition and are, in principle, AIFs. They
are regulated by the Charity Commission,
but the managers and corporate trustees are
FSA authorised. The Government intends to
maintain this system of regulation. The managers
and corporate trustees will be required to
be authorised under AIFMD, subject to the
registration (“regulation lite”) regime for AIFMs
with AUM below certain thresholds, which
means that there will be fewer requirements for
those AIFMs.
Marketing of non-UK retail AIFs
under sections 270 and 272 FSMA
The existing financial promotion regime
regulates the promotion of funds to retail
investors and the CP1 set out the way in which
the existing regime is proposed to interact
with the new regime regulating the marketing
of AIFs. After transposition of the AIFMD, the
requirements of both regimes would need to
be met for marketing to retail investors. Non-EU
regulated AIFs are currently marketed under the
“recognised schemes” regimes under sections
270 (for the “designated territories” schemes)
and 272 of FSMA and the Government proposes
to reform the regime in order to address some
of the weaknesses in the current approach by
combining the two regimes into one under a
modified section 272, discarding section 270.
It is proposed that all existing s.270 schemes
would be treated as s.272 schemes from 22
July 2013 and from that time, the reformed
s.270 regime would apply and during the
AIFMD transitional period (ending on 21 July
2014), the operators of such schemes would
be required to provide confirmation to the FCA
as to whether the scheme was compliant with
requirements comparable to the current UK
regulatory requirement for retail funds. Any
fund not providing such confirmation would
lose recognition. The Government expects that
the proposed reform will result in additional
compliance costs on AIFMs of such schemes.
Approved persons regime
The approved persons regime is a FSMA concept
and the AIFMD permits, but does not require,
the UK to apply the approved persons regime
to AIFMs. Directors in internally managed
investment companies (for instance, investment
trust companies without external managers) are
already subject to company law requirements
and, where applicable, the Listing Rules, which
impose corporate governance requirements,
and imposing the additional requirements of the
approved persons regime could be considered
as unnecessary gold-plating. The Government
proposes that the approved persons regime
will not apply to internally managed investment
AIFMD: Implementation
HM Treasury Consultation Paper
No. 2 published 14 March 2013
3. www.cummingslaw.com
companies (both above and below the de
minimis threshold), but that it will continue
to apply to external managers of investment
companies (both above and below the de
minimis threshold).
Financial Services Compensation
Scheme
The FSCS currently covers most UK authorised
persons, certain EEA firms which have passported
into the UK and others which have decided to
provide ‘top-up’ participation. Under the AIFMD,
EEA AIFMs will be able to make use of the AIFMD
passport to establish a branch or provide services
in the UK and, under the current legislation,
would be required to participate in the FCSC. The
Government proposes to restrict FSCS coverage
so that it only applies compulsorily to non-UK
EEA managers of UK authorised AIFs, to ensure
that investors in all UK authorised funds receive
protection, and allowing EEA AIFMs under a
passport to opt to participate in the FSCS if they
so wish. The cost of FSCS coverage to incoming
EEA managers would be calculated in the same
way as for UK managers.
Conclusion
The deadline for responses to the consultation is
5 April 2013.
The FSA will set out more detailed proposals
in respect of some of the issues above in its
forthcoming consultation paper, which is due to
be published this month.
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March 2013
