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

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