FSA Reports Further Progress On Retail Hedge Funds

by Robin Pilgrim, LAwAndTax-News.com, London

25 February 2008

The United Kingdom's financial regulator, the Financial Services Authority (FSA), has revealed that there has been further progress on allowing UK retail consumers to invest in funds of hedge funds and other alternative investments authorised in the UK.

The FSA announced on February 22nd that a Consultation Paper confirming the policy of introducing retail-oriented Funds of Alternative Investment Funds (FAIFs) into the FSA’s regulatory regime has been published.

It also initiated a further round of consultation on a number of important issues which have been raised by fund managers and other interested parties during consultation, and which require resolution before the final regime is introduced.

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

"Permitting consumers access to a wider range of innovative investment strategies through authorised onshore vehicles will allow more choice and a better opportunity for risk diversification, while maintaining consumer protection through our proportionate rules on the operation of the product. We aim to make the final adjustments to the new regime before the end of the year, including the additional areas on which we are consulting today."

He continued: "As we have previously stated, there are a number of difficult tax issues involved in the operation of onshore FAIFs regime. Following constructive discussions with the Treasury on tax issues we welcome the publication today of their tax framework, setting out a new elective regime which aims to allow FAIFs to operate competitively within the UK retail market.”

To avoid any regulatory regime being used to gain unintended tax advantages the FSA also proposes to include a ‘genuine diversity of ownership’ condition in its rules. This condition is similar to those proposed in the Property Authorised Investment Funds discussion paper issued by the Treasury in December 2007.

The new consultation will close on May 22nd, 2008. 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 finalised rules for FAIFs as whole and the date on which they will come into effect.

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