In 2021, all registered alternative investment fund managers (“light managers”) received a sector letter from the Dutch Authority for the Financial Markets (AFM). In this letter, the regulator warns that fund managers who no longer meet the exemption conditions are required to have an AIFMD licence.
With this article, we want to inform fund managers who currently still have a registration under the AIFM-light regime, but expect to breach the exemption limit at some point.
Timely strategy planning
As is well known, a fund manager must have an AIFMD licence if the total assets of all managed investment vehicles:
- Involves more than €100 million; or
- More than €500 million, but only if none of the managed funds are leveraged and none of the funds gives the investors the right to withdraw within five years.
If the manager fails to meet the exemption limit for more than three months, a licence must be applied for within 30 days. That it may succeed in applying for a licence in the 30 days provided is unrealistic in our view.
In practice, preparing for the licence application takes a lot longer. Thinking about strategic choices and preparing accordingly is therefore essential. Not only because the list of documents to be delivered is considerable. Also because the licence application must show that, although the manager does not yet have an AIFMD licence, it is already acting in accordance with it. Among other things, this can be demonstrated with the set-up from the risk manager, the compliance function and other governance functions and the operation of a reporting cycle.
Applying for an AIFM licence is therefore quite a challenge and requires thorough preparation. To avoid ad hoc actions, it is important to outline a clear strategy in advance. As a starting point, an inventory of your current operations could be taken, so that it becomes clear in which areas you already meet the licence requirements and in which areas an expansion is needed.
Additional requirements for an AIFMD licence
To obtain an AIFM licence, the manager must demonstrate that it has a controlled and sound business operation. This must demonstrably include the various components of the licence.
A manager’s obligations under the registration regime focus on:
- the funds (in particular, the obligation to demonstrate that the relevant funds are registered on time, the fund reporting to the Dutch AFM is sent on time and the fund has an KID);
- compliance with Wwft/Sanctions Act;
- compliance with SFDR requirements; and
- the GDPR.
By contrast, a manager with an AIFMD licence should have a whole raft of policy documents relating to:
- Managing conflicts of interest;
- Integrity policies;
- Management of market abuse risks;
- Incident prevention and reporting procedure;
- Control of employee professionalism;
- Remuneration policy;
- Depositary;
- Participant administration;
- Sound financial records;
- Sufficiently independent and competent compliance function;
- Risk management;
- Control of outsourcing relationships;
- At least two daily policymakers assessed by the Dutch AFM for reliability and suitability;
- Investment policy;
- Valuation policy;
- Procedure for determining Net Asset Value;
- Sound business description;
- Procedures for preparing marketing materials;
- The minimum Equity of €125,000;
- Control of the Fixed Cost Requirement; and
- Timely preparation and transmission of financial statements of the funds and of the Manager.
Licence application
Once submitted to the Dutch AFM, a licence application formally takes 13 weeks subject to questions from the AFM (and possibly DNB). In practice, however, the entire application process takes longer. The total timeframe can reach almost a year. In our experience, if the application is thoroughly prepared, the processing time can be reduced to 6-8 months.
Read more about the permit application process
Need support?
Projective Group can support you, as a registered manager, in determining the strategy for a timely AIFMD licence application. A first step here could be a gap analysis to assess the extent to which the manager already complies with the AIFMD licence requirements and what is needed to comply.
The results of the gap analysis can be used to prepare the manager for licence application. The work to be carried out by Projective Group in this context includes:
- Setting up the management organisation and investment institutions in line with AIFMD requirements. This is done by, among other things, drafting policy documents, procedures, setting up functions and setting up the periodic reports to the regulators;
- Setting up the application file;
- Assisting in answering questions from and communicating with supervisors.
Do you currently still have a registration under the AIFM-light regime, but do you foresee that the assets you manage will soon breach the exemption limit? Then, first of all, that is worth congratulating. Next, we cordially invite you to discuss with us how this momentous moment will become the starting point for your future as an AIFMD-licensed manager. To do so, please contact us without any obligation.
For those who are not yet ready, but would like to learn more about AIFMD, we have our AIFMD Awareness e-learning. During the training you will learn to apply the main rules of the AIFMD on the basis of practical situations. After participating, you will know which requirements you need to meet to obtain and maintain an AIFMD licence.
