On 6 July 2022, the FCA published Policy Statement 22/8 ‘Protecting investors in authorised funds following the Russian invasion of Ukraine’ (PS22/8).

In PS22/8 the FCA responds to feedback to Consultation Paper 22/8 (CP22/8) and sets out final rules and guidance which allow authorised fund managers to create separate unit classes (side pockets) for retail investment funds affected by the invasion of Ukraine. The new rules and guidance introducing side pockets will help protect fund investors while empowering investment managers to isolate their holdings of Russian and Belarusian assets, avoid new investors in the fund acquiring affected investments, and facilitate winding down as opportunities arise.

Following the feedback to CP22/8 the FCA has finalised its rules to facilitate the use of side pockets broadly as consulted on, with the following principal exceptions:

  • The Glossary term ‘sanctioned investment’ is defined more broadly, to cover any asset or investment that is subject to a relevant sanctions regime and held in a retail authorised fund.
  • Enhancements have been made to the risk warnings to be set out in the prospectus and in the information to be sent to existing investors when they receive units in the side pocket class.
  • The addition of a rule and guidance about how voting rights for side pocket units may be exercised at a unitholder meeting.
  • The addition of a rule and guidance clarifying the FCA’s expectations of how alternative fund managers (AFMs) should carry out the assessment of value required by COLL 6.6.20R, in relation to a fund with a side pocket class.
  • Clarification of some provisions around the ability of AFMs to effect redemptions and transfers of title to units in a side pocket class.
  • The addition of guidance that AFMs should consider the operational needs of distributors before deciding to set up a side pocket class.

The FCA has set out the final Handbook text in Appendix 1. The new Handbook rules and guidance will come into force on 11 July 2022.

The FCA encourages firms looking to implement side pockets to engage with it before applying to modify scheme documents. This is so that the FCA can tell the firm what specific information it will want it to provide as part of the application.