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Investment funds urged to become AIFMD compliant by the start of next year


Managers of alternative investment funds (AIFs) are being urged to become fully compliant with the new European regulatory regime six months earlier than provided for in the legislation.

The Financial Conduct Authority (FCA) is advising firms to submit applications to register existing funds under the Alternative Investment Fund Managers Directive (AIFMD) by the end of January 2014. The AIFMD came into force in the UK on 22 July for new products, but existing fund managers have a 12 month 'grace period' before the new rules apply.

On its website, the FCA said that it would normally be able to deal with an application for authorisation as a full-scope UK alternative investment fund manager (AIFM) within three months, as set out in the directive. However, firms of all sizes seeking "an authorisation or a variation of permission" under the new regime should apply no later than 22 January 2014 in case the regulator needs "a full six months to determine the application", it said.

Financial services expert Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com, encouraged firms to take steps to comply with the new rules as quickly as possible.

The transitional provisions apply to firms that were already managing AIFs before the AIFMD came into force. Similar transitional provisions apply to firms requiring authorisation to act as a trustee or a depositary of an AIF.

A number of fund managers that are already authorised to manage investments will need to be re-authorised under the AIFMD to operate as AIFMs. The new regime will also result in certain fund managers, such as investment companies that do not employ an external manager, becoming regulated for the first time, according to the FCA.

The AIFMD is intended to create a harmonised regulatory structure for alternative investment fund management across the EU. It covers the management, administration and marketing of all 'collective investment undertakings' that are not subject to an existing collection of directives known as the Undertakings for Collective Investment in Transferable Securities (UCITS) regime. This includes any person or company whose regular business is managing one or more hedge funds, private equity funds, real estate funds and a wide variety of other types of institutional fund.

Under the AIFMD, a company cannot be authorised to act as an AIFM unless it also provides portfolio management and risk management functions. Less strict rules apply to AIFMs managing AIFs with 'assets under management' below certain thresholds. However, those AIFMs cannot take advantage of 'passports' authorising them to provide services in other EU member states unless they opt in to full authorisation.

The AIFMD sets out conduct rules, capitalisation and professional indemnity insurance requirements and rules governing the safekeeping of investments via the mandatory appointment of depositaries and custodians. It also includes new requirements for those depositaries. New marketing rules prohibit the promotion of AIFs to retail investors by default, but allow member states to permit selective marketing and impose greater restrictions on that advertising than those that apply to professional investors.

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