At the beginning of April, the FCA acknowledged that fund managers faced significant challenges in producing financial information in the current environment and introduced temporary extensions for UK authorised fund managers of UK UCITS schemes and NURS. On Wednesday, 22 April, some of the deadline extensions were amended to apply to (a) full-scope UK AIFMs of EEA AIFs and non-EEA AIFs marketed in the UK; and (b) AIFMs of EuSEFs or EuVECAs established in the UK.
Full-scope UK AIFMs are ordinarily required to publish AIF annual reports within six months of the accounting or financial year end of each AIF. Market volatility resulting from the COVID-19 crisis poses significant obstacles, particularly in terms of valuations with auditors being constrained in terms of access to the data required to produce an audit opinion and challenges with staffing in the current environment. A volatile and unpredictable market hampers the ability to produce forecasts and projections, cost of capital estimates and valuations of portfolio investments.
The FCA expects UK AIFMs, AIFMs of UK EuSEFs or EuVECAs and UK authorised fund managers of UK UCITS and NURS to publish annual reports on time, where possible, without compromising the quality of the report. However, recognising operational challenges faced by these fund managers, the FCA’s temporary relief allows managers to publish annual reports within eight months (for AIFs, EuSEFs, EuVECAs or QIS funds) and six months (for UCITS and NURS) of the end of the relevant fund’s accounting or financial year. This is a two month extension to the deadline for the publication of annual reports.
In order to avail itself of the temporary extension, an in scope fund manager should promptly inform the fund’s depositary (where one is required) and auditors and should then contact the FCA with the details of the funds for which they intend to use the relief. Fund managers using the extension are required to publish a statement on their website, in a prominent place, explaining the reasons for their decision and indicating the revised publication date. This statement must be published no later than on the original publishing date of the annual report.
Fund managers are also required to consider how they should communicate the extension to investors.
The constitutional document of closed-ended AIFs, typically an LPA, often sets out contractual deadlines for semi-annual and annual reporting. Investors may also agree enhanced reporting under side letters. AIFMs should note that the FCA extension relates to reporting obligations owed by the AIFM to the FCA and investors under the UK regulatory regime only. The FCA temporary extension does not therefore grant to an AIFM or general partner a waiver of their contractual undertakings under the LPA or side letters. Consequently, AIFMs and general partners who are likely to require the extended period will need to consider how to alleviate their contractual risk under LPA and side letter provisions.
Readers should note that the FCA has not expressly applied the extension periods to non-EEA AIFMs marketing AIFs into the UK under the UK national private placement regime. Consequently, the imposition of the annual report deadline of six months by Chapter 10.5.11 of the FCA’s FUND Sourcebook remains unaffected.
The FCA will continue to keep this temporary relief under review and will announce the end of the policy in what it says will be a “fair, orderly and transparent way”.
As a separate matter, despite lobbying, the FCA has not extended deadlines for Annex IV reporting of transparency information for full-scope UK AIFMs of EEA AIFs and non-EEA AIFs under the AIFMD Level 2 Regulation (Regulation 231/2013/EU).
Client Alert 2020-281
