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

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
7.34 Whether an AIFM will also be required to establish an independent and separate internal
audit function will be determined by the requirements of the final Level 2 Regulation.
Annex X
7.35 We expect that any such requirements will be similar to those contained in the MiFID and
UCITS Directives. Such requirements are likely to be new for many other CIS operators
becoming AIFMs.
Risk management
7.36 The Directive applies a number of risk management provisions to a full scope UK AIFM.
Their aim is to mitigate appropriately the risks inherent in the AIFM’s business, by ensuring
that its risk management function operates independently and effectively. The requirements
will be informed by more detailed provisions in the Level 2 Regulation, including expected
requirements to maintain a permanent risk management function, to implement an
appropriate risk management policy and to put in place effective risk management systems.
7.37 The risk management requirements in the Directive are transposed in FUND 3.7, which
applies to all full scope UK AIFMs. It is intended that FUND 3.7 will incorporate some of
the Level 2 requirements where these substantially clarify how AIFMs should interpret the
Level 1 Directive.
Functional and hierarchical separation of the risk management function
7.38 FUND 3.7.2R requires AIFMs to separate their risk management function functionally and
hierarchically from their operating units, including the portfolio management function. It is
intended that FUND 3.7.3EU will reproduce the relevant requirements from the Level 2
Regulation. We expect this to set out the conditions under which we will consider this
requirement to be met.
7.39 Respondents to DP12/1 suggested that the structural and functional splits required by the
AIFMD would impact private equity firm structures disproportionately. 70 While there
cannot be different treatment for private equity AIFMs, we are required to apply the
principle of proportionality when reviewing an AIFM’s compliance with this rule. We will
take account of each firm’s structure in supervising the requirements.
7.40 The AIFM must, as a minimum standard, be able to demonstrate that specific safeguards
against conflicts of interest are in place to allow for independent risk management, and that
the risk management process is consistently effective. It is intended that FUND 3.7.4EU will
incorporate requirements in the Level 2 Regulation specifying that these safeguards must at
least include:
• using reliable and appropriately controlled data;
70 Question 7 of DP12/1.
54 Financial Services Authority November 2012