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

November 2012
CP12/32
Implementation of the Alternative Investment Fund Managers Directive
• to demonstrate that the leverage limits they set are reasonable and that the AIF
complies with those limits 107 ; and
• to determine whether an AIF is employing leverage on a substantial basis and, if so,
disclose it to us. 108
Limits on use of leverage and other supervisory restrictions
8.24 The Directive requires an AIFM to demonstrate that the leverage limits it sets for each AIF
it manages are reasonable and that it complies with those limits at all times. We have
transposed these requirements on AIFMs in FUND 3.7.8R.
8.25 The Level 2 Regulation is expected to set out indicative criteria which national competent
authorities should take into account in their assessment of systemic risk in the AIFM sector
and to determine whether or not they should place limits or other supervisory restrictions
on the use of leverage by AIFMs. We expect to take into account the following
circumstances or criteria:
• where the exposure of an AIF or several AIFs could constitute a material source of
market, liquidity or counterparty risk to a financial institution;
• where the activities of an AIFM or its interaction with a group of AIFMs or other
financial institutions contribute to a downward spiral in the prices of financial
instruments which threatens the viability of such financial instruments;
• the type or investment strategy of the AIF, the market conditions and any likely
pro-cyclical effects that may result from the imposition by the competent authorities
of limits to the use of leverage; and
• the size of an AIF or AIFs, the concentration of risks in particular markets, any
contagion risk, liquidity issues and the scale of asset/liability mismatch in a particular
AIF investment strategy or irregular evolution of prices of assets.
8.26 Before becoming authorised AIFMs, firms will need to review their policies on using
leverage and ensure these are reasonable and compliant with AIFMD requirements.
8.27 National competent authorities will be required to share data concerning leverage with
other EU competent authorities, ESMA and the European Systemic Risk Board. 109
Investment in securitisation positions
8.28 The Directive includes a requirement for the Commission to adopt subordinate measures in
respect of certain securitisation positions. Such requirements will need to be met by an
107 FUND 3.7.8R.
108 FUND 3.4.6R and 3.4.7R.
109 Article 25(2) AIFMD.
Financial Services Authority 67