Alternative Investment Fund Managers Rules 2015 (Discussion Draft, 21 December 2015)

Summary

This is a discussion draft (dated 21 December 2015) of proposed Rules that the Bermuda Monetary Authority would make under section 19H of the Investment Business Act 2003 to regulate Alternative Investment Fund Managers (AIFMs). It is a consultation document, not yet in force (the commencement date is left blank in the text), and sets out a comprehensive proposed regime modelled closely on the EU AIFMD framework.

The draft would apply to internal and external AIFMs licensed under the Investment Business Act, and would impose requirements covering licensing information, minimum capital and liquidity, organisational and operating conditions, remuneration, conflicts of interest, risk and liquidity management, valuation, delegation, depositary arrangements, investor disclosure, regulatory reporting, leverage limits, and rules on acquiring control of non listed companies.

• Licensing: Applicants for an AIFM licence must submit detailed information including shareholder controllers, programme of activity, remuneration policies, investment strategies, leverage policy, constitution and prospectus documents, and depositary appointment for each AIF managed.
• Capital and liquidity: Internal AIFMs must hold minimum capital of EUR 300,000 and external AIFMs EUR 125,000, plus additional capital where managed AIF portfolios exceed EUR 250 million (capped at EUR 10 million total), and AIFMs must maintain liquidity equal to three months' annual expenditure.
• Breach notification: AIFMs must notify the Authority in writing if they anticipate breaching minimum capital or liquidity requirements, and may be directed to demonstrate compliance thereafter.
• Organisation and conduct: AIFMs must maintain adequate resources, sound administrative and control procedures, and comply with conduct principles including acting honestly, fairly, and in investors' best interests.
• Remuneration and conflicts: AIFMs must establish remuneration policies consistent with sound risk management (per Schedule I) and policies to identify, manage and disclose conflicts of interest.
• Risk, liquidity and valuation: AIFMs must implement risk management and liquidity management functions, conduct regular stress testing, and ensure proper valuation of AIF assets, including appointment and duties of valuers.
• Delegation and depositaries: Rules govern delegation and sub-delegation of AIFM functions, liability following delegation, and the appointment, duties, conflicts of interest and liability of depositaries.
• Disclosure and reporting: AIFMs must produce annual reports, disclose prescribed information to investors, and submit periodic reporting to the Authority using AIFM Reporting templates (Schedule II).
• Leverage and control acquisitions: Rules impose leverage limits for leveraged AIFs and disclosure and notification obligations when an AIF acquires control of, or a major holding in, non listed companies or issuers, including additional annual reporting and asset stripping restrictions.

As a discussion draft, the Rules are not yet binding; the short title and commencement paragraph leaves the effective date unspecified, indicating the Authority was still consulting on the text at the time of publication.

Key obligations

• Proposed: AIFM applicants must submit prescribed licensing information, including shareholder details, programme of activity, remuneration policies, and per-AIF information (constitution, prospectus, leverage policy, depositary identification)
• Proposed: Internal AIFMs must hold minimum capital equivalent to EUR 300,000 and external AIFMs EUR 125,000, plus additional capital where managed portfolios exceed EUR 250 million
• Proposed: AIFMs must maintain liquidity equivalent to at least three months of annual expenditure at all times
• Proposed: AIFMs must notify the Authority in writing within 14 days if they anticipate breaching minimum capital or liquidity requirements, detailing remedial steps
• Proposed: AIFMs must submit information demonstrating compliance with capital and liquidity requirements within 28 days of the Authority's direction following a breach notification
• Proposed: AIFMs must hold additional capital or professional indemnity insurance to cover professional liability risks
• Proposed: AIFMs must establish and maintain remuneration policies per Schedule I for staff whose activities materially affect the AIFM's risk profile
• Proposed: AIFMs must establish and maintain conflicts of interest identification, management and disclosure policies
• Proposed: AIFMs performing discretionary portfolio management must obtain client approval and give the Authority at least 14 business days' notice before investing client assets in an AIF they manage
• Proposed: AIFMs must produce annual reports for each AIF and make prescribed disclosures to investors
• Proposed: AIFMs must submit periodic regulatory reports to the Authority using the prescribed AIFM Reporting templates
• Proposed: AIFMs managing leveraged AIFs must comply with prescribed leverage limits
• Proposed: AIFMs whose AIFs acquire control of non listed companies must make additional disclosures and annual reports and observe asset stripping restrictions

Applies to

Alternative Investment Fund Managers (AIFMs), internal AIFMs, external AIFMs, Alternative Investment Funds (AIFs), depositaries, external valuers

Deadlines

• 14 days: AIFM must notify the Authority in writing if it anticipates breaching minimum capital or liquidity requirements
• 28 days of the date of the notification: Authority may direct the AIFM to submit information demonstrating compliance with minimum capital and liquidity requirements
• 14 business days notice: AIFM must give the Authority notice before investing client portfolio assets (under discretionary management) in an AIF it manages
• the xx day of xxx 20xx (unspecified): Placeholder commencement date for the Rules, left blank in this discussion draft