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

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
Annex X
arrangement with the relevant supervisory authority. ESMA on behalf of EU competent
authorities is currently negotiating these cooperation arrangements with non-EEA
supervisory authorities. Further details of the agreed cooperation arrangements will be
available as we get closer to the AIFMD implementation date. For AIFMs delegating
portfolio management or risk management outside the EEA, it will be necessary to confirm
that a cooperation arrangement is in place with the jurisdiction of the delegate. This
information will be publicly available on a website. We will communicate details of the
location in due course.
‘Letterbox entity’
7.59 The Level 1 Directive specifies that an AIFM must not delegate its functions to the extent
that it can no longer be considered to be the manager of the AIF, but will instead be
considered by its competent authority to have become a ‘letterbox entity’. 78 The Level 2
Regulation is likely to specify in considerably more detail the considerations we should take
into account when we assess whether a ‘letterbox entity’ would result from an AIFM’s
proposed delegation arrangements. The Commission may impose requirements additional
to those advised by ESMA in its technical advice. 79
7.60 At the time of publishing this paper, we cannot say with any legal certainty how we might
assess a proposed delegation. We have nonetheless been considering the line at which
appropriate delegation should be drawn to avoid an improper delegation by an AIFM to a
delegate entity, whether that entity is within the internal market or offshore.
7.61 Delegation can be a means of stimulating competition in the UK and the internal market; it
can assist new market entrants to establish viable operating models, thereby reducing
barriers to entry. There are also significant benefits for investors when delegation is carried
on effectively and responsibly. Delegation can enable experts in a particular field to market
their services widely and raise standards, lowering costs and achieving economies of scale.
AIFMs can deliver additional benefits to AIF investors by importing this knowledge and
skills through delegation – for example, in specialist risk measurement and monitoring –
which not all AIFMs can replicate in-house. This principle of delegating a task or service to
specialist providers to achieve a better standard or source expertise is specifically recognised
elsewhere in the Directive. 80
7.62 We intend to assess any delegation arrangements on a case-by-case basis in a robust and
flexible way, while taking account also of the Level 1 and Level 2 requirements. We
envisage taking into account the following non-exhaustive factors:
• the ‘objective reasons’ in FUND 3.10.2R;
• the AIFM and AIF operating models, and the types of assets under management;
78 Recital 83 and Article 20(3) AIFMD.
79 Box 74 of ESMA’s advice.
80 For example, the valuation provisions in Article 19 where an external valuer may be appointed by the AIFM. Appointment of an
external valuer may be appropriate for certain types of AIF under management.
58 Financial Services Authority November 2012