FSA has published the first of two planned consultations on implementation of the AIFMD. It notes that the continuing absence of the Level 2 measures restricts what it can consult on now, but also that it must implement regulations transposing AIFMD by 22 July 2013. It (and the Financial Conduct Authority (FCA)) proposes to take a flexible approach to the few options and derogations AIFMD allows, while using the copy out approach for areas where it has no flexibility under the EU legislation. FSA does not plan to include all the measures that will be in the Level 2 Regulation in its Handbook as the Regulation will be directly applicable in law. The paper looks at:

  • the prudential regime for all types of alternative investment fund (AIF) manager (AIFM): the paper looks at capital requirements, professional negligence issues, the liquid assets requirement and reporting. This section of the paper also covers changes that affect UCITS management companies. Treasury is proposing to allow all firms managing one or more AIFs at 22 July 2013 to continue to do so, and firms that currently do not need authorisation need not be authorised from that date, but all these firms must be AIFMD compliant and have submitted an application for authorisation within 12 months of that date. FSA is considering whether, and if so how, to allow grandfathering of existing permissions. Treasury plans to create a set of new regulated activities to cover managing AIFs or UCITS and acting as their depositary. For prudential purposes, there will be three types of firm – collective portfolio management firms, internally managed AIFs and collective portfolio management investment firms;
  • the depositary regime: this part of the consultation looks at eligibility, capital requirements and the requirement to act independently. The two new depositary regulated activities will replace the current activities of acting as trustee or depositary of an authorised fund;
  • the Level 1 Directive requirements on AIFMs: this part of the consultation includes organisational matters, duties in relation to management of funds, and transparency obligations towards investors and the FCA. These rules also address conflicts of interest, dealing with prime brokers, and the requirements MiFID and UCITS firms already comply with. It also looks at delegation and remuneration; and
  • marketing: the consultation notes the differences between the AIFMD concept of “marketing” and the FSMA definition of “financial promotion”. It also confirms the UK’s intention to maintain the current private placement regime for as long as the EU legislation allows.

FSA has decided, despite some requests to the contrary, to proceed with its plan to implement appropriate parts of AIFMD in the relevant rules, specifically the Senior Management, Systems and Controls Sourcebook (SYSC) and the Conduct of Business Sourcebook (COBS). It will also introduce a new Sourcebook, the Investment Funds Sourcebook (FUND), which will include rules common to all AIFMs with separate rules applicable to certain types of AIF, and which will take in the current Collective Investment Schemes Sourcebook (COLL), but the transfer of COLL will be subject to a transitional period. FSA asks for comments by 1 February 2013. It plans to publish its second consultation paper in February, once relevant Treasury and EU measures are available. The second consultation will have a shorter consultation period, so FSA will be able to make its final rules to meet the transposition deadline. (Source: FSA Consults on AIFMD Implementation)