CP12/32: Implementation of the Alternative ... - BVCA admin

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CP12/32 Implementation of the Alternative Investment Fund Managers Directive Annex X 5.20 Our view is that the first option is the better policy choice and we have drafted the proposed rules on this basis. It is consistent with the UCITS approach and means an AIFM could not undertake discretionary portfolio business without being a BIPRU limited licence firm. It also means that a firm which undertakes these MiFID activities is treated in the same way from a capital perspective, regardless of whether the firm is an AIFM or a MiFID investment firm. 5.21 Some respondents to DP12/1 took a different interpretation. They suggested it was not appropriate to apply the CAD in this way and our proposal would require firms to comply with the substantial GENPRU and BIPRU requirements and the connected reporting requirements. However, our analysis indicates a significant number of AIFMs currently also undertake MiFID-scope business as BIPRU limited licence firms. 5.22 Our preferred approach means that, as well as meeting the GENPRU and BIPRU requirements for a limited licence firm (with the BIPRU application limited to its designated investment business), the firm must ensure that it meets any additional capital provisions of AIFMD and/or the UCITS Directive. This includes our interpretation that the initial capital requirements of AIFMD and the UCITS Directive should be met by own funds on an ongoing basis (as explained in paragraphs 5.7 and 5.8). 5.23 This means that a CPMI firm must maintain own funds that are the higher of the GENPRU and BIPRU requirement for a limited licence firm and the following own funds requirement, which derives from AIFMD or the UCITS Directive (as applicable): • the higher of: €125,000 plus 0.02% of the portfolios of AIFs and UCITS under management over €250m 37 and one quarter of the firm’s relevant fixed expenditure 38 ; plus • additional own funds and/or PII to cover risks arising from professional negligence 39 (see paragraphs 5.29 to 5.31 for details). 5.24 Own funds (other than those held to meet the basic €125,000 requirement) must be invested in liquid assets (see paragraphs 5.32 to 5.35 for more details). Q3: Do you agree that we should treat an AIFM that also undertakes MiFID services as a BIPRU limited licence firm? The use of a guarantee 5.25 Article 9(6) allows a Member State to let an AIFM provide up to 50% of the additional own funds required under Article 9(3) with a guarantee from a credit institution or insurance undertaking. 37 Article 9(3) AIFMD or Article 7(1)(a) of the UCITS Directive. 38 Article 9(5) AIFMD or Article 7(1)(a) of the UCITS Directive. 39 Article 9(7) AIFMD. 36 Financial Services Authority November 2012
CP12/32 Implementation of the Alternative Investment Fund Managers Directive 5.26 We suggested in DP12/1 that we would only include such a provision if firms told us they would use it, as we understood there would be no demand. We also pointed out that, when we implemented similar amendments to the UCITS Directive in 2002, we chose not to incorporate a similar provision based on the responses to our consultation. 5.27 There were no replies indicating a clear intention by a firm to use a guarantee. Also, as Article 9(5) requires a firm’s own funds never to be less than one quarter of relevant fixed expenditure, the opportunity to use it will be significantly limited. In addition, any guarantee would need to be worded very restrictively to ensure that the funds could be drawn down when required, thereby reducing the availability of suitable guarantors. 5.28 We therefore have not included any provision to use a guarantee in the proposed rules, although we will reconsider if firms respond that they would want to use one. We would also be able to consider rule waiver applications from individual firms in this respect against the relevant statutory conditions. November 2012 Risks arising from professional negligence 5.29 Article 9(7) requires an AIFM to have either own funds or PII to cover potential liability risks arising from professional negligence. The risks that an AIFM must cover and the amounts to be held will be specified in the Level 2 Regulation. These amounts will be based on the AIFs under management, including AIFs managed under delegation, but excluding any UCITS. We expect this Regulation to set out the internal operational risk management policies and procedures the AIFM should implement and we intend to replicate relevant provisions in the Handbook. 5.30 We expect that the Level 2 Regulation will allow us to alter, on the basis of the firm’s historical loss data, the standard percentage 40 used in computing the own funds an AIFM must hold. However, we expect that any lower amount will not be allowed to be less than 0.008% of AIFs under management, and that the firm must record at least three years of loss data before any assessment necessary to agree this, and therefore we do not propose to lower the standard percentage. In our view this concession would impose undue costs on both the firm and the FCA 41 , which are not warranted by the potential benefit that might be obtained. We expect the Regulation will also allow us to impose a higher percentage on an AIFM, if we are not satisfied that the firm provides sufficient additional own funds to cover appropriately professional liability risks. 5.31 We anticipate that some AIFMs will use PII to meet the Article 9(7) requirement. We expect the Level 2 Regulation to specify how the level of PII cover must be computed, both for an individual claim and in aggregate and that any defined excess should be fully covered by additional own funds. However, we do not expect the Regulation to make any reference to 40 This is 0.01% of the portfolios of AIFs managed. 41 The cost to the regulator will be exacerbated because most AIFMs will not be relationship-managed so the necessary work must be done as a separate assignment. Financial Services Authority 37
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Annex 2 November 2012 CP12/32 Imple
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ALTERNATIVE INVESTMENT FUND MANAGER
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Annex A Making the Investment Funds
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3.2.5 R An AIFM must, for each AIF
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Page 11 of 91 Appendix 1 (4) the id
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[Note: article 15(1) of AIFMD] this
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(1) a full scope UK AIFM of: (a) a
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experienced; Page 19 of 91 Appendix
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Page 21 of 91 Appendix 1 by the fac
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Page 23 of 91 Appendix 1 3.11.5 G T
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(Own funds requirement). [Note: art
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supplements the meaning of financia
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instruments remain in its custody;
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supplementing this section] 4. Comm
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Annex B Amendments to the Glossary
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collective portfolio management fir
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Page 37 of 91 Appendix 1 non-listed
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BIPRU 730k firm Page 39 of 91 Appen
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… Page 41 of 91 Appendix 1 (e) (i
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esources only at excessive cost. Pa
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Single Market Directive … Page 45
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[Note: paragraph 1(r) of Annex II o
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Types of investment firm: BIPRU 50K
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The following text is new and is no
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Page 69 of 91 Appendix 1 so that th
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TABLE 7.4 PART I A firm must calcul
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Note consistently in respect of any
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initial capital (see item 5) if the
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Form of qualifying subordinated loa
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Annex H Amendments to the Supervisi
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Descriptio n of data item Annual re
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… Data item SUP 16.12.12R, unless
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indicated otherwise. Data item Firm
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client assets … Page 87 of 91 App
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… Data item SUP 16.12.23R, unless
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FSA066 and FSA06 are added - see fo
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Liquid assets test 32 Liquid assets
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Professional negligence capital req
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is not listed, select ‘Other’.
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FSA067 Capital adequacy - supplemen
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PII capital requirement 5A This is
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External validations Validation Dat
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