PRIVATE EQUITY - AIFMD COMPLIANCE CHECKLIST
For UK Fund Managers
This checklist is tailored for private equity managers operating as Alternative Investment Fund Managers (AIFMs) in the United Kingdom. It is designed to help managers comply with the UK’s implementation of the Alternative Investment Fund Managers Directive (AIFMD) as retained post-Brexit under the UK AIFMD regime. The checklist addresses core compliance obligations, governance frameworks, and operational considerations including actionable steps to help Managers mitigate regulatory risks. References to “AIF” denote Alternative Investment Funds managed by the AIFM.
1. Authorisation and Scope of Activities
Ensure the AIFM is appropriately authorised and operates within the scope of its permissions under the UK AIFMD regime.
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Full-scope UK AIFM: >£500m unleveraged/>£100m leveraged; Small authorised/registered AIFM: Below these thresholds
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Rationale: The FCA expects robust AUM monitoring processes.
To consider: Review calculations annually, particularly after new fund launches or significant investments that may affect leverage calculations.
Scope of Activities
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Rationale: The FCA has increased scrutiny of AIFMs engaging in activities bordering on MiFID scope (e.g., deal structuring).
To consider: Maintain comprehensive records to demonstrate activities fall within permitted scope.
Sub-Threshold AIFM Considerations
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Rationale: Sub-threshold AIFMs should maintain a compliance manual to evidence adherence to FCA expectations, as supervisory reviews may still occur.
2. Governance and Organisational Structure
Establish a robust governance framework to meet FCA expectations for organisational effectiveness and senior management accountability.
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Rationale: FCA expects clear documentation of decision-making processes, with minutes reflecting substantive discussions on regulatory compliance.
Compliance Function
Conflicts of Interest Policy
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Rationale: FCA Dear CEO letters emphasise robust conflicts management, particularly for private equity AIFMs with complex deal structures.
Remuneration Policy
3. Risk Management and Internal Controls
Implement effective risk management systems and internal controls to safeguard AIFs and meet FCA standards.
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Rationale: Stress testing and scenario analysis should assess portfolio risks, particularly for illiquid assets common in private equity.
Liquidity Management
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Rationale: FCA expects documented liquidity stress testing, even for closed-ended funds, to address unexpected drawdowns or market disruptions.
Operational Risk Controls
4. Valuation
Ensure robust valuation processes for AIF assets, compliant with AIFMD and FCA expectations.
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Rationale: The FCA’s March 2025 multi-firm review of private market valuation practices highlighted the importance of detailed methodologies and independence.
Independent Oversight
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Rationale: Although many firms have valuation committees, many lack accurate record-keeping, impacting oversight.
Conflicts Management in Valuations
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Rationale: FCA found that while firms identified fee/remuneration conflicts, other conflicts were only partly documented (marketing, borrowing, transfers, redemptions, volatility).
Documentation
5. Capital Resources
Maintain adequate capital and financial resources to support AIFM operations and mitigate risks.
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Full-scope AIFMs: At least €125,000 plus 0.02% of AUM exceeding €250m (capped at €10m); Small authorised AIFMs: Typically €50,000
Professional Indemnity Insurance (PII)
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Rationale: FCA expects PII policies to be tailored to the AIFM’s risk profile, with adequate coverage for private equity-specific risks (e.g., deal disputes).
Financial Reporting
6. Delegation and Outsourcing
Ensure delegated functions comply with AIFMD requirements and FCA oversight expectations.
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Rationale: FCA has increased focus on delegation to non-UK entities, requiring robust oversight to prevent “letterbox” arrangements.
Due Diligence and Monitoring
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Rationale: AIFMs delegating valuation or risk management should retain ultimate responsibility and document oversight processes.
Sub-Delegation
7. Transparency and Investor Disclosures
Provide clear, accurate, and timely disclosures to investors, aligning with AIFMD transparency obligations.
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To consider: Ensure disclosures are written in plain English to comply with FCA’s consumer duty/COBS rule to avoid investor misunderstanding.
Periodic Reporting
ESG Disclosures
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Rationale: AIFMs should integrate ESG factors into investment due diligence and disclose how these impact portfolio performance.
8. Marketing and Distribution
Ensure marketing activities comply with AIFMD and FCA rules on financial promotions.
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Rationale: Post-Brexit, FCA has clarified NPPR processes, but delays in approvals are common so firms must plan notifications in advance.
UK Marketing Rules
Third-Party Distributors
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Rationale: FCA expects AIFMs to oversee distributor conduct to prevent mis-selling or misrepresentation.
9. Regulatory Reporting
Complete all reporting obligations accurately and on time.
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Full-scope AIFMs: Quarterly (within one month of quarter-end); Sub-threshold AIFMs: Annually
To consider: AIFMS may consider automated reporting to streamline Annex IV submissions and reduce errors.
Material Change Notifications
ESG and SFDR Reporting
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To consider: Align ESG reporting with investor disclosures to maintain consistency.
10. Ongoing Compliance
Build a strong compliance culture
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Rationale: All training and compliance reviews should be properly documented to evidence a robust compliance culture.