Annex IV Reporting under AIFMD Article 42

15 October 2021 | Michael Chambers

According to the EU’s AIFMD, UK AIFMs are now categorised as ‘third-country managers’. Those UK AIFMs which retained their registrations under national private placement regimes (NPPR) in EEA countries now have an obligation to submit AIFMD Annex IV reporting in each one of these countries in accordance with AIFMD Article 42.

Our latest article explores how this change of status presents an opportunity to UK AIFMs tackling their AIFMD Annex IV reporting obligations. Using this change in circumstances will allow you to ensure your service providers are specialised enough to appropriately navigate the requirements, while delivering cost efficiencies and value.

Background

The end of post-Brexit transitionary arrangements meant that UK fund managers face an increased regulatory burden when continuing to market funds into Europe. The new rules of engagement, as stipulated by Article 42 of AIFMD, require UK managers to operate within the NPPR on a country-by-country basis. With that comes Annex IV reporting and the need to report to the home regulators (via their unique platforms) for each jurisdiction.
The likelihood is that associated operating costs have increased, as has the potential to fall foul of a more complex set of standards. Having the right partners to support your business will be a vital step in gaining assurance that you adhere to various (and changing) regulations, while also benefiting from cost and quality benefits that specialists such as Wheelhouse Advisors can offer.

Read on for a deeper inspection of the changes UK fund managers are facing, explanations of the terminology and rules to be aware of, and the rationale behind using this window of opportunity to optimise your strategy.

Classification of UK Alternative Investment Funds and Fund Managers

Within the parameters of the current regulatory landscape, a consequence of the UK’s departure from the EU is that UK fund managers (AIFMs) are now classified as third-country entities, effective 1 January 2021 with the passing of the transitionary period. Prior to this UK AIFMs enjoyed the provisions of AIFMD Article 36 and only had to submit its Annex IV reporting to the FCA, given its status as a ‘Home State regulator’, regardless of the number of EEA NPPR registrations the AIFM held. UK AIFMs which have retained their EEA NPPR registrations now fall under Article 42 with Annex IV reporting obligations arising separately in each.


It is, therefore, likely that the back- and middle-office costs of marketing into Europe have increased due to these changes; there is a growing need to understand, interpret and adhere to a broader spectrum of reporting standards and delivery mechanisms. Now is as good a time as any to consider the relevant service levels you currently receive, the fairness of the price you pay, and the value you derive from your service providers.

What is Article 42 of the AIFMD?

There are three core requirements within Article 42, which governs the conditions for marketing into an EEA country by a third-country manager. In addition to requiring the UK to remain off the Financial Action Task Force (FATF) list of non-cooperative countries/territories and the FCA maintaining cooperation arrangements with EEA regulators, Article 42 imposes a number of ongoing requirements on third-country managers. These include the production of an annual report (Article 22), investor disclosures (Article 23), some private equity disclosures (Articles 26 to 30) as well as transparent reporting (Article 24) commonly referred to as AIFMD Annex IV reporting.
While most of the above is unchanged by the UK’s third-country status, the one notable difference pertains to AIFMD Annex IV reporting, in that this is submitted to the regulator of every EEA jurisdiction when the funds are marketed, given there is no ‘Home State regulator’ with which to focus the reporting.

Article 42 and Annex IV Reporting

As NPPR registration under Article 42 triggers an Annex IV reporting requirement in the relevant EEA jurisdiction, it follows that a UK AIFM will have been submitting Annex IV reports direct to relevant EEA regulators since April 2021 (for quarterly filers), July 2021 (for semi-annual filers) and January 2022 (for annual filers).
Unfortunately, Article 42 registrations under NPPRs are administered on a country-specific basis so the roll out of the consequential reporting burden has been uncoordinated and could bite at various different times depending on the jurisdiction.

Irrespectively, this is a significant departure, and an increased burden, for firms wanting to enjoy the benefits of doing business with the continent. Firms should consider whether applying specialist knowledge to this subject would offer improvements in their ability to operate within the ‘new world’, offering greater assurance that relevant regulations are duly considered and responded to. Furthermore, de-coupling Annex IV reporting and related matters from bundled providers will typically improve a firm’s understanding of costs and how to reduce them.

Annex IV: requirements explained

Annex IV of AIFMD sets out the requirements of transparency information that, in the context of third-country managers, AIFMs must report to local regulators for all countries they market to. Beyond these standardised requirements, gold-plating of templates and specific interpretations of validation tests can mean the reports vary from jurisdiction to jurisdiction and there are serious consequences for any failures to meet reporting deadlines.
It is important that firms do not underestimate the commitment required to ensure that reports are accurate to individual regulators’ specifications, timely and submitted to individual regulators via the various (and differing) platforms they elect to deploy.


Often bundled into a fund administrators’ services, there is now a strong case for separating Annex IV activities to give them the care and attention they demand.

Summary

Firms need to fully understand the their regulatory requirements and obligations and there are unhelpful gaps in communications issued by the regulators, with newly registered firms largely having to satisfy themselves that they should consider themselves as third-country entities for the purposes of marketing into Europe.
Current arrangements for back- and middle-office support such as Annex IV reporting, filings and disclosures will benefit from review and improvement. Unbundling from broad-spectrum service providers and deploying regulatory a reporting specialist will help firms regain control of the associated costs and ensure jurisdiction-specific nuances are fully taken into account.
Wheelhouse Advisors are specialists in Annex IV reporting and related AIFMD matters, able to apply subject matter expertise to deliver high quality and cost-effective solutions. Furthermore, our understanding of individual EEA regulators and their platforms, as well as our tech-enabled service, guarantees that filings will be hassle free.

Speak to us today to improve your Annex IV reporting arrangement.

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