Commission Delegated Regulation (EU) No 231/2013Show full title

CHAPTER V U.K. TRANSPARENCY REQUIREMENTS, LEVERAGE, RULES RELATING TO THIRD COUNTRIES AND EXCHANGE OF INFORMATION ON THE POTENTIAL CONSEQUENCES OF AIFM ACTIVITY

SECTION 1 U.K. Annual report, disclosure to investors and reporting to competent authoritiesF1 ...

Article 103 U.K. General principles for the annual report

All information provided in the annual report, including the information specified in this Section, shall be presented in a manner that provides materially relevant, reliable, comparable and clear information. The annual report shall contain the information investors need in relation to particular AIF structures.

Article 104 U.K. Content and format of the balance sheet or statement of assets and liabilities and of the income and expenditure account

1. The balance sheet or statement of assets and liabilities shall contain at least the following elements and underlying line items in accordance with [F2 rule 3.3.5(1) of the Investment Funds sourcebook]:

(a) ‘assets’ comprising the resources controlled by the AIF as a result of past events and from which future economic benefits are expected to flow to the AIF. Assets shall be sub-classified according to the following line items:

(i)

‘investments’, including, but not limited to, debt and equity securities, real estate and property and derivatives;

(ii)

‘cash and cash equivalents’, including, but not limited to, cash-in-hand, demand deposits and qualifying short-term liquid investments;

(iii)

‘receivables’, including, but not limited to, amounts receivable in relation to dividends and interest, investments sold, amounts due from brokers and ‘prepayments’, including, but not limited to, amounts paid in advance in relation to expenses of the AIF;

(b) ‘liabilities’, comprising present obligations of the AIF arising from past events, the settlement of which is expected to result in an outflow from the AIF of resources embodying economic benefits. Liabilities shall be sub-classified according to the following line items:

(i)

‘payables’, including, but not limited to, amounts payable in relation to the purchase of investments or redemption of units or shares in the AIF and amounts due to brokers and ‘accrued expenses’, including, but not limited to, liabilities for management fees, advisory fees, performance fees, interest and other expenses incurred in the course of operations of the AIF;

(ii)

‘borrowings’, including, but not limited to, amounts payable to banks and other counterparties;

(iii)

‘other liabilities’, including, but not limited to, amounts due to counterparties for collateral on return of securities loaned, deferred income and dividends and distributions payable;

(c) ‘net assets’, representing the residual interest in the assets of the AIF after deducting all its liabilities.

2. The income and expenditure account shall contain at least the following elements and underlying line items:

(a) ‘income’, representing any increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in net assets other than those relating to contributions from investors. Income shall be sub-classified according to the following line items:

(i)

‘investment income’, which can be further sub-classified as follows:

• ‘dividend income’, relating to dividends on equity investments to which the AIF is entitled,

• ‘interest income’, relating to interest on debt investments and on cash to which the AIF is entitled,

• ‘rental income’, relating to rental income from property investments to which the AIF is entitled;

(ii)

‘realised gains on investments’, representing gains on the disposal of investments;

(iii)

‘unrealised gains on investments’, representing gains on the revaluation of investments; and

(iv)

‘other income’ including, but not limited to, fee income from securities loaned and from miscellaneous sources.

(b) ‘expenses’, representing decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in net assets, other than those relating to distributions to investors. Expenses shall, be sub-classified according to the following line items:

• (b) ‘investment advisory or management fees’, representing contractual fees due to the advisor or AIFM,

• ‘other expenses’, including, but not limited to, administration fees, professional fees, custodian fees and interest. Individual items, if material in nature, should be disclosed separately,

• ‘realised loss on investments’, representing loss on the disposal of investments,

• ‘unrealised loss on investments’, representing loss on the revaluation of investments;

(c) ‘net income or expenditure’, representing the excess of income over expenditure or expenditure over income, as applicable.

3. The layout, nomenclature and terminology of line items shall be consistent with the accounting standards applicable to or the rules adopted by the AIF, and shall comply with legislation applicable where the AIF is established. Such line items may be amended or extended to ensure compliance with the above.

4. Additional line items, headings and subtotals shall be presented when such presentation is relevant to the understanding of an AIF’s financial position in the balance sheet or statement of assets and liabilities or an AIF’s financial performance in the content and format of the income and expenditure account. Where relevant additional information shall be presented in the notes to the financial statements. The purpose of the notes shall be to provide narrative descriptions or disaggregation of items presented in the primary statements and information about items that do not qualify for recognition in these statements.

5. Each material class of similar items shall be presented separately. Individual items, if material, shall be disclosed. Materiality shall be assessed under the requirements of the accounting framework adopted.

6. The presentation and classification of items in the balance sheet or statement of assets and liabilities shall be retained from one reporting or accounting period to the next unless it is apparent that another presentation or classification would be more appropriate, as when a shift in the investment strategy leads to different trading patterns, or because an accounting standard has required a change in presentation.

7. With respect to the content and format of the income and expenditure account set out to in Annex IV, all items of income and expense shall be recognised in a given period in the income and expenditure account unless an accounting standard adopted by the AIF requires otherwise.

Textual Amendments

F2 Words in Art. 104(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(2) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 105 U.K. Report on the activities of the financial year

1. The report on activities of the financial year shall include at least:

(a) an overview of investment activities during the year or period, and an overview of the AIF’s portfolio at year-end or period end;

(b) an overview of AIF performance over the year or period;

(c) material changes as defined below in the information listed in [F3 section 3.2 of the Investment Funds sourcebook] not already present in the financial statements.

2. The report shall include a fair and balanced review of the activities and performance of the AIF, containing also a description of the principal risks and investment or economic uncertainties that the AIF might face.

3. To the extent necessary for an understanding of the AIF’s investment activities or its performance, the analysis shall include both financial and non-financial key performance indicators relevant to that AIF. The information provided in the report shall be consistent with national rules where the AIF is established.

4. The information in the report on the activities of the financial year shall form part of the directors or investment managers report in so far as this is usually presented alongside the financial statements of the AIF.

Textual Amendments

F3 Words in Art. 105(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), 36(3) (as amended by S.I. 2019/325, reg. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 106 U.K. Material changes

1. Any changes in information shall be deemed material within the meaning of [F4 rule 3.3.5(4) of the Investment Funds sourcebook] if there is a substantial likelihood that a reasonable investor, becoming aware of such information, would reconsider its investment in the AIF, including because such information could impact an investor’s ability to exercise its rights in relation to its investment, or otherwise prejudice the interests of one or more investors in the AIF.

2. In order to comply with [F5 rule 3.3.5(4) of the Investment Funds sourcebook], AIFMs shall assess changes in the information referred to in [F6 section 3.2 of the Investment Funds sourcebook] during the financial year in accordance with paragraph 1 of this Article.

3. Information shall be disclosed in line with the requirements of the accounting standards and accounting rules adopted by the AIF together with a description of any potential or anticipated impact on the AIF and, as the case may be, or investors in the AIF. Additional disclosures shall be made when compliance with specific requirements of the accounting standards and accounting rules may be insufficient to enable investors to understand the impact of the change.

4. Where the information required to be disclosed in accordance with paragraph 1 is not covered by the accounting standards applicable to an AIF, or its accounting rules, a description of the material change shall be provided together with any potential or anticipated impact on the AIF and, as the case may be, or investors in the AIF.

Textual Amendments

F4 Words in Art. 106(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(4)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F5 Words in Art. 106(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(4)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F6 Words in Art. 106(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(4)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 107 U.K. Remuneration disclosure

1. When information required by [F7 rule 3.3.5(5) of the Investment Funds sourcebook] is given, it shall be specified whether or not the total remuneration relates to any of the following:

(a) the total remuneration of the entire staff of the AIFM, indicating the number of beneficiaries;

(b) the total remuneration of those staff of the AIFM who are fully or partly involved in the activities of the AIF, indicating the number of beneficiaries;

(c) the proportion of the total remuneration of the staff of the AIFM attributable to the AIF, indicating the number of beneficiaries.

2. Where relevant, the total remuneration for the financial year shall also mention the carried interest paid by the AIF.

3. Where information is disclosed at the level of the AIFM, an allocation or breakdown shall be provided in relation to each AIF, in so far as this information exists or is readily available. As part of this disclosure, a description of how the allocation or breakdown has been provided shall be included.

4. AIFMs shall provide general information relating to the financial and non-financial criteria of the remuneration policies and practices for relevant categories of staff to enable investors to assess the incentives created. In accordance with the principles set out in [F8 rules 19B.1.4 to 19B.1.24 of the Senior Management Arrangements, Systems and Controls sourcebook], AIFMs shall disclose at least the information necessary to provide an understanding of the risk profile of the AIF and the measures it adopts to avoid or manage conflicts of interest.

Textual Amendments

F7 Words in Art. 107(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(5)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F8 Words in Art. 107(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(5)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 108 U.K. Periodic disclosure to investors

1. The information referred to in [F9 rule 3.2.5 of the Investment Funds sourcebook] shall be presented in a clear and understandable way.

2. When disclosing the percentage of the AIF’s assets which are subject to special arrangements arising from their illiquid nature in accordance with [F10 rule 3.2.5(1) of the Investment Funds sourcebook] the AIFM shall:

(a) provide an overview of any special arrangements in place including whether they relate to side pockets, gates or other similar arrangements, the valuation methodology applied to assets which are subject to such arrangements and how management and performance fees apply to these assets;

(b) disclose this information as part of the AIF’s periodic reporting to investors, as required by the AIF’s rules or instruments of incorporation, or at the same time as the prospectus and offering document and — as a minimum — at the same time as the annual report is made available in accordance with [F11 rules 3.3.2 to 3.3.4 of the Investment Funds sourcebook].

The percentage of the AIF’s assets which are subject to special arrangements as defined in Article 1(5) shall be calculated as the net value of those assets subject to special arrangements divided by the net asset value of the AIF concerned.

3. For any new arrangements for managing the liquidity of the AIF in accordance with [F12 rule 3.2.5(2) of the Investment Funds sourcebook] AIFMs shall:

(a) for each AIF that they manage which is not an unleveraged closed-ended AIF, notify to investors whenever they make changes to the liquidity management systems and procedures referred to in [F13 rule 3.6.3 of the Investment Funds sourcebook] which are material in accordance with Article 106(1);

(b) immediately notify investors where they activate gates, side pockets or similar special arrangements or where they decide to suspend redemptions;

(c) provide an overview of the changes to arrangements concerning liquidity, whether or not these are special arrangements. Where relevant, the terms under which redemption is permitted and circumstances determining when management discretion applies shall be included. Also any voting or other restrictions exercisable, the length of any lock-up or any provision concerning ‘first in line’ or ‘pro-rating’ on gates and suspensions shall be included.

4. The disclosure of the risk profile of the AIF in accordance with [F14 rule 3.2.5(3) of the Investment Funds sourcebook] shall outline:

(a) measures to assess the sensitivity of the AIF’s portfolio to the most relevant risks to which the AIF is or could be exposed;

(b) if risk limits set by the AIFM have been or are likely to be exceeded and where these risk limits have been exceeded a description of the circumstances and, the remedial measures taken.

The information shall be disclosed as part of the AIF’s periodic reporting to investors, as required by the AIF’s rules or instruments of incorporation or at the same time as the prospectus and offering document and — at a minimum — at the same time as the annual report is made available in accordance with [F15 rules 3.3.2 to 3.3.4 of the Investment Funds sourcebook].

5. The risk management systems employed by the AIFM in accordance with [F16 rule 3.2.5(3) of the Investment Funds sourcebook] shall outline the main features of the risk management systems employed by the AIFM to manage the risks to which each AIF it manages is or may be exposed. In the case of a change the disclosure shall include the information relating to the change and its anticipated impact on the AIF and its investors.

The information shall be disclosed as part of the AIF’s periodic reporting to investors, as required by the AIF’s rules or instruments of incorporation or at the same time as the prospectus and offering document and — as a minimum — at the same time as the annual report is made available or made public in accordance with [F17 rules 3.3.2 to 3.3.4 of the Investment Funds sourcebook].

Textual Amendments

F9 Words in Art. 108(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F10 Words in Art. 108(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(b)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F11 Words in Art. 108(2)(b) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(b)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F12 Words in Art. 108(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(c)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F13 Words in Art. 108(3)(a) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(c)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F14 Words in Art. 108(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(d)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F15 Words in Art. 108(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(d)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F16 Words in Art. 108(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(e)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F17 Words in Art. 108(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(6)(e)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 109 U.K. Regular disclosure to investors

1. The information referred to in [F18 rule 3.2.6 of the Investment Funds sourcebook] shall be presented in a clear and understandable way.

2. Information on changes to the maximum level of leverage calculated in accordance with the gross and commitment methods and any right of re-use of collateral or any guarantee under the leveraging arrangements shall be provided without undue delay and shall include:

(a) the original and revised maximum level of leverage calculated in accordance with Articles 7 and 8, whereby the level of leverage shall be calculated as the relevant exposure divided by the net asset value of the AIF;

(b) the nature of the rights granted for the reuse of collateral;

(c) the nature of guarantees granted; and

(d) details of changes in any service providers which relating to one of the items above.

3. Information on the total amount of leverage calculated in accordance with the gross and commitment methods employed by the AIF shall be disclosed as part of the AIF’s periodic reporting to investors, as required by the AIF’s rules or instruments of incorporation, or at the same time as the prospectus and offering document and at least at the same time as the annual report is made available according to [F19 rules 3.3.2 to 3.3.4 of the Investment Funds sourcebook].

Textual Amendments

F18 Words in Art. 109(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(7)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F19 Words in Art. 109(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(7)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 110 U.K. Reporting to [F20 the FCA]

1. In order to comply with the requirements of [F21 rule 3.4.2 of the Investment Funds sourcebook, and directions given by the FCA under regulation 21(2) of the AIFM Regulations 2013], an AIFM shall provide the following information when reporting to [F22 the FCA]:

(a) the main instruments in which it is trading, including a break-down of financial instruments and other assets, including the AIF’s investment strategies and their geographical and sectoral investment focus;

(b) the markets of which it is a member or where it actively trades;

(c) the diversification of the AIF’s portfolio, including, but not limited to, its principal exposures and most important concentrations.

The information shall be provided as soon as possible and not later than one month after the end of the period referred to in paragraph 3. Where the AIF is a fund of funds this period may be extended by the AIFM by 15 days.

2. For each of the [F23 UK and EU AIFs] they manage and for each of the AIFs they market in the [F24 United Kingdom or the] Union, AIFMs shall provide to [F25 the FCA] the following information in accordance with [F26 rule 3.4.3 of the Investment Funds sourcebook]:

(a) the percentage of the AIF’s assets which are subject to special arrangements as defined in Article 1(5) of this Regulation arising from their illiquid nature as referred to in [F27 rule 3.2.5(1) of the Investment Funds sourcebook];

(b) any new arrangements for managing the liquidity of the AIF;

(c) the risk management systems employed by the AIFM to manage the market risk, liquidity risk, counterparty risk and other risks including operational risk;

(d) the current risk profile of the AIF, including:

(i)

the market risk profile of the investments of the AIF, including the expected return and volatility of the AIF in normal market conditions;

(ii)

the liquidity profile of the investments of the AIF, including the liquidity profile of the AIF’s assets, the profile of redemption terms and the terms of financing provided by counterparties to the AIF;

(e) information on the main categories of assets in which the AIF invested including the corresponding short market value and long market value, the turnover and performance during the reporting period; and

(f) the results of periodic stress tests, under normal and exceptional circumstances, performed in accordance with [F28 rules 3.6.3(2) and 3.7.5(2)(b) of the Investment Funds sourcebook].

3. The information referred to in paragraphs 1 and 2 shall be reported as follows:

(a) on a half-yearly basis by AIFMs managing portfolios of AIFs whose assets under management calculated in accordance with Article 2 in total exceed the threshold of either EUR 100 million or EUR 500 million laid down in [F29 subparagraphs (a) and (b) respectively of regulation 9(1) of the AIFM Regulations 2013] but do not exceed EUR 1 billion, for each of [F30 the UK and EU AIFs] they manage and for each of the AIFs they market [F31 in the United Kingdom or] in the Union;

(b) on a quarterly basis by AIFMs managing portfolios of AIFs whose assets under management calculated in accordance with Article 2 in total exceed EUR 1 billion, for each of [F32 the UK and EU AIFs] they manage, and for each of the AIFs they market [F33 in the United Kingdom or in the Union];

(c) on a quarterly basis by AIFMs which are subject to the requirements referred to in point (a) of this paragraph, for each AIF whose assets under management, including any assets acquired through use of leverage, in total exceed EUR 500 million, in respect of that AIF;

(d) on an annual basis by AIFMs in respect of each unleveraged AIF under their management which, in accordance with its core investment policy, invests in non-listed companies and issuers in order to acquire control.

4. By way of derogation from paragraph 3, [F34 the FCA] may deem it appropriate and necessary for the exercise of its function to require all or part of the information to be reported on a more frequent basis.

5. AIFMs managing one or more AIFs which they have assessed to be employing leverage on a substantial basis in accordance with Article 111 of this Regulation shall provide the information required under [F35 rule 3.4.5 of the Investment Funds sourcebook] at the same time as that required under paragraph 2 of this Article.

6. AIFMs shall provide the information specified under paragraphs 1, 2 and 5 in accordance with the pro-forma reporting template set out in the Annex IV.

F36 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F20 Words in Art. 110 heading substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F21 Words in Art. 110(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(b)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F22 Words in Art. 110(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(b)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F23 Words in Art. 110(2) substituted (31.12.2020) by S.I. 2019/328, reg. 1(3), reg. 36(8)(c)(i)(zaa) (as inserted by The Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/710), regs. 1(2), 13(c)); 2020 c. 1, Sch. 5 para. 1(1)

F24 Words in Art. 110(2) inserted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(c)(i)(aa) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F25 Words in Art. 110(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(c)(i)(bb) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F26 Words in Art. 110(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(c)(i)(cc) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F27 Words in Art. 110(2)(a) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(c)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F28 Words in Art. 110(2)(f) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(c)(iii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F29 Words in Art. 110(3)(a) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(d)(i)(aa) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F30 Words in Art. 110(3)(a) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(d)(i)(bb) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F31 Words in Art. 110(3)(a) inserted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(d)(i)(cc) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F32 Words in Art. 110(3)(b) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(d)(ii)(aa) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F33 Words in Art. 110(3)(b) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(d)(ii)(bb) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F34 Words in Art. 110(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(e) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F35 Words in Art. 110(5) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(8)(f) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F36 Art. 110(7) 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), 36(8)(g) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 111 U.K. Use of leverage on a ‘substantial basis’

1. Leverage shall be considered to be employed on a substantial basis for the purposes of [F37 rule 3.4.5 of the Investment Funds sourcebook] when the exposure of an AIF as calculated according to the commitment method under Article 8 of this Regulation exceeds three times its net asset value.

2. Where the requirements referred to in paragraph 1 of this Article are fulfilled, AIFMs shall provide information in accordance with [F38 rule 3.4.5 of the Investment Funds sourcebook] to the [F39 FCA] in accordance with the principles laid down in Article 110(3) of this Regulation.

Textual Amendments

F37 Words in Art. 111(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(9)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F38 Words in Art. 111(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(9)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F39 Word in Art. 111(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 36(9)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Textual Amendments

F1 Words in Ch. 5 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), 36(1) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

SECTION 2 U.K. AIFMs managing leveraged AIFsF40 ...

Article 112 U.K. Restrictions on the management of AIFs

1. The principles laid down in this Article shall apply in order to specify the circumstances in which [F41 the FCA][F42 exercises its] power to impose leverage limits or other restrictions on AIFMs.

2. When assessing the information received under [F43 rules 3.4.5, 3.4.6A, 3.4.6C and 3.7.7 of the Investment Funds sourcebook, or in response to a requirement imposed under section 55U(4) or 165 of FSMA], [F44 the FCA] shall take into account the extent to which the use of leverage by an AIFM or its interaction with a group of AIFMs or other financial institutions can contribute to the build-up of systemic risk in the financial system or risks creating disorderly markets.

3. [F45 The FCA] shall take into account at least the following aspects in [F46 its] assessment:

(a) the circumstances in which the exposure of an AIF or several AIFs including those exposures resulting from financing or investment positions entered into by the AIFM for its own account or on behalf of the AIFs could constitute an important source of market, liquidity or counterparty risk to a financial institution;

(b) the circumstances in which the activities of an AIFM or its interaction with, for example, a group of AIFMs or other financial institutions, in particular with respect to the types of assets in which the AIF invests and the techniques employed by the AIFM through the use of leverage, contribute or could contribute to a downward spiral in the prices of financial instruments or other assets in a manner that threatens the viability of such financial instruments or other assets;

(c) criteria such as the type of AIF, the investment strategy of the AIFM with respect to the AIFs concerned, the market conditions in which the AIFM and the AIF operate and any likely pro-cyclical effects that could result from the imposition by the [F47 FCA] of limits or other restrictions on the use of leverage by the AIFM concerned;

(d) criteria, such as the size of an AIF or several AIFs and any related impact in a particular market sector, concentrations of risks in particular markets in which the AIF or several AIFs are investing, any contagion risk to other markets from a market where risks have been identified, liquidity issues in particular markets at a given time, the scale of asset/liability mismatch in a particular AIFM investment strategy or irregular movements in the prices of assets in which an AIF may invest.

Textual Amendments

F41 Words in Art. 112(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(a)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F42 Words in Art. 112(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(a)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F43 Words in Art. 112(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(b)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F44 Words in Art. 112(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(b)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F45 Words in Art. 112(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(c)(i)(aa) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F46 Word in Art. 112(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(c)(i)(bb) (as amended by S.I. 2019/325, reg. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F47 Word in Art. 112(3)(c) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 37(2)(c)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Textual Amendments

F40 Words in Ch. 5 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), 37(1) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

SECTION 3 U.K. Specific rules relating to third countriesF48 ...

Article 113 U.K. General requirements

1. Cooperation arrangements shall cover all possible situations and actors envisaged in [F49 regulations 33, 49 and 50 of the AIFM Regulations 2013] taking into account the location of the AIFM, the location of the AIF and the activity of the AIFM.

2. Cooperation arrangements shall take a written form.

3. Cooperation arrangements shall establish the specific framework for consultation, cooperation and exchange of information for supervisory and enforcement purposes between [F50 the FCA] and third country supervisory authorities.

4. Cooperation arrangements shall include a specific clause providing for the transfer of information received by [F51 the FCA] from a supervisory authority in a third country F52 ....

Textual Amendments

F49 Words in Art. 113(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(2)(a) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F50 Words in Art. 113(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(2)(b) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F51 Words in Art. 113(4) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(2)(c)(i) (as amended by S.I. 2019/325, reg. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F52 Words in Art. 113(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), 38(2)(c)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 114 U.K. Mechanisms, instruments and procedures

1. Cooperation arrangements shall establish the mechanisms, instruments and procedures required for enabling [F53 the FCA] to have access to all information necessary for the performance of their duties under [F54 FSMA and the AIFM Regulations 2013].

2. Cooperation arrangements shall establish the mechanisms, instruments and procedures required for enabling on-site inspections to be carried out where required for the exercise of the [F55 FCA's duties]. On-site inspections shall be carried out directly by [F56 the FCA] or by the third country competent authority with the assistance of [F56 the FCA].

3. Cooperation arrangements shall establish the mechanisms, instruments and procedures required for the third country competent authority to assist [F57 the FCA] where it is necessary to enforce [F58 the law applying in the United Kingdom, or in any part of the United Kingdom] breached by an entity established in the third country, in accordance with the national and international law applicable to that authority.

Textual Amendments

F53 Words in Art. 114(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(a)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F54 Words in Art. 114(1) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(a)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F55 Words in Art. 114(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(b)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F56 Words in Art. 114(2) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(b)(ii) (as amended by S.I. 2019/325, reg. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F57 Words in Art. 114(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(c)(i) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

F58 Words in Art. 114(3) substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(3)(c)(ii) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Article 115 U.K. Data protection

Cooperation arrangements shall ensure that the transfer to third countries of data and the analysis of data takes place only in accordance with [F59 regulation 9(2B) of the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001].

Textual Amendments

F59 Words in Art. 115 substituted (31.12.2020) by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/328), regs. 1(3), 38(4) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Textual Amendments

F48 Words in Ch. 5 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), 38(1) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

SECTION 4 U.K. Exchange of information on the potential systemic consequences of AIFM activityF60 ...

F61 Article 116 U.K. Exchange of information on the potential systemic consequences of AIFM activity

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F61 Art. 116 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), 39(2) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)

Textual Amendments

F60 Words in Ch. 5 Section 4 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), 39(1) (as amended by S.I. 2019/325, regs. 1(3), 58); 2020 c. 1, Sch. 5 para. 1(1)