FCA updates on AIFM hosting

The FCA has published information for AIFMs who make use of the hosting model. It reminds firms of its 2023 research which showed potential harm in the model, in terms of:

• lack of oversight of seconded staff – these were often supervised remotely, which of itself heightens risks. The FCA has also reminded firms that where they are the principal for an AR, they must tell the FCA about proposed secondments when adding new ARs on Connect;
• insufficient involvement in investor due diligence – where, typically, AIFMs that employ secondees will use third parties for onboarding checks;
• inadequacies in capital – most firms do not directly factor in the number of AIFs or AR when calculating capital requirements; and
• misleading claims about what particularly appointed representatives were in fact permitted to do – for instance, ARs describing themselves as investment managers, when in fact only seconded staff were permitted to carry on the relevant activities.

The FCA will continue to monitor these secondment models carefully and take action where it has seen harms arising from the model.