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

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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
November 2012 CP12/32 Implementation of the Alternative Investment Fund Managers Directive more detailed requirements on identifying, preventing, managing, monitoring and disclosing conflicts of interest. Identifying conflicts of interest 7.17 An AIFM must take all reasonable steps to avoid conflicts of interest and prevent them from adversely affecting the interests of the AIFs and their investors. In particular, the AIFM must identify potential conflicts between the following parties: • the AIFM, and an AIF managed by the AIFM or the investors in that AIF; • an AIF or the investors in that AIF, and another AIF, or the investors in that other AIF; • an AIF or the investors in that AIF, and another client of the AIFM; • an AIF or the investors in that AIF, and a UCITS managed by the AIFM or the investors in that UCITS; or • two clients of the AIFM. 64 7.18 Such conflicts should be managed, monitored or, where applicable, disclosed where they can no longer be avoided. 65 Arrangements to minimise conflicts of interest 7.19 AIFMs must operate organisational and administrative arrangements for managing and monitoring conflicts, segregate operational tasks and responsibilities that may generate conflicts, and assess whether their operating conditions involve any other material conflicts. 66 7.20 Where an AIFM’s arrangements prove not to be sufficient to prevent the risks of damage to investors, it must disclose any conflicts to investors before undertaking business on their behalf, and develop appropriate policies going forward. 67 Prime brokers 7.21 When the services of a prime broker are used, the AIFM must exercise due skill and care in selecting and appointing the prime broker. The prime brokerage agreement must be subject to a written contract, including whether re-use of AIF assets is allowed, and the AIF depositary must be informed of the contract. 68 The rules relating to prime brokers are transposed in FUND 3.8. We have separated these from the other conflicts of interest requirements in the Handbook because they relate specifically to an AIFM’s relationship with its prime broker. 64 Article 14(1) AIFMD and draft SYSC 10.1.22R. 65 Article 12(1) AIFMD and draft SYSC 10.1.23R. 66 Article 14(1) AIFMD and draft SYSC 10.1.24R. 67 Article 14(2) AIFMD and draft SYSC 10.1.25R. 68 Article 14(3) AIFMD and draft SYSC 10.1.25R. Financial Services Authority 51
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CP12/32 Implementation of the Alter
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Annex 2 List of consultation questi
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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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Page 17 of 91 Appendix 1 (b) the re
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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(c) of Annex II o
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[Note: paragraph 1(k) of Annex II o
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[Note: paragraph 1(r) of Annex II o
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Page 59 of 91 (2) the fixed overhea
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Page 61 of 91 Appendix 1 amount of
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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 67 of 91 Appendix 1 (1) at the
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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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