The following list is a high level review of some of the key requirements:
General Principles: the principles are a general statement of the basic obligations of companies under the UK regulatory system. These underpin all the more comprehensive rules in the FCA Handbook and the FCA has the legislative authority to fine firms for failing to adhere to the General Principles
Marketing: there are comprehensive regulations applicable in the UK and elsewhere in the EU to marketing offshore unregulated collective investment schemes. Broadly, in the UK, unless particular criteria can be completely satisfied regarding the expertise and experience of any person, marketing is generally limited to those institutional investors who can be classified as “professional clients” or “eligible counterparties” within the FCA’s client classification requirements. Most managers of offshore unregulated funds will not have permission to provide investment activities with retail clients. For AIFMs, AIFMD also imposes prescriptive disclosure and reporting requirements on AIF marketing activities.
Dealing and managing: for those companies undertaking dealing or portfolio management activities there are comprehensive regulations designed to ensure the clients of the enterprise are treated fairly. There is no relaxation even where the company’s sole customer is an offshore fund established by it. Provisions as an example cover:
For an AIFM, much of the conduct requirements apply directly to AIFMs under the AIFMD European regime.
Systems and controls: the FCA regulations require a company to take reasonable care to organise and control its affairs responsibly and appropriately, with adequate risk management systems. For both MiFID enterprises and AIFMs, there are prescriptive provisions underpinning this all-embracing principle.
Monitoring and reporting: the FCA regulations require a company to undertake recurring monitoring of compliance with the FCA regulations. They even further require a mix of quarterly, six monthly and annual filing on various items. For AIFMs, further information and reporting requirements apply, which will be either on a quarterly or half-yearly basis being dependent on whether assets under management (as calculated under AIFMD) exceed EUR 1 billion. The requirements are explained in the FCA Handbook and in AIFMD.
Regulatory capital: a company is required to keep, on an ongoing basis, the required level of capital (as described above). MiFID firms and AIFMs with “top up” permissions are also required to conduct a risk assessment on an annual basis called an ICAAP (Individual Capital Adequacy Assessment Process) An ICAAP is the process by which an enterprise’s senior management consider their business risks. It requires the documentation of the key risks, detailed information of the management of those risks and consideration of any capital that might have to be reserved to satisfactorily mitigate those risks. Where a company identifies additional capital needs through its ICAAP, this additional capital should be held, and becomes the company’s new minimum capital requirement
Liquidity: MiFID firms and AIFMs with “top up” permissions are also obliged to maintain liquidity resources which are satisfactory, both concerning amount and quality, to guarantee that there is no significant risk that their liabilities can not be met as they fall due. Its method and systems for managing liquidity risk are required to be evaluated annually
Transaction reporting: firms are called upon to report to the FCA all transactions in specified financial instruments which are traded on an EU regulated market, whether or not the transaction involved actually comes about on an EU regulated market, together with OTC trades in derivatives whose underlying is a debt or equity-related financial instrument traded on an EU regulated market. The company can agree that such reports will be made on its behalf by a third-party, for example, the relevant counterparty. For trades taking place on an EU regulated market, certain markets will undertake to report the transaction on the company’s behalf.
AIFMD-specific requirements: Under the AIFMD regime, there are supplementary organisational, structuring and conduct requirements specific to AIFMs. These incorporate, in overview, a duty to ensure that the fund appoints a depositary, certain additional policy requirements (e.g. around portfolio liquidity, portfolio risk management, valuation), restrictions on delegation, transparency and restrictions on the use of leverage in the portfolio and new regulations on remuneration.