Why do I need to be authorised?

Certain activities require regulation by the UK Financial Conduct Authority (FCA) if carried out in the UK. Carrying out these activities without obtaining authorisation (called Part 4A Permission) is a criminal offence and may impact on the enforceability of contracts. There is also a parallel UK regulatory regime requiring banks and insurance companies to be authorised by the Prudential Regulation Authority (PRA). The PRA regime is beyond the scope of this guide.

The main activities relevant to investment managers are as follows.

Activities under the AIFMD regime:

Managing an AIF: being appointed by your fund to be primarily responsible for risk management or portfolio management for your fund, if that fund is an AIF, is a regulated activity.

Activities under the MiFID regime:

Arranging deals in investments: marketing your fund, or sourcing investment opportunities for your fund is a regulated activity

Advising on investments: providing research and/or investment recommendations in relation to specific investments, other than where such advice is provided intra group, is a regulated activity

Managing investments: managing assets belonging to another person, in circumstances involving the exercise of discretion, is a regulated activity. This includes acting as sub-investment manager on a delegated basis in relation to a fund which is an AIF

Dealing as agent: buying or selling investments as agent on behalf of a third party is a regulated activity

Agreeing to carry on activities: agreeing to carry on the activities listed above is also a regulated activity.

An AIFM can also have permission to carry on these activities on a “top-up” basis, separately from managing an AIF for example, when providing segregated portfolio management services. The permission of “Managing an AIF” automatically includes these MiFID activities when carried on for a fund which is an AIF in the course of providing the regulated activity of managing an AIF.

The provision of custody services is also regulated and the FCA additionally regulates the activity of “Arranging safeguarding and administration of assets” which covers the negotiation and arranging of custody arrangements for a client. This arranging activity would be included in the “Managing an AIF” permission, but would need to be separately obtained if needed when providing segregated portfolio management services. Custody permissions need to be separately applied for but an AIFM is not permitted to provide custody for the fund assets.