Last month Laven Partners attended the FCA Asset Management Conference 2013. The conference covered a number of topics including areas of focus for the FCA, the Capital Requirements Directive IV (CRD) and the Alternative Investment Fund Managers Directive (AIFMD). Here, Laven Partners gives a brief review of the matters discussed at the conference.
FCA’s Focus for the Year Ahead
The FCA noted that its key objectives are transparency, competition and fairness. The regulator’s biggest focus over next year will be on the use of dealing commissions, which gives rise to conflicts of interest and issues of accountability. The FCA plans to assess, engage the market and consider both buy-side and sell-side when reviewing the use of dealing commissions. A consultation paper to provide clarity on “research” and what is “eligible” is expected this month.
The FCA has found that firms push the boundaries of the definition of research and use client commission to cover other costs such as corporate access.
Additionally, the FCA will focus on speeding up the fund applications processes and improve services for new non-UCITS schemes and Qualified Investor Schemes, with the aim of increasing the number of funds domiciled in the UK to strengthen and enhance the competitiveness of the UK asset management sector.
Capital Requirements Directive
CRD IV is made up of the Capital Requirement Regulation (CRR), which is directly applicable on firms accross the EU, and the Capital Requirement Directive (CRD), which must be implemented through national law.
It is estimated that 2,400 MiFID firms are caught by the CRD. The CRD is aimed at mitigating the risks of firms failing by imposing financial resources requirements to cover the risks.
The implementation of CRD IV by firms is due by 1 January 2014. The FCA issued a consultation paper last month setting out the proposed changes to the FCA Handbook as a result of the amended CRD. A Policy Statement is expected in December. At the conference the FCA stated that it is trying to adopt the legal minimum in an effort to be pragmatic and proportionate and to minimise the need for changes. The FCA has not and will not provide guidance on the CRR, since the requirements are directly applicable to firms and therefore do not need to be implemented by the FCA. Firms should review the CRR directly.
Firms should note that some waivers under CRD III will no longer be available under CRD IV and therefore need to carefully review the CRR to determine their position.
AIFMD – Tips from the FCA
Although the Alternative Investment Fund Managers Directive (“AIFMD”) came into force on 22nd July 2013, it provided some transitional reliefs for firms for up to one year from that date. The FCA has made it explicitly clear that those firms that were able to take advantage of the transitional arrangements will need to be authorised or registered by 22nd July 2014 in order to continue the activity of managing an Alternative Investment Fund (“AIF”). It is, therefore, strongly recommended by the FCA that firms already managing AIFs should submit their application to be authorised by 22nd January 2014, to allow the FCA at least 6 months to review and approve the application. Those firms seeking authorisation as a full-scope Alternative Investment Fund Manager (“AIFM”) or which need to be registered should submit their applications by 22nd April 2014, allowing the FCA its statutory 3 months approval period for complete applications. It should be noted that incomplete applications will delay the approval process, and firms that have not received the FCA’s approval by 22nd July 2014 will have to stop conducting their business until their application is approved.
Petra Hollis, Managing Director at Laven Partners notes: “Whilst the 22nd of January deadline has been questioned by some, most notably by the City of London Law Society, the FCA is standing behind the date and as such managers should plan to submit their applications accordingly”.
The regulator has planned a strong focus on the authorisation process itself. At the conference, the FCA gave tips for those completing the applications for authorisation, highlighting areas where they have repeatedly experienced errors or gaps in application forms and the information provided by firms. The tips included points such as:
– Provide full and complete answers, and complete all relevant tabs of the AIF schedule in Excel format. Do not submit the form as a .pdf document.
– Ensure that the Marketing Passport is complete and in its final form – treat answering questions in this as though the firm is approved already, ie. definite answers required.
– Only apply for passports to countries that you actually NEED.
– Provide clear indications of status of discussions and timescales for appointment of a depositary.
– If requesting that the firm retains existing regulated activities in the permission profile, provide clear reasons for this as AIFM business typically provides a wider scope of permission.
– DO NOT make references to documents being in draft format, or cross-reference to other documents – all documents should be completed on a standalone basis and should be final and executable.
– Perform due diligence on depositary – firms should take into account the stage of the depositary’s authorisation process and find out whether they are relying on transitional arrangements – act with caution.
– Missing information will not prevent the approval process from starting, however firms should note that the applications omitting this information can only be processed up to a point. The FCA requires 1 month to process the missing information once it is received, and any delay will potentially delay the ability of the AIFM to market/manage funds. The information that, if missing, will not delay the start of the approval process includes:
- AIF incorporation docs/details
- Depositary details
- Investor disclosures
- Marketing documents
At the conference, the FCA made a key point of noting that applications for full-scope AIFMs are being allocated to case officers very quickly, in some cases within an hour of being submitted. Applications for small AIFMs are taking longer as the FCA has more time to approve them. Depositary applications are being prioritised above all others.
The FCA noted that the final Policy Statement on remuneration is expected by the end of January 2014 – in the meantime, firms can make use of the relevant Consultation Paper and ESMA guidance.
The FCA also noted that the reporting obligation for authorised firms will begin on January 2014. There is not yet a formal mechanism for this reporting, although the FCA hopes to provide some guidance before the end of the year.
For further information see the Laven Partners page dedicated to the AIFMD:
Follow us on Twitter, click on @LavenAIFMD
If you have any questions on the changing regulations in the UK, please do not hesitate to contact us.
