On Friday, June 28, the Financial Conduct Authority (“FCA”) published “Implementation of the Alternative Investment Fund Managers Directive” (Policy Statement PS13/5). This document summarizes the FCA’s views on implementing the Alternative Investment Fund Managers Directive (“AIFMD” or the “Directive”). (This release follows the publication of two Consultation Papers on the topic earlier in the year.)
The new Policy Statement will be of interest to both United Kingdom (“UK”) and non-EU alternative investment fund managers (“AIFMs”). In particular, it provides some helpful clarity on marketing issues. We note the most pertinent clarifications below.
The guidance on reverse solicitation has been amended and the FCA now states that firms may generally rely on a confirmation from the investor that the approach is at his/her own initiative, provided this is obtained before the offer or placement takes place. The FCA will still take account of any suggestion that marketing activity has been ongoing. This would appear to make it significantly easier to rely on the UK’s reverse solicitation rules than previously thought.
Meaning of “Offering” or “Placement”
The interpretation of “offering” or “placement” has been amended. The definition now applies to invitations to make an offer. Therefore marketing to the investor may take place regardless of whether a contractual offer is involved.
This seems to bring the marketing definition closer to the FCA’s definition of a financial promotion. This may therefore indicate that firms will be deemed to be marketing at an earlier stage than initially thought. Previously the view was that marketing would not happen until subscription documents were sent to the investor. Therefore while providing branded material and high-level information remain outside the scope of marketing from the FCA’s perspective, going beyond that moves you closer to marketing activity within the Directive’s scope.
Meaning of “Investor”
The FCA now makes it clear that the person making the investment decision should be considered the investor for marketing purposes. Below are three different scenarios which set out who the investor would be considered to be by the FCA.
Notifications of Marketing under Private Placement Rules (“PPR”)
AIFMs marketing under PPRs now need only complete a notification process rather than an approval process. Under the notification process, the AIFM still needs to provide the FCA with information similar to what would have been required under the proposed approval process. The FCA will also still check to make sure the notification is complete and fulfils required criteria. Approval to start marketing, however, is no longer needed. The fee for notification will be £250 per fund. Note also that the FCA will maintain a register of all AIFs marketed in the UK but, following changes made to the guidance, this will no longer be a public register.
If an AIFM contravenes marketing restrictions in the UK, the firm will be deemed to be marketing unlawfully. The specific consequences for this will depend on whether the AIFM is authorized. We note, however, that such contravention can lead to a prison sentence.
Qualifying for the UK’s Transitional Provisions
The FCA’s transitional provision delays the need to comply with AIFMD’s transparency rules. Non-EU AIFMs that intend to rely on this provision should note the following: to take advantage of the provision, an AIFM must be managing an AIF and have marketed an AIF into the EU prior to the July 22, 2013, the AIFMD implementation date.
Finally, the FCA’s Policy Statement notes that it has not addressed the issue of proportionality with respect to remuneration. Once the European Securities and Markets Authority (“ESMA”) publishes its official guidance on AIFMD remuneration provisions, the FCA will have two months to notify ESMA of whether it intends to comply with the rules. A competent authority has discretion to develop its own proportionality framework, one that takes into account the specific nature of AIFMs in its jurisdiction. The FCA has not determined whether it will comply in full with AIFMD remuneration rules. In the meantime the FCA expects firms to consider their situation against ESMA’s proportionality criteria. That said, its looking increasingly likely that the FCA will choose to implement a proportionality framework similar to the existing FCA Remuneration Code.
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