29 Apr Informal Discussions between FCA and APCC Institutional Group about AIFMD

On 19 June 2013 members of the APCC Institutional Sub Committee met with some of the FCA AIFMD team with representatives from Authorisations, Policy, General Counsel and the Alternative Investment Team.  The discussions centred around the practical implementation of the AIFMD and particularly the Authorisation process. Following the meeting the APCC Institutional Sub Committee provided the FCA with its understanding of the key points that it took from the meeting. These points are included below together with the FCA’s response. This does not represent FCA guidance.

1. The FCA are planning to publish the AIFMD Policy Statement next Friday, 28 June (being the day after the FCA Board of Thursday 27) or shortly thereafter. This has now been published and can be located at the following URL: http://www.fca.org.uk/static/documents/policy-statements/ps13-05.pdf
2. The FCA policy team confirmed that non-EEA AIFM must have Marketed what would now be considered an AIF to EEA Investors at any time in the past and must have been Managing what would be an AIF just before 22 July 2013 in order to take advantage of the non-EEA AIFM Transitional. This, helpfully, clarifies the situation.

FCA Response:

Regulation 72(1)(b) of the draft Alternative Investment Fund Managers Regulation laid before parliament states that “in the base of a third country AIFM, it markets that AIF in an EEA State before 22nd July.” It does not impose a requirement that it must be marketed “immediately before.” Therefore if the AIF is marketed before 22 July 2013, it meets this condition. Regulation 72(1)(a) still refers to managing an AIF “immediately before” 22 July 2013.

1. The FCA confirmed that it will now not require non-EEA AIF, which are to be Marketed to UK Investors, to be formally Registered with the FCA under the previously proposed Art. 36 and Art. 42 Registers.  HMT, in their final UK Regulations, dropped the requirement for formal Registers (it was deemed as ‘gold plating’).  Non-EEA AIF are now simply subject to a private notification process.

FCA Response:

The NPPR will operate as a notification rather than a registration. HMT took the view that the notification process was a better method of transposing the requirements. We hope to be in a position to publish forms for these notifications under Articles 36 and 42 in early July.

1. The FCA also confirmed that it will only require non-EEA AIFM where non-EEA AIF are being actively Marketed and for the period they are held by UK Investors as a consequence of there being Marketing to them after 22 July 2013, to submit Regulation Annex 4 Reporting. The key here is the latter point, the period over which Annex 4 Reports (i.e. the EEA equiv. of Form PF) must be submitted is where these AIF are held by UK Investors not just the period they are Marketed to UK Investors.

FCA Response:

The FCA pointed the APCC towards the most recent draft of the Regulations, which, at regulation 59(4), sets out the period that a non-EEA AIFM falling within art 42 will need to comply with AIFMD requirements..

1. The FCA are minded to fully publish the full authorisation application forms.  They are also minded to publish the Early Adopter versions too to enable those Firms which did not take part in the survey to now apply now too.  The reason is that they sense their will not be many Firms now seeking early authorisation because now the extent the Transitional can apply is better understood (originally they thought c.200 but now no more than 30 or so) and that not many new applications will be made either. The FCA are now more relaxed they have the resources to cope with AIFM applications.

FCA Response:

The full scope VOP forms have already been published. However, we are now happy for them to be circulated to a wider audience, and not restricted to only those firms who have notified us of an intention to apply early. The full authorisation application forms for new AIFMs will be published as soon as they are ready, however this is not likely to be until after 22 July. In the meantime firms should apply using the existing set of forms, supplemented with the full scope VOP form if relevant (i.e. if and only if the firm wants to be approved as a full scope UK AIFM).

1. The FCA Authorisation team also confirmed that they already have potential Full Scope UK AIFM, i.e. those which cannot take advantage of the AIFM Transitional, applying for authorisation but as MiFID Investment Firms.  They confirmed that they are required to treat these as formal AIFM applications knowing that post 22 July 2013 this is what they will intend to do.  Hence they are accepting authorisation applications from potential Full Scope UK AIFM under the normal MiFID Investment Firms process but adding some of the Early Adopter VoP forms to properly inform them. The advantage here is that the process is in parallel and not sequential thus shortening the time to formal Authorisation post 22 July 2013.

FCA Response:

This is correct.

1. The issue of the interaction of AIFM and MiFID requirements and the restrictions on permitted MiFID activities was raised in relation to Firms that undertake both the management of AIFs and the management of separately mandated portfolios of investments – i.e. CPMI Firms. An AIFM is permitted to undertake restricted MiFID activities – it is permitted to receive and transmit orders but it is not permitted to execute orders on behalf of clients. It was generally agreed that a Firm undertaking the MiFID activity of portfolio management would be able to continue to provide execution services to discretionary separate account portfolios of investments on the basis that the MiFID activity of the ‘execution of orders on behalf of clients’ intrinsically forms part of the activities of providing the wider service of portfolio management.

FCA Response:

This issue relates to how the MiIFD activities interact with the Regulated Activities Order. At the time MiFID was transposed the FSA mapped out how the MIFID activities aligned onto the Regulated Activities Order (see PERG  13 Annex 2). In the FCA’s view, it is therefore possible for firms to carry on the activities of dealing as agent and dealing as principal in order to give effect to decisions they make as part of their portfolio management (and therefore these activities form part of the provision of portfolio management). The same analysis holds for portfolio management permitted under Art 6.4(a) of AIFMD. However, it is important to note that firms will only be able to carry on those activities to the extent they form part of the provision of portfolio management. A requirement will be included on a firm’s part 4A permission to reflect this.

1. The question was raised of whether Investment Trusts (internal AIFMs) would be able to manage Investment Trust Savings Schemes within the scope of their AIFMD permissions (other functions that an AIFM may additional perform in the course of collective management of an AIF). The FCA confirmed that it would look further into this.

FCA Response:

FCA Policy team to investigate further.

1. Delegation – the FCA confirmed that this remains a contentious area and it is difficult to provide clear guidance without being made aware of the details of potential arrangements. It would be prepared to review and provide informal guidance on different potential scenarios provided by the group.

FCA Response:

If firms are unsure as to whether arrangements amounted to delegation they should provide details in their application as to the arrangements and whether they consider it to be delegation. FCA will then make an assessment. If firms are unsure as to whether arrangements amounted to delegation they should provide details in their application as to the arrangements and whether they consider it to be delegation. FCA will then make an assessment. The FCA are willing to consider and provide informal feedback on commonly-occurring scenarios, although if the question relates to a rare or unique structure this may be less practical.  We will keep under review how best to provide information or possibly guidance on this subject, though it’s likely to be in the light of experience handling applications from AIFMs.

1. With respect to some of the more onerous information requests included in the application the FCA confirmed that it might be able to take a practical approach to the information required provided that a clear explanation was provided by the applicant firm as to why the provision of the information was unduly burdensome. Essentially some of the information is required to enable the FCA to gain a clear understanding of the scale of a firm’s activities.

FCA Response:

The FCA will try to take a pragmatic approach where the provision of information is not feasible (this arose in the context of NAV calculations for RE funds). Generally, however, if we have asked a question we would expect firms to give as full a response as possible.

1. It was suggested that in Section 9 of the Variation of Permission Form, early applicants should provide information on all AIFs (i.e. including AIFs not falling within the scope of AIFMD) to questions 9.1 to 9.3 only and that information relating only to AIFs within the scope of AIFMD should be provided for 9.4.  Where information on non-AIFMD scope AIFs (e.g. grandfathered AIFs) could not be provided in response to question 9.3, firms should put “n/a”.

FCA Response:

This is correct.

1. When determining which delegation arrangements may be administrative or technical and therefore need not be approved by the FCA, it would be a matter of examining the facts in each case.  Among others, criteria which would be considered would be whether the service is paid for by the AIFM or by the AIF and whether the service relates to one listed in Annex I of AIFMD.

FCA Response:

This is correct.

1. Where firms make a best attempt to comply in the absence of clarity or final rules and as a result are granted authorisation under AIFMD, the FCA expect them to revisit their approach once clarity or final rules have been provided.

FCA Response:

This is correct. It may be necessary, particularly with those firms who apply early, for the FCA to request further information after 22 July 2013.