Alternative Investment Fund Managers Directive takes effect

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The Alternative Investment Fund Managers Directive (the Directive) was transposed into national law through the Alternative Investment Fund Managers Regulations 2013 (the Regulations), and the Financial Conduct Authority’s associated rules, and took effect on 22 July 2013. The Directive aims to introduce a harmonised regulatory framework across the EU for EU-established managers of alternative investment funds. In particular, the Directive requires alternative investment fund managers to be authorised, and contains provisions about how they should conduct their business, transparency and marketing. The Directive will impact private equity fund managers who manage funds or have investors in the EU, or if they are identified as the Alternative Investment Fund Manager of a particular fund or funds.

Changes under the Directive
The Regulations allow EU managers of alternative investment funds located in the EU to market to professional investors across Europe on a ‘passported’ basis, but it also subjects EU fund managers to much more rigorous reporting and disclosure requirements (for example, as to remuneration and leverage), capital requirements, the requirement to appoint a depositary and restrictions on the delegation and use of service providers.

As the national regulator, the FCA is responsible for implementing the remaining parts of the Directive which involve changes to the FCA Handbook rules and associated guidance and the authorisation process for fund managers. Fund managers that performed activities before 22 July 2013 within the scope of the Directive have until 22 July 2014 to submit an application for authorisation. The main substance of the FCA changes will be found in a new investment funds sourcebook within the FCA Handbook, referred to as ‘FUND’. This replaces the current rules and guidance contained in the Collective Investment Schemes sourcebook (COLL).

The FCA issued a Policy Statement in July, which, although it does not aim to tell firms everything they need to know about how to comply with the Directive, does cover the bulk of the main provisions (certain aspects, such as the process for obtaining an authorisation or variation to manage alternative investment funds, are dealt with on the FCA website).

Notable provisions of the Policy Statement include:

  • the perimeter guidance has been amended to clarify capital raising processes and how delegates of a non-EEA fund manager will be treated
  • the rules have been amended to make them more flexible for UK firms carrying out depository services for non-EEA alternative investment funds
  • proposed guidance on marketing has been adjusted to take account of comments on own-initiative approaches from investors and whether listing and trading on a secondary market constitute marketing
  • the FCA has set lower fee tariffs for small registered fund managers
    firms already managing alternative investment funds, or providing services as a depository, custodian or valuer may take advantage of the transitional provisions set out in the Regulations, until 21 July 2014.

WM Comment
There will be a transitional grace period until 21 July 2014 giving existing fund managers time to adjust to the Regulations and the new rules. Notwithstanding this lengthy process, the implementation of the Directive will bring a fundamental change in the UK regulatory environment. Many of the provisions will be familiar to fund managers already authorised and operating in the UK, but it is important that those who seek to manage and/or market alternative investment funds in the EU start planning now as the costs of complying with the more extensive requirements in relation to governance, capital requirements, delegation, depositary functions and EU passport regime will be significant.

It is important to note that the Regulations and the FCA rules are both extensive documents and the above is merely a summary of the main changes. For a full copy of the Regulations, see here, and for a copy of the FCA Policy Statement which sets out the rules for implementing the Directive, see here.