FCA consults on broadening retail access to the long-term asset fund


On 1 August 2022, the FCA published a Consultation Paper 22/14 (‘‘CP22/14’’) on broadening retail access to the Long-Term Asset Fund (“LTAF”). The Financial Conduct Authority (“FCA”) in CP22/14 proposes among others to broaden the distribution of the LTAF to retail investors in the UK, to increase the level of exposure some authorised retail funds have on the LTAF, and it offers investors further adequate protection mechanisms. These key proposals aim to encourage investors to invest in long-term illiquid assets by removing unnecessary restrictions on LTAF that currently limit their investment choices and by providing them with opportunity to access suitable investments that match their attitude to risk, while offering them adequate protection.


LTAF is a UK open-ended authorised fund that enables investors to invest in long-term illiquid assets, such as private equity, venture capital, private debt, property, and infrastructure. The LTAF is mostly relevant to asset managers with experience of managing illiquid, long-term assets, potential wealthy, high risk investors, consumer groups, insurers who write unit linked long-term insurance contracts, fund distributors, and depositaries.

FCA’s proposal and changes

The FCA has proposed the following changes, as set out in CP22/14:


Classification of LTAF as a Restricted Mass Market Investment (“RMMI”) from its previous category as a Non-Mainstream Pooled Investment (‘‘NMPI’’)

The FCA proposes to re-categorise a unit in LTAF as a ‘Restricted mass Market Investment’ (“RMMI”).  This means that in addition to high net worth and sophisticated retail investors, restricted retail investors will be able to invest up to 10% of their investable assets into an LTAF or other RMMI products.

The re-categorisation reflects the FCA’s belief that LTAFs as FCA authorised funds, which should adhere to strict requirements, should not be categorised the same way as an unauthorised funds. This is currently the case under the November 2021 rules whereby LTAF as NMPI is part of Non-Mass Market Investments (“NMMI”) product category putting it alongside Qualified Investor Scheme (QIS”), which although it is a fund for professional and institutional investors, it does not offer the same level of protection or have the same restrictions as an LTAF.

In addition, the FCA will further strengthen the governance, oversight and controls built in the LTAF as an authorised fund, include a number of investor protections, such as, specific risk warning wording, and risk summary templates. Because of the current strong protections under the LTAF, the FCA will not require the same 24-hour cooling off period that applies to other RMMI products.







Additional protections for retail investors

As the current LTAF framework is structured as a QIS, the FCA considered it necessary to include additional measures to ensure that retail investors in LTAFs are treated fairly and are given adequate information in a timely way. The FCA proposes the following protection rules:

–       application of a detailed disclosure rule of a packaged retail investment and insurance-based product (‘‘PRIIPS’’) key information document;

–       maintenance of a detailed register of investors;

–       implementation of a new framework around charging performance fees;

–       requirement of investors’ approval when making changes; and

–       alignment of fund supervision rules.

All firms that manufacture, manage, or distribute an LTAF to retail investors and retail clients must ensure they comply with the new consumer duty rules and guidance.

Please see our earlier article on this: FCA sets out final rules and guidance for a new consumer duty.



Non-UCITs Retail Schemes (“NURS”) Funds of Alternative Investment Funds (‘‘FAIFs’’)


The FCA proposes to amend the rules that govern NURS, which enable them to set up alternative investment funds (“NURS FAIFs”) to allow investment up to 35% of net asset value into units of single LTAF and up to 50% in aggregate in LTAFs.

The existing NURS FAIF due diligence requirements for LTAFs, will no longer apply, this is due to the level of investor protection that LTAFs will now have.


Broadening pensions scheme coverage

The FCA is proposing to amend permitted links rules for unit linked products to extend the distribution of LTAFs and other illiquid assets, to members of Defined Contribution (‘‘DC’’) pension schemes. The amendments are as follows:

–       allowing the wider distribution of LTAFs by offering self-select options in qualifying schemes, subject to similar protections to those that currently apply to default arrangements;

–       expanding the distribution of LTAFs where investors in a long term, unit linked product have appropriate professional support on fund selection; and

–       providing equal status to current LTAFs via the approved links to illiquid assets where the unit linked product is part of the default arrangement of a qualifying scheme.

next steps

Feedback on proposals to CP22/14 end on 10 October 2022, and the FCA will publish a final policy statement and final handbook rules early in 2023.

Firms that wish to comment on the proposals can do so by filling out the form located on the FCA website.

To view the CP22/14 consultation paper click here.

For more information, and any guidance or advice on the LTAF Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.

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