On 26 February 2010, the FSA published Policy Statement 10/3: Funds of Alternative Investment Funds (FAIFs) (PS10/3). In PS10/3 the FSA summarised the comments it received on Consultation Paper 08/4: Funds of Alternative Investment Funds (FAIFs) - Feedback on CP07/6 (CP08/4) and explained the changes it had made to its policy and proposed rules.

The FSA reported that the aim and essence of the rules remains the same as in CP08/4. However, as the drafted NURS (non-UCITS retail scheme) rules were too complex, the FSA has created a separate section (COLL 5.7) entitled ‘Investment powers and limits for non-UCITS retail schemes operating as funds of alternative investment funds’.

The FSA stated that respondents to CP08/4 supported its plan to introduce rules allowing master/feeder structures, where the FAIF is able to achieve its investment objectives by investing in a single collective investment scheme.

The FSA also:

  • Reviewed its policy on repayment standards for schemes operating as FAIFs.
  • Noted criticism of its proposal to maintain the combined 20% limit on investing in unregulated schemes and unapproved securities. The FSA recognised that this is inconsistent with its overall aim of increased flexibility for FAIFs and has therefore removed this proposal whilst retaining the 20% limit on unapproved securities.
  • Included independent custody and valuation requirements that must be met if a FAIF wishes to invest in an unregulated scheme.
  • Included a fact sheet that provides firms (e.g. independent financial advisers) with points they should consider when distributing a FAIF.

The FSA will undertake a post-implementation review of the FAIF rules, which will include how they are marketed and distributed. The exact timing of this review will depend upon the number and variety of FAIFs launched.

The FSA also noted that it cannot rule out the possibility that the FAIF rules will need amending in the future in light of the Alternative Investment Fund Managers Directive. This Directive will introduce new regulations affecting the operators of all collective investment schemes, capturing NURS within its scope.

View Policy Statement 10/3: Funds of Alternative Investment Funds (FAIFs), 26 February 2010