The UK Financial Conduct Authority (FCA) has amended its rules on Annex IV reporting following consultation during 2016. The amendments, which were published on 25th January 2017, will affect all non-EU Alternative Investment Fund Managers (AIFMs) that market Alternative Investment ‘Feeder’ Funds in the UK under the UK’s national private placement regime. Annex IV reporting is collected by the FCA in accordance with the EU’s Alternative Investment Fund Managers Directive (AIFMD). From 29 June 2017 all non-EU AIFMs who submit Annex IV reports to the FCA on a quarterly basis in relation to an Alternative Investment Fund (AIF) which is defined as a ‘Feeder’ will also be required to report information regarding the associated AIF as defined as the ‘Master AIF’. This will apply irrespective of whether that Master AIF is marketed in the UK.
The FCA first proposed changes to the reporting for Master-Feeder structures in their quarterly consultation document (July 2016). The paper recognises that there are notable information gaps in relation to the Master AIF, some of which have large trading footprints in specific market segments and also have significant leverage relationships with other market counterparties. The FCA proposed to reduce these information gaps so that they can effectively monitor and compare the risk-taking activities of AIFMs that are required to report to the FCA.
The new rules are effective from 29 June 2017, however they only affect AIFMs that are required to file Annex IV on a quarterly basis (more commonly known as “above threshold”). It will not affect AIFMs who currently file on a half-yearly or yearly basis. While this narrows the scope for non-EU AIFMs to comply with this amendment, it will still be a significant amount of work. The Annex IV data for a Feeder has been relatively simple to assemble and compose given the nature of the underlying holdings. Non-EU AIFMs will now be faced with having to accurately compile and disclose concentration, leverage and risk analytics on the Master AIF’s often esoteric composition.
The subject of Master-Feeder structures has been discussed for some time in Europe. During 2013, the European Securities and Markets Association (ESMA) first raised this issue noting that EU Member State regulators may not be capable of effective monitoring of systemic risk within their jurisdiction. This is due to the undisclosed leverage and market behaviours of the Master AIF which is the trading entity of the Master-Feeder structure. ESMA therefore encouraged the collection of additional information under Article 25 of the AIFMD. To date, the UK, Ireland, Luxembourg and Belgium all require non-EU AIFMs to file Annex IV reports for associated Master AIFs.
The amendment to the rulebook also affects UK AIFMs who are above threshold and reporting quarterly.
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