What is the NPPR?

Post-Brexit, the NPPR allows some AIFMs to market certain categories of AIFs in the UK, adhering to the UK AIFM regulations. This regime is particularly beneficial for third-country AIFMs, including those from the EEA, who can leverage the NPPR to market their AIFs to UK investors. Essentially, NPPR provides a more accessible route while ensuring that investor protection and market stability are maintained.

Key Features of NPPR

NPPR is available to non-EEA AIFMs marketing their AIFs to professional investors within the EEA. Professional investors typically include institutional clients such as pension funds, insurance companies and High-Net-Worth Individuals (“HNWI”).

Regarding the registration and notification requirements, before marketing under NPPR, AIFMs must register and notify the relevant National Competent Authorities (“NCAs”) in each EEA country where they intend to market their funds. This process involves providing detailed information about the fund and its management.

While NPPR is less burdensome than full AIFMD compliance, AIFMs must still adhere to specific regulatory requirements. These include regular reporting, ensuring proper risk management, and maintaining transparency with investors about the fund’s activities and financial health.

The FCA’s Approach to NPPR

The UK private placement regime is set out in Chapter 3, Part 6 of the Alternative Investment Fund Managers Regulations 2013 (the “AIFM Regulations”), and in Rules and Guidance in the FCA Handbook

The FCA’s regime for NPPR post-Brexit remains similar to the pre-Brexit structure, with adjustments to accommodate the UK’s regulatory environment.

Non-UK AIFMs wishing to market their funds to UK investors must notify the FCA under NPPR. This involves completing the FCA’s NPPR notification form, submitting detailed information about the fund, and paying the requisite fee.

Once registered, AIFMs must adhere to ongoing compliance obligations. This includes providing regular updates to the FCA about any changes in the fund’s operations or management structure and ensuring that annual reports are submitted on time.

The FCA places significant emphasis on investor protection. AIFMs must ensure that they provide clear and comprehensive information to investors, including potential risks associated with the investment. Transparency is crucial, with detailed reporting requirements designed to keep investors informed about the fund’s performance and any material changes.

The FCA imposes strict guidelines on how AIFs can be marketed within the UK. This ensures that only professional investors, who have the necessary experience and knowledge to understand the risks involved, are targeted.

Consequences of Non-Compliance

Marketing activities that breach the UK’s private placement regulations are deemed “unlawful marketing” as per the AIFM Regulation.

In instances where an FCA-authorised AIFM or investment firm engages in unlawful marketing, affected individuals may seek legal recourse for any resulting financial harm, within the confines of statutory duty breach laws.

Unlawful marketing conducted by entities lacking FCA authorisation is a criminal act, punishable by up to three months imprisonment on summary conviction, or up to two years imprisonment if indicted, along with potential fines.

Authorised entities found guilty of unlawful marketing face serious repercussions, including public reprimand, monetary penalties, and possible FCA enforcement actions, which could culminate in the revocation of their FCA authorisation.

Conclusion

The NPPR is a critical component for non-EEA fund managers looking to access the European market without the full burden of AIFMD compliance. In the UK, the FCA’s approach to NPPR emphasises regulatory compliance, investor protection and transparency. By understanding and adhering to these requirements, AIFMs can effectively navigate the regulatory landscape and successfully market their funds to professional investors in the UK.

As financial markets continue to evolve, the NPPR provides a flexible yet robust framework that balances market access with the necessary regulatory safeguards. For fund managers and investors alike, staying informed about these regulations is crucial for making informed decisions and maintaining market integrity.

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The post Understanding the National Private Placement Regime first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

The FCA categorises AIFMs into two main types: Full-Scope UK AIFMs and Small UK AIFMs.

Full Scope UK AIFMs: The Comprehensive Regulators

Full Scope UK AIFMs are the heavyweights in the regulatory ring. They are subject to the full breadth of the Alternative Investment Fund Managers Directive (“AIFMD”) regulations. These entities manage Alternative Investment Funds (“AIFs”) that exceed the threshold of Assets Under Management (“AUM”), which places them under a more rigorous regulatory framework. Full Scope AIFMs must comply with extensive reporting requirements, maintain higher capital, and adhere to strict risk management protocols.

Small UK AIFMs: The Agile Contenders

On the flip side, Small UK AIFMs operate under a lighter regulatory regime. They manage AIFs below the AUM threshold and are exempt from some of the stringent requirements that Full Scope AIFMs face. This allows for greater flexibility and potentially lower operational costs. However, they are limited in the scale and scope of their activities.

Identifying your Firm’s Category

The following factors should be taken into consideration when deciding whether you fall under a Full Scope AIFM or a Small UK AIFM:

1. Assets Under Management (“AUM”) and the nature of the funds managed: As per Article 3 of the Alternative Investment Fund Managers Directive, firms managing Alternative Investment Funds (“AIFs”) whose AuM exceeds:

• €500 million in total for portfolios of AIFs that are unleveraged and have no redemption rights exercisable during a period of five years following the date of initial investment of each AIF; or
• €100 million in total for other cases, including any assets acquired through the use of leverage

The above threshold conditions must apply to be authorised as a Full-Scope UK AIFM.

2. Business Scope: Full Scope AIFMs are subject to a comprehensive set of regulatory requirements, while Small UK AIFMs have a more streamlined set of obligations.
3. Understand Regulatory Requirements: Familiarise yourself with the full regulatory requirements for AIFMs, including reporting obligations and conduct rules.

Strategic Implications for Fund Managers

The choice between becoming a Full Scope or a Small UK AIFM should align with a fund manager’s business model, growth aspirations and risk appetite. Full Scope AIFMs can attract larger institutional investors seeking the security of a fully regulated entity whilst Small UK AIFMs may appeal to niche markets or investors who are looking for innovative investment strategies and can tolerate a higher risk profile.

The Application Essentials

To apply for authorisation, firms must use the FCA’s online system, Connect. The application must include:

• Regulatory Business Plan: A comprehensive plan outlining the firm’s strategy, operations and compliance with the FCA’s expectations
• Three-Year Financial Forecast: A projection demonstrating the firm’s financial stability and resource adequacy
• Permissions: Identification of the specific permissions required, such as ‘managing an unauthorised or authorised AIF’

Prudential Requirements

Full Scope AIFMs are subject to Collective Portfolio Management (“CPM”) or Collective Portfolio Management Investment (“CPMI”) firms’ prudential requirements. Small UK AIFMs have different requirements based on whether they hold MiFID permissions such as:

• Capital Requirements: Small UK AIFMs typically have a base capital requirement of £50,000. However, if they also perform additional MiFID activities, the capital requirements may be higher
• Risk Management: They must implement appropriate risk management systems to identify, manage, and monitor the risks associated with their activities
• Regulatory Reporting: Submit regular reports to the FCA, including information on the main instruments in which they are trading and on the principal exposures and concentrations of the AIFs they manage
• Own Funds: They must maintain Own Funds which are higher of the initial capital requirement and the sum of funds needed for covering operational risks

Conclusion: Embrace the Journey

Applying to become an authorised AIFM is a journey that requires careful planning and attention to detail. Choosing the most suitable UK AIFM license is a strategic decision that aligns with your firm’s long-term objectives. By carefully assessing your firm’s needs against the FCA’s criteria, you can ensure a smooth application process and a solid foundation for future growth.

How Can Complyport Help?

The authorisation process can be challenging and time-consuming. At Complyport, our experienced team navigates regulatory requirements to offer the best advice and guidance throughout your application.

We offer a flexible approach to suit your needs, providing a fully project-managed service to review and provide feedback on draft applications prior to submission.

If your firm is seeking to acquire additional licensing to expand its business scope, we can also support you with other regulatory applications such as variations of permissions (VoP), change in control, and legal status. Please click here to learn how we can assist you.

Our fully project-managed authorisation service includes:

Pre-Application Consultancy

• Our team works with you to understand your goals and activities.
• We listen to your ideas for the future and ensure the correct regulatory permissions are applied for.
• We identify and resolve potentially contentious issues before submission.

Construction of the FCA Application Pack

• We provide support with drafting or reviewing your regulatory business plan and provide assistance with the preparation of relevant forms.
• We lend our expertise in supporting the creation of financial projections and key assumptions including our templates.
• Take advantage of our Template Compliance Monitoring Programme appropriately tailored to your business in the submission of your firm’s application to the FCA.

Post Submission Queries

• We will assist with post-submission issues or queries raised by the FCA.
• We will advise on the best approach to take when dealing with the FCA.

Provision of Appropriate Compliance Documentation

• We provide compliance documentation after your application is submitted to the FCA in order to ensure you are ready to meet your regulatory and compliance obligations.
• The documentation includes compliance manuals, a tailored Compliance Monitoring Programme, registers and policies.

Ongoing Support

Many of the firms we help to get authorised go on to take up our ongoing support services to ensure they continue to meet their regulatory requirements, for more information please click here.

Interested in seeing how we can help you in seeking Authorisation?

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The post Securing Your AIFM Authorisation: A Strategic Guide for Success first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

The UK will become a ‘third country’ (being a country that is not a member of the remaining EU (“EU27”)) on 30 March 2019 (“the withdrawal date”), unless a ratified withdrawal agreement establishes another date.

On 8 February 2018, the European Commission issued a ‘Notice to Stakeholders’ to managers of investment funds and investors, reminding them of the legal repercussions which need to be considered when the UK becomes a third country. It issued a similar ‘Notice to Stakeholders’ to UK investment firms involved in markets in financial instruments.

The following is a summary of the worst-case scenario – The EC notices are ‘without prejudice’ to any equivalence decisions that may be adopted by the EU and the ‘third country passport regime’ laid down in the Alternative Investment Fund Managers Directive (“AIFMD”).

Many commentators are assuming the final withdrawal agreement will allow some sort of access to the EU for UK financial services operations, at least during transition (the ‘implementation period’).  The FCA stated, on 20 December 2017, ‘Firms based in the UK servicing clients in the EEA should continue to prepare for a range of scenarios and should discuss these arrangements and the implications of an implementation period with the relevant EU regulator. The FCA will keep these expectations under review as negotiations on an implementation period progress and communicate to firms accordingly‘.

Potential consequences of UK withdrawal from the EU

• UK investment firms will no longer benefit from the Markets in Financial Instruments Directive (“MiFID”) authorisation to provide MiFID investment services and activities in the EU (i.e. they will lose the so-called “EU passport”) and will be third country firms. This means that those investment firms will no longer be allowed to provide investment services or carry out activities in the EU on the basis of their current authorisations.
• UK UCITS Management Companies (“ManCos”) and UK Alternative Investment Fund (“AIF”) Managers (“AIFMs”) will no longer benefit from the EU passport and all will be treated as third country AIFMs. This means that they will no longer be able to manage funds and/or market funds in the EU on the basis of their current authorisations:
  • For Undertakings for Collective Investment in Transferable Securities (“UCITS”), European Venture Capital Funds (“EuVECAs”), European Social Entrepreneurship Funds (“EuSEFs”) and European Long Term Investment Funds (“ELTIFs”), both the investment funds and their managers must be established and registered or authorised in the EU to manage and market funds to retail and/or professional investors across the EU.
  • AIFMs need to be established and authorised in the EU to be allowed to manage and market AIFs to professional investors across the EU.
• As a consequence, all collective investment undertakings registered or authorised in the UK will become non-EU alternative investment funds (“non-EU AIFs”). This applies to:
  • UCITS;
  • AIFs;
  • EuVECAs;
  • EuSEFs;
  • ELTIF; and
  • Money Market Funds.
• EU Member States may allow AIFMs which are not established and authorised in the EU to market AIFs (EU AIFs and non-EU AIFs) only in their territory under the so-called National Private Placement Regimes (“NPPR”). Some EU Member States do not allow for the NPPR, while other Member States only allow marketing to professional investors.
• UCITS ManCos or AIFMs authorised by the EU27 competent authorities under the UCITS Directive or the AIFMD, which are subsidiaries of entities established in the UK (i.e. legally independent companies established in the EU27 controlled by or affiliated to entities established in the UK) can continue to operate in the EU27 on the basis of their authorisation as UCITS ManCos or AIFMs.
• Branches of UK managers (permanent presences which are not legally independent from the AIFM) in the EU will be treated as branches of a non-EU AIFM as of the withdrawal date. These branches will be subject to the requirements of NPPRs, where available.
• There will be an impact on fund-of-funds structures; in particular, UCITS authorised in the EU27 must assess the eligibility of (former) UCITS authorised in the UK.
• All portfolio managers should review their investment criteria to ensure any EU limitation is still complied with after the UK withdrawal from the EU.
• EU established firms dealing in financial instruments subject to the MiFID trading obligations would no longer be able to use certain UK established firms/venues. Also, clients will no longer have direct electronic access to EU established trading venues via UK established firms.
• UK market operators/investment firms operating a trading venue or execution venue will no longer benefit from the MiFID authorisation/licence. UK based Regulated Markets (“RMs”), Multilateral Trading Facilities (“MTFs”) or Systematic Internalisers (“SIs”) will thus cease to be eligible venues for trading shares subject to the MiFIR share trading obligation; EU counterparts will no longer be able to undertake trades in shares subject to the trading obligation on such platforms.
• In light of MiFID obligations on disclosure of information to clients, firms providing investment services are required to provide clients or potential clients with accurate disclosure, in good time and in any case before clients are bound by any contract, on the impact on the provision of services and investors’ rights that may emerge from the withdrawal of the UK from the EU including the upcoming loss by the firm of its MiFID authorisation. Firms providing investment services are also required to notify clients in good time about any material change to the information already provided, including if any material changes occur to the situation of the firm and any resulting consequences for contracts.

The post Brexit: EC notices issued stating potential consequences relating to UCITS, MiFID and AIFMD first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .

Of Relevance to:
UCITS Management Companies and AIFMs

Although the principal requirement under the Securities Financing Transactions Regulation (2015/2365) (“SFTR”) is the obligation on counterparties to securities financing transactions (“SFT”) to report details of any concluded SFTs to a trade repository, it also brought transparency requirements – see Regulatory Roundup 72 for further information on the SFTR as a whole, including on the reuse of collateral.

A SFT is defined in Article 3(11) of the SFTR as:

• a repurchase transaction
• securities or commodities lending and securities or commodities borrowing
• a buy-sell back transaction or sell-buy back transaction
• a margin lending transaction

By virtue of recital 7 of the SFTR, the definition of a SFT does not include derivative contracts as defined in EMIR, but does include transactions that are commonly referred to as liquidity swaps and collateral swaps which do not fall under the definition of derivative contracts under EMIR.

The transparency obligations for UCITS Management Companies and AIFMs arise under Article 13 (periodical reports) and Article 14 (pre-contractual documentation – UCITS prospectus and AIFMs disclosures to investors).

The transparency obligations under Article 13 applied from 13 January 2017 (see Regulatory Roundup 84).

As mentioned in the above Regulatory Roundup, the transparency obligations under Article 14 will apply from 13 July 2017.

Note that transparency obligations under Article 13 and Article 14 concern both the use of SFTs and total return swaps.

The requirements are copied out into the Handbook as follows (transitional provisions in place ensure that the requirements do not take effect until 13 July 2017):

• UCITS and NURS: COLL 4.2.5A
• Qualified Investor Schemes: COLL 8.3.4A
• AIFs: FUND 3.2.4A

There is no obligation to include information on the above in pre-sale documentation where SFTs or total return swaps are not used (see COLL 4.2.5A(4) or COLL 8.3.4A(4) or FUND 3.2.4A(3) as relevant).

The post SFTR – Transparency Requirements for UCITS and AIFs first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .