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

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
Annex X
has been disclosed in the relevant AIF’s constitutional documentation. 59 This covers similar
ground to Principle 6 and is an example of an AIFMD-specific rule addressing an area
where the Handbook Principles and rules currently apply more generically to authorised
firms. However, it provides more detail on the circumstances in which an AIFM can give
preferential treatment to an AIF investor.
7.13 Examples of preferential treatment include reduced fees, better access to portfolio data or
preferential terms in relation to side pockets. Such preferential treatment might, for
example, be granted to ‘seed’ investors to compensate them for the risks they have taken.
Respondents to DP12/1 also suggested that fair treatment of investors might include
disclosing side letters to all AIF investors and ensuring that the preferential terms given to
one investor are available to other investors in a similar position. 60 We expect the Level 2
Regulation when adopted to contain more detailed requirements on fair treatment.
7.14 Most respondents to DP12/1 agreed that the broad principle of fair treatment should apply
to professional investors in the same way as to retail investors. 61 However, respondents
noted that professional investors may be more inclined to negotiate their own terms of
investment rather than buying standardised units or shares in a scheme. It would therefore
be more common to see professional investors treated differently from each other than
would be the case with retail investors. This is not inconsistent with the requirements of the
Directive, as long as the terms agreed with investors are adequately disclosed and do not
result in overall material disadvantage to other investors.
7.15 The recently published Journey to the FCA 62 envisages a more interventionist approach to
supervising conduct in the wholesale markets, noting that wholesale misconduct can
undermine market integrity and indirectly affect retail consumers. Our approach to
supervising the fair treatment of professional AIF investors will reflect this. While we
recognise that professional investors have a greater understanding of sophisticated financial
products than retail investors, firms will need to ensure that they have high standards of
conduct in their dealings with all investors.
Conflicts of interests
7.16 The Directive requires firms to put in place organisational and administrative
arrangements to identify, prevent, manage and monitor conflicts of interest. The rules
transposing these governance requirements 63 appear in SYSC 10.1 along with the conflicts
of interest requirements for other types of authorised firm. It is intended that SYSC 10.1
will refer to the relevant articles of the Level 2 Regulation, which we expect to contain
59 Article 12(1) AIFMD.
60 Question 5 in DP12/1.
61 Question 6 in DP12/1.
62 p31, Journey to the FCA, October 2012.
63 Set out in Articles 14 and 12(1)(d) AIFMD.
50 Financial Services Authority November 2012