With the publication of the revised version of the Alternative Investment Fund Managers Regulations 2013, the terms for UK implementation of the Alternative Investment Fund Managers Directive (or AIFMD) are becoming much clearer. Those wishing to manage and market alternative investment funds (or AIFs) in the UK can now start to plan.
Headline points include:
Focus on the AIFM
- The focus, in order to apply the regulatory analysis, should start with the AIFM rather than the AIF itself. So consequently the authorisation process applies to, and the transitionals follow, the position for the AIFM – and the position for the Depositary follows that for the AIFM.
- The Directive concerns the management of AIFs and marketing of AIFs. Asset managers should look at each of their AIFs and identify its AIFM and then establish whether such AIFM might be full scope or a (sub threshold) small AIFM. Only if an AIFM is full scope can it benefit from the available management and marketing passports.
UK approach to AIFMD implementation
- The UK have confirmed that applications for authorisation to manage AIFs will be accepted in advance of 22 July and those prioritised firms which have a need for prompt authorisation should hopefully have their applications dealt with by the FCA within a one month period.
- The UK is taking a copy out approach with as little gold plating as possible. Inevitably though there is gloss on the AIFMD provisions on top of the existing regimes, so:
- the AIFMD provisions apply to full scope AIFMs – but they also apply to investment firms where the investment firm is acting on behalf of an AIF (perhaps in some formal distribution capacity);
- whilst the marketing provisions of the AIFMD will be restricted strictly to marketing, as defined for AIFMD purposes, the UK's financial promotion regime and the additional provisions of restrictions on promotion of unregulated collective investment schemes still need to be followed, subject to the specific exemptions which are being introduced for AIFMD required documentation from each of these regimes.
Sub threshold firms
- The Treasury's response to their Consultation issued this month helpfully seeks to minimise the disruption of the status quo for sub threshold managers. For small AIFMs, it is confirmed that AIFMD provisions will not apply. There is no longer any proposal to impose new AIFMD type requirements on sub threshold managers of NURS and QIS authorised funds as part of the implementation of the Directive in the UK. Also, for sub threshold internally managed investment companies, the Government proposes only to apply the de minimis registration regime permitted by the Directive. The Government will maintain the status quo of requirements for sub threshold managers for externally managed investment companies.
Article 36 and 42 register notifications
- For non EEA managers of AIFs and EEA managers of non EEA AIFs, their passports are not available until at least 2015. In the meantime, the national private placement opportunities under Articles 36 or 42 (as appropriate) of the Directive should hopefully be capable of being made to work. Note that the AIFMD Article provisions are the minimum standards and there is a need to check the local position on these national private placement arrangements in any country into which marketing may be made of relevant funds.
- The FCA is changing its proposed processes for Article 36 and 42 registers. It will not be necessary to await approval from the FCA before marketing may take place. The process now proposed is that an AFM need only notify the FCA and it may then market AIFs in the UK.
Liberal transitional provisions
- Transitional provision proposals have been considerably extended. Notably they now apply to third country AIFMs as well as UK authorised AIFMs. Essentially there is a general one year transitional.
- Care needs to be taken to make sure that the condition for the transitionals applying is met – that the management or marketing activity concerned is carried on "immediately before 22 July 2013". This will not cause existing AIFMs managing existing AIFs an issue but might affect new start up ventures.
- Inevitably difficulties remain to be overcome. The letterbox issues remain problematic, notably where there is an offshore fund with a UK discretionary investment manager, and there will need to be careful consideration as to how the risk management responsibilities are allocated. Also, on marketing, there are difficulties around the meaning of the passive marketing as now contemplated under the Directive. Nonetheless, the helpful interpretations which are now emerging on UK implementation of the Directive are all steps in the right direction.
The UK Investment Management Strategy
- Also those steps in the right direction are ones which should be further supported as HM Treasury's UK Investment Management Strategy is developed. This major strategy development was announced in March, and it was formally launched this week. There are clearly substantial obstacles in view – regarding the possible financial transaction tax, remuneration initiatives and the regulatory impact of UCITS and AIFMD provisions. Nonetheless, the various initiatives of the new strategy, which focus on the three key areas of taxation, regulation and marketing, are clearly welcome.
- The concerted aim of the industry, regulator and Government is now expressed to be a desire to ensure that the UK remains Europe's leading centre of fund management and to address the issue that the UK's share of fund domicile has fallen in the last decade. The Government indicate that they have an ambitious set of measures to improve the UK's competitive position.
So, with publication of text for HM Treasury's Alternative Investment Fund Managers Regulations and these helpful indications of the Government's approach going forwards, UK asset managers can now start to plan for AIFMD with more confidence– although publication of the final FCA provisions is not expected until the end of June.
Please contact Kirstene Baillie or your usual contact at Fieldfisher for further information and for specific advice on your particular circumstances in connection with AIFMD implications. As ever the "devil is in the detail" of their application. Even though the transitionals have been extended, time is short to formulate plans.