Financial Services Authority: Funds of Alternative Investment Funds (FAIFs)

07/6★★★ Financial Services Authority Funds of Alternative Investment Funds (FAIFs) March 2007 Contents 1 Overview 3 2 Setting the scene 7 3 Funds of alternative investment funds (FAIFs) – our proposed approach 9 4 Distribution 20 Annex 1: Case study Annex 2: Cost benefit analysis and compatibility statement Annex 3: List of questions Annex 4: Draft Handbook text for COLL © The Financial Services Authority 2007 The Financial Services Authority invites comments on this Consultation Paper. Comments may be sent by electronic submission using the form on the FSA’s website at www.fsa.gov.uk/pubs/cp07_06_response.html. Alternatively, please send comments in writing to: Sally Rigg Mortgages, General Insurance and Collective Investment Schemes Retail Policy Division Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS Telephone: 020 7066 5756 Fax: E-mail: 020 7066 5757 cp07_06@fsa.gov.uk It is the FSA’s policy to make all responses to formal consultation available for public inspection unless the respondent requests otherwise. A standard confidentiality statement in an e-mail message will not be regarded as a request for non-disclosure. Copies of this Consultation Paper are available to download from our website – www.fsa.gov.uk. Alternatively, paper copies can be obtained by calling the FSA order line: 0845 608 2372. 1Overview Introduction 1.1 Last year, we published a Feedback Statement1 about the nature of the UK regulatory regime that applies to retail investment products. We asked whether, for both existing and emerging new products, that regime continued to provide the right balance between ensuring consumers have sufficient access to an appropriate range of investment products whilst securing an appropriate degree of consumer protection as envisaged by the Financial Services and Markets Act (FSMA). 1.2 A wider range of investment products is increasingly entering the retail market and there is little, if any, possibility of preventing this. Indeed, because of the recent downturns in the equity market retail consumers appear to be actively seeking out alternative investments to increase their returns. 1.3 For this reason we have considered how we might create a regime to accommodate these diverse products in a well-regulated environment. The advances that have taken place in portfolio management mean that the traditional, long-only style of management typically found in retail investment products may no longer be the only appropriate strategy for every investor. As has been seen in the recent bear market, when returns are benchmarked against an index or sector, economic downturns may result in significant overall financial losses. At the moment, consumers have limited access to products that may offer alternative means of portfolio diversification which, when held in a proportionate amount, may prove valuable tools for risk diversification. 1.4 This Consultation Paper (CP) sets out our proposals for the introduction of a range of retail-oriented funds of alternative investment funds. Why we are conducting this review 1.5 The main drivers behind our review are as follows: · The offer and sale of wider-range products to retail consumers is subject to differing regulatory requirements. This means that retail consumers may be confronted with those products in a variety of circumstances, and subject to differing conditions. Our concern is that consumers neither understand the nature of these products nor the different regimes that apply to them. 1 FS06/3 – ‘Wider-range Retail Investment Products’ March 2006. This followed on from DP05/3 ‘Wider-range Retail Investment Products’ June 2005 Financial Services Authority 3 ... - tailieumienphi.vn