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A Introduction
On 19 March 2013, the FSA published Part 2
of its two-part consultation paper series on the
implementation of the AIFMD into UK law, the
first part being published on 14 November 2012.
CP2 does not cover all the remaining issues (set
out in Annex 6 of CP1) as was originally intended
and there will in fact be a third consultation
paper dealing with these, but the FSA states that
this will not interfere with full transposition of
the AIFMD by 22 July 2013.
CP2 should be read in conjunction with CP1 and
the two consultation papers published by HM
Treasury, summaries of which can be found on
our website.
The FSA stated in CP1 that a new sourcebook,
FUND, is intended to replace COLL, but CP2 does
not consult on this, due to the amount of work
required to accomplish this being greater than
expected. COLL will therefore be retained in the
short term after 22 July 2013, alongside chapters
of FUND which are necessary to implement the
AIFMD. The FSA will consult separately on this at
a later date, which is expected to be no later than
the third quarter of 2013. In the event of any
conflict between a rule implementing the AIFMD
and another rule in COLL until such time as FUND
is fully operational, the AIFMD requirement shall
prevail because of the primacy of European law.
As regards private equity, CP2 does not, after
all, provide guidance relating to the AIFMD’s
provisions applicable to AIFMs of private equity
funds, but the FCA will consider issuing guidance
at a later stage if required, such as in respect
of the scope and interpretation of the asset-
stripping provisions in Article 30 of the AIFMD.
B Summary of chapters of CP2
Chapter 2
A summary of the progress made on EU
measures to implement the AIFMD and how the
FSA proposes to give guidance about the scope of
the AIFMD.
Chapter 3
A summary of operating requirements for full-
scope AIFMs and sub-threshold AIFMs.
Chapter 4
Supplemental proposals for prudential
requirements, including the prudential regime for
sub-threshold AIFMs.
Chapter 5
A summary of the proposals for consumer
redress and the scope of the Financial
Ombudsman Service (FOS) and the Financial
Services Compensation Scheme (FSCS).
Chapter 6
This sets out supplemental proposals for the
depositary regime.
Chapter 7
The FSA’s approach to marketing, including
passporting rights, recognised schemes and the
private placement regime.
Chapter 8
The FSA’s proposals relating to fees to cover FCA
costs of regulation.
AIFMD Implementation
A summary of FSA Consultation
Paper 13/9 (CP2)
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C Key points by chapter
The key points set out in the chapters can be
broadly summarised as follows:
Chapter 2: Implementation
This chapter summarises EU developments since
November 2012, with reference to:
• the publication of the AIFMD Level 2
Regulation
• ESMA’s guidelines on remuneration and
key concepts of the AIFMD and its draft
regulatory technical standards on types of
AIFMs
• supervisory co-operation arrangements
between the FCA and regulatory authorities
of non-EEA jurisdictions, taking the form of a
bilateral MoU
There is also a section on the proposed
additions and changes to PERG, including
guidance covering key elements of the definition
of an AIF and the interpretation of what type
of scheme or arrangement is an AIF. Specific
mention is made of a variety of structures,
including carried interest vehicles, family office
vehicles and co-investment vehicles, and it will
be extremely useful to have guidance on the
applicability or otherwise of the AIF definition to
all such structures.
The FSA also sets out how it proposes to
exercise its supervisory judgement on AIFM
delegation arrangements in determining to
what extent an AIFM could be considered a
‘letterbox entity’ and its assessment will be
more qualitative than quantitative. Some of
the elements of a qualitative assessment are
described in the chapter.
Additionally, the FSA confirms its statement that
it will permit UK AIFMs managing AIFs in the UK
to make full use of the 12-month transitional
period to 21 July 2014 and that all transitional
provisions will be included in all relevant
sourcebooks of the FCA Handbook to allow for
these transitional arrangements.
Chapter 3: Operating requirements for full-
scope and sub-threshold AIFMs
The FSA has reviewed existing requirements in
SYSC and COBS against the Level 2 Regulation
for full-scope AIFMs and, where the existing
requirements are not compatible, the FSA
proposes to modify them. Most of the
organisational requirements in SYSC (chapters
4 – 10) will not apply to full-scope AIFMs, but the
FSA proposes to retain certain parts for investor
protection purposes. With regard to COBS, the
FSA proposes to modify the specialist regime for
CIS operators (COBS 18.5) in respect of both full-
scope and sub-threshold AIFMs.
HM Treasury’s first consultation paper explained
that a modified regime for sub-threshold AIFMs
would be implemented. Three categories of ‘sub-
threshold’ managers are proposed: (1) managers
of authorised funds; (2) managers of UCIS and
external managers appointed by AIFs that are not
CIS; and (3) internally-managed closed-ended
investment companies. Categories (1) and (2) will
be authorised persons under FSMA but (3) will
not, but all three will be regarded as ‘registered’
which means that they are not subject to the full
requirements of the Level 2 Regulation but cannot
benefit from the AIFMD passporting rights unless
they become full-scope AIFMs.
With regard to sub-threshold managers of
authorised AIFs, the FSA intends to apply: (i) all
relevant AIFMD requirements, save in respect of
remuneration, transparency and the ‘letterbox
entity’ assessment requirements as set out in the
Level 2 Regulation; (ii) the same modified SYSC
and COBS rules, as described above; and (iii) the
same prudential requirements, including own
capital and own funds requirements, as full-
scope AIFMs.
With regard to sub-threshold managers of
unauthorised AIFs, the FSA proposes to bring
them under the UCIS rules, which means that: (i)
SYSC rules applying to MiFID firms will apply to
them; and (ii) COBS rules will apply.
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Chapter 4: Prudential Requirements
The paper sets out:
• the prudential regime for small authorised
UK AIFMs of authorised AIFs, which will be
the same as that for full-scope AIFMs
• the consequential amendments to regulated
activities (managing an AIF, managing a UCITS,
acting as a depositary of an AIF, acting as a
depositary of a UCITS and operating a CIS)
There will be no change to the prudential regime
for small authorised UK AIFMs of unauthorised AIFs.
Chapter 5: Consumer redress: the FOS and
the FSCS
The FOS and FSCS already cover the activities of
FSA-authorised fund managers managing AIFs
that are CISs, and will continue to do so. The
FSA proposes to consult on three areas and the
appropriate scope of FOS and FSCS protection in
relation thereto, namely:
• investment companies
• fund depositaries
• cross-border activities
The FSA does not propose to extend the scope of
FOS and FSCS protection in relation to investment
companies (i.e. investment trusts, venture capital
trusts and unlisted investment companies), as
investors in investment companies have the same
rights as shareholders under the Companies Act
2006. The FSA does not propose to extend the
scope of FOS and FSCS protection in relation
to fund depositaries for investors in UCIS and
investment companies, because the requirement
for an AIFM to appoint an authorised depositary
already increases protection for investors. This
will also apply to sub-threshold managers.
However, it is proposed that investors in charity
funds (CIFs and CDFs) should be afforded the
scope of FOS and FSCS protection.
This chapter also sets out the FSA’s proposals
in respect of cross-border activities; the FOS’s
compulsory jurisdiction will cover regulated
activities which the AIFM carries on from an
establishment in the UK, but will not apply
to non-EEA managers of AIFs marketed in the
UK. The FSCS will cover only cross-border fund
management activities where the fund is an
FCA-authorised fund i.e. it will cover an EEA AIFM
managing a UK-authorised fund (which will be
required to pay the FOS levy) but will not cover
(i) a UK AIFM managing a non-UK fund, or (ii) an
EEA AIFM managing a UK-domiciled UCIS, or (iii)
a non-EEA manager of an AIF marketed in the UK.
Chapter 6: Depositaries and client assets
requirements
This chapter sets out how the FSA proposes
to amend the rules in CASS 6, which apply to
trustee firms and depositaries, to make them
consistent with the AIFMD and ensure that
they differentiate between categories of AIF
depositaries in a logical way. Where the AIFM
is a sub-threshold manager or is above the
threshold but is managing a non-EEA AIF not
marketed in the EEA, the AIFMD does not apply
responsibilities to depositaries. Provisions in
the remainder of CASS will continue to apply to
depositaries as they do at present.
Chapter 7: Marketing
This chapter explains the FSA’s approach to
marketing for the purposes of the AIFMD
and how AIFMs may exercise single market
passporting rights. A new section will be added
to Chapter 8 of PERG (Financial promotion and
related activities) providing marketing guidance
and the interaction between marketing under the
AIFMD and the current financial promotion rules.
A new chapter 10 has been added to FUND,
which contains guidance on the AIFM marketing
passport, the AIFM management passport, AIFM
third-country management and national private
placement regimes. HM Treasury has confirmed
that the latter will be maintained in the UK, but
one significant change to the existing regime is
notification to the FCA, which will maintain three
private placement regimes:
• Article 36 Register – for full-scope UK or EEA
AIFMs managing non-EEA AIFs
• Article 42 Register – for non-EEA AIFMs that
are not small AIFMs managing AIFs
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• Small third country AIFM Register – for non-
EEA AIFMs that are small AIFMs managing
AIFs
Chapter 8: Fees
The FSA is consulting as to how the FCA will
charge fees to AIFMs and AIF depositaries in
order to cover FCA costs in regulating them. This
follows the FSA’s consultation in October 2012
on changes to the fee rules to support the new
regulatory structure, the final version of which
will be published at the end of March 2013. It is
the final version of these rules, rather than the
current FSA rules, which will apply to the FCA’s
AIFMD regime. The fee proposals set out in CP2
differentiate between:
• Authorised AIFMs and AIF depositaries
• Registered AIFMs
• Discounts for UK branches of EEA AIFMs
• AIFMs managing AIFs marketed in the UK
under national private placement
• Recognised schemes under sections 270 and
272 FSMA
• FCSC levies
• FSO levies
• Money Advice Service levies
D Next Steps
Responses to CP2 are invited by 10 May 2013.
A further paper, CP3, will be issued by the FCA
after 1 April 2013 which will cover:
(i) consequential changes to bring the FCA
Handbook into line with the rules consulted
in CP1 and CP2; and
(ii) amendments to the FCA Handbook
necessary to provide for the marketing and
management passports for non-EEA AIFMs
and non-EEA AIFs.
The FCA plans to issue a full AIFMD policy
statement in June 2013, although it will confirm
some final policy positions before that date to
give affected firms as much time as possible to
continue their AIFMD preparations.
The FCA is working on being in a position to
accept applications for authorisation or a
variation of permission (VoP) from prospective
AIFMs before 22 July 2013 from firms that need
to be able to exercise single market rights in
order to continue existing business without
interruption.
This document is for general guidance only.
It does not contain definitive advice.
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This document is for general guidance only. It does not constitute advice
March 2013
