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AIFMD - Delegation - Coggle Diagram
AIFMD - Delegation
As part of the general principles, there are certain set provisions which must be covered and detailed within the written agreement to comply with the AIFMD
The rights and obligations of both parties, specifically the right of access to records, inspection of records and provisions relating to the ability to visit the delegate to undertake monitoring so that effective supervision of the delegate can be applied
Requirement for the delegate to undertake proper monitoring and oversight of the activities being undertaken on behalf of the AIFM and adequately manage any risks which it identifies in undertaking that role
Confidentiality and data protection provisions relating to the data of the AIFM, the AIF itself and the investors in that AIF
Provisions to compel the delegate to disclose to the AIFM any matter that may have a material impact on its ability to cary out the delegate functions effectively and in compliance with applicable laws and regulatory requirements
A requirement for a comprehensive disaster recovery plan to be in place and regularly tested by the delegate
Notice provisions in relation to cessation of the contract and the circumstances in which it may be triggered
If there is a written agreement such as memorandum of understanding between the home regulator of the AIFM and the regulatory authority of the delegate which covers the following then the third country entity can be a delegate if
Provisions exist for the AIFMs regulator to obtain information and documents from the delegate in order satisfy themselves that the requirement under the AIFMD are being met
The AIFM's regulator can receive info from the supervisory authority in the 3rd country for the purpose of investigating apparent breaches of the AIFMD and Regulation as soon as possible
There are provisions for the co-operation between regulators in the event of enforcement action in accordance with applicable local law
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Remuneration code
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After a firm is authorised as an AIFM it must comply with the requirements of the Remuneration Code and ensure that it has sufficient evidence to demonstrate how it is doing so on an ongoing basis
It's purpose is to prevent inappropriate remuneration being offered to key staff as excessive remuneration be linked to risk taking and disproportionate rewards for taking those risks, all of which have been identified as contributory factors to the global financial crisis of 2008
In pace to ensure a clear division between taking risks and individuals receiving personal rewards, to discourage excessive risk taking to promote a culture of understanding the risk issues and their management and encourage responsible behaviour by key staff within the AIFM
Ongoing obligation
In addition to the requirements of the contract there are a number of ongoing obligations with which the AIFM has to comply in accordance with the general principles
These all effectively centre on the AIFM's ability to oversee the ongoing compliance of the delegate both with the contractual agreement that is in place and the way in which they are undertaking the delegated activities for the AIFM
While the AIFM may have delegated the task, the responsibility for how it is carried out rests with the AIFM, so there has to be a robust oversight programme of the delegate including on site visits to document how the AIFM has satisfied itself as to the standard and compliance of the work the delegate has undertaken
If a decision is made by the AIFM to delegate there is a requirement under AIFMD to provide sufficient rationale for the decision based on the objective reasons. Examples include
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If a decision is made to delegate then the relevant general principles must be complied with so that the delegation does not allow for circumvention of the AIFM's responsibilities or obligations in relation to the AIF
Any contract or agreement for delegation must be documented in writing between the AIFM and the delegate. An AIFM must notify its home regulatory if it chooses to delegate any of its functions
It will be necessary for the AIFM to provide its home regulator with a detailed description of the delegate and explanation of the applicable reasons for any delegation, together with supporting evidence
Ordinarily the notification to home regulation will be done by way of a specific application for issued by the regulator which requests certain information in relation to the proposed delegation arrangements
The AIFM has a responsibility to ensure that any delegate has sufficient resources and employs staff with the skills, knowledge and expertise to be undertaking the activity being delegated
Staff of the delegate are also required to be fit and proper, that is to say that enquiries for any convictions for dishonesty or fraud or regulatory sanctions applied against them in any jurisdcition
In most cases the AIFM will put together a DD pack which will demonstrate the enquiries made and information that they have gathered in order to satisfy themselves as to the competency and ability of the delegate and its staff to undertake the work
Where the delegation of the portfolio management or risk management element of the AIFM's role is to happen, the Regulation sets out the types of EU regulated entities which are deemed to be appropriately authorised for such activities - it also notes that non EU entities authorised under AIFMD such as those in 3rd countries who hold a licence for fund management from their home regulator can act as delegates for an AIFM if certain criteria are met
In respect of the regulatory oversight provisions the reality is that the 3rd country regulator will have an onsite visit regime in place to visit its regulated entities and will allow for the findings of any such visit to be shared with the AIFMs regulator in the spirit of cooperation using the provisions of the memorandum of understanding or similar document in place between them