AIFMD Surgery Webinar VoP and Business Plan

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  • Applications – The Basics Timing of applications      Permissions          Objectives of the VOPProject Delivery – Being prepared for the submissionProject Delivery – Being prepared for post submission Content of a VOP Practical issues in demonstrating compliance with AIFMD  Covering C Organisation StructureF Governance and Culture 1 General Requirements 2 Conflicts of InterestsG. Systems and Controls 1 Disclosure to investors and competent authorities 3 Risk Management 5 Prime Brokerage 7 Depository Arrangements 8 MarketingFollow up Webinars on  Risk Management         Independence      Depository      Annex IV      Remuneration     
  • FCA
  • FUND 3.2 . Having systems and controls in place to make these disclosures is the question and is not solely dependant on having completed documentation The requirement to have systems and controls in place is in order for the FCA to be able to grant you a license. Therefore even if you are not going to be marketing an AIF in the EU, you need to review the disclosure requirements and ensure that you have systems and controls to be able to demonstrate that you can provide the relevant disclosures as a manager, whether they are applicable to your AIFs or not.The AIF schedule contains a checklist on prior disclosures laid out in FUND 3.2.2. Not all timing issues have been worked out and if you wish to defer to last minute you will need to have arrangements in place by 21st June at the latest. However, for certain EU AIFs, e.g. Irish QAIF There will be special arrangements to allow regulators to confer. For example where both Fund Regulator needs approved AIF and Firm regulator needs approved Fund.
  • CPMI is a type of BIPRU FirmCPM is not a BIPRU FirmGrey Area about what other activities a AIF can undertakeResidual CIS OperatorEstablishing Operating and Winding Up a Collective Investment SchemeFSA were going to abolish permission but realised that there are some schemes which are Collective Investment Undertakings that are not AIFs as they don’t satisfy the definitions or are subject to an exemption.If a firm wants to involved in providing services to those Firms then they will be require to have this permission. Therefore it would be a permission most likely requested by CPMI firms.
  • AIF Schedules UK AIF EEA AIF Non-EEA AIFArticle 74 – Closed Ended Funds that make no additional investments No additional investment after 22nd July 2013Article 75 – Closed Ended Funds whose subscription periods has closed Subscription period has closed before 22nd July 2011 and constituted for a period that expires 22nd July 2016.Fund 3.2.2. Checklist
  • Covering C Organisation StructureF Governance and Culture 1 General Requirements 2 Conflicts of InterestsG. Systems and Controls 1 Disclosure to investors and competent authorities 3 Risk Management 5 Prime Brokerage 7 Depository Arrangements 8 Marketing
  • Details relating to the individuals, their controlled functions (include SIFs), location of personnel and mind and management. Include PM/trading function headcount; risk management personnel and headcount and compliance personnel and headcount – reference staff chart and individual forms.Discuss in detail the ownership structure and ultimate corporate/individual/trust controllers – reference organisation chart and controller forms.Discussion on the appointment of services providers.Consider further information will be provided on Prime Brokers and Depository later in the plan/form. This is mainly as a backdrop to your controls demonstrate ability to comply with Directive requirements
  • Refer to Section 4.4. Fund 3.2.2. (Prior disclosures) Having adequate and effective systems and controls to ensure disclosure extends to all firms managing an AIF. -General Basic Fund information -Highlighting -Prior disclosures including identity of the AIF depository (unless not marketing in EEA). -Compliance with the professional negligence requirements. (IPRU (INV)) -Compliance with professional liability risk (GENPRU). -Description of all fees, charges and expenses and the maximum amounts charged by investors. -Conditions for the issue and sale of unitsFund 3.2.3 (depository liability discharge disclosure) -Arrangements made by the depository to contractually discharge their liabilityFund 3.2.6 (leverage disclosures) -Changes to maximum leverage -Changes to any right of re-use of collateral -Total amount of leverage employedFund 3.3 (Annual Reports) N/a for funds not marketing in UKFund 3.4 (reporting obligations) -General Reporting obligations -Note special reporting required for firms that leverage 3 times
  • Proportionality. Following our enquiries and submission of applications the FCA has (yesterday) made it clear that proportionality will apply to risk management along similar lines as remuneration. However, firms will still need to ensure that they can satisfy the other provisions of 3.7 appropriately. If not functionally and hierarchically independent, then the firm needs to work harder to demonstrate the follow on provisions.What is an appropriate, documented and regularly updated due diligence process? This can simply be a diagramatic representation of your investment process. Do you screen your investment ideas, do you limit scope of investment to narrow bands, do you divide responsibilities between investment personnel so that the is appropriate quality control and challenge in the decision making.
  • We have spoken to some of the prime brokers who are willing to assist with the provision of wording for AIFMD applications to ensure that you can satisfy these requirements but again you need to ensure that you can answer positively and highlight any issues where you cannot answer in the positive. While you already have arrangements in place and this is a one size fits all approach, you need to go only into the detail to demonstrate that you took appropriate steps on appointment and that you have confirmed that the prime broker has appropriate process in place to assist you in satisfying the obligations under AIFMD.You should already have a contract in place with them which formalises the terms.You should already know the levels of transfer and reuse that will occur and whether this is or will be in the fund documentation.You may need to highlight that the arrangements for the notification of depositories are being agreed pending depository agreement.
  • FUND 3.11.19R states that contractual arrangements are put in place between the AIFM and the depositary but this is subject to current discussions, availability of those agreements from lawyers and strategies necessary. We are seeing increasing preparedness of depositories who are producing the required documentation. Final arrangements can be satisfied closer to authorisation and we believe thatthe difficultnature of the market is currently understood by the regulator. However, they expect the industry to work together to obtain a solution.
  • UK AIF - UK depositoryEEA AIF – Depository in AIF jurisdictionNon EEA AIF – Expectation that the services highlighted (Cash Management, Oversight and Custody) are provided by an appropriate provider regulated in that country and generally covered by an MoU.
  • In the form you will note the FCA discuss Marketing before Depository but we feel that it is natural to resolve the depository issues before you lay out the position on Marketing.What does the FCA expect in terms of due diligence on depositoriescontacts/meetings with the depositary;information on the services provided;contract negotiation;assessment of reputation;copy of report and accounts obtained.Depositories in different jurisdictions are offering more and more support on provision of responses to the regulator without requiring contractual arrangements being finalised as they are required to perform some form of due diligence exercise on firms.I am slightly tentative about the position that in depository light, nothing really changes, as the entities continue to provide the same services that they always have,but I have been assured on countless occasions this is the case, and my cynicism is starting to abate on this issue. However, the FCA would expect firms to have completed extensive diligence on their options if they are not finalised by the time of submission and would expect the applicant to have a programme in place to identify an appropriate depository who can enable it to answer the various VOP questions in a positive way.
  • AIFMD Surgery Webinar VoP and Business Plan

    1. 1. 21/10/2013 1
    2. 2. AIFMD Surgery Webinars - VOP and Business Plan The webinar will begin shortly… You can join either by VoIP or dial in by telephone Follow call in details if you select to use Telephone audio 12/11/2013 2
    3. 3. AIFMD Surgery Webinars - VOP and Business Plan © Copyright 12/11/2013 3
    4. 4. Introductions and Format Host o Jonathan Wilson, Project Director Panel o Derek McGibney, Managing Consultant o Bobby Johal, Managing Consultant o James Lawson, RTT Team Leader o Hector Thompson, Consultant Please submit any questions throughout the duration of the webinar in the question panel within the GoToWebinar application © Copyright 12/11/2013 4
    5. 5. Questions You can submit your questions using the Questions area in the GoToWebinar console © Copyright 12/11/2013 5
    6. 6. Agenda o Applications – The basics Timing of applications Permissions Objectives of the VOP o Project Delivery - Being prepared for submission o Project Delivery - Being prepared for post submission o Content of a VOP o Business Plans, Content and Practical issues in demonstrating compliance with AIFMD o Follow up Webinars © Copyright 12/11/2013 6
    7. 7. Applications – The Basics Time Frame o FCA Review Time: o 3 months for complete applications o 6 months for ‘incomplete’ applications o Time Frame Options o Identify preferred authorisation date o ‘deferral of determination’ Request deferral from now to submission but no later than 21st July 2014) o Identify which documents will not be available for submission and when they will likely be available. Again, at least 1 month prior o Ensure that you will have all arrangements in place by that (deferral) date (including required submissions at least 1 month before authorisation date) © Copyright 12/11/2013 7
    8. 8. Applications – The Basics Time Frame For complete applications the FCA will need to the following for all AIFs: o A copy of the instrument of incorporation of the AIF(s) o Confirmation that depository contractual arrangements are in place for each AIF listed (and for which you intend to market in the EU) o All information which will be made available to investors (under FUND 3.2) © Copyright 12/11/2013 8
    9. 9. Applications – The Basics Permission Profile July 16, 2013 9
    10. 10. Applications – The Basics Content of a VOP submission pack o o o o o Cover letter explaining main timing issues (recommended) Variation of Permission Application Form Regulatory Business Plan Financial Projections Main documents o Fund Instruments of Incorporation o Fund Documentation o Investor Disclosures o AIF Schedules o Marketing Applications (UK registration, EU passports etc) © Copyright 12/11/2013 10
    11. 11. Applications – The Basics Objectives of a VOP o Demonstrate that: o the applicant can satisfy the AIFMD o That the applicant will be ready and able to undertake the regulated activities applied for o That the applicant continues to satisfy the Threshold Conditions o Demonstrate that the organisation structure will satisfy AIFMD at authorisation and that the business plan is suitable for an AIFM Make it easy to conclude these points by keeping responses succinct, cross referring to specific questions and supporting documentation. © Copyright 12/11/2013 11
    12. 12. Project Delivery Work stream Project delivery assessment 1 2 Month 3 (Nov) Dec Jan 7 Variation of Permission Portfolio Risk management Depositary Capital and Operational risk Delegation Client disclosures Operational procedures Systemic reporting Private equity disclosures Compliance infrastructure Training © Copyright 12/11/2013 12
    13. 13. Project Delivery – Post Submission Work stream Project delivery assessment Jan Feb Month Mar Apr May Jun July Variation of Permission Portfolio Risk management Depositary Capital and Operational risk Delegation Client disclosures Operational procedures Systemic reporting Private equity disclosures Compliance infrastructure Training © Copyright 12/11/2013 13
    14. 14. Applications – The Basics Content of VoP – Regulatory Business Plan A) Background to the business B) Proposed business (and operating model) F) Governance and culture 1) General 2) Conflicts of interest G) Systems and controls •Fund Structure •Current (Potential) Customers •Regulated Activities •Capital Model C) Organisation structure of the AIFM D) Long term business and expansion plans 1) Disclosure to investors and competent authorities 2) Liquidity management 3) Risk management 4) Leverage 5) Prime brokerage 6) Valuation 7) Depositary Arrangements 8) Marketing Arrangements E) Appropriateness and scalability of non-financial resources © Copyright 12/11/2013 14
    15. 15. Practical Issues on Content of the VOP A) Background to the business B) Proposed business (and operating model) F) Governance and culture 1) General 2) Conflicts of interest G) Systems and controls •Fund Structure •Current (Potential) Customers •Regulated Activities •Capital Model C) Organisation structure of the AIFM D) Long term business and expansion plans 1) Disclosure to investors and competent authorities 2) Liquidity management 3) Risk management 4) Leverage 5) Prime brokerage 6) Valuation 7) Depositary Arrangements 8) Marketing Arrangements E) Appropriateness and scalability of non-financial resources © Copyright 12/11/2013 15
    16. 16. C. Organisational Structure of the AIFM © Copyright Not for distribution outside Cordium 21/10/2013 12/11/2013 16
    17. 17. F. Governance and Culture 1. General o Governance Structures in place (Section 4 content) o Built up from section C (Organisation) o Overight in place and Management Information o Honesty, fairness, professionalism, independence, and acting in client and investor interest? (Question 4.2) o Can you demonstrate? o Refer to status of registered individuals o Refer to current processes 2. Conflicts of Interest (Question 4.3) o Confirm that policy is in place and operational o Provide limited description of operation of policy © Copyright 12/11/2013 17
    18. 18. G. Systems and Control 1) Disclosure to investors and competent authorities o Adequate and effective AIFM systems and controls to ensure appropriate disclosures are made… o set out in FUND 3.2.2R (prior disclosures); o 3.2.3R (depositary liability discharge disclosures); o 3.2.5R (liquidity profile & arrangement, risk management systems); o 3.2.6R (leverage disclosures); o 3.3 (annual report); o 3.4 (reporting obligations). © Copyright 12/11/2013 18
    19. 19. G. Systems and Control 3) Risk management o Can you demonstrate that the risk management function is functionally and hierarchically separated from the operating units, including the portfolio management function? o Have you made provision for specific safeguards against conflicts of interest that facilitate independent performance of risk management activities? o Can you satisfy FUND 3.7 requirements and demonstrate consistent effectiveness? © Copyright 12/11/2013 19
    20. 20. G. Systems and Control 5) Prime brokerage (if applicable) o Have you ensured the Appointment / Intended Appointment of a prime brokerage firm? o Have established adequate and effective systems and controls that will ensure the exercise of due skill, care and diligence in the selection and appointment of a prime brokerage firm? o Has there been the formalisation of terms in a contract? o Does the contract allow for transfer and reuse of the AIF’s assets compliant with the AIF’s fund document? o Does it provide for the depositary to be informed of these arrangements? © Copyright 12/11/2013 20
    21. 21. G. Systems and Control 7) Depositary Arrangements o Full scope UK AIFM of UK and EEA AIFs must ensure that a single depository is appointed for each AIF o Full scope UK AIFM of non-EEA AIFs being marketed in the UK must ensure that one or more entities are appointed to carry out the functions of; o Oversight o Custody o Cash Management o Firms need to determine who is going to do each of these activities and negotiate with services providers. o No depositary required for sub-threshold but their may be custody requirements and firms will be subject to local requirements if they wish to market under NPPR. © Copyright 12/11/2013 21
    22. 22. G. Systems and Control 7) Depositary Arrangements © Copyright 12/11/2013 22
    23. 23. G. Systems and Control 7) Depositary Arrangements o o o o FCA expects that the AIFM has performed due diligence This is a high level requirement that has not been detailed in the directive The Applicant has to make sure the depositary is appropriate The FCA also requires: o Identity of the depositary; o the type of service; o full scope; o PE depositary (FUND 3.11.12R); o Non-EEA AIFS depositary marketed in the UK (established in UK or offshore). o consent to contact the depositary © Copyright 12/11/2013 23
    24. 24. G. Systems and Control 8) Marketing o Full UK/EEA AIFM wishing to market UK/EEA AIF 2 different forms : o Notification of intention to market in the UK (for professional and retail investors) o Passporting for EU AIFs (professional investors) Information requested: Annex III and IV of the directive o o o o o A notification letter with a programme of operations identifying the AIFs The AIF rules or instruments of incorporation Identity of the depositary Controls implemented to prevent the AIF from being marketed to retail investors Additional information if marketing to retail: authorised fund or recognised scheme? Prospectus or marketing under COBS 4.12? o Note: New procedures for dealing with NMPI © Copyright 12/11/2013 24
    25. 25. G. Systems and Control 8) Marketing Full Scope UK AIFM wishing to market a non EEA AIF, (or feeder AIFs that are UK AIFs or EEA AIFs where the master AIF is a managed by a non-EEA AIFM or is a non-EEA AIF) To professional or retail investors - Notify the FCA using the National Private Placement Regime (NPPR) – Article 36 form Full scope Third country AIFM wishing to market whether UK, EEA or non-EEA AIF - Notify the FCA using the NPPR Regime – Article 42 form Notification in respect of major holdings and control acquired after the date of marketing notification Sub-threshold UK AIFM wishing to market AIFs to investors in other EEA do not have right to passport - Firm needs to consult the national law of each EEA state Sub-threshold non EEA AIFM wishing to market UK, EEA, non-EEA AIF - Notify the FCA using the NPPR - Small Third Country form © Copyright 12/11/2013 25
    26. 26. G. Systems and Control 8) Marketing NPPR notifications require information on: o Core details of the AIF(s) o Any delegation o Independent valuation agent / Independent transfer agent o Prime broker o Independent auditors o Other entities marketing the AIF in the UK o Custody (Art. 42 and Small Third Country forms) o Category of assets (Small Third Country form) o Use of leverage or borrowing (Small Third Country form) © Copyright 12/11/2013 26
    27. 27. Questions You can submit your questions using the Questions area in the GoToWebinar console © Copyright 12/11/2013 27
    28. 28. AIFMD Surgery Webinars Next… Risk management – 26th November 2013 – 2pm GMT Registration details coming soon! Coming soon… Depositaries Annex IV Remuneration Marketing © Copyright 12/11/2013 28

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