Alternative investment fund manager (AIFM) hosting
Update
AIFMs can use the host model to employ staff on secondment from a third party to help manage the AIF. These seconded staff, in some instances, can come from one of the AIFM’s appointed representatives (ARs) and can assist the AIFM in completing regulated tasks such as portfolio management or dealing with customers.
In 2023, the FCA conducted a review of firms using the hosting model in an attempt to better understand how these firms understood and complied with their regulatory responsibilities. The key responsibilities that the FCA identified as posing potential harm included supervision, financial crime, and financial resources.
Supervision
The FCA found that in many cases reviewed, seconded staff operated, and were therefore supervised, remotely, as opposed to being a physical presence within the offices of the AIFM. Potential harm can be caused here due to the heightened risk of potential conflicts of interest with regards to the secondee giving preferential treatment to their own third party as opposed to operating neutrally.
Financial Crime
It was often found that AIFMs that utilised seconded employees typically used third parties to carry out onboarding checks for investors into funds. This limited level of due diligence could heighten the risk of the firm being used to facilitate financial crime, due to ineffective systems and controls being in place to counter such acts.
Financial Resources
AIFMs employing seconded individuals were often seen to not correctly factor in the number of AIFs or ARs when calculating their capital requirements, leading to the potential for not maintaining the correct funds under the FCA’s capital adequacy rules.
Thistle can assist AIFM firms in the above areas in a number of ways. We can help firms to implement robust monitoring processes with regard to fund activities and transactions conducted by secondees. We can help with all things financial crime, ranging from the firm’s internal policies and procedures to file reviews that confirm compliance with the FCA’s financial crime and anti-money laundering regulations. We can also assist with the firm’s assessment of its material harms and ICARA, ensuring that ARs are factored into this process.
Finally, Thistle is able to help with the administrative procedure of informing the FCA when your firm is proposing to employ a secondee from one of its own ARs.