AIFMD - the new era begins


Alongside PS 13/5, HM Treasury has also published its final regulations implementing the AIFMD in the UK which also come into force today. In addition, the Level 2 AIFMD Regulation sets out many provisions which will be directly applicable in the UK from today, and the new FCA Handbook text refers to the Regulation text where necessary.

PS 13/5 also seeks to answer questions raised from the FCA’s previous two consultation papers on AIFMD implementation, CP 12/32 and CP 13/09. The FCA acknowledges that it has deferred consultation on certain areas until later in the year, including more crucial aspects such as guidance on proportionality within the remuneration requirements and integration into the FCA Handbook of certain of the ESMA guidelines.

Responses to consultations

There were various comments received in respect of the draft PERG guidance. Some points that the FCA has since changed in the Handbook following consultation include (please note we have not covered any changes to the prudential requirements, fees or FOS and the FSCS):

Raising capital – it has been clarified that the activity of raising capital, which forms part of the definition of an AIF, involves procuring capital with the purpose of investing it in accordance with a defined investment policy. In addition, the fact that an undertaking’s shares can be bought and sold on a stock exchange is not itself raising capital. Further, a wholly nominal investment by an investor would not meet the requirement for capital to be invested for the benefit of such investor in accordance with a defined investment policy (e.g. in the event of a limited partnership where the general partner makes a nominal contribution) and so such an entity will not be an AIF.

Joint ventures – it has been made clear that limited partnerships can still be an excluded joint venture and not constitute an AIF notwithstanding the separation of roles between economic participation (through limited partners) and strategic management control (through the general partner).

Sub-Funds – it is possible to market only one sub-fund in an umbrella AIF without marketing the entire umbrella; notifications specifying which sub-funds are to be marketed would have to be given accordingly.

Letter box entity – where an AIFM becomes a letter box entity, its delegate is not automatically deemed to be the AIFM; this addresses concerns raised that a third party delegate would often have limited ability to assess whether the appointing AIFM has failed to comply with its obligations and to know whether it has become the deemed AIFM.

COBS – a new client’s best interests rule is introduced for full scope UK AIFMs and incoming EEA AIFM branches to provide for such firms to act in the best interests of the investors in the AIF. In general, certain COBS and SYSC requirements have been disapplied to full scope UK AIFMs where there is an overlap with the Level 2 Regulation.

Depositary functions for non-EEA AIFs – The three functions of cash monitoring, safekeeping of assets and oversight of the AIFM must still be carried out for non-EEA AIFs managed by an EEA AIFM and marketed in the EEA in accordance with national private placement regimes under Article 36. The FCA previously proposed that a single UK entity should be appointed to each AIF (and provide all three functions) where any of the functions are performed in the UK. Under PS 13/5, the FCA has instead decided to let UK firms perform each of the three functions separately (and each would need to have a Part 4A permission to act as depositary of an AIF).

Depositaries for UK unauthorised AIFs – the FCA has confirmed that under the transitional provisions it will allow a UK AIFM of an unauthorised AIF to appoint an EEA credit institution (not established in the UK) until 2017. This option is not available to authorised AIFs however who must appoint an institution established in the UK.

Rules applicable to sub-threshold AIFMs of authorised AIFs - as a general point, PS 13/5 also clarifies that small authorised UK AIFMs of authorised AIFs (NURS and QIS) will not be subject to the same requirements as full scope UK AIFMs (contrary to the FCA’s previous position and following HM Treasury clarification) and will generally remain subject to existing requirements plus additional requirements specific to sub-threshold firms under the AIFMD.


In general the FCA noted that it has now aligned its guidance with HM Treasury’s further draft of the UK Regulations (e.g. in relation to a notification only rather than approval regime for non-EEA AIFMs marketing under Article 42 of the AIFMD).

Passive marketing – the FCA noted that it received a large number of responses in relation to its section in PERG on marketing at the initiative of the investor. It has greatly simplified the guidance (e.g. to remove specific scenarios) and has explained that a firm generally may rely on a confirmation from an investor that the approach is at his/her initiative and that this should suffice to avoid marketing taking place, provided this confirmation is obtained prior to the offer or placement.

The meaning of offering or placement has been amended to include a condition that it must seek to raise capital in the AIF (by making a unit or share of an AIF available for purchase). This applies regardless of whether the marketing is a contractual offer or only an invitation to make an offer.

Listing / secondary trading – The FCA has confirmed that listing an AIF is not marketing. Generally speaking secondary trading will not be an offering or placement (and therefore not marketing) as this is not raising capital in the AIF.

The guidance further states that the person who makes the decision to invest in the AIF should be considered the investor.

The FCA acknowledges that there are still areas of uncertainty in relation to marketing between Member States e.g. whether the communication of draft documentation will be marketing (the UK says no, whereas other Member States think differently).


The FCA confirms that it intends to proceed on the basis that where an AIFM is subject to both the AIFMD remuneration requirements and the Remuneration Code, complying with the former will be deemed to be complying with the latter. AIFMs that are carrying on the additional permitted MiFID activities may however choose to apply both regimes to their employees based on the amount of work or business undertaken under each Directive. The FCA acknowledges that it may have to change its policy in the future in respect of CRD IV and the introduction of bonus caps. Further, the FCA expects AIFMs in the meantime to consider their situation against the proportionality criteria in the ESMA guidelines on remuneration.

The future

Unfortunately, the Policy Statement is unlikely to be the final piece of the AIFMD puzzle that has been baffling many alternative investment firms in recent times. Questions as to scope and the application of certain provisions remain and are only likely to be resolved long after today’s implementation, as firms and regulators adjust to the new landscape.