The Financial Services Authority (FSA) is to review its restrictions on the marketing of unregulated collective investment schemes (UCIS) to retail investors as a result of proposed European rules.
The Alternative Investment Fund Managers (AIFM) directive will come into effect from July 2013 and will impact on firms that are involved in the running of any kind of collective investment scheme other than UCITS funds.
It focuses on the regulation of the managers themselves, rather than the fund vehicles, although it leaves open the possibility to impose limits on leverage and liquidity and requires notification of alternative investment funds to be made to regulators if they are to be marketed.
In a discussion paper on the implementation of the directive, the FSA today outlined its understanding of what would be classed as an alternative investment fund (AIF) and the impact of the European directive on regulation in this country.
Although managers of UCIS are already regulated by the FSA, the directive could still have an impact on how they are sold, as it permits the regulator to allow the marketing of AIFs to UK retail investors with the safeguard of stricter requirements.
The FSA said: "We have recently expressed concerns about the promotion and sale of UCIS to UK retail investors.
"As such, we will need to consider the current prohibitions on the retail marketing of unregulated AIFs and more broadly the circumstances in which these funds are sold to retail investors."
UCIS cannot currently be promoted to the general public in the UK, although they can be proposed to certain limited categories of investors, including certified high net worth, sophisticated or self-certified sophisticated investors, as well as existing investors in UCIS.
As well as UCIS, the FSA considers some, or all, of the following to be affected by the directive:
- hedge funds, hedge funds of funds
- private equity and venture capital funds
- property funds
- investment trusts
- Real Estate Investment Trusts (REITs)
- FSA-authorised non-UCITS funds including Non-UCITS Retail Schemes (NURS)
- Funds of Alternative Investment Funds (FAIFs) and Qualified Investor Schemes (QIS)
- charity funds (these are distinct from social funds which are currently the subject of a Commission proposal for regulation)
- commodity funds
- infrastructure funds
Julie Patterson, director at the Investment Management Association, welcomed the discussion paper, pointing out it could affect around 2,000 AIFs in the UK.
"It helpfully summarises the many and diverse requirements within the Directive, and the extent of detailed requirements still to come from the Commission and ESMA," she said.
"And there are yet further EU rules proposed for smaller venture capital funds and ‘social entrepreneurship' funds which will need to be accommodated."
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