UK Law and Practice Contributed by: Sam Kay, Philippa List, Mark Stapleton and Nicolas Kokkinos, Dechert LLP
“elective professional client”. To be able to do this, the manager must assess the expertise, experience and knowledge of the investor and whether this makes them capable of making their own investment decisions and understand - ing the risks involved (the “qualitative test”). The investor must further pass the “quantitative test”, meaning that they have satisfied two out of the three following requirements: • having carried out transactions of a signifi - cant size on the relevant market at an average frequency of ten per quarter over the previous four quarters; • having a financial instrument portfolio exceeding EUR500,000; and • working or having worked in the financial sector for at least one year in a professional position. An investor satisfying the relevant qualitative and quantitative tests and wishing to opt-up must be given a clear written warning of the protections and investor compensation rights they may lose, and they must state in writing that they are aware of the consequences of losing these protections and wish to be treated as a “professional client”. Private open and closed-ended funds tend only to be marketed to non-retail investors. Listed closed-ended funds are available to both pro - fessional and retail investors. 2.3.11 Approach of the Regulator The FCA is regarded as being co-operative, and regularly publishes guidance on relevant regula - tory matters. 2.4 Operational Requirements An FCA-authorised manager must comply with the applicable FCA rules, which have been sup - plemented by the requirements of the UK AIFM
Regime. A key requirement is that the manager must maintain a minimum amount of capital. Other requirements applicable to the typical manager in this structure include: • prudential requirements, including relating to its governance, the remuneration of key staff, and internal systems and controls; • FCA approvals of personnel in key positions; • requirements relating to the conduct of the manager’s business, including relating to dis - closures to investors and the regulator; and • anti-money laundering checks, including due diligence checks on new investors. The FCA-authorised manager must comply with the rules set out above and, to the extent that the UK AIFM Regime applies, must also ensure that certain requirements are met by the fund, such as: • the appointment of a depositary to have custody of certain assets and/or verify title to privately held assets; • adherence to organisational controls (relating to risk management, compliance and valua - tion, for example) and conduct of business rules (relating to due diligence, execution of orders and reporting, for example); and • compliance with rules relating to companies in which the fund has a substantial stake. 2.5 Fund Finance The fund finance market in the UK is sophisticat - ed and well developed, particularly for closed- ended private funds. The market includes a range of lenders, from banks to specialist debt funds, which offer finance solutions to funds and their GPs/managers. The most common product is a capital call facility, allowing the fund to draw money from the lender in anticipation of mak - ing a capital call from the fund’s investors. The
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