Following on from their consultation (CP21/12) on a new category of authorised open-ended fund called the long-term asset fund (LTAF), the FCA have published their Policy Statement (PS21/14).
The LTAF will have its own distinct chapter (COLL 15) in the Collective Investment Schemes sourcebook, which forms part of the FCA Handbook. The final Handbook text can be found in Appendix 1 of the Policy Statement. The new Handbook rules and guidance will come into force on 15 November 2021.
The LTAF will have a mandatory notice period of at least 90 days and a requirement that it cannot offer redemptions more frequently than monthly. These are minimum requirements and longer notice periods or less frequent dealing may be appropriate for some LTAFs. The FCA would welcome the development of guidance by industry on appropriate lengths of notice periods for different types of assets as recommended by the Productive Finance Working Group.
The FCA have modified the Handbook provisions on the promotion of non-mainstream pooled investments so that LTAFs can be promoted to high net worth investors under these rules. In response to feedback, the FCA plan to consult in the summer of 2022 on potentially changing the distribution restrictions on promoting LTAFs to a broader range of retail investors.
Also, in the summer of 2022, the FCA plan to consult on amending the requirement for the depositary to be the legal owner of an LTAF’s non-custodial assets. Where a firm wishes to launch an LTAF under the current rules the FCA will consider applications to waive this requirement in accordance with the relevant statutory tests.
In addition, the following points of note have also been made in the Policy Statement:
- The proposed rule giving a 24-month period during which limits on investments do not apply has been removed.
- The proposed rules on the types of permitted loan have been made less prescriptive.
- The proposed requirement for a second scheme to have a prudent spread of risk has been removed.
- The depositary should now determine that the AFM has the resources and procedures for carrying out a valuation of the assets rather than determining, without qualification, that the AFM has the knowledge, skills and experience required to value the assets independently
- The proposed rules have been amended to clarify that the AFM remains responsible for carrying out the valuation and for ensuring that it is done impartially even if they use valuation advisers to value individual assets.
- Where an LTAF invests in other collective investment schemes, that are themselves subject to an independent valuation by an external valuer, the LTAF manager can rely on that valuation.
- The FCA do not plan to require suspension for LTAFs where there is material valuation uncertainty, but in such cases managers of LTAFs should consider whether it is in the interests of unitholders to suspend dealings.
- The FCA and HM Treasury are considering the function of the external valuer.
- The FCA have not ruled out LTAF operating a commitment approach to subscriptions where funds are drawn down only when the manager makes an investment. The FCA would welcome early engagement with AFMs considering this model for a LTAF.
- The LTAF is a separate category of fund from the QIS.
- The LTAF is permitted to be authorised as a property authorised investment fund (PAIF) and as an authorised contractual scheme (ACS). The FCA understand that the Government will ensure that pre-existing tax legislation continues to operate effectively in these cases.
- Amendments have been made to the proposed permitted link rules to address an issue identified on calculation of gross assets for the purpose of applying the 35% limit.
- The definition of permitted units has been adjusted so that it now explicitly includes conditional permitted links.
- It has been clarified that, when complying with the conditions and requirements in relation to conditional permitted links, firms need to also take into account any conditional permitted links invested in via permitted units.
- The FCA are considering whether to consult on changes to allow wider distribution of the LTAF where investors in a long-term unit-linked product have either professional support on fund selection or are guided through an appropriate choice architecture
- The FCA are considering undertaking a wider overhaul of the permitted links rules in conjunction with the PRA.
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