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    2021-12-09

FUND 4.2 LTIFs

Application

FUND 4.2.1R

1This section applies to:

  1. (1)

    a full-scope UK AIFM of an LTIF; and3

  2. (2)

    a UK depositary of an LTIF3.

The LTIF regulation

FUND 4.2.2G
  1. (1)

    The LTIF regulation3 lays down uniform rules on the authorisation, investment policies and operating conditions of UK AIFs3, or compartments of those AIFs, that are marketed in the UK as long-term investment funds (LTIFs)3.

  2. (2)

    [deleted]3

Interaction between the LTIF regulation and the UK AIFM regime

FUND 4.2.3G
  1. (1)

    To be eligible to manage an LTIF3, an AIFM needs to be a full-scope UK AIFM.3

  2. (2)

    This means that the AIFM and the depositary of an LTIF3 need to comply with the applicable requirements of:

    1. (a)

      the UK AIFM regime3; and

    2. (b)

      the LTIF regulation3.

Specific depositary provisions where an LTIF is marketed to retail investors

FUND 4.2.4G
  1. (1)

    Article 29 of the LTIF regulation3 contains specific provisions concerning the depositary of an LTIF3 that is marketed to retail clients which have the effect of amending the corresponding provisions which implemented AIFMD in the United Kingdom3.

  2. (2)

    Article 29 of the LTIF regulation3 is replicated in FUND 4.2.5UK3.

  3. (3)

    These specific provisions and the corresponding references in AIFMD (as implemented before IP completion day4), as well as the relevant provisions in the AIFMD UK regulation and rules3 are summarised in FUND 4.2.6G.

  4. (4)

    Where these specific provisions conflict with a rule or guidance, the relevant rule or guidance has been disapplied in FUND 4.2.7R.

FUND 4.2.5UK

3

Specific provisions concerning the depositary of an ELTIF marketed to retail investors

1.

Notwithstanding the provisions in [FUND 3.11.10R], the depositary of an LTIF marketed to retail investors must be an entity that satisfies the criteria referred to in [COLL 6.6A.8R(1) to (3)].3

31A.

The requirements of section 243(5) and (5A) and 261D(5) of FSMA and regulation 15(8)(a) of the Open-Ended Investment Companies Regulations 2001(11), as amended from time to time, do not apply to a qualifying EEA firm until the end of the period determined in accordance with regulation 17 (period during which regulation 8 or 11 is to apply) of the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018

31B.

In paragraph 1A ‘qualifying EEA firm’ means a body corporate which:

(a)

is the depositary of an LTIF;

(b)

is, by virtue of regulation 8 or 11 of the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, treated as having a Part 4A permission relating to one or more regulated activity; and

(c)

had immediately before IP completion day, and continues to have, a Part 4A permission to carry on the regulated activity specified in Article 51ZD of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

2.

Notwithstanding regulations 30 and 32 of the AIFM Regulations, the depositary of an LTIF3 marketed to retail investors shall not be able to discharge itself of liability in the event of a loss of financial instruments held in custody by a third party.

3.

The liability of the depositary referred to in regulation 30 of the AIFM Regulations3 shall not be excluded or limited by agreement where the LTIF3 is marketed to retail investors.

4.

Any agreement that contravenes paragraph 3 shall be void.

5.

The assets held in custody by the depositary of an LTIF3 shall not be reused by the depositary, or by any third party to whom the custody function has been delegated, for their own account. Reuse comprises any transaction involving assets held in custody including, but not limited to, transferring, pledging, selling and lending.

The assets held in custody by the depositary of an LTIF3 are only allowed to be reused provided that:

(a)

the reuse of the assets is executed for the account of the LTIF3;

(b)

the depositary is carrying out the instructions of the manager of the LTIF on behalf of the LTIF3;

(c)

the reuse is for the benefit of the LTIF3 and in the interests of the unit- or shareholders; and

(d)

the transaction is covered by high quality and liquid collateral received by the LTIF3 under a title transfer arrangement.

The market value of the collateral referred to in point (d) of the second subparagraph shall at all times amount to at least the market value of the reused assets plus a premium.

[Note: article 29 of the LTIF regulation3]

Summary of specific provisions concerning the depositary of an LTIF marketed to retail investors

FUND 4.2.6G

LTIF regulation3

AIFMD reference

Relevant provisions in AIFMD UK regulation and FCA rules3

(1)

Article 29(1) of the LTIF regulation3

Article 21(3) of AIFMD

FUND 3.11.10R to FUND 3.11.15G 3

(2)

Article 29(2) of the LTIF regulation3

Second paragraph of article 21(13) and 21(14) of AIFMD

Regulations 30(4) and (5) and 32 of the AIFMD UK regulation (Note 1)

(3)

Article 29(3) of the LTIF regulation3

Article 21(12) of AIFMD

Regulations 30(1) to (3) and 31(1) of the AIFMD UK regulation (Note 2)

(4)

Article 29(5) of the ELTIF regulation

Article 21(10) third paragraph of AIFMD

FUND 3.11.24R

Note 1: Regulations 30(4) and 32 do not apply to the depositary of a UK LTIF which is marketed to retail investors under Chapter V of the LTIF regulation. This follows from regulations 30(7) and 32(3) of the AIFMD UK regulation which were3 amended by The European Long-term Investment Funds Regulations 2015 (SI 2015/1882) and The Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018 (SI 2019/328)3.

Note 2: No modifications are needed to these provisions as the liability of the depositary referred to in article 21(12) of AIFMD is unaffected by the LTIF regulation3.

Disapplication of FUND depositary provisions for an LTIF marketed to retail investors

FUND 4.2.7R

The following provisions do not apply when an LTIF3 is marketed to a retail client:

  1. (1)

    FUND 3.11.10R to FUND 3.11.15G (Eligible depositaries for UK AIFs); and3

  2. (2)

    [deleted]3

  3. (3)

    FUND 3.11.24R (Reuse of assets).

Documentation and information required to market an LTIF

FUND 4.2.8G
  1. (1)

    To market an LTIF3 an AIFM is required to:

    1. (a)

      notify the FCA in accordance with regulation 54 of the AIFMD UK regulation3, if it wishes to market the LTIF in the UK (see article 31(1) of the LTIF regulation); and3

    2. (b)

      [deleted]3

    3. (c)

      provide the following additional documentation and information to the FCA3 (see article 31(4) of the LTIF regulation3):

      1. (i)

        the prospectus of the LTIF3;

      2. (ii)

        the key information document of the LTIF3 in the event that it is marketed to retail clients; and

      3. (iii)

        information on the facilities referred to in article 26 of the LTIF regulation3.

  2. (2)

    To market an LTIF3, a full-scope UK AIFM should submit a notice to the FCA using the forms in:

    1. (a)

      FUND 3 Annex 1D (Notification of intention to market an AIF in the United Kingdom) to market an LTIF3 in the United Kingdom; and3

    2. (b)

      [deleted]3

    3. (c)

      FUND 4 Annex 1R (Additional documentation and information to market an LTIF3) (as required by FUND 4.2.9R).

FUND 4.2.9R

The AIFM of an ELTIF must submit a notice to the FCA using the form in FUND 4 Annex 1R (Additional documentation and information to market an ELTIF) to market the ELTIF.

Interaction between ELTIFs and authorised funds

FUND 4.2.10G
  1. (1)

    The requirements in relation to an LTIF3 are set out in the LTIF regulation3 rather than in FCA rules.

  2. (2)
    1. (a)

      As a result, the Glossary term of an authorised fund has only limited application to an LTIF3.

    2. (b)

      This is to avoid all the requirements for an authorised AIF applying to an AIFM or depositary of an LTIF3.

  3. (3)
    1. (a)

      The Glossary term of an authorised fund only applies to an LTIF3 (other than a body corporate that is not a collective investment scheme) in FEES 6 and COMP.2

    2. (b)

      This is to allow the rules and guidance in FEES 6 and COMP to apply to an LTIF3 (other than a body corporate that is not a collective investment scheme) in the same way as other types of fund that are authorised by the FCA. 2

FUND 4.2.11G
  1. (1)

    However, a full-scope UK AIFM of an LTIF3 needs to obtain the permission of managing an AIF that is an authorised AIF.

  2. (2)

    Similarly, the depositary of a an LTIF3 needs to obtain the permission of acting as trustee or a depositary of an AIF that is an authorised AIF.

  3. (3)
    1. (a)

      Where the requirements for an AIFM or a depositary of an LTIF3 are concerned, an LTIF3 bears more of a resemblance to an authorised AIF than an unauthorised AIF.

    2. (b)

      As a result, firms that do not have the permission to manage an AIF that is an authorised AIF or act as a trustee or depositary of an AIF that is an authorised AIF will need to vary their permission to be able to act as the AIFM or depositary of an LTIF3.