UK: Compliance Clarified - May 2013


On 24 May 2013, the European Securities and Markets Authority (ESMA) published a final report containing guidelines on key concepts of the Alternative Investment Fund Managers Directive (AIFMD).

Aimed at alternative investment fund managers (AIFM) and national regulators, the report seeks to clarify some of the key concepts used in the definition of alternative investment fund (AIF).

Specifically, there is guidance on the meaning of:

  • collective investment undertaking;
  • raising capital;
  • number of investors; and
  • defined investment policy.

ESMA confirms that an undertaking will not be an AIF if it does not meet the definition in Article 4(1)(a) of the AIFMD. It also says that an undertaking will be an AIF if it meets the definition, regardless of whether or not it also exhibits certain features described in ESMA's guidance. For a Directive with such broad scope and so many grey areas, this is somewhat stating the obvious when ESMA could have developed some of the key concepts further.

There is no additional guidance on joint ventures, with ESMA simply referring to the European Commission's Q&A website. The Commission states in a response to a query that joint ventures could only be excluded if they fell within an express exclusion in Article 2(3) or did not meet the definition of an AIF in Article 4(1)(a). The Commission states that each situation should be considered on its own merits, allowing substance to prevail over the formal denomination of the specific structure. National definitions should also be used to determine what a joint venture is. With no pan-European guidance on the features of a joint venture, problems of interpretation could arise when the joint venture parties are from different EU member states which interpret the meaning of a joint venture differently.

The concept of an "ordinary company" has been replaced with an "undertaking not having a 'general commercial or industrial purpose' [which is now defined]". The substance still seems largely the same with this measure intending to ensure consistent interpretation throughout the EU. ESMA has also included a definition of "day to day discretion or control" for the purposes of deciding whether an undertaking is a collective investment undertaking. It says this is again to ensure consistent application across the EU.

The final guidelines are helpful, but one could be forgiven for expecting more from ESMA, especially since many of these concepts can lead to different interpretations and firms are still left without certainty on certain aspects.

The guidelines need to be translated and will be published on the ESMA website. National regulators will need to confirm their compliance or intention to comply with the guidelines to ESMA within two months of the guidelines being published on the ESMA website.

Further reading
ESMA Final Report


The FCA has published a draft of the Variation of Permission (VOP) form for depositaries of AIF(s) and is seeking feedback from firms. Feedback should be emailed to by 28 June 2013.

Firms seeking to become depositaries for the first time

Firms which are not currently authorised and are interested in acting as the trustee or depositary of an AIF(s) are not able to use the transitional provisions, but will need to apply to the FCA for authorisation. The FCA expects the forms to be available by 22 July 2013, but it will accept draft applications from unauthorised firms prior to 22 July 2013 to ensure applications are processed as quickly as possible. Such firms should complete the application pack for wholesale investment firms and append it to the completed draft VOP form. The FCA has up to six months to determine complete applications and this period will not commence until 22 July 2013.

Firms already authorised to act as a depositary

Firms that are already authorised will be able to act as the depositary of an AIF without needing to obtain the new permission from the outset under the UK's implementation of the transitional provisions. Such firms should submit their VOP applications in good time to meet the 22 July 2014 deadline, however.

Firms acting as a trustee or depositary of an AIF during the transitional period must still ensure that the service provided complies with the requirements of the AIFMD and the FCA's rules. Such firms will have to certify to the FCA to this effect.

Impact on AIFMs

The FCA expects to receive VOP applications from firms that wish to become a Full Scope UK AIFM (Alternative Investment Fund Manager) before 22 July 2013. Applicants will have to state in their VOP form:

  • the identity of the firm(s) they have appointed, or intend to appoint, to act as the trustee and/or depositary of the AIF(s) being managed from 22 July 2013;
  • that the FCA may contact the firm(s) identified to discuss their suitability to perform that role; and
  • that they have undertaken adequate due diligence and are satisfied the service that will be provided by the trustee or depositary of the AIF(s) will meet the relevant requirements of the AIFMD.

Therefore, it is important that AIFMs engage with potential depositaries as soon as possible as any delays in identifying one could delay your VOP application and authorisation under the AIFMD.

Further reading
Draft VoP form for Depositaries


On 24 May 2013, ESMA launched a consultation paper on their guidelines for AIFMs' reporting obligations under Articles 3 and 24 of the AIFMD.

The rationale for the consultation comes from ESMA's desire to standardise the format of the information that AIFMs send to national competent authorities (NCA). According to ESMA, such standardisation will facilitate the exchange of information between relevant NCAs under Articles 25 and 53 of the AIFMD.

The draft reporting guidelines are set out in Annex III of the paper. They provide clarification on the information which AIFMs should report to NCAs, the timing of such reporting and the procedures to be followed when AIFMs move from one reporting obligation to another.

Annex IV of the consultation paper contains a draft reporting template. Annex V contains a diagram which summarises the reporting obligations of AIFMs, as determined by the total value of assets under management and the nature of the AIF which is managed or marketed.

The consultation is accompanied by the publication of IT files that AIFMs will have to use to report information.

The consultation closes on 1 July 2013.

Further reading
ESMA Consultation Paper


HM Treasury has published its response to its March 2013 consultation on transposing the AIFMD.

The policies addressed in the consultation are focussed on:

  • the managers of common investment funds and common deposit funds and their charity investors;
  • non-UK managers of UK recognised schemes; and
  • non-UK EEA managers of UK authorised funds.

The response was published at the same time as a response to HM Treasury's January 2013 consultation and a revised draft version of the Alternative Investment Fund Managers Regulations 2013 (the Regulations).

Key points to note from responses to the consultations are as follows:

  • Managers of authorised funds: the Government will not impose any new requirements on sub-threshold managers of authorised funds as part of the AIFMD implementation.
  • Definition of AIF: there is not enough time to create separate and exclusive definitions of an AIF and collective investment scheme, but this issue might be re-visited at a later date.
  • Ancillary activities: the ancillary activities listed in Annex 1, paragraph 2 of the AIFMD will be part of the new regulated activity of managing an AIF.
  • Marketing: amendments to Part 8 of the Regulations have been made to improve clarity and ensure that activities outside the scope of the AIFMD are not inadvertently captured.
  • Internally managed investment companies: the Government will not apply the approved persons regime to internally managed investment companies.
  • EEA charities: the Regulations are being amended to permit investment by EEA charities.
  • Extension of the Financial Services Compensation Scheme: coverage of the Scheme will be applied to non-UK managers of UK authorised AIFs.

Further reading
HM Treasury's response to consultation
Alternative Investment Fund Managers Regulations


The Commission has issued a formal request for technical advice to ESMA. The request is in relation to the possible delegated acts concerning the procedural rules for taking supervisory measures and imposing fines on trade repositories.

The Commission has asked ESMA to focus on rules of procedure for the exercise of powers to impose fines and penalty payments and on applicable limitation periods. More specifically, the mandate invites ESMA to:

  • reflect on procedures to guarantee the rights of the defence during and on completion of investigations, and advise on a reasonable time limit for submitting written submissions;
  • advise on the procedure for oral hearings;
  • advise on the procedures regarding access to the files for those subject to the investigations;
  • advise on the documents to be submitted by the investigating officer to ESMA, so that ESMA is informed of all relevant facts;
  • advise on the limitation periods for the imposition of penalties and for the enforcement of penalties; and
  • reflect on the methods for collecting fines and periodic penalty payments.

ESMA has until 31 December 2013 to deliver its advice.


On 16 May 2013, the Commission published a memo on the recognition procedure for central counterparties (CCPs) that are established outside the EU but wish to provide services to market participants that are established within the EU. The memo establishes how the recognition procedure will be implemented.

The Commission suggests that two processes will have to be run in parallel:

  • non-EU CCP recognition procedures administered by ESMA; and
  • foreign jurisdiction equivalence procedures administered by the Commission.

Recognition procedures

Non-EU CCPs currently providing services to EU entities must apply to ESMA for recognition under EMIR by 15 September 2013. It should be noted that ESMA's recognition process can take up to nine months, during which time such non-EU CCPs can continue to provide services to EU clearing members already participating with those CCPs. Ultimately, clearing members established in the EU will only be entitled to deal with CCPs which have been recognised under EMIR by ESMA.

The memo also provides further information on the following:

  • the types of CCPs that are subject to the EMIR recognition procedure;
  • the benefits of being recognised under EMIR;
  • how the EMIR recognition procedure works; and
  • the timeline that applies for recognition under EMIR.

Equivalence procedures

The Commission has asked ESMA to provide technical advice on the supervisory framework applicable to third countries so that equivalency procedures can be finalised.

ESMA technical advice for the first set of countries is expected on 15 June 2013 and advice for second set of countries is expected on 15 July 2013. If necessary, further advice will be requested from ESMA by the Commission. We will provide a further update in this regard once ESMA has produced its guidance.

Further reading
Commission Memo


In a letter from the Commission dated 22 April 2013, the Commission has requested that ESMA produce its draft regulatory technical standards (RTS) on the cross-border application of EMIR by 25 September 2013. The RTS, which had been postponed in June 2012, are now to be prepared to inform international regulatory discussion.

The technical standards are to relate to transactions between non-EU entities which have a direct, substantial and foreseeable effect within the EU.

Further reading
Letter from Commission


21 May 2013 saw the formal launch of the UK's investment management strategy. The strategy was formally announced in the Government's March 2013 budget and aims to promote the UK as a global centre of excellence in the investment management sphere.

The strategy focuses on the following three areas as a means of creating jobs and encouraging economic growth:

  • taxation;
  • regulation; and
  • marketing.

The Economic Secretary to the Treasury, Sajid Javid, spoke of the UK's natural investment management strengths noting that the Government's mission is to "make the UK the most competitive location for funds. We want funds domiciled here and we want funds managed here."


The Government has pledged to simplify and streamline taxation in the investment management sector.

At the heart of this plan is the abolition of the Schedule 19 (stamp duty reserve tax) charge on funds. The Schedule 19 charge is charged to fund managers on the surrender of units in a fund, although it is investors who ultimately bear the cost.

The regime is regarded as complex and burdensome, requiring frequent tax returns to be sent to HMRC. The tax is difficult to explain to investors and gives rise to presentational complications when marketing UK funds.

Those that do not wish to pay the Schedule 19 tax simply invest in funds domiciled off-shore, thereby creating a major deterrent for establishment of and investment into investment funds in the UK.

The abolition of Schedule 19 will be legislated for in the Finance Bill 2014 to take effect in the 2014/15 tax year.


The Government's approach to regulatory issues as part of this strategy will focus on professionalism, operational responsiveness, constructive engagement in the development of European legislation and implementation of new legislation which maximises economic benefits to investors at the same time as ensuring adequate protection.


The government has pledged to work closely with key industry bodies to ensure a co-ordinated and focussed approach, creating a pro-active investment management marketing strategy.

Further reading
UK Investment Management Strategy


The FCA has published its policy statement and rules in relation to UCIS which will ban the promotion of UCIS to the vast majority of UK retail investors. UCIS are broadly defined but will generally include investment funds such as private equity, real estate, debt, hedge and infrastructure funds. Other arrangements which do not have typical fund characteristics could also be caught so each investment should be considered on a case by case basis.

The changes mean that promotion of riskier and more complex fund structures will be limited to sophisticated investors for whom these products are suitable. The ban follows extensive work undertaken by the FSA and subsequently the FCA, which found that only one in every four advised sales of UCIS to retail customers was suitable and that many promotions breached the existing UCIS marketing restrictions.

From January 2014, the new policy will extend the products which are caught to include the following:

  • units in qualified investor schemes;
  • traded life policy investments; and
  • securities issued by special purpose vehicles pooling investments in assets other than listed or unlisted shares or bonds.

The FCA has confirmed that the following products will be outside the scope of the marketing restrictions:

  • securities issued by special purpose vehicles pooling investments in listed or unlisted shares or bonds;
  • exchange traded funds;
  • overseas investment companies that would meet the criteria for investments trust status if based in the UK;
  • real estate investment trusts; and
  • venture capital trusts.

Firms should review their procedures to ensure that they are compliant with the new rules, focussing in particular on those products which were not caught by the previous UCIS marketing restrictions.

Further reading
FCA Policy Statement


Following publication of an interim report in November 2012, the Office of Fair Trading (OFT) released its final report on the payday lending industry in March 2013.

Its findings revealed a widespread lack of compliance amongst a large proportion of licensed businesses in the industry. According to the OFT, irresponsible lending practices have arisen across the payday lending spectrum as a result of the competitive advantages which firms can gain by emphasising speed and easy access to credit. As a consequence, lenders fail to conduct adequate (if any) assessments of affordability before lending or rolling over loans.

The OFT estimates that:

  • the payday lending industry was worth £2bn in 2011/2012 (up from an estimated £900m in 2008/2009);
  • the average loan is between £265 and £270 and is borrowed over 30 days;
  • the three largest lenders account for 55 per cent of the market by turnover and 57 per cent of the market by loan value;
  • around one third of loans are either repaid late or not repaid at all;
  • 28 per cent of loans issues in 2011/2012 were rolled over at least once, accounting for almost 50 per cent lenders' revenues; and
  • five per cent of loans were rolled over four times or more, accounting for 19 per cent of lenders' revenues.

The payday loan industry, possibly in a pre-emptive strike to avoid external regulation, has launched a self regulating body known as the Short Term Lending Compliance Board (SLCB) which will seek to tackle, amongst other things, the following example of bad practice, as highlighted in the OFT's report:

  • a failure to conduct adequate assessments of affordability before lending or rolling over loans;
  • the widespread making of misleading claims in lenders' advertising material;
  • a failure to adequately explain to customers how payments should be made; and
  • the widespread use of aggressive debt collection practices.

What's more, the head of the SLCB, Seymour Fortescue, has noted that "the SLCB will have a zero tolerance approach to bad practice and will be using all of its powers, whenever required, to ensure that the Consumer Finance Association's (CFA) members are measuring up to the SLCB's code and that consumers are getting the protection they deserve".

It should be noted that the SLCB will only cover those lenders which are members of the CFA. Whilst it would be in the interests of all payday lenders to get their house in order to avoid formal regulation by the OFT and potentially the FCA from 2014, those lenders which are not members of the CFA will be under no obligation to comply with the SLCB's rules.

Further reading
OFT's final report
CFA Press Release


On 24 May 2013, the FCA published a decision notice in relation to a non-executive director's (NED) failure to disclose a conflict of interest which arose at the time of her appointment as a NED of two UK mutual societies. The decision notice imposes a financial penalty of £154,800 on Angela Burns and bans her from performing any role in relation to any regulated financial services.

The FCA found that between January 2009 and May 2011, Angela Burns had breached Principle 1 (Integrity) of the Statements of Principle and Codes of Practice for Approved Persons (APER) by recklessly failing to disclose her conflicts of interest to the mutual societies, which arose in dealing with a third party investment manager. FCA Director of Enforcement and Financial Crime, Tracey McDermott, warns NEDs that they need to carefully monitor any existing or potential conflicts of interest and be vigilant in observing corporate governance principles. Such action demonstrates the regulator's willingness to take strong action against senior individuals.

Ms Burns has referred the matter to the Upper Tribunal and its final decision is awaited. She failed to prevent the FCA from publishing the decision notice. In the meantime, we outline below a few key points for NEDs to consider so as to avoid any indication that they are acting in breach of conflicts of interest rules:

  • Existing NED role: the FCA was particularly critical of Ms Burns' use of her role as a NED for her own benefit. NEDs should be vigilant when utilising their role as a NED in business matters which could affect the companies on whose boards they sit.
  • Use of separate email addresses: Ms Burns used the same business email address when conducting her business for both mutual societies. Her role and division of responsibilities may have been clearer had she used separate email addresses depending on who she was conducting business on behalf of.
  • If in doubt disclose: whatever the final outcome may be, it is clear from this decision that the FCA is toughening its stance on conflict of interest issues. A NED is likely to encounter conflicts of interest situations more regularly than many other professionals. If unsure, the simple answer is to disclose.

Further reading
Decision Notice


On 23 May 2013 the FCA published its final notice to JP Morgan's wealth management business, fining it £3,076,200 for systems and controls failings in relation to retail investment advice and portfolio investment services.

The FCA's notice highlighted JP Morgan's failure to comply with Principle 3 (Management and Control) of the FCA's Principles for Business and rule 9.1.1 of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) setting out record keeping requirements.

The FCA's decision highlights its increasing willingness to crack down on the internal policies and procedures of wealth managers, no matter their size.

What's more, the FSA carried out a thematic review of the wealth management industry in 2011 and found the following:

  • 14 out of 16 firms reviewed were deemed to pose a high or medium risk of causing detriment to their clients;
  • 79 per cent of the files reviewed had a high risk of unsuitability or the suitability could not be determined; and
  • 67 per cent of the files reviewed were not in line with the firm's house model, a client's stated investment objectives or a client's risk profile.

Such information was communicated by the FSA in a letter to the chief executive officers of the wealth managers under review effectively issuing a warning for wealth managers to get their house in order or expect to be fined.

Appendix 1 of the letter contains a summary of the FSA (now FCA) Handbook requirements and wealth managers are advised to review the guidance in light of their current policies and procedures.

Further reading
FSA Dear CEO letter

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.