The FCA is consulting on new rules which would extend FSCS protection to retail investors investing in Long Term Asset Funds (LTAFs).
The potential changes are part of a move by the FCA to make LTAFs more consumer friendly – and to encourage retail investors to have confidence in investing in them.
The proposed rules would give retail investors and more defined contribution pension schemes access to Long Term Asset Funds (LTAF).
The LTAF vehicle was introduced in 2021 to encourage more investments in long-term, illiquid assets, such as venture capital, private equity and private debt, real estate and infrastructure.
So far few firms have offered them with Schroders among the first to launch one earlier this year.
The FCA says that LTAFs are a higher risk product that can help provide greater diversification to investment portfolios in exchange for potentially higher returns but less immediate liquidity and longer redemption periods.
Additional protections under the FSCS should boost consumer confidence, the FCA says.
LTAFs will also be subject to additional protections under the FCA’s high risk investment framework, including risk warnings and customer assessments.
The FCA says it is seeking views on whether the protections of the Financial Services Compensation Scheme should be available for LTAFS, or whether a different approach should be in place, before LTAFs get to the retail market.
Sarah Pritchard, executive director, markets, said: “Longer-term less liquid real assets can generate good alternative returns for investors and, crucially, help to grow the UK economy through investments, such as new infrastructure.
“Our new rules allow retail investors, and pension funds, to invest in productive finance, but they also recognise that long-term investments can be riskier. That is why people will be given clear risk warnings and customer assessments, in line with other higher risk products.”
• PS23/7: Broadening retail and pensions access to the long-term asset fund
