FCA broadens access to LTAFs

By Pritpal Virdee

On 29 June 2023, the FCA published a policy statement (PS23/7) recategorising a unit in a Long-term Asset Fund (LTAF) from a Non-Mass Market Investment to a Restricted Mass Market Investment (RMMI).

The policy statement comes after the FCA consulted on the recategorisation of LTAFs in August 2022 (CP22/14). The new rules allow mass market retail investors, self-select DC pension schemes and Self-Invested Personal Pensions to invest directly into LTAFs where appropriate to do so.

This recategorisation to RMMI means that:

• firms marketing LTAFs to retail investors must provide risk warnings and summaries;
• firms selling or arranging the sale of units in LTAFs will need to conduct an appropriateness assessment for all retail investors wishing to invest in the LTAF; and
• unadvised retail investors will need to confirm that their exposure to investments subject to the RMMI rules (including LTAFs) is limited to 10% of their investable assets.

Following consultation feedback, the FCA is also making certain changes to the retail distribution and COLL rules, such as:

• Risk Warnings: The FCA has published an amended risk warning and summary which focuses more on liquidity risk rather than investment risk.
• Fund-of-funds exposure limits: A Non-UCITS Retail Scheme Fund of Alternative Investment Funds (NURS FAIF) will be permitted to invest up-to 35% of its scheme value into a single LTAF.
• Third-party valuation rules: The proposed third-party valuation rules have been amended to be more aligned with the valuation requirements for the NURS.
• Retail investor protection rules: Additional investor protection rules that already apply to retail authorised funds will also apply for LTAFs sold to mass market retail investors. 

The policy statement also includes questions (in chapter 4) on whether excluding Financial Services Compensation Scheme cover for LTAFs would be appropriate. This consultation will end on 10 August 2023. The FCA states that if they intend to take this forward, a further consultation on the detail will follow later in 2023.

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