new rules / sefa ozel

In an effort to boost retail investors’ access to an array of alternative asset classes — such as infrastructure investments, real estate, private equity and private debt — the U.K.’s Financial Conduct Authority (FCA) is adopting new requirements to broaden distribution of risky long-term asset funds.

In 2021 the FCA began authorizing investment funds to invest in long-term assets that trade off short-term liquidity for the prospect of greater diversification and potentially higher long-term returns. However, access to these funds has been restricted to professional investors and certain high-net-worth investors, given policy concerns about these higher risk vehicles.

Now, the FCA is adopting rules that will broaden access for retail investors and more defined-contribution pension plans.

Under the new rules, these long-term funds “will be subject to additional protections under the FCA’s high-risk investment framework, including risk warnings and customer assessments,” the regulator said.

Along with the enhanced risk warnings and suitability assessments, the new rules impose investment limits on do-it-yourself investors (capping long-term fund holdings at 10% of portfolio assets).

“Our new rules allow retail investors, and pension funds, to invest in productive finance, but they also recognize that long-term investments can be riskier,” said Sarah Pritchard, executive director, markets, with the FCA. “That is why people will be given clear risk warnings and customer assessments, in line with other higher risk products.”

The regulator also launched a public consultation into potentially expanding the industry compensation scheme that protects investors and consumers from industry misconduct that results in losses. The expansion would cover retail investors’ long-term fund holdings.

That consultation is open until August 10.