Treasury has published its second consultation on implementation of the Alternative Investment Fund Managers Directive (AIFMD). The paper attaches draft regulations amending existing legislation including the FSMA provisions on recognised overseas schemes. The paper and draft regulations complement Treasury’s first paper (see FReD 18 January 2013). This paper focuses on:

  • common investment funds and common deposit funds: these vehicles are established under charities legislation and are unregulated collective investment schemes (UCIS) for FSMA purposes. The funds are regulated as charities by the Charities Commission and their managers and corporate trustees are regulated under FSMA. Treasury intends to keep this system, notwithstanding the funds will usually be alternative investment funds (AIF) for AIFMD purposes. As a result, the operators must comply with what will by then be FCA’s rules for alternative investment fund managers (AIFM) unless they are within the sub-threshold regime. The Charity Commission is considering requiring managers who set up funds in future to be authorised as full-scope AIFMs. Meanwhile, Treasury intends to amend charities legislation to allow any charity satisfying certain conditions to invest in common investment and deposit funds;
  • the future need for Treasury to make legislation to change FCA’s powers in respect of AIFs and, in due course, European Venture Capital and Social Entrepreneurship Funds;
  • marketing: Treasury plans to reform the current regime for marketing recognised funds managed and authorised in (a) the Isle of Man, Guernsey or Jersey and (b) elsewhere. It plans to bring marketing of all such funds within a modified FSMA section 272 regime, which will require the AIF to meet certain conditions. These would include the AIF ensuring it provides adequate protection to investors before applying for recognition. FSA (FCA) would undertake a gap analysis which it would use to assess the AIF’s equivalence. If it granted recognition, the AIFM would have to make annual reconfirmation the AIF continues to meet that the conditions. Treasury can then use this approach to allow European Economic Area (EEA) AIFs to market to UK retail investors;
  • approved persons: Treasury proposes not to apply the approved persons regime to internally managed investment companies, and to allow regulators to continue to apply it to external managers of investment companies in the same way that is currently does;
  • application of the Financial Services Compensation Scheme (FSCS): Treasury proposes to restrict FSCS coverage so it applies compulsorily to non-UK EEA managers of UK authorised AIFs, so that EEA AIFMs that provide other services under a passport can participate if they wish. This will mirror the approach the UK applies to UCITS. FSA is due to consult on application of the Financial Ombudsman Service (FOS).

Treasury needs comments by 5 April. (Source: Treasury Consults Further on AIFMD)