Just four months now. That’s all the time remaining before private fund advisors across Europe need to have submitted their applications for authorization under the Alternative Investment Fund Managers Directive (AIFMD).
And if the UK – Europe’s biggest centre of private equity activity – is anything to go by, a lot of managers still haven’t filed the necessary paperwork. Figures obtained by Bovill show that of the 776 firms expected to apply for AIFMD authorization in the UK, only 361 have submitted applications with the Financial Conduct Authority to date.
For those GPs who haven’t yet begun the authorization process, here’s some food for thought:
Your application will probably take at least four months to process
Many firms that filed their AIFMD application in late December are only just hearing back now, meaning that authorities are already taking about three months to respond. But expect that time-lag to lengthen. In the UK, the FCA received more than 200 applications in January alone, representing about a quarter of all authorizations that need to take place. That flood of work will mean that processing takes longer.
The initial application is just the beginning
When you do hear back, don’t expect a straight rejection or acceptance letter. Instead, regulators are likely to ask for follow-up details or explanation about certain parts of the application. For instance, one area they seem particularly interested in is depositary rules, and the way a firm separates its portfolio and risk management functions (a requirement under the directive). Sources say these email requests from AIFMD case officers typically contain about 10-12 questions, which will probably take a few weeks to complete – and a GP may have to go through multiple rounds of this before authorization is finally granted.
Regulators are going to want plenty of detail
As part of the application process, firms are often supplying regulators with relatively brief summaries of the policies they have in place to meet the directive. But it seems regulators are hungry for more detail. Many GPs already embroiled in the process are learning (usually via the aforementioned information requests) that these summaries don’t provide enough information about their specific internal controls and procedures. Some are even being asked to send a copy of their full policy for review.
The punishment for failure remains unclear
If you’re not sure what might happen if your application gets rejected, you’re not alone: multiple industry lawyers and compliance consultants tell us that it’s still pretty vague what actions regulators might take if a firm fails to receive authorization. Still, the good news is that firms only need to submit an application before July to continue operating without authorization – then it’s business as usual until they hear back. And our sources suggest that it would be surprising to see a GP completely failing the authorization process. The more likely outcome is that regulators will work with a firm, or continue requesting information, until they feel comfortable that it is meeting all of the directive’s requirements.
There are sure to be plenty more surprises as hundreds more EU fund managers file their AIFMD applications ahead of the July deadline. And as always, we’re always keen to hear your stories from the regulatory front line. Drop PE Manager editor Nicholas Donato a line at firstname.lastname@example.org at any time to discuss.