ESMA Opinion – Master AIF Reporting

The AIFMD and level 2 regulation require only that the authorised AIFM (whether EEA or Non-EEA) report in respect of the EEA AIFs or the Non-EEA AIFs marketing into the EEA.

This means that reporting is not required at the Master level for non-EEA Master AIFs where those Master AIFs are not being marketed into the EEA, but where the feeder is an EEA AIF or non-EEA AIF marketed into the EEA.

Against this background, ESMA has issued an opinion (ESMA/2013/1340) advising EU authorities to collect certain additional information in AIFMD Annex IV reports to assist them in monitoring systemic risk (the “ESMA Opinion“). ESMA has recommended that AIFMs managing non-EEA master AIFs should provide additional information on their master AIFs even where they are not marketed in the EEA, provided that the Master AIFs have a feeder AIF which is marketing in the EEA or domiciled in the EEA.

This is restricted to where the master AIFs and the feeder AIFs have the same AIFM. It seems that this should be interpreted narrowly. The UK FCA initially played with extending this to where the AIFMs of the respective feeder and master are different entities but affiliated, but then adopted the narrow interpretation – see below.

The scope of this is wide. It relates to all non-EEA Master AIFs, not just those where the AIFM is non-EEA and it affects Fund Managers around the world who are marketing their feeder funds into the EEA.

For example, reporting on the Master would be required for:

An EU AIFM with a non-EEA Master, with a Feeder that is an EEA AIF or is marketed in the EEA;
A Non-EEA AIFM with a non-EEA master AIF, with an EEA feeder AIF or a non-EEA Feeder AIF that is marketed in the EEA.

JURISDICTIONAL DIFFERENCES

There are differences across jurisdictions in regard to the Master AIF Reporting.

Firstly, before the ESMA Opinion, a number of jurisdictions (including the UK) already had super-equivalent provisions relating to reporting by the AIFM domiciled in the jurisdiction in respect of their non-EEA Masters.

Secondly, Member States have taken different approaches to the ESMA Opinion. The ESMA Opinion has been followed in a number of EEA member states such as Belgium, Ireland and Luxembourg. In the UK, it has been applied to above threshold AIFMs only; this approach seems justified and appropriate given that ESMA’s stated purpose is to enable “proper assessment of systemic risk.”

Note, “above threshold” is where:

Total AUM of the AIFM > €1bn; or
AUM of individual AIF (leveraged) > €500m

When calculating AUM, the assets under management of non-EEA master funds that are not marketed in the EEA should not be included for the purposes of the calculation of the reporting thresholds.

For jurisdictional approaches, see the Funds-Axis AIFMD Annex IV – Country Comparison Portal for more information.

THE UK APPROACH

In its Handbook Notice 40, published on 25 January 2017, the FCA confirmed that it would go ahead with the proposals to extend master fund level reporting requirements under the Alternative Investment Fund Managers Directive (AIFMD) to non-UK AIFMs.

The new provisions were implemented in AIFMD (Reporting) Instrument 2017 (FCA 2017/3) and came into effect on 29 June 2017, for the next quarterly reporting date of 30 June 2017 (due to be submitted to the FCA by 31 July 2017).

The UK AIFM changes were introduced at the same time, with the FCA revisions overall affecting:

UK AIFMs with a non-EEA Master AIF and a UK feeder or a feeder AIF that markets into the UK; and
Non-UK AIFMs with non-EEA Master AIFs, where there is a feeder of the same AIFM being marketed into the UK.

These are considered below.

Non-EEA AIFMs’ obligation to report on their non-EEA master funds

The FCA has implemented the provisions as regards Non-EEA AIFMs at FUND 10.5.11B (G)

FUND 10, Operating on a cross-border basis, has been updated to provide that:

An above-threshold non-EEA AIFM should report on a quarterly basis to the FCA the information in FUND 3.4.2R, FUND 3.4.3R and (if applicable) FUND 3.4.5R for each AIF that is not marketed in the UK if:

that AIF is a master AIF managed by the AIFM;
the AIFM markets the feeder AIF of that master AIF in the UK; and
the AIFM is subject to quarterly reporting under article 110 of the AIFMD level 2 regulation (see SUP 16.18.4EU) for the feeder AIF.

As above, this affects above threshold non-EEA AIFMs of master funds where those master funds are not marketed in the UK but have feeder AIFs which are marketed in the UK under Article 42. The rule change does not apply to non-EEA AIFMs with half-yearly or annual reporting obligations.

The amended FCA rules mean that a non-EEA AIFM with a quarterly reporting obligation, which markets a feeder AIF in the UK, will be required to file a separate Annex IV report in respect of the corresponding master AIF (which is not marketed in the UK) provided the master AIF is also managed by the non-EEA AIFM.

Impact on a non-EEA AIFM’s non-EEA Masters which are not marketed in EEA

AIFM	MASTER AIF	SIZE	PRIOR TO 29 JUNE 2017	AMENDED
Non-EEA	Non-EEA	Below threshold	Not in scope	Not in scope
Non-EEA	Non-EEA	Above threshold	Not in scope	Full reporting content from Articles 24(1) and 24(2).

The FCA should have contacted those non-EEA AIFMs affected by the changes in Q2 2017 and has assigned product reference numbers (PRNs) for those master funds not marketed in the UK, but have a feeder fund that is marketed in the UK and that feeder fund is subject to quarterly reporting. However, the onus remains on affected fund managers to pro-actively register the master fund in order to receive a Product Reference Number (“PRN”) which will enable reporting;

Note: This registration is for the purpose of making the transparency reports. The non-EEA master funds not marketed into the EEA are not being required to register under the national private placement regime (NPPR).

UK AIFMs - Change to Master Reporting

The starting point as regards UK AIFMs is that the UK rules were already super-equivalent and the FCA had already required reporting by UK Managers in respect of their non-EEA Master funds.

The requirements are at FUND 3.4. FUND 3.4 applies to Full scope UK AIFMs.

Under the existing provisions at FUND 3.4.2, a UK AIFM must report the 24(1) report for the AIFM and for each AIF it manages, including non-EEA AIFs. Hence this already includes non-EEA Masters that are not marketed into the EEA.

In addition to this, FUND 3.4.6A provide that 24(2) reporting is also required by non-EEA master AIFs. This requires UK-domiciled managers, regardless of size, to report in full on their non-EEA master funds. However, FUND 3.4.6 A (a) amends this so that going forward only those above-threshold UK-domiciled managers that report quarterly need to include information on their non-EEA master funds.

Making this change aligns the requirements for UK and non-UK managers by reducing the current reporting requirements for some UK-domiciled managers.

Note: The non-EEA master funds should already be registered with the FCA, although the FCA will need to gather additional information for the June 2017 filings.