Further to the publication of Consultation Paper 07/6 'Funds of Alternative Investment Funds (FAIFs)' in March 2007, the FSA has issued an update on its proposals (which we covered in the September edition of this e-bulletin to allow UK retail consumers to invest in funds of hedge funds and other alternative investments sold by firms authorised in the UK.

The FSA had planned to issue a policy statement and final rules towards the end of this year to allow the development of FAIFs, including funds of hedge funds, within the retail market.

However, as the FSA identified in the consultation, there are a number of taxation issues involved in the operation of such a regime. HM Treasury is currently considering these issues in conjunction with the offshore funds regime on which a discussion paper was issued in October, with a deadline of 9 January 2008 for responses. Therefore, the FSA considers it appropriate to delay publication of its proposals until the situation is clearer, which is likely to be early in the New Year.

The proposals set out in CP 07/6 include:

  • Introducing retail-oriented FAIFs into the existing FSA regulatory regime for Non-UCITS Retail Schemes (NURSs);
  • Relaxing the 20% investment restriction into unregulated collective investment schemes for NURSs, thereby allowing the development of FAIFs;
  • Applying principles-based due diligence guidance for managers producing FAIFs; and
  • Bringing the Qualified Investor Schemes (QIS) regime in line with the FSA's revised approach for NURSs.

Although the FSA has not published feedback for CP 07/6 as yet, the industry has expressed support for the outlined approach.