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FCA grants AIFMD reprieve

Andrew Lowin, Technical Director of Consulting at Kinetic Partners, comments on the FCA’s decision to give UK AIFM’s a reprieve on capital requirements under the AIFMD…

The FCA has been working with the AIFM industry to better understand the impact of their Funds Under Management (FUM) definition.  Unlike managers of traditional funds, the initial basis of establishing an AIF’s value, in terms of determining the minimum amount of Regulatory Capital the Manager must maintain on its own balance sheet, could have been as much as 25 times the AIF’s NAV and extremely volatile.  

The reason for this is that, driven by the AIFMD’s Level 2 Regulations, the FCA’s definition of FUM was to establish a Derivatives value by determining the underlying value of financial instruments of a Derivative and not the Derivative’s actual Market Value.  Subject to formal consultation in March the FCA are now prepared to accept, on a case by case basis, applications from AIFMs that will then allow them to value Derivatives at the Derivative’s Market Value.

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