PS23/7: Broadening retail access to the long-term asset fund

Following a consultation (CP22/14) on extending the scope of eligible investors of Long Term Asset Funds (LTAFs) to retail investors, enhancing the investor protection rules in relation to LTAFs, and on increasing exposure limits of alternative investment funds and pension funds to LTAFs (please see EventID 16781 in this context for a detailed description of the consultation), the Financial Conduct Authority (FCA) has now published a corresponding final policy statement (PS23/7).
In this final policy statement, the FCA primarily summarizes the feedback it has received to its consultation and issues the final regulatory instrument as it will apply from July 3, 2023. To sum it up, the FCA notes that in large it will go ahead as proposed with some modifications resulting from the responses of commenters. The key modifications as compared to the consultation document are briefly outlined below; for more detailed information, please refer to the policy statement beginning on page 6:
– the prohibition to invest more than 50% of a non-UCITs retail AIF scheme property (NURS FAIF) in LTAFs has been removed. Such funds can now invest more than 50% in LTAFs, provided that they operate limited redemption arrangements to manage any potential liquidity mismatch.
– the risk warning text to be disclosed to retail investors has been revised to primarily focus on the (i)liquidity risk of holding shares in LTAFs.
– the exposure limit for selfselect defined contribution scheme investors to LTAFs has been extended to be „the higher of either 10% of the consumer’s total pension value, or that of the default arrangement within the same qualifying scheme“. This change only affects pension schemes that must ascertain to adequately allocate their investments.
Other changes primarily concern textual modifications for clarification purposes and the addition of handbook provisions that were consulted on, but were forgotten in the draft instrument at the end of the consultation (e.g. the removal of the illiquid asset constraint).
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The FCA is also seeking feedback on whether or not LTAFs should be kept under the remit of the Financial Services Compensation Scheme (FSCS) which is discussed from page 39 onward. Currently, activities such as the advise on LTAF investments, the distribution of LTAF units, or the functioning as a depository of an LTAF are included in the FSCS due to the fact that the application of the compensation scheme is activity-based rather than product based. Due to the increased risks involved in LTAF investments, the FCA questions whether or not coverage under the FSCS is indeed reasonable or desirable.
Comments on this issue may be submitted up to August 10, 2023.