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FSA Launches Consultation On Alternative Investments For Retail Consumers

by Philip Morton, Investors Offshore

29 March 2007

The UK's Financial Services Authority (FSA) on Tuesday outlined proposals that would allow UK retail consumers to invest in funds of hedge funds and other alternative investments sold by firms authorised in the UK.

Retail investors in the UK are currently able to get exposure to hedge funds and other alternative products in a variety of ways, including through structured products.

However, the FSA now believes the time is right to allow the development of retail-oriented Funds of Alternative Investment Funds (FAIFs) within its regulatory regime.

The proposals put forward by the FSA this week would:

  • Introduce retail-oriented FAIFs into the existing FSA regulatory regime for Non-UCITS Retail Scheme (NURS).
  • Lift the existing 20% investment restriction into unregulated collective investment schemes for NURSs, thereby allowing the development of FAIFs.
  • Apply due diligence guidance for fund managers producing FAIFs, to guide them on the matters to consider in making their initial and on-going investment decisions.
  • For existing NURSs, leave the current rules unchanged, although a few consequential changes would be necessary to ensure overall consistency in the regime.
  • Ensure the regime for Qualified Investor Schemes (QISs) is in line with the FSA’s revised approach for NURSs.

Dan Waters, FSA Director Retail Policy and Asset Management Sector Leader, explained that:

"Asset management is a dynamic and innovative industry and we believe it is important that consumers can get access to the latest techniques to manage their own savings and investments. We think the time is right to permit access to a wider range of innovative strategies through authorised onshore vehicles. This will allow investors more choice and a better opportunity for risk diversification, whilst maintaining investor protection through our rules on the operation of the product.”

The consultation will close on 27 June 2007. The FSA will then finalise the draft rules in light of the responses and publish a Policy Statement giving feedback towards the end of the year. This will set out the rule changes and the date on which they will come into effect.

The full text of the FSA's 'Funds of Alternative Investment Funds' Consultation can be found in the Tax News Resources section.

 

 






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