Preparing to become a Hedge Fund/Open-ended Fund AIFM. May March2013. Preparing to become an AIFM 1

Transcription

1 Preparing to become a Hedge Fund/Open-ended Fund AIFM May 2013 March2013 Preparing to become an AIFM 1

2 Complying with AIFMD We are pleased that the text of the implementing measures has been published. This will enable global industry to make its final preparations for implementing the Directive by July Andrew Baker, CEO, AIMA Kinetic Partners is preparing to assist firms develop the compliance infrastructure that will be needed in order to comply with the Alternative Investment Fund Managers Directive ( AIFMD ) and the Alternative Investment Fund Managers Regulation ( AIFMR ). The first assessment to make is whether the AIFMD applies to your firm. Requirements will be different depending on whether the Alternative Investment Fund ( AIF ) is domiciled inside or outside of the EEA and also on whether the Alternative Investment Fund Manager ( AIFM ) is based inside or outside of the EEA. We anticipate that there will be investment managers, authorised and regulated in the UK, that will decide to become an AIFM. With that in mind, we are developing the manuals and procedures that such firms are going to need. The revised contents page of a Compliance Manual and procedures for a typical hedge fund manager (see page 4) highlights sections that will be new or that may be subject to substantive revision, as the investment managers move away from being governed by the Markets in Financial Instruments Directive ( MiFID ) and the Capital Requirements Directive ( CRD ) to being subject to the AIFMD/R. The Manual can be adopted by a Collective Portfolio Management ( CPM ) firm and a Collective Portfolio Management Investment Firm ( CPMI ). Preparing to become an AIFM 2

3 Complying with AIFMD A CPM is a firm that manages only AIFs, UCITS, or both. A CPMI is a firm that manages AIFs, UCITs, or both and undertakes individual portfolio management (e.g. managed accounts). Of particular note are the following: AIFM responsibilities This new section will describe the steps that the AIFM will be required to take when discharging its obligation as the manager of the fund, which is wider than the obligations that an investment manager previously had under MiFID. AIFMs will have to consider matters such as delegation arrangements and the depositary regime and there are important requirements concerning leverage, valuation, risk and liquidity management. AIFM organisational requirements AIFM organisation requirements expand on the FSA s Senior Management Systems and Control ( SYSC ) requirements. The requirements of the Remuneration Code under AIFMD are more stringent, particularly with respect to deferral arrangements, non-cash remuneration and clawback provisions. Conflicts of interest arrangements will also need to be reviewed. Prudential requirements Minimum capital requirements are changing and there will also be a requirement to assess professional liability risks. Conduct of business The way in which firms conduct their businesses will be dictated by AIFMD/R and updated rules on operational matters such as dealing arrangements and inducements will be required. The Toolkit contains 1. Compliance Manual 2. Policies & Procedures AIFM Governance Policy Valuation Policy Conflicts of Interest Policy Conflicts of Interest Register Investment Due Diligence Policy Leverage Policy Liquidity Policy Personal Transaction Notice Treating AIF Investors/Customers Fairly Rumours Policy Anti-Bribery Policy Bribery Risk Assessment Fraud Policy Electronic Communications Policy Business Continuity Policy AIFM Risk Policy 3. Remuneration Policy 4. Transparency Requirements in Directive Annual AIF Report Checklist Disclosures to Investors Checklist Report for Competent Authorities Preparing to become an AIFM 3

4 Table of contents Firms will need to significantly amend manuals to comply with the requirements of the Directive. Text in red shows new requirements Text in blue shows where there are changes to existing requirements COMPLIANCE MANUAL: CONTENTS 1 INTRODUCTION 1.1 Purpose 1.2 Regulatory Context 1.3 FCA Principles for Businesses 1.4 FCA Authorisation and Approval 2 PRINCIPLES BASED ISSUES 2.1 Introduction 2.2 Treating Customers Fairly ( TCF ) 2.3 Treating AIF Investors Fairly 3. AIFM RESPONSIBILITIES 3.1 Introduction 3.2 General Requirements 3.3 Portfolio management 3.4 Risk management 3.5 Liquidity management 3.6 Valuation 3.7 Delegation 3.8 Depositaries 3.9 Prime brokers 3.10 Leverage: Managing Leveraged AIFs 3.11 Non-listed companies and issuers 3.12 Transparency (disclosure to investors) 4 AIFM ORGANISATIONAL REQUIREMENTS 4.1 Introduction 4.2 Control by the governing body, senior management and supervisory function 4.3 Apportionment of responsibilities and oversight 4.4 [Board/Partners/Governing Body/Committee] meetings 4.5 General organisational requirements 4.6 Business Continuity Policy ( BCP ) Preparing to become an AIFM 4

5 4 AIFM ORGANISATIONAL REQUIREMENTS cont 4.7 Data Security and Confidentiality 4.8 Data protection 4.9 Accounting policy 4.10 Regular monitoring 4.11 Audit Committee 4.12 Persons who effectively direct the business 4.13 Responsibility of senior personnel 4.14 Skills, knowledge and expertise 4.15 Segregation of functions 4.16 Compliance, Internal Audit and Financial Crime 4.17 Risk Control and Management 4.18 Outsourcing 4.19 General rules on record-keeping 4.20 Conflicts of Interest 4.21 Remuneration 4.22 Outside Business Interests 4.23 Whistle-blowing 5 FINANCIAL CRIME 5.1 Introduction 5.2 Market Conduct The Law 5.3 Market Abuse 5.4 Policy and Procedure 5.5 Fraud 5.6 Anti-Money Laundering 5.7 Bribery 6 REGULATORY CAPITAL AND LIQUIDITY 6.1 Introduction 6.2 Capital Resources 6.3 Professional liability risks 6.4 Internal Risk Management 6.5 CPMI Pillar CPMI Pillar CPMI Pillar 3 7 CONDUCT OF BUSINESS - GENERAL 7.1 Introduction 7.2 Acting honestly, fairly and professionally 7.3 Information disclosure before providing services 7.4 Stewardship responsibilities 7.5 Agent as client 7.6 Reliance on others 7.7 Client agreements 7.8 Information about the Firm, its services and remuneration 8 CONDUCT OF BUSINESS - INDUCEMENTS 8.1 Inducements 8.2 Introduction 8.2 Personal Gifts and Benefits 8.4 Due Diligence 9 CONDUCT OF BUSINESS - CLIENT CATEGORISATION 9.1 Introduction 9.2 Retail Client 9.3 Professional Client 9.4 Eligible Counterparty 9.5 Opting Retail Clients to Elective Professional Client status 9.6 Providing clients with a higher level of protection 9.7 Policies, procedures and records 10 CONDUCT OF BUSINESS - SUITABILITY 10.1 Introduction 10.2 Requirements 11 CONDUCT OF BUSINESS - COMMUNICATING WITH CLIENTS, INCLUDING FINANCIAL PROMOTIONS 11.1 Introduction 11.2 Fair, clear and not misleading 11.3 Direct Offer Financial Promotions 11.4 Promotions of Unregulated Collective Investment Schemes 11.5 AIFM Marketing & Promotions of AIFs it manages 11.6 Communications via Social Media 11.7 Approving Financial Promotions 11.8 Record keeping of Financial Promotions 12 CONDUCT OF BUSINESS DEALING AND MANAGING 12.1 Introduction 12.2 Ongoing monitoring and review 12.3 When Transmitting an Order to a Broker 12.4 Order handling 12.5 Failed Trades and Dealing Errors Preparing to become an AIFM 5

6 12.6 Trade Aggregation and Allocation Policy 12.7 Client Limit Orders 12.8 Record keeping 12.9 Telephone Recording of Orders in Qualifying Investments Reporting obligations in respect of execution of subscription and redemption orders Record keeping Personal Transactions Use of Dealing Commission Prohibited short positions Investment in securitisation positions Asset stripping 13 CONDUCT OF BUSINESS REPORTING TO CLIENTS 13.1 Introduction 13.2 Periodic reporting 13.3 Occasional Reporting 13.4 Statements of client designated investments or client money 13.5 Investment research 14 CLIENT ASSETS 14.1 Introduction 14.2 Receipt of Client Money 14.3 Procedure 14.4 Authorities 15 TRAINING & COMPETENCE 15.1 Introduction: The Firm s commitment 15.2 Attaining competence for Employees 15.3 Assessing competence 15.4 Ongoing competence 15.5 Training and Competence records 16 REPORTING TO AND NOTIFYING THE FCA (& other bodies, as required by the FCA Rules) 16.1 Annual Controller s report 16.2 Annual Close Links report 16.3 Annual AIF report 16.4 AIFM Reporting to the FCA 16.5 Notifications to the FCA 16.6 Major Share Holding Disclosure 16.6 Disclosure of Net Short Holdings 16.7 Transaction Reporting and Trade Reporting 17 COMPLAINTS 17.1 FCA dispute resolution: Complaints Sourcebook 17.2 Procedure 17.3 Record keeping Preparing to become an AIFM 6

7 What it will cost Kinetic Partners can assist in a number of ways: Option Action Cost 1 Provision of toolkit for firm to tailor 6,000 2 Option 1 plus review of output by Kinetic Partners 3 Kinetic Partners to amend all compliance documentation 8,000 12,000 Tax advice We are also able to provide three hours of initial tax advice alongside any of the above services at an additional cost of 1,000. We will be able to provide assistance with the authorisation/registration process for AIFMs. Please contact us for further information on this service. Preparing to become an AIFM 7

8 For further information on how to become an AIFM please contact: ANDREW SHRIMPTON Member kinetic-partners.com Disclaimer: This publication is for informational purposes only, and none of Kinetic Partners or its related entities (collectively Kinetic Partners ) is, by means of this publication, rendering professional advice or services. The information provided is updated as at March Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity within Kinetic Partners shall be responsible for any loss whatsoever sustained by any person who relies on this publication. Preparing to become an AIFM 8