Khepri's A to Z: Alternative Investment Fund Managers Directive - Buy and Sell-Side Compliance
Introduction
The Alternative Investment Fund Managers Directive (AIFMD) applies in the UK via the UK’s AIFM Regulations to Alternative investment Fund Managers (AIFMs) that manage Alternative Investment Funds (AIFs) which are collectively valued greater than €100m or €500m depending on whether the AIFs in question are opened ended or closed-ended.
The rules applicable to AIFMs are contained within the FUND Sourcebook in addition to within certain chapters of SYSC and COBS (as amended by COBS 18.5A). These chapters need to be read together with the UK versions of the AIFMD Level 2 Regulations which apply by virtue of the European Union (Withdrawal) Act 2018.
The UK’s AIFM Regulations has been in force for nearly a decade (since 22nd July 2013) and the UK’s Financial Conduct Authority (FCA) has recently announced (February 2023) a review of post-Brexit review of the UK’s regime for asset management (DP 23/2) which sets out some ideas about how the FCA might modernise this regime to improve outcomes for UK markets and consumers, and to support the UK’s position as a world-leading centre for asset management…watch this space.
Current Thresholds
Unless AIFMs opt-in, the AIFM Regulations will, in general, only apply where AIFMs manage AIFs which are collectively above the following thresholds:
Threshold 1: does not exceed €500 million in total in cases where the portfolios of AIFs consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF; or
Threshold 2: does not exceed €100 million euros in total in other cases, including any assets acquired through the use of leverage.
It is important to note that for Private Equity style AIFs the relevant threshold is calculated with reference to the amount of capital drawn down and the NAV of the fund and not the total commitments. Article 2 of the Level 2 Operating Regulation explains in more detail how the thresholds are calculated.
AIFMs above these thresholds are known as Full-Scope AIFMs and AIFMs below the above threshold are referred to as Small AIFMs.
Potential changes to the thresholds
In the FCA’s post-Brexit review they suggest that the above thresholds may be amended. See Figure 2 - Possible approach to regime for authorised UK AIFMs - on page 23 of DP 23/2.
Small AIFMs
There are two regimes for Small UK AIFMs:
an authorisation regime for firms carrying out regulated activities; and a
registration regime for other firms who do not need to be authorised but who meet criteria set out in regulation 10 of the AIFM Regulations.
UK Licences
The UK’s Regulated Activities Order sets out the definition of Managing an AIF, in addition to the the various other regulated activities that may be performed by the AIFM.
Application forms to obtain the relevant licenses can be found at the UK AIFM Forms section of the FCA website and applications can be made by FCA Connect.
Marketing an AIF in the UK
An AIFM markets an AIF when the AIFM makes a “direct or indirect offering or placement of units or shares of an AIF managed by it to an investor domiciled or with a registered office in the United Kingdom or Gibraltar, or when another person makes such an offering or placement at the initiative of, or on behalf of, the AIFM”.
Marketing forms can be found at the UK AIFM Forms section of the FCA website and registrations can be made by FCA Connect.
The table below summaries how the requirements apply to different types of AIFM.
Application of rules - click to enlarge
Rules applicable to AIFMs
Frustratingly, the FCA Handbook does not contain all the applicable rules for UK AIFMD. Instead, the Handbook must be read alongside relevant AIFMD Level 2 Regulation.
In addition to certain chapters of SYSC and COBS, as amended by COBS 18.5A, the key rules include (non-exhaustive):
FCA priorities
FCA priorities for AIFMs are set out in:
