UK managers: time to fully comply with AIFMD

Alice Murray
22 July 2014

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For UK fund managers, the AIFM Directive comes into force this week, after a one-year grace period granted by the FCA. Alice Murray takes a look at the implications for private equity firms

Unsurprisingly, there has been a last minute dash by several UK private equity firms to register with the Financial Conduct Authority (FCA). Having kept an eye on the FCA's AIFM register over the past weeks, it is clear that a number of funds have only very recently signed up. Fortunately, the majority of these managers qualify as sub-threshold, so are currently labelled as 'small registered' – to be fully compliant should be manageable as a lot of the requirements are already stipulated by the FCA.

Furthermore, a significant number of firms had been working to the original January deadline, which was extended at the last minute. "Some firms got in early because they were working towards the January deadline. Those firms have had a good deal of time to prepare for the implications," says Ashley Kovas, head of funds at Bovill, a compliance support consultancy.

However, with a number of firms left with only a matter of hours before they are potentially in a state of non-compliance, the big question is how likely the FCA is to act. While the FCA has been fairly vague about how it will handle non-compliance, following the Financial Services Act of 2012, the regulator is able to fine, suspend, prohibit, order injunctions, and most importantly, prosecute financial services firms that are not complying with regulations.

Kovas suspects the FCA will allow a reasonable amount of time before acting or investigating but notes that the regulator will need to satisfy the European Union's requirements: "My feeling is that they will pick a theme and investigate around that particular topic, rather than looking at full compliance for every firm. Themes are likely to be areas they deem to pose the highest risk, such as valuations, liquidity, risk and conflict of interest."

Next milestone
Says Kovas: "Reporting will kick in for many AIFMs at the end of his year and a substantial amount of information needs to be supplied. Lots of qualitative information is needed; it is not just a set of numbers that can be pulled off spreadsheets."

Instead, the AIFM reporting requirements demand more in-depth information including, for example, the geographical spread of a fund's investments. "Reporting requirements will need to be analysed on a question-by-question basis, with information gathered from different places within the firm – it will be fairly labour-intensive," says Kovas.

Fortunately, with the majority of UK private equity firms falling below the AIFMD's threshold, most should be ready to for the new rules and many will already have the systems in place for full compliance.

Suggested reading: here is a roundup of unquote's coverage of the AIFMD requirements in recent months

The implications of fair valuation

AIFMD depositary services: banks vs boutiques

Esma's final AIFMD guidelines