FSA may face £5m hit from implementation of alternative directive

Implementing new requirements as part of the Alternative Investment Fund Managers Directive (AIFMD) could cost the regulator up to £5 million, the FSA has estimated.

The estimate forms part of the FSA's consultation paper on the implementation of the EU's AIFMD, which lays out rules for alternative investment funds and managers, including the requirement for funds to disclose leverage levels and changes to leverage within alternative funds.

The directive also requires alternative managers to have remuneration policies which promote effective risk management and will introduce a remuneration code for alternative investment firms for the first time.

In its cost benefit analysis, the FSA estimated one-off costs associated with implementing the directive would amount to around £5 million for the FSA and its successor the Financial Conduct Authority (FCA), which it said would cover the need for additional supervisory staff and developing new systems to cope with changes.

It also anticipates one-off costs for the alternative investment fund management industry concerning operating requirements could reach £480,000, coupled with ongoing costs up to £1.2 million.

Introducing a remuneration code could cost alternative managers up to £447,000 in one-off payments and up to £185,000 ongoing, with one-off costs up to £185,000 estimated with implementing the leverage aspect of the rules, alongside up to £195,000 ongoing.

The FSA noted that ‘almost all respondents found it difficult to provide meaningful and detailed cost estimates’ owing to uncertainty about the impact of the rules.

The FSA emphasised that it has ‘little scope for discretion’ in terms of how it implements the Aifmd regulations, which must be in force by 22 July 2013, with each EU state allowed a limited number of options or changes to the standard package of rules.

Leverage

Forming part of the proposals, the FSA said alternative investment managers would need to disclose when they make changes to the maximum level of leverage in their funds.