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FUND 4.2 ELTIFs

Application

FUND 4.2.1R

1This section applies to:

  1. (1)

    a full-scope UK AIFM of:

    1. (a)

      a UK ELTIF; or

    2. (b)

      an EEA ELTIF; and

  2. (2)

    a UK depositary of a UK ELTIF.

The ELTIF regulation

FUND 4.2.2G
  1. (1)

    The ELTIF regulation lays down uniform rules on the authorisation, investment policies and operating conditions of UK AIFs or EEA AIFs, or compartments of those AIFs, that are marketed in the EEA as European long-term investment funds (ELTIFs).

  2. (2)

    The ELTIF regulation is a directly applicable EU regulation.

Interaction between the ELTIF regulation and AIFMD

FUND 4.2.3G
  1. (1)

    To be eligible to manage an ELTIF, an AIFM needs to be:

    1. (a)

      a full-scope UK AIFM; or

    2. (b)

      a full-scope EEA AIFM.

  2. (2)

    This means that the AIFM and the depositary of an ELTIF need to comply with the applicable requirements of:

    1. (a)

      AIFMD; and

    2. (b)

      the ELTIF regulation.

Specific depositary provisions where an ELTIF is marketed to retail investors

FUND 4.2.4G
  1. (1)

    Article 29 of the ELTIF regulation contains specific provisions concerning the depositary of an ELTIF that is marketed to retail clients which have the effect of amending the corresponding provisions of AIFMD.

  2. (2)

    Article 29 of the ELTIF regulation is replicated in FUND 4.2.5EU.

  3. (3)

    These specific provisions and the corresponding AIFMD provisions and UK transposition are summarised in FUND 4.2.6G.

  4. (4)

    Where these specific provisions conflict with a rule or guidance, the relevant rule or guidance has been disapplied in FUND 4.2.7R.

FUND 4.2.5EU

Specific provisions concerning the depositary of an ELTIF marketed to retail investors

1.

By way of derogation from article 21(3) of Directive 2011/61/EU, the depositary of an ELTIF marketed to retail investors shall be an entity of the type referred to in article 23(2) of Directive 2009/65/EC.

2.

By way of derogation from the second subparagraph of article 21(13) and article 21(14) of Directive 2011/61/EU, the depositary of an ELTIF marketed to retail investors shall not be able to discharge itself of liability in the event of a loss of financial instruments held in custody by a third party.

3.

The liability of the depositary referred to in article 21(12) of Directive 2011/61/EU shall not be excluded or limited by agreement where the ELTIF is marketed to retail investors.

4.

Any agreement that contravenes paragraph 3 shall be void.

5.

The assets held in custody by the depositary of an ELTIF shall not be reused by the depositary, or by any third party to whom the custody function has been delegated, for their own account. Reuse comprises any transaction involving assets held in custody including, but not limited to, transferring, pledging, selling and lending.

The assets held in custody by the depositary of an ELTIF are only allowed to be reused provided that:

(a)

the reuse of the assets is executed for the account of the ELTIF;

(b)

the depositary is carrying out the instructions of the manager of the ELTIF on behalf of the ELTIF;

(c)

the reuse is for the benefit of the ELTIF and in the interests of the unit- or shareholders; and

(d)

the transaction is covered by high quality and liquid collateral received by the ELTIF under a title transfer arrangement.

The market value of the collateral referred to in point (d) of the second subparagraph shall at all times amount to at least the market value of the reused assets plus a premium.

[Note: article 29 of the ELTIF regulation]

Summary of specific provisions concerning the depositary of an ELTIF marketed to retail investors

FUND 4.2.6G

ELTIF regulation

AIFMD reference

UK transposition

(1)

Article 29(1) of the ELTIF regulation

Article 21(3) of AIFMD

FUND 3.11.10R to FUND 3.11.15G and FUND 3.11.18R

(2)

Article 29(2) of the ELTIF regulation

Second paragraph of article 21(13) and 21(14) of AIFMD

Regulations 30(4) and (5) and 32 of the AIFMD UK regulation (Note 1)

(3)

Article 29(3) of the ELTIF regulation

Article 21(12) of AIFMD

Regulations 30(1) to (3) and 31(1) of the AIFMD UK regulation (Note 2)

(4)

Article 29(5) of the ELTIF regulation

Article 21(10) third paragraph of AIFMD

FUND 3.11.24R

Note 1: The AIFMD UK regulation was amended by The European Long-term Investment Funds Regulations 2015 (SI 2015/1882) so that these regulations do not apply to a depositary of an EEA ELTIF or a UK ELTIF that is marketed to retail clients under Chapter V of the ELTIF Regulation (see regulations 30(7) and 32(3) of the AIFMD UK regulation).

Note 2: No modifications are needed to these provisions as the liability of the depositary referred to in article 21(12) of AIFMD is unaffected by the

ELTIF regulation.

Disapplication of FUND depositary provisions for an ELTIF marketed to retail investors

FUND 4.2.7R

The following provisions do not apply when an ELTIF is marketed to a retail client:

  1. (1)

    FUND 3.11.10R to FUND 3.11.15G (Eligible depositaries for UK AIFs);

  2. (2)

    FUND 3.11.18R (Eligible depositaries for EEA AIFs); and

  3. (3)

    FUND 3.11.24R (Reuse of assets).

Documentation and information required to market an ELTIF

FUND 4.2.8G
  1. (1)

    To market an ELTIF an AIFM is required to:

    1. (a)

      notify its competent authority in accordance with article 31 of AIFMD, if it wishes to market the ELTIF in the Home State of the AIFM (see article 31(1) of the ELTIF regulation);

    2. (b)

      notify its competent authority in accordance with article 32 of AIFMD, if it wishes to market the ELTIF in a Host State of the AIFM (see article 31(2) of the ELTIF regulation); and

    3. (c)

      provide the following additional documentation and information to its competent authority (see article 31(4) of the ELTIF regulation):

      1. (i)

        the prospectus of the ELTIF;

      2. (ii)

        the key information document of the ELTIF in the event that it is marketed to retail clients; and

      3. (iii)

        information on the facilities referred to in article 26 of the ELTIF regulation.

  2. (2)

    To market an ELTIF, a full-scope UK AIFM should submit a notice to the FCA using the forms in:

    1. (a)

      FUND 3 Annex 1D (Notification of intention to market an AIF in the United Kingdom) to market an ELTIF in the United Kingdom;

    2. (b)

      SUP 13 Annex 8BR (Passporting: AIFMD) to market an ELTIF in an EEA State other than the United Kingdom; and

    3. (c)

      FUND 4 Annex 1R (Additional documentation and information to market an ELTIF) (as required by FUND 4.2.9R).

FUND 4.2.9R

The AIFM of an ELTIF must submit a notice to the FCA using the form in FUND 4 Annex 1R (Additional documentation and information to market an ELTIF) to market the ELTIF.

Interaction between ELTIFs and authorised funds

FUND 4.2.10G
  1. (1)

    The requirements in relation to an ELTIF are set out in the ELTIF regulation rather than in FCA rules.

  2. (2)
    1. (a)

      As a result, the Glossary term of an authorised fund has only limited application to an ELTIF.

    2. (b)

      This is to avoid all the requirements for an authorised AIF applying to an AIFM or depositary of an ELTIF.

FUND 4.2.11G
  1. (1)

    However, a full-scope UK AIFM of a UK ELTIF needs to obtain the permission of managing an AIF that is an authorised AIF.

  2. (2)

    Similarly, the depositary of a UK ELTIF needs to obtain the permission of acting as trustee or a depositary of an AIF that is an authorised AIF.

  3. (3)
    1. (a)

      Where the requirements for an AIFM or a depositary of an ELTIF are concerned, an ELTIF bears more of a resemblance to an authorised AIF than an unauthorised AIF.

    2. (b)

      As a result, firms that do not have the permission to manage an AIF that is an authorised AIF or act as a trustee or depositary of an AIF that is an authorised AIF will need to vary their permission to be able to act as the AIFM or depositary of an ELTIF.