Authorisation Requirements

AIFM authorisation

An EU AIFM that cannot rely on an exemption from the Directive will need to obtain authorisation from its home regulator in order to manage AIFs. As part of the application procedure, the AIFM will need to provide the following information to the regulator:

  • information on the persons who conduct the business of the AIFM;
  • the identity of direct or indirect shareholders who have 10% or more of the capital or voting rights in the AIFM or the ability to exercise a significant influence over management of the AIFM (“Qualifying Shareholders”) and the amounts of their holdings;
  • a programme of activity setting out the organisational structure of the AIFM, including information on how the AIFM intends to comply with its obligations under the Directive;
  • information on the remuneration policies and practices of the AIFM; and
  • information on the AIFM's delegation arrangements.

Additionally, the AIFM will need to provide its home regulator with the following information on each AIF it intends to manage:

  • information about the AIF’s investment strategies, including the types of underlying funds if the AIF is a fund of fund and the AIFM’s policy as regards the use of leverage, and the risk profiles and other characteristics of the AIF, including information about the Member State or third country in which it is established or expected to be established;
  • information on where the master AIF is established if the AIF is a feeder AIF;
  • the fund rules or instruments of incorporation of the AIF;
  • information on the arrangements made for the appointment of the depositary for the AIF; and
  • information required by the Directive to be disclosed to Investors before they invest in the AIF (see the Disclosure to investors section under Disclosure and Reporting).

Where an AIFM is already authorised as a management company under the UCITS Directive and has provided information to its home regulator in that regard, the Directive does not require the AIFM to provide the same information to its home regulator again, provided that such information is up to date.

The Directive does not permit the home regulator of the AIFM to grant authorisation unless:

  • the regulator is satisfied that the AIFM will be able to comply with the requirements of the Directive;
  • the AIFM has sufficient initial capital
  • persons conducting the business of the AIFM are of sufficiently good repute and experience[1];
  • Qualifying Shareholders are suitable, taking into account the need to ensure sound and prudent management of the AIFM; and
  • the head and registered offices of the AIFM are located in the same Member State.

Prior to granting authorisation to an AIFM, the home regulator may be required to consult with other Member State regulators (for example, if the AIFM in question is associated with an entity regulated in another Member State, such as a management company under the UCITS Directive, an investment firm, a credit institution or an insurance undertaking).

The home regulator must refuse authorisation where the effective exercise of its supervisory functions is prevented by a number of factors, in particular, close links between the AIFM and other natural or legal persons.

The home regulator may also restrict the scope of any authorisation granted to an AIFM, including if relevant, the investment strategies the AIFM is permitted to manage.

Exemptions

For information on exemptions to authorisation please click here.

Non-UK EU AIFMs

The initial AIFM authorisation process will vary in each EU Member State, but will, however, be reflective of the general Directive requirements set out above. AIFMs authorised in their home Member State are able to exercise management and marketing passport rights in the UK in relation to EU AIFs.

In order to exercise these rights, the competent authority of the EU AIFM’s home Member State will need to send the relevant notification forms, in accordance with the requirements of the Directive, to the FCA.

UK AIFMs

The process for obtaining AIFM authorisation from the FCA to manage an AIF differs depending on whether the applicant is an existing firm already authorised to carry on other regulated activities and whether the applicant is seeking to opt in as a “full-scope UK AIFM” (on the basis that the value of the AIF assets to be does not exceed either threshold in Article 3(2) of the Directive (and the applicant will therefore ordinarily qualify as a “small AIFM”) but the applicant wishes to opt in to the full regime under the Directive). 

Full-scope AIFMs

Existing firms – variation of permission

Existing firms which wish to become full-scope UK AIFMs and those which would ordinarily qualify as small AIFMs but wish to opt in to the full scope of the Directive are required to vary their permissions by obtaining added permission to manage an AIF. Such firms must complete the following forms available on the FCA’s website:

  • Variation of Permission (“VoP”) form for full-scope AIFMs;
  • schedule of AIFs for full-scope UK AIFMs;
  • Article 23/FUND 3.2.2R disclosure checklist; and
  • passporting forms as relevant.

New firms

Any entity which is not already an authorised firm and requires full-scope UK AIFM authorisation must complete the following forms available on the FCA’s website:

  • Wholesale Investment Firms Application;
  • VoP form for full-scope AIFMs;
  • schedule of AIFs for full-scope UK AIFMs;
  • Article 23/FUND 3.2.2R disclosure checklist; and
  • passporting forms as relevant.

To the extent that the Wholesale Investment Firm Application form and the VoP form ask for the same information, the information should be provided in the VoP form only. The new authorisation fee to be paid to the FCA is that specified in the Wholesale Investment Firms Application only (not that referred to in the VoP).

Full-scope UK AIFMs are required to notify the FCA of material changes to the conditions for their initial authorisation, in particular material changes to the information provided when applying for authorisation. Click here

for more information on material change notification.

Senior management personnel

The requirements in chapter 10A of the FCA’s Supervision manual (SUP 10A) relating to the appointment and approval of persons carrying on controlled functions apply to UK-authorised AIFMs and AIFMs passporting into the UK as incoming EU firms. In addition to the relevant application forms relating to the AIFM itself, an appropriate Form A (available in the FCA Handbook) must therefore be submitted to the FCA in respect of each person who is proposed to perform a controlled function for both UK-authorised AIFMs and AIFMs passporting into the UK as incoming EU firms.

Timing considerations

The FCA must determine an application for authorisation as a full-scope UK AIFM within three months of the date on which it receives the complete application, but may extend that period by an additional three months where it considers this necessary. Given that the FCA’s assessment period only starts to run from the point at which the FCA receives a complete application, the FCA will not commence its assessment if it deems the application to be incomplete for any reason.

In respect of each AIF, certain items which must be provided to the FCA as part of the application do not need to be included with the initial application, but will only need to be provided to the FCA at least one month prior to the date that the AIFM intends to start managing that AIF. These items (specified in section 8.4 of the VoP) are (i) a copy of the rules or instruments of incorporation of the AIF, (ii) confirmation that for each depositary listed on the schedule of AIFs, contractual arrangements are in place, and (iii) all information that will be made available to investors.

In addition, the timing of the initial authorisation/registration should be considered in tandem with any management passport, marketing passport and on-boarding notification to be made to the FCA. In particular where such filings require the submission of offering documents in final form, this will need to be factored into the timing of the submission of notifications.

In cases where a UK AIFM is managing an EU AIF, it may also be the case that the AIF will be subject to separate regulatory filing requirements in the country in which it is established and it will therefore be necessary to ensure that the regulatory filings in each jurisdiction are adequately dovetailed.

Small AIFMs

Small AIFMs (i.e. AIFMs managing AIFs below a threshold in Article 3(2) of the Directive) are required to be authorised or registered with the FCA, or may opt in to the full requirements of the Directive (which would allow it to benefit from the ability to apply for an EU marketing passport). It is important to note that small AIFMs may act in a dual capacity as both a small authorised UK AIFM for one or more AIFs, and a small registered UK AIFM for one or more other AIFs.

Small authorised UK AIFMs

An authorised sub-threshold AIFM is referred to as a “small authorised UK AIFM”. This is a UK AIFM which is a “small AIFM” and has not opted in to the Directive to become a full-scope UK AIFM.

A small authorised UK AIFM carries on the regulated activity of managing an AIF and is subject to FCA rules in respect of that activity. The application of FCA requirements to a small authorised UK AIFM depends notably on whether it manages an authorised AIF or an unauthorised AIF.

Existing authorised firms and new entities wishing to become small authorised UK AIFMs must complete the forms available on the FCA’s website.

The FCA is required to determine an application for a variation of permissions to become a small authorised UK AIFM, or for a new authorisation as a small authorised UK AIFM, within six months of receiving a complete application or twelve months of receiving an incomplete application.

Small registered UK AIFMs

A registered sub-threshold AIFM is referred to as a “small registered UK AIFM”. This is a “small AIFM” that is registered by the FCA in accordance with Regulation 10 of the UK Regulation.

A small registered UK AIFM does not carry on a regulated activity in respect of its activities as an AIFM for an AIF for which it is entitled to be registered. It is, however, required to comply with the requirements set out in Article 3 of the Directive (which mainly relate to reporting.

To qualify as a small registered UK AIFM, the small AIFM must be:
       a)   a corporate, internally managed AIF (e.g. an investment trust);
       b)   the manager of CIS which holds mainly land; or
       c)   a manager meeting the conditions for registration as a manager of a European Social
           Entrepreneurship Funds (“EuSEF”) or European Venture Capital Funds (“EuVECA”),
          subject to meeting certain specific criteria in each case.

Entities seeking registration as a small registered UK AIFM for the categories in (a) and (b) above must complete the following forms available on the FCA’s website:

application form for entry on the register of small registered UK AIFMs; and

    Entities seeking registration as an EuSEF manager or EuVECA manager must complete the following forms (as applicable) available on the FCA’s website:

    • EuSEF Manager registration form or EuVECA Manager registration form; 
    • EuSEF / EuVECA Senior Persons form; and
    • Schedule of AIFs for small registered UK AIFMs (accessible here – which includes notes for the completion of the form, and in which the EuSEF & EuVECA tab must be completed).

    Registering as a EuSEF or EuVECA manager will allow firms to market qualifying social entrepreneurship funds and qualifying venture capital funds throughout the EU to certain categories of investors under the EuSEF and EuVECA “label”.

    • To use the EuSEF label for a fund, the manager will have to demonstrate that a high percentage of investments in the fund (70% of the capital received from investors) is invested in undertakings whose primary objective is to achieve measurable, positive social impacts.
    • To use the EuVECA label for a fund the manager will have to demonstrate that a high percentage of investments in the fund (70% of the capital received from investors) is invested in small and medium sized enterprises.

    The FCA is required to determine an application for registration as a small registered UK AIFM within six months of receiving a complete application or twelve months of receiving an incomplete application.

    Third country AIFMs

    Firms based in non-EU (3rd country) jurisdictions are currently unable to obtain authorisation under the Directive. Firms based in non-EU (3rd country) jurisdictions wishing to market AIFs in the UK or the EU are currently unable to rely on a marketing passport. However, on 30 July 2015,

    ESMA

    issued its advice and opinion as required by Article 67 of the Directive on the functioning and extension of the passport to non-EU (3rd country) jurisdictions wishing to market AIFs in the UK or the EU. Please click here for the latest news on the extension of the EU marketing passport. Until the EU marketing passport is extended, firms are required to comply with the National Private Placement Regime as well as the UK’s financial promotion rules. Please see Marketing and Third Country Provisions for more information

    Please see Marketing and Third Country Provisions for more information.

    Notification of new funds under management - “on-boarding”

    Following initial authorisation or registration of the AIFM, the AIFM may elect to manage new funds other than those which were designated in the initial authorisation or registration of the AIFM.

    Full-scope UK AIFMs must seek approval from the FCA to manage new AIFs or sub-funds before taking up management of the new stand-alone fund or sub-fund, using an AIFMD New Fund Notifications form and an appended Schedule of AIFs for full-scope firms. Together with the forms, the articles of incorporation of the AIF and the offering document will need to be included in the submission to the FCA, which will be taken into consideration when managing the timing of the submission.

    The on-boarding of new AIFs is most likely to take place in tandem with the marketing notification process for full-scope UK AIFMs and will need to be timed accordingly. For full-scope UK AIFMs the FCA has one month to approve an on-boarding application.

    Small authorised UK AIFMs must notify the FCA before starting to manage a new AIF or sub-fund using an AIFMD New Fund Notifications form and an appended Schedule of AIFs for small authorised UK AIFMs or small registered UK AIFMs.

    Small AIFMs should notify the FCA through GABRIEL if they cease to manage any AIF or sub-fund.

    Where the management of a fund transfers from one manager to another, the existing manager must notify the FCA that it will cease to manage a fund, and the new fund manager must notify the FCA that it will commence management of the fund.

    Management passport notifications

    A UK AIFM that wishes to manage an AIF in another EU state on a passported basis must notify the FCA of its intention to do so using the AIFMD Management Passport form.

    This form should also be used for the purpose of notifying the FCA of changes to the details of any existing branch or to the provision of existing cross-border services.

    Where the UK AIFM’s exercise of the management passport or change to its existing management passport coincides with the AIFM taking up management of a new fund in the relevant EU state, the relevant passporting notification form should be accompanied by an AIFMD New Fund Notifications form and an up-to-date Schedule of AIFs as set out above.

    The FCA must (subject to being satisfied that the AIFM complies with its obligations under the Directive) transmit the notification to the relevant authorities of the EU state where the AIF to be managed is established within one month where the AIFM wishes to manage the AIF on a cross-border basis, or within two months where the AIFM wishes to establish a branch in the relevant EU state. The FCA must in each case notify the AIFM immediately once the notification has been transmitted to the authorities of the relevant Member State.

    The AIFM may only manage the AIF in accordance with the passport from the date it receives this notification. Our experience of submitting management passport notifications suggests that the FCA is amenable to transmitting the notification to the relevant authorities (and notifying the AIFM accordingly) within a very short timeframe after receiving it from the AIFM (and well before expiry of the one-month period) particularly if the AIFM can provide reasons as to why transmission within that timeframe is required.

     

    [1] Under the Level 2 Regulations, the factors that might indicate that a person is not of “good repute” are wider than might be expected. This guidance is given in the context of requirements applicable to delegates so the guidance is not directly applicable to authorisations, but it should be taken into account in this context.