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

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CP12/32 Implementation of the Alternative Investment Fund Managers Directive Annex X 7.46 The Level 2 Regulation is expected to require an AIFM, as part of its risk management systems, to establish and implement quantitative and/or qualitative risk limits for each AIF it manages. We expect these risk limits will need to be aligned with the risk profile of each AIF as disclosed to investors under FUND 3.2.5R. The limits must take into account all relevant risks, and at least those risks set out in the Level 2 Regulation. 7.47 Where an AIFM sets purely qualitative limits, we would expect it to justify this approach to us. As noted in DP12/1, this justification might include the reasons why it would be difficult to set meaningful quantitative risk limits or why using quantitative risk limits might not be in the best interests of the AIF’s investors. We think that in setting only qualitative risk limits, the intention of the AIFM should not be to seek additional flexibility to take on more risk with the aim of increasing the potential investment returns. AIFMs managing leverage risk 7.48 The Directive requires an AIFM to set a maximum level of leverage for each AIF under management. Our draft rules in FUND 3.7 will transpose what will be new requirements for AIFMs using leverage in the funds they manage. FUND 3.7.7R will require the AIFM to set out the extent to which its leveraging arrangements give the prime broker (or other counterparty) the right to re-use the collateral or grant a guarantee. In doing this it must take account of certain considerations, including the investment strategy of the AIF, the sources of leverage and systemic risk implications. 7.49 FUND 3.7.8R requires AIFMs to demonstrate to the FCA that the leverage limits of each AIF are reasonable and that they comply with those limits at all times. We explain this further in paragraphs 8.2.4 and 8.25. 7.50 An AIFM making changes to the maximum level of leverage must in future disclose this to investors (FUND 3.2.6R). In DP12/1 we asked respondents what constituted a ‘material change’ for the purpose of this rule. 74 However, we now expect the Level 2 Regulation to stipulate that this applies to all changes to the maximum level of leverage. 7.51 Respondents to DP12/1 also asked whether AIFMs had to disclose the information before or after making the change and whether they had to obtain prior approval from investors. The Level 2 Regulation is expected to require the information to be provided without undue delay. This gives AIFMs the flexibility to change the maximum level of leverage without prior communication, but ensures that investors will be informed on a timely basis. Any stricter notification or approval requirements in an AIF’s prospectus should still be adhered to, and specific rules for NURS and QIS will continue to apply. 74 Question 15 DP 12/1. 56 Financial Services Authority November 2012
November 2012 Delegation Delegation by authorised AIFMs CP12/32 Implementation of the Alternative Investment Fund Managers Directive 7.52 The Directive aims to ensure that, where AIFMs delegate their AIFM functions, they only do so subject to certain conditions. 75 In order to ensure they are compliant with our new rules, AIFMs will need to review their current delegation arrangements against the criteria mentioned below, whether the delegation is done intra-group or involves independent third parties. 7.53 Where the AIFM proposes to delegate any investment management function to a firm outside the EEA, it must in future obtain prior approval from us if that firm is not authorised or registered in its jurisdiction and is not subject to supervision. 7.54 We intend to transpose delegation requirements in FUND 3.10. These new rules will require AIFMs to notify us of the proposed delegation before the arrangements take effect. 76 The arrangements must, for example, meet conditions such as: • the entire delegation structure is justifiable on objective reasons; • the proposed delegate has sufficient resources, and is properly qualified; • the delegate performing investment management functions is authorised or registered, and subject to supervision 77 ; and • in cases where the delegate is located outside the EEA, there is cooperation between the FSA and the delegate’s supervisory authority. 7.55 The functions covered by the delegation provisions are specified in the Directive. We propose to add the defined term ‘AIFM management functions’ to the Glossary to cover this concept. 7.56 The Directive also contains rules on sub-delegation and restriction on delegating functions to the depositary or where there may be a conflict of interest with the AIFM or the AIF. We intend to transpose these requirements in FUND 3.10.4R to 3.10.6R. 7.57 The Level 1 requirements will be supplemented by more detailed requirements in the Level 2 Regulation. We expect it to require that the proposed delegation arrangements be subject to a written agreement, and that the delegate has proper business continuity planning. Supervisory cooperation arrangements with non-EEA authorities 7.58 Cooperation between the FCA and the supervisory authorities of a jurisdiction where a non-EEA delegate is located will be ensured when we have signed a cooperation 75 Article 20 AIFMD. 76 FUND 3.10.2R. 77 The Directive also allows an exemption from this condition with the prior approval of the competent authorities of the home Member State of the AIFM. Article 20(1)(c). This exemption will be transposed by the Treasury. Financial Services Authority 57
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Consultation Paper CP12/32 Financia
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The Financial Services Authority in
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CP12/32 Implementation of the Alter
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Annex 4 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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Page 5 of 91 Appendix 1 (2) a descr
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3.2.5 R An AIFM must, for each AIF
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Page 9 of 91 Appendix 1 (6) the agg
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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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Page 49 of 91 Appendix 1 7.1.7B In
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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 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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