AIFMD: A case of one step forward, two steps back?

By the end of 2013, with a little over six months to go until the 22 July 2014 AIFMD compliance deadline, many managers had grasped the nettle and made good progress in their efforts to meet the requirements of the directive. In particular, with the then 22 January 2014 FCA ‘deadline’ looming, managers were generally well prepared to submit their variation of permission (“VoP”) applications by this date. Whilst some managers had already submitted their applications by the end of 2013, the majority of managers appeared to be aiming for the 22 January deadline.

Submission of the VoP would tick off a major part of the AIFMD preparations. But the job isn’t complete then and there is work still to do for many managers to be operationally ready and compliant by 22 July 2014. These include areas such as appointing and on-boarding depositaries, finalising amendments to offering and disclosure documents, ensuring risk management policies and procedures are compliant, and so on.

Following concerns raised by a wide range of stakeholders, HM Treasury (“HMT”) announced just prior to the Christmas break that it intended to amend the AIFMD Regulations to provide that, if a transitional manager’s application for authorisation or registration is submitted without sufficient time for the FCA to determine the application by 22 July 2014, that manager will be able to continue managing its funds until the FCA has determined the application. The requirement to submit an application before 22 July would remain in place and managers will need to be in AIFMD compliance from 22 July 2014, even if their application has not yet been determined.

HMT advised it is working out certain details; in particular the status of managers whose applications are yet to be determined after 22 July. HMT nevertheless encouraged all transitional managers to make their applications for authorisation in good time. The FCA followed up the announcement with a statement stating it was considering the impact of HMT’s announcement but it encouraged firms to submit applications in line with previously stated guidance. The FCA has more recently issued further guidance on a ‘triage’ review process which will take place on all applications to assess their completeness prior to assignment of a case officer.

Since the HMT announcement, there appears to be a sense within the manager community of the pressure being off and that firms have more time. This is probably not the response HMT and in particular the FCA wanted. The FCA is still expecting in the region of 800 AIFMD applications. It will still have up to 6 months to consider an application and therefore if managers delay their applications they run the risk of not receiving authorisation by 22 July 2014. It is clearly better for the industry as a whole to have a situation whereby it is the norm, rather than the exception, for managers to have been authorised by 22 July 2014. In some senses, therefore, the announcement could have been handled differently i.e. a coordinate announcement from HMT and the FCA stressing that managers are strongly encouraged to submit their VoP applications by the previously stated deadlines but simply providing re-assurance that a manager may continue to conduct business after 22 July 2014, as long as they are AIFMD compliant, whilst their application is pending.

 From a managers’ perspective, there were always business and reputational risks to consider if they did not obtain authorisation by 22 July 2014. Whilst the amended AIFMD Regulations will now allow for authorisation after 22 July, I expect most managers would prefer to have the certainty of authorisation by this date. If the majority of firms still achieve this deadline it could shine a spotlight on those that don’t. It may even invite questions from investors about what it says about a manager’s commitment to compliance. Questions are also being asked whether there could be implications for a manager’s ability to market their funds to EU investors through private placement without being authorised.

Many commentators are advising managers not to delay their applications. Often they have vested interests but in this case they are right. Managers would be wise to continue to focus on AIFMD and finish the job they have started.

This article was first published by HFMWeek and can be accessed here (subscription required).