On 29 June 2023, the FCA published PS23/7: Broadening retail and pensions
access to the long-term asset fund. The Policy Statement sets out the FCA's response to the feedback they received to CP22/14 Broadening retail access to the long-term asset fund. It details the final rules and guidance which will come into force on 3 July 2023 (there are transitional provisions for LTAF already launched) .
Consultation on excluding the LTAF from FSCS
The paper also includes questions on whether excluding Financial Services Compensation Scheme (FSCS) cover for the LTAF would be appropriate. The FCA have requested responses to these by 10 August 2023. AREF has drafted a response; Jacqui Bungay , Policy Secretariat (jbungay@aref.org.uk) welcomes feedback from members on the draft response by Wednesday 9 August 2023.
Points of note in PS23/7
As proposed by the FCA, the LTAF is being recategorised from a Non-Mass Market Investment (NMMI) to a Restricted Mass MarketInvestment (RMMI).
As a result of feedback, the FCA have made the following changes to the proposed retail distribution and COLL rules they consulted on:
- The risk warning and summary in the final rules focuses more on liquidity risk.
- As well as permitting a Non-UCITS Retail Scheme Fund of Alternative Investment Funds (NURS FAIF) to invest up to 35% of the value of its scheme property into a single LTAF, a NURS FAIF will be able to invest more than 50% of its scheme property in LTAFs as long as the NURS FAIF operates limited redemption arrangements to manage the liquidity mismatch.
- The third-party valuation rule for the LTAF has been brought in line with the valuation requirements for the NURS.
- The FCA have amended how some of the additional investor protection rules (that already apply to retail authorised funds) apply to the LTAF to align them with the FCA's original policy intent. These additional rules are intended to provide additional protection for mass market retail investors and will not apply to LTAFs that have only professional, HNWI, certified sophisticated or self-certified sophisticated unitholders.
The FCA are also making the following changes to the proposed pensions distribution rules:
- The exposure limit for self-select defined contribution scheme investors has been changed.
- They have expanded distribution to include non-advised investors in long term unit-linked products including non-workplace schemes and non-qualifying workplace schemes.
- They have removed the 35% restrictions on illiquid assets in unit‑linked fund structures within the default arrangement of a qualifying scheme, in line with the policy intent of the consultation.
- They have clarified that consumers with exposure to LTAFs in self-selected pensions or SIPPs should receive a notification alerting them to the illiquid nature of their holdings as they approach retirement age.
Background
In PS21/14: A new authorised fund regime for investing in long term assets (LTAF) the FCA said that they would consult on wider distribution of the LTAF. On 1 August 2022 the FCA published CP22/14 Broadening retail access to the long-term asset fund.
The FCA consulted on proposals to broaden the distribution of the LTAF to retail investors, with certain restrictions. The proposals included:
- recategorising units in the LTAF as a Restricted Mass Market Investment (RMMI) in line with PS 22/10 Strengthening our financial promotion rules for high‑risk investments;
- wording for LTAF risk warnings;
- not requiring a 24-hour cooling off period when buying units in a LTAF, unlike for other products categorised as RMMI;
- aligning some LTAF rules with the investor protection rules that apply to other retail authorised funds, including:
- full engagement with unitholders about any proposed fundamental or significant changes to the fund;
- regular investor updates to be provided in the event of a suspension of dealing;
- arrangements for the conduct of unitholder meetings;
- restrictions on what types of payments and charges can be taken from LTAF unit classes made available to retail clients;
- if a client is non-advised, the completion of an appropriate assessment;
- Funds of Alternative Investment Funds (FAIFs) being able to invest up to a maximum of 35% in a single LTAF and a upper investment limit of 50% of the FAIF in LTAFs, to stay under the Funds with Inherently Illiquid Assets (FIIA) threshold.
The FCA proposed amending the rules for unit‑linked products (the ‘permitted links’ rules) to extend the distribution of LTAFs and other illiquid assets to members of Defined Contribution (DC) pension schemes and more widely by:
- permitting the broadening of the distribution of LTAFs via self‑select options in qualifying schemes, subject to similar protections to those that currently apply to default arrangements;
- extending the distribution of LTAFs where investors in a long‑term, unit‑linked product have appropriate professional support on fund selection; and
- giving equivalent status to that currently afforded to LTAFs via the permitted links rules to other illiquid assets where the unit‑linked product is part of the default arrangement of a qualifying scheme.
Also, the FCA feedback on whether there would be any unintended consequence from categorising the LTAF as a non-standard product for SIPPs.
AREF’s Public Policy Committee oversaw AREF’s response which was submitted to the FCA on
10 October 2022. This was produced with the assistance of AREF's LTAF Working Group and the Investment Association (IA).
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