Application of the Investment Funds sourcebook
FUND applies by firm type. A full-scope UK AIFM of an authorised, unauthorised or non-UK AIF gets chapters 1, 3 and 10; a small authorised UK AIFM gets chapter 1 only; a residual CIS operator is not subject to FUND at all. A depositary of an AIF managed by a full-scope UK AIFM gets chapters 1 and 3 in its own right.
Chapter 3 subdivides on the fund. A full-scope UK AIFM of a UK AIF gets all of chapter 3; of a non-UK AIF marketed in the UK, all except 3.12; of a non-UK AIF not marketed in the UK, all except 3.3, 3.11 and 3.12. A UK depositary gets 3.11 only (FUND 3.1.1G). Marketing a previously unmarketed non-UK AIF moves the firm between those rows.
Location of the AIFM's core duties
Three of the principal duties sit outside FUND. FUND 3.1 is an application table and imposes no conduct obligation.
| Duty | Provision |
|---|---|
| Honesty, best interests, fair treatment, preferential treatment | COBS 2.1.4R |
| Conflicts of interest | SYSC 10.1, AIFM rules at 10.1.23R to 10.1.26R |
| Organisation, resources, senior personnel | SYSC 4.1 and 4.2 |
| Risk, liquidity, valuation, delegation, depositary, disclosure | FUND 3.7, 3.6, 3.9, 3.10, 3.11 and 3.2 |
| Supervisory reporting | FUND 3.4 |
A firm carrying on AIFM investment management functions complies with the COBS rules listed at COBS 18.5A.3R and need not comply with any other rule in COBS.
Organisational adequacy measured against the AIFs managed
The arrangements, processes and mechanisms required by SYSC 4.1.1R must also take account of the AIFs managed by the full-scope UK AIFM, so adequacy moves when the fund range moves.
Senior personnel must be sufficiently experienced in relation to the investment strategies pursued by the AIFs the firm manages. Experience attaches to the strategy, so a strategy the firm has not run before raises a resourcing question.
Management must be undertaken by at least two persons meeting SYSC 4.2.1R and 4.2.7R. Guidance adds that each should play a part in the decision-making process on all significant decisions, and a particularly dominant individual will raise doubts about whether that two-person requirement is met.
Delegation, liability and the letter-box entity
Delegation does not move liability. Regulation 28(1) of the AIFMD UK Regulation provides that, irrespective of any contractual arrangement to the contrary, a full-scope UK AIFM's liability to an AIF it manages, or to an investor in it, is unaffected by delegation or further sub-delegation.
Article 82 of the AIFMD level 2 regulation provides that a letter-box entity is no longer to be considered the manager of the AIF, but the FCA's view is that such a manager is still carrying on the regulated activity, because the alternative would let a manager delegate itself out of regulation (PERG 16.3, question 3.9).
The same delegation can result in the delegate managing an AIF, which for a delegate without that permission is a breach of the general prohibition. Where all delegated functions go to one delegate, that delegate is likely to be managing an AIF; where they are split across several, it may be that none is. The analysis extends to a UK delegate accepting a delegation from an overseas manager (questions 3.10 to 3.12).
Territorial scope of managing an AIF
Leaving aside section 418 of FSMA, managing an AIF is carried on where the place of business from which it is carried out is located. Where it is carried on from several locations, some in the UK and some not, it is treated as carried on in the UK if there is continuity or regularity of provision within the UK of activities which are a significant part of the activity.
The additional activities at PERG 16.3, question 3.3, which include fund accounting, compliance monitoring, investor inquiries and marketing, count in that assessment even if all risk and portfolio management is carried on outside the UK (PERG 16.8, question 8.2).
The regulated activity does not apply to an AIFM whose registered office is not in the United Kingdom, and regulation 81 of the AIFMD UK Regulation restricts that exclusion from the date HM Treasury brings in further legislation on non-UK AIFs and AIFMs. Delegation between two branches of one firm is not delegation, because the branches are a single legal entity.
UK law in force, EU law and the UK proposals
Everything above is UK law in force. Neither body of material below binds a UK AIFM.
EU law
Directive (EU) 2024/927 amends AIFMD and the UCITS Directive. Member States were to adopt and publish the implementing measures by 16 April 2026 and apply them from that date, except the measures transposing article 1(12), the expanded supervisory reporting, which apply from 16 April 2027. The UK has not adopted it. It reaches a UK group through an EU entity, an EU AIF, marketing into the EU, or a delegation from an EU manager.
Proposed, not law
CP26/28, The UK AIFM Regime, was published in July 2026. Feedback on the proposals and draft rules is due by 14 October 2026, and on the discussion chapters covering the depositary regime, prime broker rules and the AIFM business restriction by 18 September 2026. Final rules are intended for 2027, alongside HM Treasury's statutory instrument, and implementation for 2028. The draft rules sit in a proposed new sourcebook, ALTS.
Alongside this module
Where this subject is covered elsewhere in the course.