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As an Investment Manager: Precisely why do I have to be authorised?

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Precisely why do I have to be authorised?

Certain undertakings require regulation by the UK Financial Conduct Authority (FCA) if executed in the UK. Executing these activities without obtaining authorisation (called Part 4A Permission) is a criminal offence and may impact on the enforceability of contracts. There is also a matching UK regulatory regime requiring banks and insurance companies to be authorised by the Prudential Regulation Authority (PRA). The PRA regime is beyond the scope of this set of short guides.

The major activities relevant to investment managers, for example, are as follows.

Activities under the Alternative Investment Fund Management Directive (AIFMD) regime:
Managing an AIF: being designated by your fund to be principally in charge of risk management or portfolio management for your fund, and if that fund is an Alternative Investment Fund (AIF), is a regulated activity.

Activities under the Markets in Financial Instruments Directive (MiFID) regime:
Arranging deals in investments: marketing your fund, or sourcing investment opportunities for your fund is a regulated activity

Advising on investments: providing research and/or investment recommendations in connection with specific investments, apart from where such advice is presented intra group, is also a regulated activity

Managing investments: managing assets belonging to another person, in circumstances engaging the exercise of discretion, is a regulated activity. This includes acting as sub-investment manager on a delegated basis in relation to a fund which is an AIF.

Dealing as agent: buying or selling investments as agent for a third party is a regulated activity

Agreeing to carry on activities: agreeing to carry on the activities listed above is also a regulated activity.

An AIF Manager can also have permissions to carry on these activities on a “top-up” basis, separately from managing an AIF for instance, when providing segregated portfolio management services. The permission of “Managing an AIF” automatically includes these MiFID activities when carried on for a fund that is an AIF in the course of providing the regulated activity of managing an AIF.

The provision of custody services is also regulated and the FCA additionally regulates the activity of “Arranging safeguarding and administration of assets” which deals with the negotiation and arranging of custody arrangements for a client. This arranging activity would be included in the “Managing an AIF” permission, but would have to be individually obtained if needed when providing segregated portfolio management services. Custody permissions have to be separately secured but an AIF Manager is not permitted to provide custody for the fund assets.

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