On 08 July 2024, the FCA published its Quarterly Consultation Paper No. 44 (CP24/11) on proposed miscellaneous amendments to the FCA Handbook. These are relatively minor changes, however the Regulator is still looking for firms’ feedback before implementing these proposals. The Consultation is currently open, and firms are encouraged to submit their feedback before the Consultation closes on 12 August 2024.
Chapters 5 and 8 of the CP24/11 set out the proposed changes that mainly impact funds, fund managers (“AFMs”) and other relevant stakeholders. These include changes to the application of the UCITS (Undertakings for Collective Investment in Transferable Securities) concentration rules and the removal of references to LTIFs (Long-Term Investment Funds), following the repeal of the LTIF Regulation (SI 2023/779).
Chapter 5: A change to the application of the UCITS concentration rules
The FCA is consulting on proposals to apply the UCITS concentration rules to umbrella UCITS schemes at the sub-fund level rather than the umbrella level, and to clarify the level of a Collective Investment Scheme (CIS) to which COLL 5.2.29R(3) applies. This is in response to the feedback to its Discussion Paper DP23/2, that has acknowledged the strength of the existing undertakings for the UCITS brand but suggested minor technical amendments that would simplify and clarify the regime.
a. Applying concentration rules at sub-fund level rather than umbrella level
The FCA is looking to delete COLL 5.2.30R(1)(c), the provision that applies the whole of COLL 5.2.29R at sub-fund level. It has considered and is satisfied that applying the entirety of the concentration rule at sub-fund level will not adversely affect levels of consumer protection. The FCA acknowledges that this approach allows more flexibility for AFMs who wish to create a fund-of-funds as a UK UCITS, without compromising on consumer protection.
b. Clarifying the level of a Collective Investment Scheme (CIS) to which COLL 5.2.29R(3) applies
The FCA is proposing to clarify that the 25% maximum limit in COLL 5.2.29R applies to the sub-fund of a CIS target fund which is an umbrella. For an umbrella, the term ‘collective investment scheme’ might be taken to refer to the umbrella itself and not one of its sub-funds, whereas the intention of the UCITS Directive is clearly that ‘single UCITS’ means a sub-fund not an umbrella. The FCA is suggesting making it explicit that COLL 5.2.29R(3) refers to either a standalone scheme or the sub-fund of an umbrella.
In cases where AFMs are holding more than 25% of the units of an individual target sub-fund, the FCA is proposing to incorporate a transitional provision that would require the AFMs to reduce that position to not more than 25% of the units in the target fund. In this case, AFMs will be given up to six months to make the adjustment, considering the interests of investors and any potential impact on the liquidity of the target fund.
Chapter 8: Removing references to LTIFs and the LTIF Regulation
The FCA is proposing to remove all references to LTIFs and the LTIF Regulation (SI 2023/779) from the Handbook, including references to ‘EEA LTIF’, relating to EEA alternative investment funds (AIFs) marketing in the UK under Part 9A of the Alternative Investment Fund Managers (AIFM) Regulations 2013. The Regulator is suggesting this change as no LTIF was ever established in the UK and the LTIF Regulation has been repealed on 1 January 2024 with no intention to be replaced. As such, references to the LTIF Regulation and LTIFs in the Handbook have no legal effect.
In order to ensure that there are no barriers to investment in long-term illiquid assets, the FCA has created the Long-Term Asset Fund regime, which aims to provide an alternative fund structure better suited to the needs of the UK market.
How can Complyport help?
Complyport can support your firm in understanding and following these changes by providing:
- Regulatory Guidance: helping your firm understand the FCA’s expectations and providing expert advice on the relevant regulatory requirements;
- Ongoing Support: providing ongoing support to ensure that your firm remains compliant as regulations evolve;
- Training: providing training sessions to educate staff on the practical requirements and best practices for compliance.
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