FAQs
30 questions, answered
Thirty questions that arise in applying AIFMD, answered directly. Grouped by subject and linked to the module that carries the detail.
What makes a firm the AIFM of a fund, and can a fund have two?
One fund has one AIFM: the single legal person performing portfolio management or risk management. A co-management arrangement must nominate one.
The AIF definition applies first, and every limb must be met: a collective investment undertaking, raising capital from a number of investors, investing under a defined investment policy for their benefit, and not a UK UCITS. Performing only one function is still managing an AIF, but an external full-scope UK AIFM must not provide one without the other.
What separates a sub-threshold manager from a full-scope one, and what are the figures in force?
Assets under management, measured in euro. EUR 100 million where the portfolios use leverage; EUR 500 million for unleveraged funds with no redemption rights exercisable for five years from initial investment. Below them a manager is registered or authorised on a lighter basis, reporting annually. Above them the whole of FUND 3 applies.
CP26/28 would replace them with aggregate NAV bands: small below £750 million, medium to £5 billion, large above. Proposed, not law. Implementation is envisaged in 2028.
What is the Duty of Responsibility, and what evidence answers it?
Section 66A(5) FSMA allows the FCA to act against a senior manager personally where the firm has contravened a relevant requirement. Three conditions must hold: the contravention; the manager's responsibility for managing the activities in which it occurred; and a failure to take the steps a person in that position could reasonably be expected to take.
The considerations extend beyond the statement of responsibilities to the responsibilities map, minutes, emails, regulatory interviews, telephone recordings and organisation charts.
How much of the three-lines model does the Handbook require of an AIFM?
Only the separation of the risk management function from the operating units, functionally and hierarchically. That separation counts only where three conditions hold together: risk staff are not supervised by the operating units, do not perform operating-unit tasks, and are remunerated against risk objectives rather than operating-unit performance.
A full-scope UK AIFM managing unauthorised AIFs is outside most of the SYSC common platform requirements, with SYSC 6.1.1R applying to financial crime only.
What turns a board discussion into an evidenced decision?
A minute recording the question put, the challenge made, the answer given, the option rejected and why, and the owner of the follow-up.
No Handbook rule prescribes the contents of an AIFM's board minutes, so this is supervisory practice rather than obligation. Minutes are among the contemporaneous records the FCA reads when determining what a senior manager's role was. Where a control operated without leaving a record, the firm must show what was tested and on what sample.
Does the operational resilience regime apply to an AIFM?
Not to most AIFMs. SYSC 15A applies to enhanced scope SMCR firms, banks, designated investment firms, building societies, Solvency II firms, UK RIEs and a short list of payments and market infrastructure firms. A core or limited scope SMCR firm falls outside it, with no important business services and no impairment tolerances to set.
SYSC 4.1.1R still requires robust governance arrangements and effective risk processes, and delegates must be reviewed on an ongoing basis. EU entities are subject to DORA.
What is a letter-box entity?
A manager that has delegated so much it can no longer be considered the manager of the fund. Four non-exhaustive situations are listed: no expertise or resources to supervise the delegated tasks and manage the risks; no power to decide in key senior management areas; no rights to inquire, inspect, access and instruct, or no ability to exercise them in practice; or investment management delegated substantially beyond what the AIFM performs itself. No percentage attaches to the last limb.
What must be in place before delegating investment management to an overseas firm?
A cooperation arrangement between the FCA and the delegate's home supervisor, in place before the mandate is signed. That is an arrangement between the two authorities rather than a contractual clause.
The delegate must also be authorised or registered for asset management and subject to supervision, unless the FCA consent route is used, and the FCA must be notified before the arrangements take effect.
A sub-delegate breaches a rule. Who answers for it?
The AIFM. Delegation does not affect the AIFM's liability towards the fund and its investors, and neither does sub-delegation.
The AIFM must consent to the sub-delegation and notify the FCA before it takes effect, and the delegation conditions must be met for the sub-delegate and for each further layer.
What is the board's role in setting risk appetite?
Setting the limits, establishing why each is set where it is, and knowing what a breach triggers.
The rules require risk management systems adequate to identify, measure, manage and monitor all risks relevant to each fund's strategy, and require the fund's risk profile to correspond to the size, portfolio structure, strategies and objectives set out in its instrument, prospectus and offering documents. The systems must be reviewed at least annually and adapted where necessary.
How often must a fund stress test?
No frequency is prescribed. The rules require stress tests to be carried out regularly, under normal and exceptional liquidity conditions, and require stress testing within position risk monitoring. The firm sets the frequency and records the basis for it.
ESMA's liquidity stress testing guidelines use a quarterly baseline, but they are an EU instrument whose standing for a UK firm is unsettled.
Is leverage the same as borrowing?
No. Leverage is any method by which the AIFM increases the exposure of a fund: borrowed cash or securities, exposure embedded in derivative positions, or any other means. A fund with no borrowing can be heavily leveraged through derivatives.
The AIFM must set a maximum level of leverage for each fund, and the extent of any right to reuse collateral or grant a guarantee, and must demonstrate that those limits are reasonable and complied with at all times.
When is a fund substantially leveraged, and what follows?
When exposure calculated on the commitment method exceeds three times net asset value.
The AIFM must then make available to the FCA the overall level of leverage, the breakdown between leverage from borrowed cash or securities and leverage embedded in derivatives, the extent of asset reuse, and the five largest sources of borrowing with the amount from each. The crossing triggers reporting only; nothing requires deleveraging.
What must the board sign off on liquidity, and how often?
Consistency between the investment strategy, the liquidity profile and the redemption policy of each fund. No method, metric or frequency is prescribed.
Every fund other than an unleveraged closed-ended one also requires a liquidity management system, procedures to monitor liquidity risk and align the investments' liquidity profile with the fund's obligations, and regular stress tests. An annual minuted confirmation evidences consistency without being required. CP26/28 would state the duty at manufacture and on an ongoing basis. Proposed, not law.
Can a manager warn a significant investor that a gate is coming?
No. Advance notice allows the recipient to redeem ahead of the queue at the expense of the remaining investors, and the recipient's consent does not cure that.
A full-scope UK AIFM must treat all investors in the fund fairly and must not allow any investor to obtain preferential treatment unless it is disclosed in the fund's instrument. A side letter does not authorise a selective warning.
Why is lifting a suspension harder than imposing one?
Reopening requires decisions that suspension defers. Before the first dealing day the manager must settle the price at which dealing resumes, the ranking of the accumulated redemption queue against investors subscribing after it, whether the portfolio can meet that queue without distorting the remaining holdings, and the sequence of disclosure.
For an authorised fund, the manager and depositary must maintain a suspension only for as long as it is justified in the interests of unitholders.
Who may value the fund's assets?
The AIFM or an external valuer. In-house valuation is permitted only where the task is functionally independent of portfolio management and the remuneration policy and other measures mitigate conflicts and prevent undue influence.
An external valuer must be independent of the fund, the AIFM and anyone with close links, hold mandatory professional registration and give sufficient professional guarantees; the appointment is a delegation. A depositary may act as valuer only with valuation separated functionally and hierarchically from its depositary tasks.
The portfolio manager disagrees with the independent mark. Who decides?
Not the portfolio manager. In-house valuation is permitted only where the valuation task is functionally independent of portfolio management, so an independent mark stands unless it is displaced through a process the portfolio manager does not control.
That ordinarily means a valuation committee with a quorum, a documented vote, recorded dissent and a minuted reason for any override. The FCA's March 2025 review of private market valuation practices emphasised independence in valuation decision-making and in committee voting membership.
Is disclosing a valuation conflict enough to manage it?
No. An AIFM must take all reasonable steps to avoid conflicts of interest, and may manage, monitor and where applicable disclose only those it cannot avoid.
Disclosure is permitted where the organisational arrangements are not sufficient to prevent damage to investors' interests with reasonable confidence, and it must be accompanied by policies and procedures. SYSC 10.1.9AR, the common platform last-resort rule, does not apply to a full-scope UK AIFM of an unauthorised AIF.
Does the depositary calculate the NAV?
No. The AIFM remains responsible for the proper valuation of the fund's assets, for the calculation of the net asset value and for its publication.
The depositary must ensure that the value of units is calculated in accordance with applicable law, the fund's instrument and the valuation rules, which means verifying that the process is appropriate and applied rather than re-performing it. The depositary carries out the AIFM's instructions unless they conflict with applicable law or the instrument.
When can a depositary discharge its liability for lost custody assets?
Only on the conditions in regulation 30 of the AIFMD UK Regulation. The liability standard and the discharge conditions are not in the Handbook, and FUND 3.11 contains no liability provision.
The AIFM must inform investors before they invest of any arrangement by which the depositary contractually discharges itself of liability, and inform them without delay of any change to it.
When does accurate disclosure become misleading?
When the fund stops behaving as the document describes. Disclosure of material changes falls under the same obligation as the original disclosure, so a prospectus written for a liquid strategy and left unchanged while the portfolio drifts into illiquid assets is a live breach.
The same duty applies to periodic disclosure: the percentage of assets subject to special arrangements arising from their illiquid nature, any new liquidity arrangements, and the current risk profile and risk management systems.
What does the anti-greenwashing rule require?
That any reference to a product or service's sustainability characteristics is consistent with those characteristics and fair, clear and not misleading.
It applies to a firm communicating with a client in the UK about a product or service, or communicating or approving a financial promotion to a person in the UK, whether or not the firm carries on sustainability in-scope business. It attaches to statements, so the website, pitch deck, DDQ response and LP update are in scope.
What is Annex IV reporting, and how often is it filed?
The supervisory return to the FCA: instruments traded, principal markets and exposures, illiquid-asset special arrangements, risk profile and stress test results.
Frequency is set in euro. Half-yearly between the EUR 100 million or EUR 500 million threshold and EUR 1 billion; quarterly above EUR 1 billion, or for a single fund above EUR 500 million; annually for an unleveraged fund acquiring control of non-listed companies. Filing is due one month after period end, 15 days later for funds of funds.
What does opting up to full scope obtain, and where may the manager then market?
Marketing scope and investor acceptance.
A full-scope UK AIFM marketing a UK AIF in the UK notifies the FCA on the form at FUND 3 Annex 1D, or in its authorisation application. Non-UK AIFs remain within the national private placement regime whatever the manager's status, and entitlement follows a complete notification rather than FCA approval. There is no EU passport for a UK AIFM, and CP26/28 proposes none.
Who is caught by the AIFM Remuneration Code?
Staff whose professional activities have a material impact on the risk profile of the AIFM or of the funds it manages: senior management, risk takers, control functions, and any employee whose total remuneration places them in the same bracket as senior management and risk takers.
Remuneration for this purpose covers any type paid by the AIFM, amounts paid directly by the fund including carried interest, and transfers of units or shares in the fund.
What does the Code require of a Code staff pay structure?
- At least 40% of variable remuneration deferred over a period appropriate to the fund's life cycle and redemption policy, and three to five years unless that life is shorter.
- At least 60% where the amount is particularly high.
- At least 50% in fund units or shares, on the deferred and non-deferred portions alike, unless AIF management is under half the AIFM's portfolio.
- Variable pay vesting only where sustainable for the AIFM and justified by fund, business unit and individual performance.
What does AIFMD II require on liquidity tools, and does it apply to a UK manager?
EU law. It applies to a UK manager only through an EU AIF or EU entity; the UK has adopted none of it.
The manager of an open-ended AIF must select at least two Annex V tools from points 2 to 8, after assessing their suitability to the fund's strategy, liquidity profile and redemption policy, and write them into the fund rules. Suspension and side pockets fall outside that range. Swing and dual pricing cannot be the only two.
What are the AIFMD II dates?
EU law throughout. Member States were required to transpose and apply the Directive from 16 April 2026, except the amended Article 24 supervisory reporting regime and its UCITS equivalent, which apply from 16 April 2027.
AIFs originating loans and constituted before 15 April 2024 are deemed to comply with the concentration, leverage and closed-ended requirements until 16 April 2029, and in the meantime may not increase a value or leverage already above those limits, or raise one above them.
Is the UK adopting AIFMD II?
No. On 14 July 2026 HM Treasury published a draft statutory instrument revoking the AIFM Regulations 2013 and the delegated regulations, and the FCA published CP26/28, proposing a replacement in a new sourcebook, ALTS, with firms classified small, medium or large by aggregate NAV.
Consultation closes on 14 October 2026, final rules are expected in 2027 and implementation is envisaged in 2028. CP26/28 contains no loan origination regime and no equivalent of the Annex V tool list. Proposed, not law.