AIFMD, answered

The manager, not the product. AIFMD governs how the alternative investment fund manager is organised, governed, controlled and supervised, and layers on fund-level obligations covering risk, liquidity, valuation, leverage, disclosure, reporting, conflicts, delegation and the depositary. This is the reason the board, rather than a product committee, sits at the centre of the regime.

An AIF is a collective investment undertaking that raises capital from a number of investors to invest under a defined policy for their benefit, and is not a UCITS. The AIFM is the single legal person responsible for managing that AIF, specifically for its portfolio management and risk management. There is one AIFM per AIF. Art 4(1)(a),(b)

A sub-threshold manager sits below the assets-under-management thresholds and faces a lighter registration and reporting regime. A full-scope manager sits above them and carries the complete set of AIFMD obligations. The threshold conditions are broadly €100 million where leverage is used and €500 million for unleveraged closed-ended funds with no redemption rights for five years, though the UK has proposed moving from these legislative thresholds to a classification the FCA sets.

No. The perimeter is set objectively by the firm's activity and the classification of its funds, not by the board's view of how risky the strategy is, and minuting the view does not change the classification. A conservative strategy is never in itself an exemption. FUND 1

Most commonly to access the marketing passport, or to meet the expectations of institutional investors who will not allocate to a lighter-regime firm. Opting up is a deliberate choice, and once made the full set of obligations applies. Classification is a status to monitor in any case, because growth can pull a firm across the threshold.

Ultimate responsibility for risk, liquidity, valuation, conflicts and the oversight of delegates. Operational activity can be delegated; accountability cannot be outsourced. A board can appoint administrators, valuers, delegated managers and a depositary, but it keeps the answerability for whether those things are done properly. FUND 3.1

One that gives every material decision a single identifiable owner. For any significant matter the board should be able to answer who recommends, who challenges, who decides and who monitors. An advisory or asset-owner committee may recommend, but it can never override the manager's duty to act in the best interests of the fund and all its investors. Art 12

It attaches each AIFM responsibility to a named individual through a Statement of Responsibilities, with the authority, reporting lines and resources to discharge it. The accountability map fails in two directions: a duty in a policy but missing from a remit looks immature, and a duty in a Statement of Responsibilities held by someone without the authority to perform it can still fail a substance test. SYSC 4

It lets the FCA act against a senior manager where the firm breaches a requirement in the manager's area and the manager did not take the reasonable steps expected of their role. It is individual and evidential: the factors in DEPP 6.2 include the steps actually taken and whether the manager corroborated and challenged what they were told. A risk flagged only verbally, with no paper trail, may not support a claim that reasonable steps were taken. FSMA s.66A · DEPP 6.2

The first line is the business, the second is risk and compliance, and the third is internal audit. AIFMD expects each to be genuinely distinct. A second line that reports into the business it is meant to challenge, or a risk function that rarely questions an investment assumption, is not delivering what the regime requires. SYSC 6

Through minutes that record the question asked, the challenge answered, the alternative weighed and the reason decided, rather than a list of items received and noted. The working assumption is that a control which is not evidenced may be treated as not done, so the record of judgement is the governance, not the committee chart.

Permanent, and functionally and hierarchically separated from portfolio management. Independence has two dimensions: structural, meaning the reporting line runs to the board rather than the chief investment officer, and behavioural, meaning the function actually challenges assumptions, recommends limits and escalates breaches. Structural separation without behavioural challenge is a paper control. Art 15(1) · FUND 3.7.3R

The board does not calculate the metrics; it owns the appetite. It should be able to explain why each limit exists and what a breach triggers, and it should expect the indicators built per fund rather than stretched from one template. If a director cannot say why a threshold exists, the board is receiving its risk appetite rather than owning it.

At least annually under the directive, and the supervisory direction is quarterly for most funds and monthly for the less liquid. Credibility comes from honest assumptions and fund-specific, severe-but-plausible scenarios that work both sides of the balance sheet, not from the arithmetic. A test that never produces a result the board must act on is confirming, not testing. L2 Art 48

It inverts the ordinary question. Rather than asking what happens under a given scenario, it asks what set of conditions would leave the fund unable to meet its obligations, and then requires a management action plan when the answer is uncomfortably close to plausible. Supervisors read its presence and quality as a marker of a mature risk function.

Market, credit and counterparty, concentration, liquidity, operational and model risk, in proportion to the strategy, with emerging risk as a standing question rather than a category. Model risk and operational risk are the two firms most often under-weight: a model must be validated by someone who did not build it, and many failures that reach a regulator are a broken process rather than a market move.

A signal, not noise. A pattern of soft breaches quarter after quarter indicates that the limits are mis-calibrated, that the disclosed risk profile may have drifted, or both. The governed response is a recalibration review and a root-cause analysis, plus a check that the pre-investment disclosure still describes the risk investors are taking. Raising the limits to make the breaches vanish destroys the signal. FUND 3.7.6R

To confirm, at least annually and in a minuted decision, that each fund's liquidity profile is appropriate for its redemption terms. It is a documented judgement made on evidence, not comfort taken from management. FUND 3.6

When a fund models how it would meet a large redemption, it must assume it sells a proportional slice across the whole portfolio, not that it sells its most liquid holdings first. Selling the liquid assets to fund an exit, sometimes called cream-skimming, flatters the model and leaves the remaining investors holding a book that is now more illiquid than the one they bought.

They fall into three families. Anti-dilution tools first (swing pricing, anti-dilution levies, dual pricing, redemption fees), which make the dealer pay for the dealing. Quantity-based tools next (redemption gates, notice periods, deferrals), which buy orderly time. Exceptional tools last (suspension, side pockets, and in-specie redemptions), with suspension the genuine last resort. Liquidity buffers are always in use. FUND 3.6 · Art 16

Anti-dilution tools suit funds with regular flows and estimable dealing costs; gates and deferrals suit temporary strain where partial dealing can continue fairly; notice periods suit structurally less liquid strategies and are core to the Long-Term Asset Fund; side pockets are for genuinely exceptional cases such as severe valuation uncertainty or a frozen market; and suspension is the last resort when no lesser tool can protect investors fairly.

Every open-ended fund must select at least two tools from a harmonised list, calibrate and disclose them, and notify the regulator on activation or deactivation. Suspension and side pockets remain available but do not count toward the minimum of two, which is a common and specific error. Money-market funds may select one. Dir (EU) 2024/927, Art 16

Where the standing independent valuer of an authorised property fund declares material valuation uncertainty over 20% or more of the scheme's property, the fund must generally suspend dealing by the end of the second business day. The exception is narrow: the manager and depositary may agree, on a reasonable basis and not relying solely on a fair-value adjustment, that continued dealing is in investors' best interests, reviewed at least every fourteen days with the FCA kept informed. PS19/24

No. Communication about liquidity is governed, and investors must not be able to benefit from advance knowledge that a tool is about to be used. Selectively signalling an impending gate or suspension hands a first-mover advantage and breaches the duty to treat investors fairly. Even-handed communication is a rule, not a courtesy.

Because the exit needs a plan, made before the suspension begins, for how dealing resumes, at what price, and how the queue of requests is treated fairly. A fund that suspends without an agreed reopening plan risks a second disorderly event when it lifts the suspension.

That a fund can be under acute liquidity stress with no investor asking for a penny back. The pressure came from margin and collateral calls, not redemptions, against buffers sized for a smaller move than occurred. Liquidity buffers must be sized for non-redemption calls as well as redemptions, and to a severe-but-plausible move rather than a typical one.

An internal valuation function that is functionally independent from portfolio management and supported by a remuneration policy that removes the incentive to please the desk, or an external valuer independent of the fund and manager with the required professional guarantees. A depositary may act as valuer only where the task is separated from its depositary functions and the conflicts are managed. Art 19 · FUND 3.9

No. The external valuer's liability to the manager for loss caused by negligence or intentional failure cannot be limited by contract, and disclosing the cap does not cure it. The manager also keeps its own liability to the fund and its investors whatever the valuer's engagement says. Art 19(10)

Whenever there is evidence that the last value is no longer fair or proper, as well as at least annually. This trigger-event limb is the legal hook for stale-price and event-driven revaluation, so a valuation cannot simply wait for the next scheduled date when the world has plainly moved. L2 Art 74

Not unilaterally. The valuation function independently assesses the position, documents its reasoning and any dissent, and any override of a mark requires valuation-committee approval and a minute. Letting the conflicted party set the price is the failure; a reasoned, evidenced, independent process is the control. L2 Art 71

No. Disclosure is a measure of last resort. A conflict must first be managed through separation and structural controls, with only the residual disclosed. A prominent paragraph in the prospectus is not a control. SYSC 10.1.9AR

It is a defined RICS concept, distinct from general market uncertainty, and it is a matter of disclosure rather than disclaimer. Declaring it is proper practice under difficult conditions, and failing to draw attention to it could itself make a valuation misleading. In authorised property funds it also triggers the 20% suspension rule. RICS VPS 3 · VPGA 10

No. Leverage under AIFMD is any method of increasing a fund's exposure, including exposure embedded in derivatives, so a fund with no borrowings can still be materially leveraged. A director who equates leverage with debt will understate the fund's exposure to a market move. Art 4(1)(v)

The gross method sums all exposures with no offsets and can overstate real risk; the commitment method applies permitted netting and hedging offsets and sits closer to economic risk. Both are reported, and the gap between them signals how much hedging is in the book. L2 Arts 6–11

When its commitment-method exposure exceeds three times net asset value. That triggers enhanced Annex IV reporting, including the five largest sources of borrowing and the split between borrowing and derivative-embedded exposure. It is not, in itself, a breach requiring the fund to deleverage. L2 Art 111

Yes. Under Article 25 the regulator may impose leverage limits or other restrictions where necessary for the stability and integrity of the financial system. The power had, as at the most recent review, never been used, so it is best read as latent rather than dormant, and the non-bank leverage agenda makes it more likely to be exercised. Art 25

Cash-flow monitoring, safekeeping (custody of financial instruments and verification of ownership for other assets), and oversight (of subscriptions and redemptions, NAV, income and instructions). Its cash-monitoring frequency must match the frequency of the fund's cash movements. Art 21 · L2 Art 86

No. The administrator calculates the NAV; the depositary provides independent oversight, verifying that the process is appropriate and applied without re-performing the valuation. Confusing the two misplaces a control, and it is one of the most common misunderstandings in the structure. L2 Art 94

Only in narrow, cumulative conditions: where local law requires custody by a local entity, under a written contract that transfers the liability, and with the position disclosed to investors. A proposed discharge to a sub-custodian in a difficult jurisdiction is a red flag to interrogate against those three conditions, not to wave through. Art 21(13)

The manager can never be its own depositary or the depositary's delegate. For authorised funds the depositary must be independent of the manager. For unauthorised funds the two may be in the same group only where conflicts are avoided and organisational separation is real and documented, not merely asserted. FUND 3.11.9R

A manager that has delegated so much that it can no longer be considered the entity actually managing the fund. The test weighs where the substance of decision-making genuinely sits, and it is the single biggest delegation risk in the regime. The manager must retain enough capability to interrogate delegates, not merely receive their reports. Art 20 · L2 Art 82

That the delegate is eligible and effectively supervised in its home country, and that a cooperation arrangement between the FCA and the delegate's home regulator is already in place before the delegation is signed. The arrangement's absence makes the delegation non-compliant regardless of the delegate's quality, and it cannot be retrofitted. L2 Art 78(3)

A documented objective reason, a capable and supervised delegate, retained rights to monitor, instruct and terminate with immediate effect, and effective ongoing monitoring that scales with the materiality of the function. They are cumulative gates, and a failure at any one is a failure of the whole arrangement. L2 Arts 75–78

The AIFM. Responsibility does not travel down the chain with the work; a delegate's or sub-delegate's breach is the manager's breach for reporting purposes. Sub-delegation must be consented, documented, notified and kept on a live sub-delegation map. Art 20(4)

The individuals whose professional activities have a material impact on the risk profile of the manager or its funds, which reaches senior management, other material risk-takers and the control functions. A population drawn too narrowly to keep people out of the deferral regime is itself a finding. FUND 3.3.5R

Deferral of a substantial portion of variable pay, in the region of at least 40% over at least three years; payment of a significant portion, of the order of at least half, in units or equivalent instruments; malus and clawback; and risk adjustment of the pool and the awards. It applies proportionately, but proportionality is a method of application, not a way out. SYSC 19B · Annex II

No. The direct link between the remuneration of risk and compliance staff and the performance of the business they oversee must be removed, because a second line rewarded on the desk's returns has its incentive to challenge compromised at source. Deferring the same bonus does not cure a mis-aligned basis. L2 Art 33

Under Article 23: the strategy and objectives, the use of leverage and any right to reuse collateral, the valuation procedure, the liquidity risk management and redemption rights in normal and exceptional conditions, all fees and their maxima, the delegation arrangements and the conflicts arising, the depositary and other service providers, and how the manager ensures the fair treatment of investors. Art 23 · FUND 3.2.2R

When it no longer matches how the fund behaves. A prospectus describing a conservative liquidity profile while the fund runs a less liquid book and uses gates it has not disclosed can mislead, whatever it said accurately at launch. Material changes must flow into the documents, and consistency across the prospectus, marketing and website is a live control. Art 23 · FUND 3.2

Within six months of the financial year end, containing the balance sheet, the income statement, a report on the year's activities, and the remuneration disclosure for the fund. Art 22

A supervisory transparency return covering the main instruments, principal exposures and concentrations, the risk and liquidity profiles, stress-test results and, for substantially-leveraged funds, the five largest sources of borrowing. Frequency is tiered by assets under management: annual for smaller managers, half-yearly above the threshold, and quarterly for the largest. Art 24 · L2 Arts 110–111

Because weak governance upstream produces weak reporting downstream. The quality of the return depends on the internal data, the clarity of who owns each figure, and the controls around producing it, so the return is the output of a sound risk system rather than a separate task. Supervisors read it as a test of whether the firm can produce accurate, complete and challengeable information at all.

Rubber-stamping is a failure to take reasonable steps under the Duty of Responsibility. The accountable manager must understand the return, including the leverage methodology and the data completeness, not merely receive it, and the file should show independent verification and challenge. The manager cannot outsource regulatory responsibility to the administrator. FSMA s.66A · SUP 10C

ESMA is the EU convergence body: it issues guidelines, Q&As, technical standards and opinions that shape how national authorities apply the regime. The national authorities, the FCA in the UK, authorise firms, supervise them and enforce. ESMA does not directly supervise most managers.

Yes. The published good and poor practices become de facto standards the market is expected to have absorbed, so a board should test its own arrangements against them rather than wait for a rule change. Waiting for enforcement inverts the purpose of the review, which is the early warning. ESMA CSAs

Outliers. The FCA uses supervisory data, Annex IV among it, to identify firms and funds with high leverage, illiquidity or concentrated strategies, and it tests genuine substance rather than the appearance of governance. A board should assume its data is being read comparatively.

Core obligations apply from 16 April 2026, the expanded supervisory reporting from 16 April 2027, and the transitional cliff for pre-existing loan-originating funds falls on 16 April 2029. The reference date for grandfathering is 15 April 2024. These bind any fund managed or marketed into the EU. Dir (EU) 2024/927

No. HM Treasury has proposed replacing the onshored AIFMD-derived legislation with a more proportionate regime the FCA will set, following a call for input and a consultation. A UK board therefore holds two horizons at once: the domestic reform, and the AIFMD II changes that reach any EU-facing fund.

UK firms must identify their important business services and set impairment tolerances under SYSC 15A, and EU-facing firms face the ICT-resilience and incident-reporting requirements of the DORA regulation. Resilience, including at delegates and third parties, is examined with the same seriousness as financial risk. SYSC 15A

That sustainability claims are fair, clear, not misleading and capable of being substantiated. It applies firm-wide, in force since 31 May 2024, alongside the UK labelling regime and, for EU-facing funds, SFDR. The recurring finding is inconsistency across documents, and the fix is a single owner, a single consistency control and a single sign-off gate. ESG 4.3.1R