CHAPTER II GENERAL PROVISIONS

SECTION 1 Calculation of assets under management
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Article 2 Calculation of the total value of assets under management
1. In order to qualify for the exemption provided for in Article 51ZF of, and paragraph 2 of Schedule 8 to, the Regulated Activities Order 2001 an AIFM shall:
(a) identify all AIFs for which it is appointed as the external AIFM or the AIF for which it is the AIFM, where the legal form of the AIF permits internal management, in accordance with regulation 4(3) of the AIFM Regulations 2013;
Words in Art. 2(1)(a) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(a)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
(b) identify for each managed AIF the portfolio of assets and determine in accordance with the valuation rules laid down in the law of the country where the AIF is established and, as the case may be, or in the AIF rules or instruments of incorporation the corresponding value of assets under management, including all assets acquired through use of leverage;
(c) aggregate the determined values of assets under management for all AIFs managed and compare the resulting total value of assets under management to the relevant threshold laid down in regulation 9(1) of the AIFM Regulations 2013.
Words in Art. 2(1)(c) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(a)(iii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Art. 2(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(a)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
2. For the purposes of paragraph 1, undertakings for collective investment in transferable securities (UCITS) for which the AIFM acts as the management company (as defined in section 237(2) of FSMA) shall not be included in the calculation.
For the purposes of paragraph 1, AIFs managed by the AIFM for which the AIFM has delegated functions in accordance with section 3.10 of the Investment Funds sourcebook shall be included in the calculation. However, portfolios of AIFs that the AIFM is managing under delegation shall be excluded from the calculation.
Words in Art. 2(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(b)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Art. 2(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(b)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
3. For the purpose of calculating the total value of assets under management, each derivative instrument position, including any derivative embedded in transferable securities shall be converted into its equivalent position in the underlying assets of that derivative using the conversion methodologies set out in Article 10. The absolute value of that equivalent position shall then be used for the calculation of the total value of assets under management.
4. Where an AIF invests in other AIFs managed by the same externally appointed AIFM, that investment may be excluded from the calculation of the AIFM’s assets under management.
5. Where one compartment within an internally or externally managed AIF invests in another compartment of that AIF, that investment may be excluded from the calculation of the AIFMs assets under management.
6. The total value of assets under management shall be calculated in accordance with paragraphs 1 to 4 at least annually and using the latest available asset values. The latest available asset value for each AIF shall be produced during the 12 months preceding the date of the calculation of the threshold in accordance with the first sentence of this paragraph. The AIFM shall determine a threshold calculation date and apply it in a consistent manner. Any subsequent change to the date chosen must be justified to the FCA. In selecting the threshold calculation date, the AIFM shall take into account the time and frequency of the valuation of the assets under management.
Word in Art. 2(6) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(3)(c) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 3 Ongoing monitoring of assets under management
AIFMs shall establish, implement and apply procedures to monitor on an ongoing basis the total value of assets under management. Monitoring shall reflect an up-to-date overview of the assets under management and shall include the observation of subscription and redemption activity or, where applicable, capital draw downs, capital distributions and the value of the assets invested in for each AIF.
The proximity of the total value of assets under management to the threshold set in regulation 9(1) of the AIFM Regulations 2013 and the anticipated subscription and redemption activity shall be taken into account in order to assess the need for more frequent calculations of the total value of assets under management.
Words in Art. 3 substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(4) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 4 Occasional breach of the threshold
1. The AIFM shall assess situations where the total value of assets under management exceeds the relevant threshold in order to determine whether or not they are of a temporary nature.
2. Where the total value of assets under management exceeds the relevant threshold and the AIFM considers that the situation is not of a temporary nature, the AIFM shall notify the FCA without delay stating that the situation is considered not to be of a temporary nature and shall seek authorisation within 30 calendar days in accordance with sections 55A and 55U of FSMA.
Word in Art. 4(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(5)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Art. 4(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(5)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
3. Where the total value of assets under management exceeds the relevant threshold and the AIFM considers that the situation is of a temporary nature, the AIFM shall notify the FCA without delay, stating that the situation is considered to be of a temporary nature. The notification shall include supporting information to justify the AIFM’s assessment of the temporary nature of the situation, including a description of the situation and an explanation of the reasons for considering it temporary.
Word in Art. 4(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(5)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
4. A situation shall not be considered of a temporary nature if it is likely to continue for a period in excess of three months.
5. Three months after the date on which the total value of assets under management exceeds the relevant threshold the AIFM shall recalculate the total value of assets under management in order to demonstrate that it is below the relevant threshold or demonstrate to the FCA that the situation which resulted in the assets under management exceeding the threshold has been resolved and an application for authorisation of the AIFM is not required.
Word in Art. 4(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(5)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 5 Information to be provided as part of registration
1. As part of the requirement in regulation 11(1) of the AIFM Regulations 2013, AIFMs shall communicate to the FCA the total value of assets under management calculated in accordance with the procedure set out in Article 2.
Words in Art. 5(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(a)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Word in Art. 5(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(a)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
2. As part of the requirement in regulation 11(1) of the AIFM Regulations 2013 AIFMs shall provide for each AIF the offering document or a relevant extract from the offering document or a general description of the investment strategy. The relevant extract from the offering document and the description of the investment strategy shall include at least the following information:
(a) the main categories of assets in which the AIF may invest;
(b) any industrial, geographic or other market sectors or specific classes of assets which are the focus of the investment strategy;
(c) a description of the AIF’s borrowing or leverage policy.
Words in Art. 5(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
3. Information to be provided by the AIFM under regulation 21 of the AIFM Regulations 2013 is listed in Article 110(1) of this Regulation. It shall be provided in accordance with the pro-forma reporting template as set out in the Annex IV.
Words in Art. 5(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(c) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Art. 5(4) omitted (31.12.2020) by virtue of The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(d) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
5. The information required for registration purposes shall be updated and provided on an annual basis. For reasons relating to the exercise of their powers under FSMA, the FCA may require an AIFM to provide the information referred to in regulations 11 and 21 of the AIFM Regulations 2013 on a more frequent basis.
Word in Art. 5(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(e)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Word in Art. 5(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(e)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Art. 5(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(6)(e)(iii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Ch. 2 Section 1 heading omitted (31.12.2020) by virtue of The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(2) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

SECTION 2 Calculation of leverage
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Article 6 General provisions on the calculation of leverage
1. Leverage of an AIF shall be expressed as the ratio between the exposure of an AIF and its net asset value.
2. AIFMs shall calculate the exposure of the AIFs managed in accordance with the gross method as set out in Article 7 and the commitment method as set out in Article 8.
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Words in Art. 6(2) omitted (31.12.2020) by virtue of The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(8) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
3. Exposure contained in any financial or legal structures involving third parties controlled by the relevant AIF shall be included in the calculation of the exposure where the structures referred to are specifically set up to directly or indirectly increase the exposure at the level of the AIF. For AIFs whose core investment policy is to acquire control of non-listed companies or issuers, the AIFM shall not include in the calculation of the leverage any exposure that exists at the level of those non-listed companies and issuers provided that the AIF or the AIFM acting on behalf of the AIF does not have to bear potential losses beyond its investment in the respective company or issuer.
4. AIFMs shall exclude borrowing arrangements entered into if these are temporary in nature and are fully covered by contractual capital commitments from investors in the AIF.
5. An AIFM shall have appropriately documented procedures to calculate the exposure of each AIF under its management in accordance with the gross method and the commitment method. The calculation shall be applied consistently over time.

Article 7 Gross method for calculating the exposure of the AIF
The exposure of an AIF calculated in accordance with the gross method shall be the sum of the absolute values of all positions valued in accordance with section 3.9 of the Investment Funds sourcebook, and all delegated acts adopted pursuant to Article 19 of Directive 2011/61/EU which form part of assimilated law.
For the calculation of the exposure of an AIF in accordance with the gross method an AIFM shall:
(a) exclude the value of any cash and cash equivalents which are highly liquid investments held in the base currency of the AIF, that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond;
(b) convert derivative instruments into the equivalent position in their underlying assets using the conversion methodologies set out in Article 10 and the methods set out in paragraphs (4) to (9) and (14) of Annex I;
(c) exclude cash borrowings that remain in cash or cash equivalent as referred to in point (a) and where the amounts of that payable are known;
(d) include exposure resulting from the reinvestment of cash borrowings, expressed as the higher of the market value of the investment realised or the total amount of the cash borrowed as referred to in paragraphs (1) and (2) of Annex I;
(e) include positions within repurchase or reverse repurchase agreements and securities lending or borrowing or other arrangements in accordance with paragraphs (3) and (10) to (13) of Annex I.
Words in Art. 7 substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(9) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Word in Art. 7 substituted (27.2.2025) by The Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendments) Regulations 2025 (S.I. 2025/82), reg. 1(2), Sch. 9 para. 37(a)

Article 8 Commitment method for calculating the exposure of an AIF
1. The exposure of an AIF calculated in accordance with the commitment method shall be the sum of the absolute values of all positions valued in accordance with section 3.9 of the Investment Funds sourcebook, and all delegated acts adopted pursuant to Article 19 of Directive 2011/61/EU which form part of assimilated law, subject to the criteria provided for in paragraphs 2 to 9.
Words in Art. 8(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(10)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Word in Art. 8(1) substituted (27.2.2025) by The Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendments) Regulations 2025 (S.I. 2025/82), reg. 1(2), Sch. 9 para. 37(b)
2. For the calculation of the exposure of an AIF in accordance with the commitment method an AIFM shall:
(a) convert each derivative instrument position into an equivalent position in the underlying asset of that derivative using the conversion methodologies set out in Article 10 and paragraphs (4) to (9) and (14) of Annex II;
(b) apply netting and hedging arrangements;
(c) calculate the exposure created through the reinvestment of borrowings where such reinvestment increases the exposure of the AIF as defined in paragraphs (1) and (2) of Annex I;
(d) include other arrangements in the calculation in accordance with paragraphs (3) and (10) to (13) of Annex I.
3. For the purposes of calculating the exposure of an AIF according to the commitment method:
(a) netting arrangements shall include combinations of trades on derivative instruments or security positions which refer to the same underlying asset, irrespective — in the case of derivative instruments — of the maturity date of the derivative instruments and where those trades on derivative instruments or security positions are concluded with the sole aim of eliminating the risks linked to positions taken through the other derivative instruments or security positions;
(b) hedging arrangements shall include combinations of trades on derivative instruments or security positions which do not necessarily refer to the same underlying asset and where those trades on derivative instruments or security positions are concluded with the sole aim of offsetting risks linked to positions taken through the other derivative instruments or security positions.
4. By way of derogation from paragraph 2, a derivative instrument shall not be converted into an equivalent position in the underlying asset if it has all of the following characteristics:
(a) it swaps the performance of financial assets held in the AIF’s portfolio for the performance of other reference financial assets;
(b) it totally offsets the risks of the swapped assets held in the AIF’s portfolio so that the AIF’s performance does not depend on the performance of the swapped assets;
(c) it includes neither additional optional features, nor leverage clauses nor other additional risks as compared to a direct holding of the reference financial assets.
5. By way of derogation from paragraph 2, a derivative instrument shall not be converted into an equivalent position in the underlying asset when calculating the exposure according to the commitment method if it meets both of the following conditions:
(a) the combined holding by the AIF of a derivative instrument relating to a financial asset and cash which is invested in cash equivalent as defined in Article 7(a) is equivalent to holding a long position in the given financial asset;
(b) the derivative instrument shall not generate any incremental exposure and leverage or risk.
6. Hedging arrangements shall be taken into account when calculating the exposure of an AIF only if they comply with all the following conditions:
(a) the positions involved within the hedging relationship do not aim to generate a return and general and specific risks are offset;
(b) there is a verifiable reduction of market risk at the level of the AIF;
(c) the risks linked to derivative instruments, general and specific, if any, are offset;
(d) the hedging arrangements relate to the same asset class;
(e) they are efficient in stressed market conditions.
7. Subject to paragraph 6, derivative instruments used for currency hedging purposes and that do not add any incremental exposure, leverage or other risks shall not be included in the calculation.
8. An AIFM shall net positions in any of the following cases:
(a) between derivative instruments, provided they refer to the same underlying asset, even if the maturity date of the derivative instruments is different;
(b) between a derivative instrument whose underlying asset is a transferable security, money market instrument or units in a collective investment undertaking as referred to in paragraphs 1 to 3 of Part 1 of Schedule 2 to the Regulated Activities Order 2001, and that same corresponding underlying asset.
Words in Art. 8(8)(b) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(10)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
9. AIFMs managing AIFs that, in accordance with their core investment policy, primarily invest in interest rate derivatives shall make use of specific duration netting rules in order to take into account the correlation between the maturity segments of the interest rate curve as set out in Article 11.

Article 9 Methods of increasing the exposure of an AIF
When calculating exposure AIFMs shall use the methods set out in Annex I for the situations referred to therein.

Article 10 Conversion methodologies for derivative instruments
AIFMs shall use the conversion methodologies set out in Annex II for the derivative instruments referred to therein.

Article 11 Duration netting rules
1. Duration netting rules shall be applied by AIFMs when calculating the exposure of AIFs according to Article 8(9).
2. The duration-netting rules shall not be used where they would lead to a misrepresentation of the risk profile of the AIF. AIFMs availing themselves of those netting rules shall not include other sources of risk such as volatility in their interest rate strategy. Consequently, interest rate arbitrage strategies shall not apply those netting rules.
3. The use of those duration-netting rules shall not generate any unjustified level of leverage through investment in short-term positions. Short-dated interest rate derivatives shall not be the main source of performance for an AIF with medium duration which uses the duration netting rules.
4. Interest rate derivatives shall be converted into their equivalent underlying asset position and netted in accordance with Annex III.
5. An AIF making use of the duration-netting rules may still make use of the hedging framework. Duration netting rules may be applied only to the interest rate derivatives which are not included in hedging arrangements.
Words in Ch. 2 Section 2 heading omitted (31.12.2020) by virtue of The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(7) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

SECTION 3 Additional own funds and professional indemnity insurance
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Article 12 Professional liability risks
1. The professional liability risks to be covered pursuant to rule 11.2.1 of the Interim Prudential sourcebook for Investment Businesses shall be risks of loss or damage caused by a relevant person through the negligent performance of activities for which the AIFM has legal responsibility.
Words in Art. 12(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(12) (as amended by S.I. 2019/325, regs. 1(3), reg. 58); 2020 c. 1, Sch. 5 para. 1(1)
2. Professional liability risks as defined in paragraph 1 shall include, without being limited to, risks of:
(a) loss of documents evidencing title of assets of the AIF;
(b) misrepresentations or misleading statements made to the AIF or its investors;
(c) acts, errors or omissions resulting in a breach of:
(i) legal and regulatory obligations;
(ii) duty of skill and care towards the AIF and its investors;
(iii) fiduciary duties;
(iv) obligations of confidentiality;
(v) AIF rules or instruments of incorporation;
(vi) terms of appointment of the AIFM by the AIF;
(d) failure to establish, implement and maintain appropriate procedures to prevent dishonest, fraudulent or malicious acts;
(e) improperly carried out valuation of assets or calculation of unit/share prices;
(f) losses arising from business disruption, system failures, failure of transaction processing or process management.
3. Professional liability risks shall be covered at all times either through appropriate additional own funds determined in accordance with Article 14 or through appropriate coverage of professional indemnity insurance determined in accordance with Article 15.

Article 13 Qualitative requirements addressing professional liability risks
1. An AIFM shall implement effective internal operational risk management policies and procedures in order to identify, measure, manage and monitor appropriately operational risks including professional liability risks to which the AIFM is or could be reasonably exposed. The operational risk management activities shall be performed independently as part of the risk management policy.
2. An AIFM shall set up a historical loss database, in which any operational failures, loss and damage experience shall be recorded. This database shall record, without being limited to, any professional liability risks as referred to in Article 12(2) that have materialised.
3. Within the risk management framework the AIFM shall make use of its internal historical loss data and where appropriate of external data, scenario analysis and factors reflecting the business environment and internal control systems.
4. Operational risk exposures and loss experience shall be monitored on an ongoing basis and shall be subject to regular internal reporting.
5. An AIFM’s operational risk management policies and procedures shall be well documented. An AIFM shall have arrangements in place for ensuring compliance with its operational risk management policies and effective measures for the treatment of non-compliance with these policies. An AIFM shall have procedures in place for taking appropriate corrective action.
6. The operational risk management policies and procedures and measurement systems shall be subject to regular review, at least on an annual basis.
7. An AIFM shall maintain financial resources adequate to its assessed risk profile.

Article 14 Additional own funds
1. This Article shall apply to AIFMs that choose to cover professional liability risks through additional own funds.
2. The AIFM shall provide additional own funds for covering liability risks arising from professional negligence at least equal to 0,01 % of the value of the portfolios of AIFs managed.
The value of the portfolios of AIFs managed shall be the sum of the absolute value of all assets of all AIFs managed by the AIFM, including assets acquired through use of leverage, whereby derivative instruments shall be valued at their market value.
3. The additional own funds requirement referred to in paragraph 2 shall be recalculated at the end of each financial year and the amount of additional own funds shall be adjusted accordingly.
The AIFM shall establish, implement and apply procedures to monitor on an ongoing basis the value of the portfolios of AIFs managed, calculated in accordance with the second subparagraph of paragraph 2. Where, before the annual recalculation referred to in the first subparagraph, the value of the portfolios of AIFs managed increases significantly, the AIFM shall without undue delay recalculate the additional own funds requirement and shall adjust the additional own funds accordingly.
4. The FCA may authorise the AIFM to provide additional own funds lower than the amount referred to in paragraph 2 only if it is satisfied — on the basis of the historical loss data of the AIFM as recorded over an observation period of at least three years prior to the assessment — that the AIFM provides sufficient additional own funds to appropriately cover professional liability risks. The authorised lower amount of additional own funds shall be not less than 0,008 % of the value of the portfolios of AIFs managed by the AIFM.
Word in Art. 14(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(13)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
5. The FCA may request the AIFM to provide additional own funds higher than the amount referred to in paragraph 2 if it is not satisfied that the AIFM has sufficient additional own funds to appropriately cover professional liability risks. The FCA shall give reasons why it considers that the AIFM’s additional own funds are insufficient.
Word in Art. 14(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(13)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Word in Art. 14(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(13)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 15 Professional indemnity insurance
1. This Article shall apply to AIFMs that choose to cover professional liability risks through professional indemnity insurance.
2. The AIFM shall take out and maintain at all times professional indemnity insurance that:
(a) shall have an initial term of no less than one year;
(b) shall have a notice period for cancellation of at least 90 days;
(c) shall cover professional liability risks as defined in Article 12(1) and (2);
(d) is taken out from a UK or non-UK undertaking authorised to provide professional indemnity insurance, in accordance with the law of the United Kingdom or of any part of the United Kingdom or the law of a third country;
Words in Art. 15(2)(d) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(14)(a)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
Words in Art. 15(2)(d) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(14)(a)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
(e) is provided by a third party entity.
Any agreed defined excess shall be fully covered by own funds which are in addition to the own funds to be provided in accordance with rules 11.3.1(2) and 11.3.2 of the Interim Prudential sourcebook for Investment Businesses.
Words in Art. 15(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(14)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)
3. The coverage of the insurance for an individual claim shall be equal to at least 0,7 % of the value of the portfolios of AIFs managed by the AIFM calculated as set out in the second subparagraph of Article 14(2).
4. The coverage of the insurance for claims in aggregate per year shall be equal to at least 0,9 % of the value of the portfolios of AIFs managed by the AIFM calculated as set out in the second subparagraph of Article 14(2).
5. The AIFM shall review the professional indemnity insurance policy and its compliance with the requirements laid down in this Article at least once a year and in the event of any change which affects the policy’s compliance with the requirements in this Article.
Words in Ch. 2 Section 3 heading omitted (31.12.2020) by virtue of The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 23(11) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)