Managers working to original FCA deadline for VOPs, says BNY Mellon
The overwhelming majority of hedge fund managers are continuing to work to the UK Financial Conduct Authority’s (FCA) original deadline of January 22, 2014 for their Variation of Permission (VOP) applications despite the Treasury’s brief reprieve.
In December 2013, the Treasury published a statement informing managers seeking to become AIFMs that they will be permitted to trade after AIFMD’s July 22, 2014 implementation deadline even if they have not received regulatory approval from the FCA. However, the Treasury added firms must still submit their VOPs and be fully compliant with AIFMD before July 22, 2014.
“As far as I understand from conversations with clients, the majority of managers are continuing to work towards the January 22, 2014 deadline to submit their VOPs. A lot of firms we spoke to before Christmas were working to that deadline, and many of them will continue to work to that deadline given the level of progress they have made,” said Mark Mannion, head of client relationship management and sales at BNY Mellon AIS.
The Treasury has yet to publish exact details of what will happen to AIFMs whose applications have not been determined by July 22, 2014, although it said a statement would be issued shortly. “Let us not forget that managers still have to be fully compliant by July 22 so this reprieve should not be seen by firms as an excuse to take their foot off the accelerator,” said Mannion.
Hedge funds are confronting a number of regulatory challenges over the course of 2014, including reporting to trade repositories under the European Markets Infrastructure Regulation (EMIR). This is giving further incentive to stick to the original VOP deadline.
The VOP is highly detailed, which again means managers should prepare their submissions well in advance of July 22, 2014. The application is 37 pages long and requires managers to provide a regulatory business plan by which it means a full description of the organisational structure of the firm, its financial resources and disclosures to regulators and investors, as well as systems and controls.
It also wants a 12 month profit and loss, monthly balance sheet and regulatory capital forecasts, the names of every individual that directs the firm, the number of funds managed, and the memorandum and articles of association of the management company and the funds it manages. Any “close links” with other firms have to be disclosed.
The FCA expects to see evidence that the depository bank and depo-lite was appointed after full due diligence.
Other disclosures include; how liquidity is managed to meet redemptions, how the firm avoids style drift, leverage, what rights of re-hypothecation have been granted to the prime broker, and how counterparty risk is managed.