23 January 2012

FSA Discussion Paper: Implementation of the Alternative Investment Fund Managers' Directive

The FSA prepared the discussion paper to set out some provisional thinking in its approach to implementing the Alternative Investment Fund Managers Directive (the Directive or AIFMD) in the UK.

Objectives of the discussion paper (DP)

The DP’s objectives are twofold:

i) Development of well-informed, proportionate and effective regulatory policy

The Directive raises questions about material structural change for industry. FSA wishes to explore the opportunity with stakeholders – within applicable EU and domestic parameters – to adjust regulation in the collective fund management space and develop effective policies for the transposition of the Directive.

As the Directive is principally maximum harmonising, there are limitations on what additional regulatory requirements the FSA may impose on alternative investment fund managers (AIFMs). It also means any existing FSA rules conflicting with the Directive may no longer be maintained. The Directive also represents an opportunity for regulatory ‘streamlining’ in the sense that this may be an opportunity to amend the FSA's domestic fund management rules to be more consistent with the Directive. The FSA expects proposed policy positions and any rules amendments to be published in an FSA Consultation Paper later this year. Stakeholders will again be invited to comment.

Against this backdrop, the coalition government’s regulatory reform programme will revise the FSA's regulatory objectives. The FSA will itself be succeeded by a new Financial Conduct Authority (FCA), the likely UK regulator for fund management and markets from 2013.

ii) Assisting stakeholders towards ‘AIFMD-readiness’

This Directive raises questions of material change for UK businesses operating in the collective fund management space – signalling significant changes from July 2013, not only for fund managers but also for depositaries, valuers and administrators.

Implementation will significantly alter the regulatory framework under which (potential) AIFMs currently operate, manage and/or market alternative investment funds (AIFs) in the UK and across the EU. It will change how AIFMs operate their businesses, how they interact with third-party service providers under delegation (outsourcing) and depositary arrangements, administration and external valuers. It means a new set of requirements for listed internally-managed AIFs currently subject to the listing rules of the UK Listing Authority. Implementing the Directive will also affect relations with investors, shareholders of corporate AIFs, and national and EU regulatory authorities.

The Directive seeks to regulate the management of a diverse range of funds – hedge funds, private equity, property, listed funds, funds of funds, and commodity funds. Most FSA-regulated firms that manage and/or market investment funds that are not authorised under the UCITS Directive are likely to be affected. The extent to which the Directive will affect an individual AIFM will depend on a number of factors. These include:

• where the AIFM and the AIF are established;
• the nature of the AIF;
• the AIFM’s marketing presence, if any, within one or more Member States;
• whether an AIFM intends to use the Directive’s managing and/or marketing passports;
• an AIFM’s commercial and operational structures; and
• the location of AIF depositaries.

Full discussion paper DP 12/1

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