Fund manager rules will be ‘difficult for FSA to police’

The Alternative Investment Fund Management Directive is going to be a “difficult arena” for both the regulator to police and for firms to achieve compliance with due to the lack of clarity over the requirements and the broad application of the rules, according to Warren Compliance.

Last month, the Financial Services Authority published a discussion paper outlining plans for how the European directive, which will apply to fund managers, depositaries, valuers and administrators, will be implemented in the UK from July 2013

According to the regulator, implementation will significantly alter the regulatory framework under which alternative fund managers, that is managers of hedge funds, private equity, property, listed funds, funds of funds and commodity funds, currently operate in the UK and across the EU.

The FSA said it will change how managers operate their businesses, interact with third-party service providers under delegation and depositary arrangements, as well as how they manage their administration and external valuers.

Bill Warren, managing director at Warren Compliance, believes the rules will be “difficult to police”, particularly in terms of the “recording” by firms of investors’ consideration of significant opportunities.

He said: “No mention is made of what is considered “significant”, although this could and should be specified in any final rules issued by the FSA [following] the final EU directive.”

According to Mr Warren, the other major challenge is that the EU Directive, and therefore the FSA, is seeking to cover a “very large and complicated range of investment vehicles”.

He said: “At a superficial level I have sympathy for the AIFM firms and their outsourced partners in trying to position themselves in a position where they can defend themselves from the regulator.

“Is this another case of a bureaucratic approach to rid consumers who will generally it is assumed be fairly sophisticated, of perceived risk in an area where risk is commonly used to gain financially fairly and without seeking to bend the rules?”