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

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
9.20 The description of which entities may perform this role is fairly wide-ranging, so we need
to decide whether it applies to some or all professional firms (as defined in our Handbook),
and whether entities other than professional firms can also meet the definition.
9.21 Professional firms can be authorised by the FSA or, if they are regulated by a designated
professional body (DPB), they may undertake certain regulated activities on an exempt
basis. Such activities must be ancillary to the firm’s main business and undertaken purely as
part of that business. The rules of the relevant DPB apply to such business and most
Handbook provisions are accordingly disapplied. 117
9.22 We have considered whether the DPB regime is appropriate for PE AIF depositaries.
Professional firms do not, as far as we know, currently undertake all the functions that
depositaries will be required to perform, so we cannot expect either professional firms or
their DPBs to be familiar with the Directive’s requirements. Nor can these functions be
regarded as ancillary to the mainstream business of a professional firm, because of the
expected level of detail in the Level 2 Regulation. Acting as a PE AIF depositary is not, in
our view, the kind of exempt activity the DPB regime is intended for. Given our own
responsibilities for supervising the proper implementation of the Directive, we believe it is
necessary to ensure that all such firms are authorised.
9.23 Restricting the role of a PE AIF depositary to professional firms authorised by the FSA
would, in theory, mean around 300 firms could potentially provide such services. Many of
these are sole traders or small firms, which might be unlikely to wish to carry on such
business. However, we believe the Directive – in referring to firms ‘subject to legal or
regulatory provisions’ – allows a firm other than a professional firm to be authorised to
perform this activity (FUND 3.11.10R).
9.24 Given the specialised nature of the activity, we do not expect many other authorised firms
to see it as commercially viable to put in place the expertise and the organisational
capability to perform it. Also, some firms would be subject to inherent conflicts of interest
that would make it impossible or unsuitable for them to operate as depositaries; for
example, AIFMs and UCITS management companies. But, subject to those exceptions, it
should be possible in principle for a firm to be given the Part IV permission of acting as an
AIF depositary with a limitation to PE AIFs, if it can demonstrate a sufficient standard of
skill, care and diligence.
9.25 Such skill might be demonstrated in various ways; for example, on the basis that members
of the governing body of the firm individually hold a relevant professional qualification, or
that the firm has some form of independent accreditation relating to the services it provides
for a particular category of fund.
9.26 We intend to construe the Directive requirement, that such a firm must carry out depositary
functions ‘as part of its professional or business activities’, to allow an authorised
professional firm to offer the service to a client on a stand-alone basis. In other words, the
117 The Handbook also defines the concept of a ‘non-mainstream regulated activity’, which allows an authorised professional firm to
carry on exempt activities under an equivalent regime to an exempt professional firm.
November 2012
Financial Services Authority 73