On 29 June 2023, the FCA published Policy Statement 23/7: Broadening retail access to the long-term asset fund (PS23/7). PS23/7 sets out the FCA’s response to the feedback it received to its earlier consultation paper on broadening retail access to the long-term asset fund (LTAF) (CP22/14) and details the final rules and guidance that it is introducing following the consultation.
The LTAF is a new category of open-ended fund specifically designed to invest efficiently in long-term, illiquid assets, including venture capital, private equity, private debt, real estate and infrastructure. While these investments can have a higher risk of loss than diversified portfolios of listed equities or bonds, they can also potentially deliver higher long-term returns in exchange for less liquidity.
PS23/7 confirms that the FCA is proceeding with final rules, generally as consulted on in CP22/14, which recategorise a unit in an LTAF from a non-mass market investment (NMMI) to a restricted mass market investment (RMMI), in line with the FCA’s approach for high-risk investments. The FCA explains that, as the LTAF is inherently a higher risk product than is typically distributed to retail investors, the RMMI regime offers additional protections including risk warnings and restricting the amount that retail investors can invest compared to the LTAF’s previous distribution rules. The new rules therefore enable a broader range of retail investors and pension schemes to appropriately access the LTAF whilst ensuring they understand the risks involved.
The FCA is also consulting, in chapter 4 of the PS23/7, on whether excluding Financial Services Compensation Scheme (FSCS) cover for the LTAF would be appropriate, as a first step towards change before the broader consideration of FSCS coverage for higher risk investments as part of the Compensation Framework Review.
Firms that are considering making an authorisation application for an LTAF are encouraged to engage with the FCA before submitting an application. The FCA also flags that any LTAFs already authorised that are structured as an Authorised Contractual Scheme (ACS) must, if they intend to continue distributing to professional, sophisticated or high net worth individuals only, alter the contractual scheme deed accordingly.
The deadline for feedback on the questions in chapter 4 of PS23/7 is 10 August 2023. Subject to the responses received, the FCA is aiming to publish a consultation paper on whether to remove FSCS coverage from LTAF products and draft Handbook rules later in 2023.