PS21/14: A new authorised fund regime for investing in long term assets

A new authorised fund regime for investing in long term assets Policy Statement PS21/14 October 2021

PS21/14 Financial Conduct Authority
A new authorised fund regime for investing in long term assets Moving around this document Use your browser’s bookmarks and tools to navigate. To search on a PC use Ctrl+F or Command+F on MACs. This relates to Consultation Paper 21/12 which is available on our website at www.fca.org.uk/publications Email:
cp21-12@fca.org.uk
Sign up for our news and publications alerts See all our latest press releases, consultations and speeches. Contents 1 Summary 4 2 The long-term asset fund 9 3 Permitted links rules 26 4 Distribution 32
Annex 1
List of non-confidential respondents 37
Annex 2
Abbreviations used in this paper 39
Appendix 1
Made rules (legal instrument)

PS21/14 Financial Conduct Authority
A new authorised fund regime for investing in long term assets Contents by sector This table sets out which chapters are particularly relevant for each sector. This is where you will find the most relevant chapter(s) for your firm. Sector Chapter Fund managers 1, 2, 4 Insurers 1, 2, 3

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A new authorised fund regime for investing in long term assets 1 Summary
1.1 This Policy Statement (PS) sets out our response to the feedback we received to
Consultation Paper CP21/12 proposing a new category of authorised open-ended fund called the long-term asset fund (LTAF). It also details the final rules and guidance that we are introducing following the consultation.
1.2 The LTAF regime creates a category of authorised open-ended fund designed
specifically to facilitate investment in long-term, illiquid assets. Illiquid assets include venture capital, private equity, private debt, real estate and infrastructure. They can provide a useful alternative investment opportunity for investors able to bear the risks of such investments. The ability to invest in illiquid assets, through appropriately designed and managed investment vehicles, is also important in supporting economic growth and the transition to a low carbon economy. Such investments can be higher risk than diversified portfolios of listed equities or bonds but have the potential for higher long-term returns in return for less or no immediate liquidity.
1.3 Evidence suggests that even some investors with long-term investment horizons are
not investing in long-term assets due to barriers, or perceived barriers, to doing so. For instance, default arrangements of defined contribution (DC) pension schemes commonly choose not to invest significantly in these assets, despite the long-term nature of their investment horizons. If DC schemes were to invest in long-term illiquid assets their expected returns would likely increase on average over time, although potentially at higher risk.
1.4 The rules and guidance in this PS aim to address 2 barriers that stakeholders say
hamper investment in long-term illiquid assets, that:

• there is no UK authorised open-ended fund structure that enables investment in
  long-term illiquid assets while offering appropriate structural safeguards
• the permitted links rules for unit-linked insurance hinder investment in illiquid
  assets
  1.5 Open-ended funds that invest in illiquid underlying assets yet allow investors to
  redeem their investment on any given day, without notice, create a liquidity mismatch. This can be hard for the fund manager to deal with. The Bank of England’s Financial Policy Committee’s (FPC) ‘Financial Stability Report’ (2019) judged that the mismatch between redemption terms and the liquidity of some funds’ assets creates a potential systemic risk. In creating an open-ended fund regime to invest in illiquid assets, we have considered the observations of the FPC, and international bodies such as the Financial Stability Board and the International Organisation of Securities Commissions (IOSCO), on the financial stability risks of liquidity mismatch in open-ended funds.
  1.6 As part of the Bank of England's and FCA’s review of open-ended funds, we established
  there should be greater consistency between the liquidity of a fund’s assets and its redemption terms. To address this, there must be consistency between the amount of notice investors have to give to redeem their investment and how long it will realistically take the LTAF to sell these assets. To set a minimum standard, we have decided to require LTAFs to permit redemptions no more frequently than monthly, and to have at least a 90-day notice period on redemptions.

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A new authorised fund regime for investing in long term assets
1.7 We have tried to design an LTAF that has robust governance. It must also satisfy
appropriate regulatory standards to enable investors who understand the risks of investing in long-term illiquid assets to invest with confidence. Given the regulatory standards that LTAFs must meet, and following consultation feedback, we have amended the distribution rules we proposed to enable LTAFs to be promoted to high net worth individuals in addition to sophisticated and professional investors.
1.8 In line with our proposed consumer investments strategy, we do not want to impose
unnecessary restrictions on where consumers can invest. We want them to be able to access suitable investments that are consistent with their attitude to risk. We therefore plan to consult in 2022 on proposals to amend the rules further to enable a broader range of consumers to invest in LTAFs in a controlled way. Who this affects
1.9 This policy statement will primarily be of interest to:

• asset managers with experience of managing illiquid, long-term assets
• depositaries
• potential investors in long-term asset funds, like pension providers and trustees of
  DC or hybrid pension schemes, and sophisticated or wealthy investors
• investment advisers and private wealth managers
• insurers who write unit-linked insurance business
• fund distributors
  The wider context of this policy statement Our consultation
  1.10 Establishing a new fund regime is only one step in creating an environment where
  investment in longer-term, less liquid assets, by investors who understand the risks, do not need immediate liquidity and have long-term investment horizons, can flourish. To address wider matters, together with the Treasury and the Bank of England, we convened an industry working group (the Productive Finance Working Group (PFWG)). The PFWG has been considering how the wider ecosystem can operationally support the LTAF as a non-daily dealing fund. It has published a report setting out a number of recommendations to overcome the barriers to investing in long-term illiquid investments via authorised open-ended funds. We have been engaging with the PFWG throughout the development of the LTAF. We are also undertaking work to establish how value for money in pensions can be measured more holistically considering both performance and cost.
  1.11 Our August 2020 consultation on certain types of property funds (CP20/15) proposed
  a move to notice periods of between 90-180 days. Respondents to the consultation noted that much of the wider operational infrastructure around the distribution of open-ended funds currently only supports daily dealing funds. This infrastructure will need to change to support funds with notice periods. We are considering the recommendations from the PFWG together with the responses to CP21/12 to determine the most appropriate next steps around property funds.

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A new authorised fund regime for investing in long term assets How it links to our objectives
1.12 The final rules set out in this policy statement advance our operational objective of
promoting effective competition in the interest of consumers. They are also relevant to our consumer protection and market integrity objectives.
1.13 We consider that the LTAF advances our strategic objective of ensuring that the
relevant markets function well because the LTAF structure addresses the market failure that DC default pension schemes do not invest in long-term, illiquid assets, despite having the investment horizon to do so. The LTAF has been designed to secure an appropriate degree of protection for consumers, by considering the degree of risk from investing in a fund that is predominantly exposed to illiquid assets and building protections into the structure that we believe are commensurate with the risk. While these protections cannot remove all investment risk, we think that this secures an appropriate level of consumer protection for investors to whom an LTAF can be marketed or offered as part of a DC pension scheme default strategy. The LTAF means that scheme members now have better opportunities to benefit from potential illiquidity premiums of long-term illiquid assets. By requiring the LTAF’s redemption terms to match the liquidity of the underlying investments, we consider this will help advance our market integrity objective. What we are changing
1.14 We are creating a new category of authorised fund called the LTAF, with its own distinct
chapter in the Collective Investment Schemes sourcebook (COLL), which forms part
of our Handbook. The framework provides flexibility to facilitate investment in long￾term illiquid assets combined with rules to address the specific risks these assets pose. Outcome we are seeking
1.15 We want investment in long-term illiquid assets, including productive finance, to be a
viable option for investors with long-term investment horizons who understand and are able to bear the risks of such investments, and who are seeking the potential for higher long-term returns in return for less or no immediate liquidity.
1.16 We want funds investing in illiquid assets to have appropriate redemption terms
in place, including a mandatory notice period of at least 90 days. This will enable the liquidity within the portfolio to be managed in a way that is fair to all investors. Investment in productive finance assets is important for economic growth and job creation. Without it, some long-term projects with good potential returns may not happen. While the new LTAF fund structure will not address all the barriers to investment in productive finance, we hope it will contribute to improving long-term illiquid investment opportunities and will help promote effective competition. Measuring success
1.17 If the new rules are successful, LTAFs will be launched and DC pension schemes will
choose to invest in them, increasing their exposure to long-term illiquid assets, and improving the returns for their members in the longer term.

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A new authorised fund regime for investing in long term assets Summary of feedback and our response
1.18 We received 46 written responses to CP21/12 and have engaged extensively with
stakeholders, including through the PFWG.
1.19 Respondents generally supported creating a new category of authorised fund to invest
in long-term, illiquid assets.
1.20 Some respondents argued that the proposed rules would not work as intended in
some areas, for example the rules around investing in loans and second schemes. We have modified the rules to address the feedback.
1.21 We have addressed feedback on the role of the depositary in overseeing the
authorised fund manager’s (AFM) competence in valuing the fund. We have also addressed other technical feedback on the drafting of the rules, including the permitted links rules.
1.22 Given the nature of the investments permitted within an LTAF our CP said that we
did not expect any LTAFs to offer daily dealing but would not be prescriptive about how liquidity issues could be addressed. We received feedback on this suggesting that some firms could still try to seek authorisation for daily dealing LTAFs. We need to reinforce our expectations and our position on the types of redemption terms for LTAFs that are more likely to be appropriate, and to avoid LTAFs being developed which we would not authorise. So we have set a minimum notice period of 90 days and a requirement that LTAFs cannot offer redemptions more frequently than monthly. These are minimum requirements and longer notice periods or less frequent dealing are likely to be appropriate for some LTAFs. Managers must set appropriate terms and redemption policies for an LTAF, ensuring they are consistent with the fund’s liquidity profile and the investment strategy they are operating.
1.23 We have modified the Handbook provisions on the promotion of non-mainstream
pooled investments so that LTAFs can be promoted to high net worth investors under these rules. However, firms should still have regard to their wider duties under our principles and rules. In response to feedback, we plan to consult next year on potentially changing the distribution restrictions on promoting LTAFs to a broader range of retail investors.
1.24 We also plan to consult on amending the requirement for the depositary to be the legal
owner of an LTAF’s non-custodial assets. Where a firm wishes to launch an LTAF under the rules we are now making, we will consider applications to waive this requirement in accordance with the relevant statutory tests. Amongst other things, waiver applications will need to satisfy us that proposed alternative custody arrangements provide appropriate investor protection. We recommend firms approach us before submitting a waiver application. Equality and diversity considerations
1.25 In putting together the final rules and guidance in this PS, we have had due regard to
the need to eliminate unlawful discrimination, harassment, victimisation and other conduct prohibited under the Equality Act 2010, the need to advance equality of opportunity between those who share a protected characteristic and those who do

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A new authorised fund regime for investing in long term assets not, and the need to foster good relations between persons who share a relevant protected characteristic and those who do not. Overall, we do not consider that the rules and guidance in this PS adversely impact any of the groups with protected characteristics ie age, disability, sex, marriage or civil partnership, pregnancy and maternity, race, religion and belief, sexual orientation and gender reassignment. However, we recognise that investing in LTAFs will require certain types of investor, for example those close to retirement, to carefully consider when they might need to take out the proceeds of their investment.
1.26 CP21/12 asked:
Q1: Do you consider that these proposals raise any equality and diversity issues? If so, please provide further details and suggest action we might take to address these.
1.27 None of the respondents to the consultation raised any concerns about equality and
diversity considerations.
Next steps
1.28 We set out the final Handbook text in Appendix 1. The new Handbook rules and
guidance will come into force on 15 November 2021. We encourage firms who are considering making an authorisation application for an LTAF to engage with us prior to submitting an application.
1.29 In Chapter 5 of CP21/12, we discussed broadening the LTAF distribution rules to a
wider retail audience in the future. We remain open to further broadening the base of retail investors who can access the LTAF, and plan to consult on any proposals for rule changes in the first half of 2022.
1.30 We also received feedback that the requirement for the depositary to register the
title to assets in its own name, rather than the name of the fund or the manager, is not practical for all eligible assets that an LTAF might invest in. As this feedback applies to other categories of fund and not just the LTAF, we aim to consult on alternative registration options more broadly in the first half of 2022.

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A new authorised fund regime for investing in long term assets 2 The long-term asset fund
2.1 This chapter provides a summary of feedback we received and sets out our response
to the issues raised, including areas where we are changing the rules in response to feedback. Basis of regime: governance and disclosure
2.2 The basis of the LTAF regime that we proposed was strong governance and clear
disclosure. We set out in our consultation why we considered it appropriate for the LTAF to operate to these standards. We asked:
Q2: Do you agree that clear disclosures and additional governance (as set out in 3.9-3.13 and 3.39-3.43), in addition to the existing rules, provide appropriate levels of protection for potential investors in an LTAF? If not, what alternative approach would you suggest?
2.3 Most stakeholders who responded to this question agreed with our proposal.
They noted that strong governance was important when dealing with illiquid long￾term assets. They also noted that clear disclosure would help investors and other stakeholders, including advisers and depositaries. Governance
2.4 Almost all respondents agreed that there should be independent directors on the
board of the AFM of an LTAF. They also agreed it was appropriate for a senior manager within the AFM to have a prescribed responsibility to oversee that the LTAF was being managed in the best interests of investors.
2.5 Some noted practical matters, such as situations where firms had different entities
managing authorised funds investing in liquid assets and unauthorised funds investing in illiquid assets. They noted that there might be challenges in identifying the right individual to take on the prescribed responsibility, and that our rules might require a change of Chair. They also noted that, if the entity that currently operates unauthorised funds was used to manage an LTAF, it would need to appoint non￾executive directors. Some noted that these firms may also need to add the regulatory permission to manage authorised funds.
2.6 Some stakeholders argued that additional governance, beyond what we proposed,
would be desirable, such as an independent advisory committee. Some thought that this should be required, while others argued that firms should be able to choose whether to have additional governance.
2.7 We proposed that AFMs carry out an assessment, similar to the assessment of value
required for all authorised funds, of how an LTAF is being managed in the best interests of the fund, its investors and the integrity of the market. Many stakeholders supported this additional assessment but some raised concerns. Some argued that it would be

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A new authorised fund regime for investing in long term assets too onerous, while others felt that it would lead to boiler-plate reporting. Some felt that managers should be considering these factors anyway as part of the ‘quality of service’ consideration of the assessment of value. Depositaries were concerned that there might be an implication that the depositary would oversee the additional assessment.
2.8 Many respondents pointed out that the governance requirements for an LTAF were
higher than those required for a fund designed for professional investors. They argued that managers would not choose to operate a fund with these additional requirements unless it was possible to distribute it to some categories of retail investor. Our response We have considered the feedback and we will proceed with the rules and guidance we consulted on in this area. We have designed the LTAF regime to allow firms to manage authorised funds with high levels of investment flexibility. We have established a regulated investment framework that has additional controls over and above those of unauthorised funds. The LTAF has been designed to permit firms to set up authorised funds to give confidence and clarity to potential investors about the standards to which they must operate. LTAFs will be able to invest in a wide range of illiquid assets. Good governance will be important in managing the risks of such investments. We consider that the proposed governance requirements will secure an appropriate degree of protection for investors in LTAFs and will help provide investors with the confidence to invest in them. We do not consider it appropriate to prescribe additional governance requirements beyond what we consulted on. While some managers may wish to add other governance features such as independent advisory boards, we think it is appropriate to allow investors to decide whether such additional features, and the costs associated with them, are worthwhile. We would note that any additional governance features do not remove the responsibility from the AFM for managing the fund in accordance with our rules. We consider that it is appropriate that firms who do not currently manage authorised funds would need to get additional permissions to manage an LTAF. We would encourage firms who want to manage LTAFs to engage with our Firm Authorisations team where they do not currently have the permission to manage an authorised AIF. Our rules will require governing bodies of the AFM of an LTAF to have the collective knowledge, skills and experience to be able to understand the AFM’s activities, in particular the main risks involved in those activities and the assets in which the LTAF is invested. This is in line with existing requirements in article 21 of of the UK version of the Alternative Investment Fund Managers DIrective (AIFMD) level 2 Regulation, and our expectations of any governing body of a full-scope UK alternative investment fund manager (AIFM). It is particularly important for managers of LTAFs, which may invest in complex or esoteric assets.

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A new authorised fund regime for investing in long term assets The additional assessment is the responsibility of the AFM, and the depositary does not have a role in overseeing it. Disclosure
2.9 Respondents were generally supportive of clear disclosure underpinning the LTAF.
Most respondents agreed with the requirement for disclosures to be clear and in plain language. Some stated that this should be the standard for all materials on the LTAF, not just the prospectus, as the draft rules proposed. However, some respondents were concerned this standard was hard in practice.
2.10 Some respondents commented on the disclosure of charges. Some argued that it
was important that LTAFs disclosed charges fully. Others felt that a disclosure of all charges in underlying vehicles might make LTAFs appear expensive. They also felt that investors may not consistently apply a look-through to underlying investments for other similar products, making it hard to compare the costs of different products.
2.11 There was support for alignment with the Cost Transparency Initiative (CTI) templates.
Respondents also supported funds having to explain the operation of performance fees, so that pension fund trustees could assess whether the scheme would comply with the Department for Work and Pensions (DWP)'s rules. One respondent said it could be extremely complicated for the AFM of an LTAF to describe how indirect performance fees could affect the fund’s performance. Some respondents were concerned about how to account for performance fees in underlying vehicles, citing risks to fairness between different investors. One respondent asked us to clarify whether the requirement to disclose the maximum that a performance fee can amount to was indirectly imposing a cap on performance fees. Other respondents suggested that such a cap should be imposed, to manage the risk of performance fees breaching the charge cap for some default arrangements of DC workplace pensions. Others suggested that performance fees should not be permitted for LTAFs.
2.12 A few respondents noted the potential for LTAFs to make additional disclosures if they
have sustainability objectives. Most of these respondents said that any obligations should be consistent with requirements for other types of fund. One suggested that the LTAF rules should prescribe specific disclosures for funds with sustainability objectives. Our response We have considered the feedback and are proceeding with the rules as consulted on. We consider that disclosure is important to enable potential investors in LTAFs to understand the fund that they are investing in. Materials should be written in a way that is appropriate to the audience. When prospectus disclosures are clear and in plain language it should be easier for other disclosure materials to explain important features of the fund while being consistent with the prospectus. We support the CTI’s work and would welcome LTAFs disclosing consistently with the CTI templates. We do not plan to require this, as not all LTAFs may have investors who use these templates. We would

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A new authorised fund regime for investing in long term assets encourage the CTI to ensure that its templates can be used for LTAFs. We would encourage managers of LTAFs, where they have investors who use the CTI, to provide the relevant information. We proposed requiring disclosure of performance fees as they can be complicated. We expect managers of LTAFs to explain how their performance fees work, so that investors can make a judgement about the merits of investing in a fund. The PFWG has also made recommendations about how DC pension schemes might accommodate funds with performance fees within the charge cap. We did not intend to suggest a cap on performance fees. Where there is no maximum fee, the disclosure should explain this. We also do not plan to impose such a cap or to prohibit performance fees. The rules for authorised funds do not contain any caps on fees, but managers must undertake an annual assessment of value. We will allow the market to decide the appropriate structure and amount of any performance fees based on full disclosure. We are not planning to add specific sustainability disclosures to the LTAF rules. We note that the Government announced in October 2021 that it plans to introduce a sustainability disclosure regime which we anticipate would apply to LTAFs. We would also draw the attention of potential managers of LTAFs to the letter we sent to Chairs of AFMs on funds with environmental, social and governance (ESG) / sustainable investment objectives. Detailed provisions
2.13 Our CP described the detailed provisions of the LTAF rules. We explained the rules we
had set out and asked:
Q3: Do you agree with the detailed requirements (on purpose, investment powers, borrowing, valuation, redemptions and subscriptions, due diligence, knowledge, skills and experience, and reporting) which we propose for the LTAF? If not, which requirements do you not agree with, and why? What alternative requirements would you suggest? Purpose
2.14 We proposed that an LTAF must have an investment strategy mainly to invest in
assets which are long-term and illiquid in nature. Respondents supported our overall policy objective in limiting the purpose of an LTAF to invest in long-term illiquid assets. Many respondents noted the guidance in COLL 15.6.7G. They noted our expectation that an LTAF would invest at least 50% of its value in long-term, illiquid assets. Some respondents argued that they would expect LTAFs to invest a significantly higher proportion into illiquid assets. They argued that we should set a higher expectation of the proportion of illiquid assets.

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2.15 Other respondents asked whether the 50% expectation should be seen as a hard limit
that should be encoded into compliance systems and monitored by the depositary. Some of these respondents were concerned that a prescriptive limit could be difficult to comply with at all times, and there might be legitimate situations where an LTAF held less than 50% of its value in illiquid assets.
2.16 Some respondents suggested that the 50% expectation should be set at the point of
investment rather than on an ongoing basis. Others asked for greater clarity around our expectations, for example around when an investment had become listed and was no longer illiquid. One respondent noted the references to productive finance in the CP and asked us to provide a definition of productive finance. One asked whether LTAFs are required only to invest in productive finance assets, or in UK assets. Another respondent asked us to provide a definition of illiquid assets. Our response We are finalising the rule as consulted on. We will modify the guidance to clarify our expectations. We set out a high-level permissive rule that requires that the investment strategy of an LTAF must be to invest mainly in long-term illiquid assets. Our guidance on this rule, set out that we would expect LTAFs to invest at least 50% of their assets into unlisted securities, or other long-term assets, or funds investing in such assets. An LTAF must be managed in line with its investment objectives, policy and strategy. We did not intend the 50% guidance to constitute a limit to be monitored on a day-to-day basis either by the manager or by the depositary. The guidance applies to the investment strategy and not to the holdings in the fund at any time and we have altered it to make this clear. We intended that this would explain what we meant by ‘mainly.’ We did not seek to imply that LTAFs should not have an objective of investing in a much higher proportion of illiquid assets, if this is what the manager considers appropriate. We do not propose to define productive finance. We are not limiting LTAFs to investing only in assets considered to be productive finance. There is also no requirement for LTAFs to invest only in UK assets. LTAFs are intended to enable investment in productive finance, and the PFWG has considered how the LTAF might be used for this purpose, but we want to allow investors to choose how and where they want to invest. We consider it is not necessary to define 'illiquid assets' beyond the guidance in COLL 15.6.7G. Investment powers
2.17 Respondents supported the principles-based approach and broad flexibility provided
by the investment powers. Most respondents supported basing the investment powers on those for the qualified investor scheme (QIS). Respondents raised 3 particular questions around investment powers, including the rules on the prudent spread of risk, the rules around loans, and also second schemes.

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A new authorised fund regime for investing in long term assets Prudent spread of risk
2.18 Respondents generally supported the standard of a prudent spread of risk for an LTAF.
Some respondents noted that the requirement was a principles-based one, rather than prescriptive and detailed rules similar to those for UCITS schemes and non-UCITS retail schemes (NURS). While respondents supported a principles-based approach, some asked for further guidance on our expectations of managers. Depositaries asked how they would be able to monitor compliance with the prudent spread of risk, without detailed rules. Some respondents questioned whether the requirement for a prudent spread of risk was appropriate, if the LTAF could only be distributed to professional and sophisticated retail investors.
2.19 Many respondents queried the rule giving managers a 24-month start-up period
during which an LTAF would not be subject to the rules covering limits on investments. Some fund managers questioned whether this would be enough time to achieve a prudent spread of risk, while some pension stakeholders asked whether trustees would be unable to invest in an LTAF until it was subject to this requirement because of their own obligation to spread risk. Those who supported a longer start-up period proposed between 3 and 5 years as alternatives, potentially involving the fund manager applying for an extension to the start-up period. Some stakeholders also asked whether the wording of the rule achieved the policy intent, and whether the period should start at the commencement of the initial offer, or when capital had been raised. Our response We continue to consider that a prudent spread of risk is appropriate for the LTAF. The FCA Handbook does not define the term ‘prudent’, but in our view the word should be given its ordinary natural meaning, even if it is not supported by prescriptive requirements. We have removed the rule giving a 24-month period during which limits on investments do not apply. We have concluded that it does not deliver the policy intention in this area. We consider that the overarching requirement to have a prudent spread of risk gives LTAF managers a sufficiently broad framework in which to operate. Because the LTAF is not subject to many limits, providing relief from these does not in practice provide the manager with scope to manage the fund differently. We consider that an LTAF should be allowed time to build up its portfolio, but that it should not engage in excessive concentration of risk during this time. For example, we would not expect an LTAF to invest all (or a high proportion of) its assets into a single investment during the start-up phase. This would be an excessive concentration of risk for investors during the time where the investment constituted a high proportion of the assets. Loan rules
2.20 Respondents welcomed the ability of LTAFs to invest in and to originate loans.
However, several respondents noted that the detailed provisions of COLL 15.6.8R(2) would make it difficult or impossible to invest in loans in practice. Several respondents

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A new authorised fund regime for investing in long term assets questioned whether the rules achieve the policy intent of permitting legitimate investment in loans. Some respondents considered that some types of loan would not be appropriate, for example loans to the AFM or its affiliates or connected parties. However, many respondents highlighted that the rules were significantly more restrictive, prohibiting loans to any authorised firm or affiliate of an authorised firm. Respondents agreed that loans should not be made to natural persons.
2.21 Respondents also noted that the prohibition on loans to funds might be problematic,
and that the inability to lend to someone whose intention was to invest in a security would limit common practices in the private equity industry.
2.22 Respondents argued that the requirement for an investment in a loan not to give rise
to a conflict of interest was too constraining. There are many common situations where a conflict of interest would exist, for example if the LTAF invested in the loan alongside other clients of the manager. Respondents suggested that the existing provisions in FCA rules around conflicts of interest management would be sufficient to manage risks in this area.
2.23 Respondents also noted that the requirement for various parties not to have a
commercial interest in a loan would prevent co-investment strategies. They pointed out these strategies are common in private lending markets.
2.24 Some respondents noted that the rules on loans only apply to the extent that they
are not permitted investments under COLL 15.6.8R(1). They asked for clarity as they were concerned that managers may not be comfortable investing in loans under the proposed regime. Our response We have amended the rules on investment in loans. We have decided that existing rules around conflicts of interest management and requirements to act in the client’s best interests will manage the risks in this area that we wanted to address. Managers of LTAFs, who must be full-scope UK AIFMs, will be subject to relevant rules on conflicts of interest in SYSC 10 and Articles 30-36 of the AIFMD level 2 regulation. They will also be required to assess, at least annually as part of the assessment report for the LTAF, how they have managed and mitigated conflicts of interest. This includes outlining how their actions have been in the best interests of the LTAF, its investors and the integrity of the market. They must disclose this report publicly. We have therefore made the rules on types of permitted loan less prescriptive. We are keeping some limitations on lending, where the loan is to a natural person, or to a party where it may be difficult or impossible to manage a conflict, for example a loan to the fund manager or to the depositary or an affiliate of those firms.

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A new authorised fund regime for investing in long term assets Second scheme rules
2.25 Respondents welcomed the ability to invest in a wider range of second schemes than
a QIS can invest in. They noted that many private market structures use legal vehicles that meet the definition of a collective investment scheme. Most respondents felt that the rules would not lead to circular investment within LTAFs, although one raised concerns that this rule created a risk of this happening.
2.26 Many respondents argued that there should not be a requirement for any prudent
spread of risk within a second scheme. They argued that it was appropriate for the LTAF itself to be held to this standard, rather than any underlying investment. They argued that this would severely limit the investment opportunities for an LTAF, and in particular could prevent an LTAF investing in a vehicle that wraps a single asset. Some respondents noted that this is common practice in private markets.
2.27 A small number of stakeholders raised concerns that the due diligence requirements
for second schemes would be impractical. They said that in private markets it is common for investors to buy interests in schemes in the secondary markets, and that this might be an attractive market for LTAFs. They said that the guidance in COLL 5.7.11G could be impractical in these circumstances. The LTAF manager may not be able to carry out due diligence on the manager of the underlying scheme as envisaged by the guidance. This is because some of the information would not be publicly available and the LTAF manager may not be able to get information directly from the manager. They also noted that standards were not universal in all markets and would not necessarily be met for all entities that met the legal definition of a collective investment scheme.
2.28 Some stakeholders questioned the proposed rule on feeder funds, noting that a rule
(COLL 15.6.2R(1)) appeared to refer to the wrong entity.
Our response
We have amended the rules to remove the requirement for a second scheme to have a prudent spread of risk. We have considered the feedback and concluded that application of a prudent spread of risk at the level of the LTAF itself delivers an appropriate level of investor protection. We consider that the due diligence requirements are appropriate for second schemes. We would expect managers to make reasonable efforts to consider basic protections when investing in second schemes. We have amended the guidance to clarify that the guidance in COLL 5.7.11G can be applied in a proportionate way by managers of LTAFs. Managers should make reasonable efforts to assess the matters covered by COLL 5.7.11G. We recognise that it may not be possible to assess some of the elements of COLL 5.7.11G for some schemes. We agree that COLL 15.6.2R(1) is not accurately worded and have amended it.

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A new authorised fund regime for investing in long term assets Borrowing
2.29 There were mixed views on our proposed 30% limit for borrowing. Some stakeholders
suggested that LTAFs should not be permitted to borrow if they are open to retail investors. Others suggested that the borrowing limit should be set at 100%, in line with the QIS rules. The majority of respondents thought that the proposed 30% limit was sensible and did not foresee major issues with it, though some of those who supported it felt it would be better to have more flexibility.
2.30 Respondents noted that the practical impact of a 30% limit would be that managers
would stay significantly below that limit to avoid the risk of a breach. They noted that this would be likely to discourage any systematic borrowing by LTAFs.
2.31 Many of those stakeholders who supported higher levels of borrowing suggested that
this was particularly important during the LTAF’s initial investment phase and proposed that the limits on borrowing should be relaxed during this period.
2.32 Some respondents asked us to clarify the rules on borrowing. They noted that the CP
said that borrowing was only to be considered at the scheme level, not in underlying investments, and felt this could be clarified by adding Handbook guidance. Others sought clarification on the definition of borrowing, or confirmation that certain practices did not constitute borrowing. One sought clarification that LTAFs could borrow in different currencies. Our response We will proceed to make the rules as consulted on. As set out in the CP, the manager will have to consider an appropriate level of borrowing for the investment strategy. Because LTAFs will invest mainly in illiquid assets, and because they are open-ended, we consider that it is appropriate to limit the level of borrowing that an LTAF can undertake. The rules only limit borrowing by the LTAF, and not in any underlying investments. We have reviewed questions around the definition of borrowing. We do not think it is necessary to provide further detail as to how borrowing should be defined under our rules. Valuation
2.33 Respondents supported a principles-based approach to valuation requirements.
There was also widespread support in principle for the manager of an LTAF to use either an internal or an external valuer. One respondent argued that LTAFs should be independently valued.
2.34 Several respondents raised practical concerns about the proposed rules for
valuations. Respondents noted that the depositary would not be able to make an assessment ‘without qualification’ as to whether the manager has the competence to act as internal valuer without having valuation expertise which they do not currently have. Some raised concerns about whether a depositary has the skills to make any assessment of the fund manager’s competence. Others said that the depositary’s

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2.35 Several respondents noted that, although AIFMD provides for external valuers, in
practice few firms are prepared to act as an external valuer because they are subject to unlimited liability if they are found to be negligent in their valuation. Respondents reported that this is widely interpreted as ‘simple’ negligence, which could be the result of an error made in good faith. Several respondents suggested that we should change the AIFMD wording to state that liability would only be in cases of gross negligence, covering serious errors or an intentional failure to perform the valuation appropriately. Respondents noted that valuers need professional indemnity insurance, but it would not be possible to get this to cover simple negligence.
2.36 Some respondents argued that fund managers should be able to use valuation
advisers to support an internal valuation. They noted that the draft rules require the manager itself to have the competence to value the assets, but that it is common practice for managers to get independent valuation support. They noted that this is similar to the role of the standing independent valuer for property funds, and that it would be considered good practice to take this approach.
2.37 Respondents also said that, for a fund of funds investing in other funds where there
is independent valuation scrutiny, to require the fund of funds itself to have an external valuer would be unnecessary and duplicate work already done. Respondents suggested that such funds should not be subject to the requirement to appoint an external valuer.
2.38 We proposed requiring LTAFs to be valued monthly, in line with the requirement for
NURS operating limited redemption arrangements. Several respondents noted that normal valuation frequency in the illiquid asset market is quarterly. Some respondents argued that while monthly might be appropriate for many LTAFs it would not necessarily be right for all. They argued that the requirement for monthly valuation would add cost to managing an LTAF. In contrast, some respondents representing DC pension schemes said that monthly valuations might be too infrequent for the needs of DC pension scheme defaults.
2.39 Respondents made other points about valuation. Some sought clarity around whether
the rules on suspension where there is material valuation uncertainty should apply. Others noted that it was important to disclose the basis of the valuation of each asset to give investors confidence and transparency. Our response We have amended the rules to address this feedback. We have altered the requirement for the depositary to make a determination without qualification that the AFM has the knowledge, skills and experience required to value the assets independently. Instead we will require the depositary to determine that the AFM has the resources and procedures for carrying out a valuation of the assets. This reflects the requirements in FUND 3.11.25R(2) and FUND 3.9.

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A new authorised fund regime for investing in long term assets We note the points raised around the potential liability for external valuers. We consider independent valuation of illiquid and hard-to-value assets to be an important control to protect consumers. We would like the market for external valuers to work better, so that all managers of LTAFs can access their services on reasonable terms. The liability standard comes from the AIFMD and was transposed through the Treasury’s secondary legislation as part of implementing the Directive. We are unable to change the requirement at this stage, but are considering the function of external valuer together with the Treasury. We are comfortable with AFMs using the support of valuation advisers to value individual assets, but the AFM remains responsible for carrying out the valuation and for ensuring that it is done impartially. We have amended the rule to clarify this. Where an LTAF invests in other collective investment schemes that are themselves subject to an independent valuation by an external valuer, we agree that the LTAF manager should be able to rely on that valuation. We continue to consider that at least monthly valuation is important and appropriate for LTAFs. Where our rules require a valuation that will not be used for dealing in units in the fund, we do not consider that it would be too onerous for the manager to produce an updated indicative valuation based on known developments in the portfolio. This should give investors in LTAFs confidence that the valuation of the LTAF is not stale. Equally, we do not consider that it would be appropriate to require more frequent valuation. We considered whether the requirements for suspension of dealing when there is material valuation uncertainty should apply. These rules were introduced for NURS that invest in real estate. They require suspension when the standing independent valuer deems that there is material valuation uncertainty over more than 20% of the assets. The rules were introduced to protect retail investors in daily-dealing property funds. During the initial period of market turbulence during the Covid pandemic, all daily-dealing property NURS were suspended because of this rule. Many property QIS also suspended, although there was no specific rule requiring them to do so. We do not plan to require suspension for LTAFs where there is material valuation uncertainty, but in such cases managers of LTAFs should consider whether it is in the interests of unitholders to suspend dealings as per COLL 15.10.3R. Redemptions and subscriptions
2.40 Respondents generally supported our proposed non-prescriptive approach
to redemption and subscription terms. There was also widespread support for suspensions only being used to protect the interests of investors in exceptional circumstances.
2.41 Some respondents suggested that there should be elements of prescription within
the rules. They suggested that we could require minimum notice periods or maximum dealing frequencies. They noted the policy intention that LTAFs should not be daily

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A new authorised fund regime for investing in long term assets dealing, but said that there may be some market pressure to have more frequent dealing than was appropriate for the assets. One respondent argued that we should set a standard notice period, similar to the notice period proposed for property funds in CP 20/15.
2.42 Some respondents argued that we should permit closed-ended LTAFs, or LTAFs with
a single dealing point, ie a fund with a fixed life where money is returned to investors at the end of the fund’s life. They argued that such structures are commonly used to invest in long-term assets in the professional investor market, and that some private assets are not suited to open-ended structures.
2.43 Some respondents said that LTAF managers should be permitted to use a wide
range of liquidity tools including lock-ins, caps on redemptions and deferrals. One respondent argued that we should consider redemption restrictions that could only be imposed under certain circumstances, such as deferrals when redemptions exceed a set amount, in the same category as suspensions, and only permit them in exceptional circumstances.
2.44 Some respondents raised the prospects of an LTAF operating with a commitment
approach, where funds are drawn down only when the manager makes an investment. They noted that this is a common model for existing funds that invest in illiquid private assets.
2.45 One respondent highlighted that managers might have to control subscriptions as well
as redemptions to reduce the risk of an LTAF being diluted by large inflows.
2.46 Some respondents said that further guidance might be needed on liquidity
management tools. Some said that this should be industry guidance rather than regulatory guidance. Some respondents pointed to the IOSCO principles for liquidity management. Our response To reinforce our expectations and our position on what redemption terms for LTAFs may be appropriate, we have made some adjustments to address feedback to the consultation. These also reflect more clearly in the rules the policy intention which we set out in the consultation paper. This will reduce the risk that managers apply for a scheme to be authorised as an LTAF where that scheme does not meet our expectations. We will add a rule that requires an LTAF to redeem units no more often than monthly. Given the nature of investments LTAFs are likely to hold, we consider that this sets an appropriate maximum redemption frequency for an LTAF. It ensures that the policy intent for LTAFs not to be daily dealing is clear within the rules. We will also add a rule requiring an LTAF to have a notice period for redemptions of at least 90 days. In practice, we would expect that many LTAFs would have notice periods significantly longer than 90 days. For a fund to be fair to all investors, we would expect redemptions to be met from the sale of a representative sample of the investment portfolio.

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A new authorised fund regime for investing in long term assets If an LTAF plans to invest in highly illiquid assets where a notice period of 90 days would be insufficient to sell such a representative sample, we would not expect to authorise it with a 90-day notice period. This rule makes our expectations clear as to the minimum possible length of notice period for redemptions. We do not consider it appropriate to set a standard notice period. Managers of LTAFs must make their own decisions on the appropriate terms for their fund, based on the investment objectives, investment policy and investment strategy of the LTAF, and the reasonable expectations of the target investor group. It is important for funds authorised by the FCA to give unitholders or shareholders the right to redeem their units or shares. If a fund intends to make investments that are only suited to a closed-ended vehicle, we would not expect the manager to seek authorisation as an open-ended fund. Our rules intend to allow managers to use a range of liquidity management tools appropriate to investments in illiquid assets, provided that they are disclosed clearly to investors. Suspension of dealing is not a liquidity management tool. It exists to protect investors in exceptional circumstances. We do not consider that tools such as deferrals and limits to redemptions or subscriptions should be put in the same category as suspensions. We consider that our rules create a framework that reflects the IOSCO principles for liquidity management. We would welcome the development of guidance by industry on appropriate lengths of notice periods for different types of asset as recommended by the PFWG. We have considered whether an LTAF may operate a commitment approach to subscriptions. We do not rule this out, but any LTAF that wanted to operate in this way would need to comply with the existing legislative framework for authorised funds, as well as with the fund rules. If a firm is considering applying for authorisation on this basis, we would welcome early engagement with us on their proposed model. Investment due diligence
2.47 Most respondents strongly supported our proposed approach to investment due
diligence. A small number felt the requirements potentially meant that firms would have to duplicate the investment due diligence that they were required to do under AIFMD. Some respondents suggested that we could provide more guidance around our expectations, or that industry guidance could be developed to describe what good practice would be for different private asset classes.

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A new authorised fund regime for investing in long term assets Our response We will proceed with the rules as consulted on in this area. We consider that the rules are compatible with the AIFMD requirements and do not require unnecessary duplication of effort. We do not consider it is necessary for us to provide guidance, but would welcome any work by the industry to set out what is good practice for investment due diligence for different asset classes. Knowledge, skills and experience
2.48 Those who responded on this topic agreed that only full-scope UK AIFMs should be
permitted to manage LTAFs. There was also widespread agreement that managers of LTAFs should have the appropriate knowledge, skills and experience of managing assets in the proposed asset class and be able to demonstrate this as part of the authorisation process.
2.49 Some respondents were concerned that there was a gap between firms with
experience of managing authorised funds, and firms with experience of investing in illiquid assets. They noted that firms might have to restructure their businesses or hire relevant people to ensure they had the appropriate knowledge, skills and experience. Our response We will make the rules as consulted on. Managers that want to offer LTAFs will have to have or acquire the knowledge, skills and experience of managing the appropriate asset classes. Reporting
2.50 Feedback on the quarterly report was mixed. Several respondents noted that a
quarterly reporting cycle was normal for private market funds. Some respondents felt that quarterly reports would help in providing investors with a regular update on their investments. Other respondents argued that quarterly reports wrongly signal that investors should consider their investment in the short term. Some argued that there was a risk such reports would prompt investors in an open-ended fund to reconsider their investment, potentially creating redemption pressure.
2.51 Several respondents noted that the requirement to produce the report within 20 days
of the quarter end would be challenging for many private market strategies. They argued that a period of 60 days was more realistic for these asset classes, given the time lags in collating information, particularly for funds of funds. Some respondents also felt that the additional cost of producing the quarterly report was not justified, and that 6-monthly reporting provided investors with adequate transparency. They argued that firms should simply be under the more general obligation under Principle 7 of the FCA Principles for business to pay due regard to the information needs of investors and could choose whether this involved quarterly reporting.

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2.52 A small number of respondents commented on the annual reporting requirements.
They argued that the time to produce the annual report should be extended to 6 months, rather than 4 months, particularly for funds of private funds. Our response We will make the rules as consulted on. Unlike funds investing in liquid assets, where public information is always readily available about the markets in which the fund is investing, investors in LTAFs will often need the fund manager to give them information. The quarterly report will provide some basic information about portfolio developments and should not be excessively burdensome to produce, particularly as LTAFs are unlikely to be undertaking many transactions in each period. We consider that the information required for a quarterly report, which is either a matter of record or information that the manager will produce at the time of the transaction, should not take long to collate and produce, and the requirement to report within 20 days of the quarter end provides investors with timely information. For annual reporting, we think the requirement to report within 4 months is appropriate. Other matters raised
2.53 We asked:
Q4: Do you have any other observations on the proposed regime for LTAFs?
2.54 We received a range of responses, including:
Depositary ownership of assets
2.55 Depositaries and fund managers noted that the draft LTAF rules proposed requiring
depositaries to take legal ownership of all assets of the LTAF. They explained this created significant issues for depositaries in some cases. They presented a proposed alternative model where the assets would be legally owned by the fund itself (if it has legal personality), or by the fund manager on behalf of the fund. This model is aligned with the requirements under AIFMD for non-custodial assets. Our response:
We have considered the proposal for an alternative model of legal ownership of assets compared to the requirements for authorised funds. We accept that the proposed model, based on the rules for NURS and QIS, may not work for some asset classes available through an LTAF

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A new authorised fund regime for investing in long term assets and could be burdensome for other types of asset, such as real estate. We agree that alternatives should be available, but note that these could result in a transfer of risk from the depositary to the fund and its investors. We consider that the AIFMD ownership model may be appropriate for funds aimed at professional investors who can assess the risks and decide whether to accept them. However, we consider that retail investors may expect some additional requirements to be put in place to mitigate these risks. We plan to bring forward proposals to amend these rules in a consultation in the first half of next year. In the meantime, where a firm wishes to establish an LTAF, we will consider applications to modify or waive this requirement. Among other things, waiver applications will need to satisfy us that proposed alternative custody arrangements provide appropriate investor protection. Before modifying or waiving any such requirement, we will need to be satisfied that the relevant conditions are satisfied. We would recommend that firms approach us before submitting a waiver application. End of life
2.56 One respondent questioned whether there should be provisions for LTAFs to be
wound down efficiently. They noted that, while an LTAF could operate on a continuing basis as an ‘evergreen’ structure, it was common for private market funds to be wound down, and the LTAF rules should consider the risks associated with this. Our response We do not consider that this is an area where we need to make rules. An AFM of an LTAF could consider if they want to address this issue, and if so could include a provision within the instrument constituting the fund and the prospectus. Tax considerations
2.57 Respondents made a number of points regarding the tax treatment of LTAFs, including
in relation to ISA eligibility and the application of VAT to management fees. Our response We have been working closely with the Treasury and HMRC throughout the development of the LTAF. Tax issues for the LTAF have primarily been considered through the Treasury-led call for input on the Government’s review of the UK fund regime. The LTAF rules permit an LTAF to be authorised as a property authorised investment fund (PAIF) and as an authorised contractual scheme (ACS). We understand that the Government will ensure that

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A new authorised fund regime for investing in long term assets pre-existing tax legislation continues to operate effectively in these cases. Listing of LTAFs
2.58 One respondent argued that LTAFs should be allowed to be listed and traded on a
secondary market.
Our response
An LTAF that has the legal form of an open-ended investment company (OEIC) could seek a listing in the UK under the FCA’s listing rules (currently LR 16.1.1R, from 4 January 2022 LR 16A.2.1R). It would not be possible for an LTAF that is an authorised unit trust or an ACS to seek a listing in the UK. Handbook treatment of LTAFs
2.59 Some stakeholders argued that we should not classify the LTAF as a QIS for parts of
the Handbook other than COLL, but that we should treat it as a separate category of authorised fund. They thought this was clearer and more transparent. Our response We have amended the Handbook so that the LTAF is a separate category of fund from the QIS. Cost benefit analysis (CBA)
2.60 Most respondents who commented on our CBA broadly agreed with it. A small number
raised concerns that service providers such as investment platforms and depositaries might incur costs to develop systems to enable LTAFs to be launched. Our response We thank respondents for their comments on our CBA. The LTAF regime permits firms to launch new funds but does not require them to do so. Because of this we considered that we could not reasonably estimate the costs of creating the LTAF regime but that LTAFs would be launched only if the benefits of doing so exceed the costs. We do not consider that the feedback means that we should amend our CBA. We also do not consider that any of the amendments we have made to the draft rules alter the CBA.

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A new authorised fund regime for investing in long term assets 3 Permitted links rules
3.1 This chapter provides a summary of feedback to the proposed amendments to our
permitted link rules and sets out our response. It also outlines our intended next steps on discussion questions on the distribution of the LTAF. Integration of the LTAF into the permitted links regime
3.2 We proposed integrating the LTAF into the regulatory framework for the investment by
DC pension schemes in unit-linked long-term insurance products, via amendments to the ‘permitted links’ rules. Additional flexibility for investments by DC pension schemes
3.3 We proposed amending the permitted links rules where the unit-linked contract forms
part of the default arrangement of an occupational or workplace DC pension scheme.
Industry feedback is that in practice the existing 20 / 35% cap on illiquid investments within any unit-linked fund means that firms find it difficult to market these funds to DC schemes. DC schemes typically construct their default arrangements from a number of funds and use funds which are 100% illiquid as part of a wider diversified portfolio, including more liquid funds.
3.4 So we proposed removing the 35% limit for LTAF-linked funds that form part of the
default arrangement of a pension scheme, while keeping requirements on insurers to provide risk warnings and ensure that the fund is suitable for the ultimate investors. To ensure these proposals only apply to default arrangements, we proposed introducing conditional permitted LTAFs and making them available only in relation to default arrangements. This would carve out the LTAF from the definition of QIS for COBS 21.3 purposes, so that the LTAF would not be available for retail investors investing outside of the pension environment.
3.5 Responsibility for deciding the proportion of the default arrangement which is invested
in illiquid assets (such as LTAF), whether or not a regulatory limit applies, falls primarily on the trustees (of an occupational scheme) or on the operator of a workplace scheme (an insurer or SIPP operator). However, we proposed guidance clarifying that the insurer is expected to consider the concentration risks of including the LTAF in a default arrangement when complying with the conditions for the use of conditional permitted LTAFs. Investment in LTAFs via unit-linked funds would only apply for default arrangements in occupational or workplace pensions, not self-select options available to pension scheme members, and not for non-workplace personal pensions. The 35% limit would also continue to apply for the other investments that a default arrangement may make in other conditional permitted links.
3.6 We asked:
Q5: Do you agree with our proposals to allow investments in LTAF for default arrangements of DC schemes if the conditions as outlined above are satisfied? If not, how

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A new authorised fund regime for investing in long term assets would you change them to make them more workable for DC default arrangements? Q6: Are there any assets which can be included in an LTAF which may be of concern regarding wider use for DC schemes? If so, which assets are you concerned about and why, and how would you mitigate the risk involved?
3.7 Most respondents broadly welcomed our proposal to make the LTAF a conditional
permitted link. They also welcomed its exclusion from the 35% cap on illiquid assets for unit-linked funds where the investment comes from the default arrangement of a DC pension scheme. Many saw this as providing maximum flexibility for DC schemes in choosing how to structure their portfolios by enabling the LTAF to be effectively identified as a ‘permitted link in its own right’ for DC default schemes.
3.8 Most respondents also supported the inclusion of guidance that the insurer must
consider the concentration risks at the default level associated with an LTAF allocation as part of the ongoing suitability and appropriateness assessment of the default investment strategy required under COBS 21.3.16R (2). Several respondents viewed this as an important protection for DC default investors.
3.9 However, several respondents said that while the proposed rules would work well for
LTAF in a DC default context, the 35% limit may continue to create challenges for unit￾linked investment in illiquid assets through other structures and in products outside of DC defaults. We cover this issue further under Q17 below.
3.10 One respondent noted a potential issue with the proposal in paragraphs 4.10 and
4.11 of the Consultation Paper to disapply the 35% limit on illiquid investments
made through an LTAF and to exclude investments in LTAFs from counting towards the calculation of the 35% limit as reflected in the draft proposed new rule (COBS 21.3.19AR). They read this to say that, in calculating gross assets for the purpose of applying the 35% test, the gross assets invested in conditional permitted long￾term asset funds are left out of account. However, they indicated that to achieve the FCA’s aims in this context, COBS 21.3.19R(2) requires a corresponding amendment to exclude conditional permitted long-term asset funds from the limit. That is, COBS 21.3.19R(2) should refer to conditional permitted links other than conditional permitted long-term asset funds.
3.11 Other responses identified a further barrier in the permitted links rules from our
proposals that would prevent efficient structuring of illiquid assets under current industry life company models. In these models, life funds invest in other life funds – broadly analogous to the fund-of-funds structures seen in authorised investment funds. Strategies constructed this way work on the basis of being allowed to hold ‘permitted units’. However, the definition of permitted units does not cover conditional permitted links – including LTAFs. This means that a unit-linked fund could not invest in another unit-linked fund containing LTAF (or any other unit-linked illiquid fund). This would also be a barrier to allowing exposure to externally managed/ reinsured funds invested in conditional permitted links. To address this barrier to distribution of illiquids in the unit-linked insurance environment, the responses recommended that we expand the definition of a permitted unit to cover conditional permitted links.
3.12 Most respondents to Q6 agreed that LTAFs should be able to invest in a broad range of
assets and did not have any specific concerns for DC schemes in relation to in-scope

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A new authorised fund regime for investing in long term assets LTAF assets. Some commented that the flexibility incorporated into the proposals would allow fund managers to take an in-house view on the most appropriate asset mix and risk/return profiles to deliver to DC investors with exposure to long-term, illiquid assets. In their view this should also ensure that upper or lower limits for specific asset classes did not become a barrier to LTAF supply or demand. Our response We will implement our proposed amendments as planned to provide increased flexibility for use of illiquid assets via the LTAF. This will enable more flexibility in the construction of DC scheme portfolios while maintaining an adequate level of protection for DC default scheme investors. We have reviewed the existing and draft rules against the potential issue identified on calculation of gross assets for the purposes of applying the 35% limit. We have addressed the issue by amending COBS 23.1.19AR, to ensure that our policy intention is met. First, firms should leave the gross assets invested in conditional permitted LTAFs out of account when calculating the total amount of gross assets of a linked fund to which the limit applies. Next, when firms calculate whether the limit has been exceeded, they should not aggregate the gross assets invested in conditional permitted LTAFs to the other gross assets invested in conditional permitted links. On the potential barrier identified above for ‘permitted units’ and conditional permitted links, we have reviewed and adjusted the definition of ‘permitted units.’ It now explicitly includes conditional permitted links. We have also made it clear that, when complying with the conditions and requirements in relation to conditional permitted links, firms need to also take into account any conditional permitted links invested in via permitted units. Wider application of LTAF to linked contracts of insurance
3.13 In CP 21/12 we indicated that, depending on feedback, we may consider changes to
the rules to allow insurance contracts to be linked to investments in LTAF more widely than just when used in DC default arrangements. Under current rules where the investment risk under the contract is with a ‘natural person bearing the investment risk’ the degree to which they could be exposed to LTAF investments would be 20% of the overall fund under the ordinary permitted links rules. It would be 35% where the conditional permitted links are being used, requiring additional risk warnings and suitability assessments on the part of the insurer. We welcomed detailed feedback on potential issues that specifically affect permitted link investments.
3.14 We asked:
Q16: Do you think we should enable wider use of the LTAF as a permitted link or conditional permitted link to long-term

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A new authorised fund regime for investing in long term assets contracts of insurance? What do you see as the main obstacles to this and how would you resolve them? Q17: Do you have any views on how permitted links might be expanded to other fund structures or direct investments in illiquid assets?
3.15 Most respondents advocated wider use of the LTAF as a permitted link or conditional
permitted link to long-term contracts of insurance. Several respondents said that the current proposal to restrict LTAF distribution to DC defaults is overly restrictive. They pointed out that outside the DC default landscape, there are other balanced managed investment arrangements where the provider designs and governs the portfolio on the investor’s behalf. These look much like default arrangements but lack the formal designation of a default because they are not part of workplace pension products. These respondents felt that investors in these strategies (which could be found in non-workplace pension products, for example) could also benefit from exposure to LTAFs. More generally, where investors in a long-term unit-linked product have either professional support on fund selection or are guided through an appropriate choice architecture, they should be able to invest in an LTAF and the distribution rules should reflect this.
3.16 Respondents therefore recommended that in the unit-linked market, the rules should
allow insurers to include the LTAF alongside other permitted links and conditional permitted links in constructing managed multi-asset portfolios where the investor is not required to make any investment decision. They suggested that, as with the default in the proposed rules, such portfolios should not be constrained by the 35% illiquid asset cap. Instead, they should be subject to the same rules on the insurer to consider ongoing suitability and concentration risk. The rules should cater for the use of LTAFs in such managed portfolios both within pension products (workplace and non-workplace) and other long-term contracts of insurance.
3.17 These respondents made clear that they were not proposing LTAFs being made
available for standalone investment in a unit-linked wrapper without access to any supporting guidance and choice architecture. For example, as a self-select fund option in a pension product (workplace or non-workplace). However, looking at the potential for wider retail distribution, they felt that investors in a long-term unit-linked product who had either professional support on fund selection or are guided through an appropriate choice architecture, should be able to invest in an LTAF. In their view, given the degree of substitutability between authorised funds and unit-linked funds, if future distribution rules allowed LTAFs to be sold to retail investors, they should also allow for the distribution of unit-linked LTAFs to such investors. However, some acknowledged that the practical implications could be challenging and that this could lead to complex administration requirements.
3.18 Many respondents said that while our proposals for the LTAF would work well for unit￾linked DC default arrangements, the 35% cap remains a significant constraint within
the permitted links rules for structures other than LTAFs that seek to offer unit-linked investors exposure to illiquid assets. It also meant the LTAF would have an advantage over other fund structures, in particular the QIS and directly invested unit-linked funds, because the cap would apply to these structures but not to a conditional permitted LTAF. A more coherent regulatory approach would treat all fund structures the same in this respect, and the proposals for the LTAF within the permitted links rules offered a way forward for other structures as well. Some clarified that this might be achieved

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A new authorised fund regime for investing in long term assets by extending the proposed guidance for LTAFs in COBS 21.3.18G(2). This states that insurers must assess the ‘total exposure of the default arrangement to conditional permitted LTAFs and other investments of similar risk profile to that of conditional permitted LTAFs’ as part of the ongoing suitability checks required for insurers offering conditional permitted links. These respondents felt that applying this requirement outside the DC default would level the playing field for all investment structures seeking to offer illiquid exposure in a unit-linked environment.
3.19 Some respondents went further to suggest that we should consider broader reform
of the permitted links rules. In their view the permitted links rules were largely written with direct retail investors in mind. So where the underlying investor is investing via a non-self-select portfolio, usually a DC scheme, they believed the illiquids cap should also be removed for the other permitted and conditional links. In the absence of a full removal of the illiquids cap for these investor types, they proposed that the cap should be moved from the fund level to the portfolio level. They argued this would reflect our intention to ensure liquidity and concentration risks are managed at the portfolio level, while also keeping the policy intent behind the existing 35% cap to ensure that underlying investors are not over-exposed to the risks of illiquid assets.
3.20 Similarly another respondent said that as part of a wider overhaul of the permitted
links rules, it would be useful to establish within the rules that the concentration limits should be applied at the customer portfolio level (potentially on a look-through basis where available). In this way, firms could consider wrapping illiquid investments 100% within a unit linked fund and using those wraps as sub-funds of DC portfolios or retail managed funds, without potentially breaching permitted links rules. In their view this will ensure consistency of treatment for the same illiquid asset, regardless of how it is held within the firm’s fund structures (direct, sub-unit linked fund or collective). Our response We are grateful to respondents for the detailed feedback. We believe our proposals for use of the LTAF for DC default funds provide a sound and workable starting point for initial use of the LTAF in unit-linked structures while enabling an appropriate level of protection for DC default investors. Insurers are responsible for ensuring suitability and appropriateness for the relevant target market in line with PROD and (in conjunction with trustees for trust-based schemes) for DC default scheme investors in line with COBS. This will help ensure the LTAF is distributed appropriately. We remain open to potentially extending the distribution of the LTAF where investors in a long-term unit-linked product have either professional support on fund selection or are guided through an appropriate choice architecture. As this relates to the question of the direct distribution of the LTAF to a wider group of consumers, we will consider whether to consult on such changes in the future. Similarly, we recognise the points about the constraints of the current 35% limit on conditional permitted links and the perceived potential advantage afforded to the development of the LTAF over other fund structures. We are sympathetic to arguments for extending the same treatment to other fund structures and direct investment in illiquid assets. Again, we will consider whether to consult on such changes in

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A new authorised fund regime for investing in long term assets future. Any wider overhaul of the permitted links rules remains to be determined. It may need to be carried out in conjunction with the PRA given the interaction of the conduct rules for unit-linked long-term insurance business under COBS with the prudential regulation of unit￾linked long-term insurance business under the PRA Rulebook.

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A new authorised fund regime for investing in long term assets 4 Distribution
4.1 This chapter provides an overview of the feedback we received to the questions about
the distribution of the LTAF. It sets out our response to the issues raised in questions 7 and 8, including the changes we intend to make to our rules following the feedback we received. It also outlines our intended next steps on the discussion questions on the distribution of the LTAF. Treatment of the LTAF as an NMPI
4.2 We proposed that the LTAF would initially be subject to the same promotion
restrictions as QIS. This broadly means that, under the non-mainstream pooled investment (NMPI) rules, an LTAF could only be promoted to professional clients and certain types of retail client, as set out in COBS 4.12. This meant that it could be marketed to most investors it was originally envisaged for if the LTAF was subject to these rules.
4.3 We asked:
Q7: Do you agree that LTAFs should initially be treated as QIS for distribution purposes? Do you agree that LTAFs should be subject to the same guidance as QIS on sophisticated and high net worth retail investors? If not, what alternative approach would you propose? Q8: Do you see any barriers within the existing NMPI rules that will prevent the LTAF from being distributed to the target market set out in 5.4? If so, please provide details and evidence of the barriers.
4.4 Many respondents who represented fund managers, distributors and investors
disagreed with our proposal to treat the LTAF initially as an NMPI. They thought that the additional protections for LTAFs compared to QIS meant that they should not be restricted to professional investors and certified sophisticated retail investors and should be made available to a wider range of retail investors.
4.5 Several respondents noted that by not allowing the LTAF to be promoted to high net
worth investors it would be more restricted than unauthorised funds, despite offering greater levels of protection. They argued that classifying the LTAF as an NMPI would therefore undermine the success of the LTAF as there would be little incentive to launch such a fund. They thought that, at a minimum, promotion of the LTAF to high net worth retail investors should be permitted and suggested that we modify the guidance in COBS 4.12 to enable this if the LTAF were to be classed as an NMPI.
4.6 Some respondents suggested that the existing requirements in our Product
Intervention and Product Governance sourcebook (PROD), in conjunction with the protections offered by the proposed fund rules, would ensure that the LTAF could be appropriately distributed to a broader range of retail clients. Others suggested that

PS21/14
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Financial Conduct Authority
A new authorised fund regime for investing in long term assets the existing appropriateness test – that distributors would be required to conduct if the LTAF were not to be classed as a non-complex product under MiFID – would also provide sufficient levels of protection to ensure that the LTAF could be appropriately distributed to a broader range of retail investors.
4.7 Some respondents thought that retail investors that are not high net worth investors
or sophisticated investors should be permitted to invest in the LTAF subject to getting investment advice. They also suggested that a maximum proportion, for example 10%, of an investor’s portfolio should be allowed to be held in LTAFs, with the onus for verifying this placed on the distributor rather than investor self-certification. Others proposed that labels warning of the risks of investing into an LTAF would be sufficient to permit opening up more broadly. A few respondents indicated that we might wish to consider introducing a ‘well-informed’ investor category for distribution purposes or require a test of investor understanding.
4.8 Some respondents thought that a minimum investment size, for example £10,000,
should be set for retail investors wanting to access the LTAF. Others thought this would exclude some for whom an investment might be suitable, including young people who are just starting to save into a personal pension. Some thought that personal wealth should not be used as an indicator of investor understanding.
4.9 One respondent suggested categorising the LTAF as a non-readily realisable security
(NRRS). Several respondents thought that the promotion of the LTAF should be based on the rules governing the NURS rather than the QIS, and as such should be permitted to be promoted to all retail investors.
4.10 A minority of respondents (including representatives of closed-ended funds, and
authorised fund managers) agreed that the LTAF should initially be treated as a QIS for distribution purposes. These respondents did not think that the LTAF was appropriate to be distributed directly to retail investors. They thought that the assets in which an LTAF, as an open-ended fund, is permitted to invest meant it was unlikely to be an appropriate investment for anyone other than a professional investor or sophisticated retail investor who would better understand the liquidity and valuation risks.
4.11 A small number of respondents said that the LTAF would require significantly greater
protections before being safely distributed to retail investors. They argued that other investment vehicles, such as investment companies, provide retail investors with appropriate products in this area. They felt that allowing retail investors to access illiquid assets through an open-ended fund poses risks due to the potential liquidity mismatch between the fund’s redemption terms and the assets it invests in. One respondent suggested broader protections before marketing to retail investors, such as listing or a secondary market for LTAFs, or requiring majority independent boards.
4.12 While respondents didn’t think that, in theory, the NMPI rules prevented the
distribution of the LTAF to the target market, many raised issues with how the NMPI regime works in practice. They thought that the requirement to complete a preliminary assessment of appropriateness or suitability before promotion would limit the LTAF’s promotion opportunities. More generally, they thought that the requirement to determine appropriateness creates an administrative and compliance burden on firms that means most choose not to distribute these types of instruments.

PS21/14
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Financial Conduct Authority
A new authorised fund regime for investing in long term assets Our response We think that proceeding with the introduction of the LTAF as an NMPI remains an appropriate first step. This will mean that LTAFs may initially be marketed to professional investors, such as DC pension schemes, and certified sophisticated retail investors. We agree that given the level of protection within the LTAF regime, and the governance surrounding it, certified high net worth individuals should be able to access the LTAF as part of a diversified portfolio, given that they can access unauthorised funds. So we have amended COBS 4.12 to achieve this. As set out below, we remain open to potentially further broadening the base of investors who can access the LTAF in a controlled way. Discussion questions on the distribution of the LTAF
4.13 Questions 10 to 15 in the consultation were about the distribution of the LTAF. These
questions covered a range of topics, including:

• broadening the promotion of the LTAF to retail investors not permitted to invest in
  NMPI
• the level of protection afforded by the appropriateness assessment
• the use of the non-readily realisable security (NRRS) regime as a means of
  restricting investment in LTAFs
• minimum levels of investment from professional clients in order to protect retail
  investors
• the changes that might be needed to enable a fund of alternative investment funds
  (FAIF) to operate a portfolio of LTAFs
• the other options we could consider to make the promotion of the LTAF to retail
  clients more appropriate
  4.14 We received many responses to these questions, encompassing a wide range of views.
  We set out a brief summary of the feedback we received on each topic below. Distribution to a broader range of retail investors
  4.15 Most respondents addressed the topic of whether and how the LTAF might be
  promoted to a wider range of retail investors. Much of that feedback has been set out earlier in this chapter. This includes treating the LTAF as a NURS for distribution purposes, placing greater focus on the PROD measures, requiring retail investors to take advice before investing, setting maximum levels of an investor’s portfolio that can be exposed to LTAFs, or requiring the establishment of a secondary market for LTAFs. Some thought that the LTAF should not be available for broader retail investment. Appropriateness tests
  4.16 We asked whether the appropriateness test that distributors would need to carry
  out when selling LTAFs that are not classed as non-complex would provide sufficient

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A new authorised fund regime for investing in long term assets protection for retail investors. Some respondents felt that the appropriateness test, coupled with the measures set out in PROD, provide sufficient protection to permit distribution to retail investors. Others thought that appropriateness tests are not sufficient to exclude investors for whom the LTAF would be unsuitable. FAIFs investing in LTAFs
4.17 We suggested that the FAIF regime could provide a way for retail investors to gain
exposure to a diversified portfolio of LTAFs. We were keen to understand if there are any practical restrictions which might make it difficult or impossible to manage such a fund.
4.18 Respondents were evenly split between being broadly supportive and unsupportive
of this alternative option. Most of the supportive respondents identified areas where the rules could be amended to more easily facilitate investment by FAIFs in LTAFs. For example, they suggested ways in which we could relax the second scheme requirements for FAIFs to make it easier for them to hold LTAFs. Most of the unsupportive respondents stated that more investigation of this option is required, with some also raising concerns about liquidity or portfolio risk. NRRS rules
4.19 We asked whether classifying LTAFs as NRRS would be a workable means of restricting
investment in LTAFs. Some respondents thought that this would work, while others agreed with the principle of limiting retail investors’ exposure to the LTAF. Several respondents commented that the requirement for investors to self-certify that they have not invested more than 10% of their net assets in NRRS in the previous 12 months and will not do so in the coming 12 months is a good control. Respondents argued that the NRRS requirements puts responsibility on investors to ensure they would only invest in the LTAF as part of a wider investment portfolio. However, they acknowledged that the NRRS rules are currently not designed for authorised funds. A small number of respondents thought that the LTAF should not be available for retail distribution and as such did not think that classifying it as an NRRS would be appropriate. Professional and retail investment
4.20 We asked whether a minimum level of investment from professional clients would
provide sufficient protection for retail investors. The majority of respondents did not consider this would offer appropriate protections for retail investors. They stated that professional investors are likely to have different investment objectives, risk appetite, liquidity requirements and timescales, and these may not align with those of retail investors. Professional co-investment will not provide retail investors with the ability to understand the risks and complexity of investing in a LTAF. Instead, a number of respondents suggested protection for retail investors should be addressed by strong governance standards and disclosure requirements.
4.21 A small number of respondents noted that co-mingling of investment between retail
and institutional investors can help the LTAF build sufficient scale, especially if DC schemes gradually increase their capital allocations to the LTAF over time. However, LTAFs are likely to be designed for a distinct investor base, for instance, a particular DC scheme, and may not be suitable for direct retail investors without an intermediary acting on their behalf.

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A new authorised fund regime for investing in long term assets
4.22 Alternatively, LTAFs could be made available to retail investors on an advised-only
basis.
Next steps
4.23 In line with our Consumer Investments strategy, we plan to consult in the first half of
2022 on potentially changing the restrictions on promoting LTAFs to retail investors. We will continue considering the feedback that we received on the discussion chapter on facilitating wider retail distribution against this strategy, before we determine our policy position.

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Annex 1
Financial Conduct Authority
A new authorised fund regime for investing in long term assets
Annex 1
List of non-confidential respondents
Aberdeen Standard Investments
AJ Bell
Alternative Investment Management Association (AIMA) and Alternative Credit Council Apex Group Association of British Insurers Association of Investment Companies Association of Pension Lawyers Association of Real Estate Funds Aviva Investors BlackRock BNY Mellon British Private Equity and Venture Capital Association (BVCA) British Property Federation Commercial Real Estate Finance Council Depositary and Trustee Association Eversheds Sutherland Financial Services Consumer Panel Hargreaves Lansdown IN Partnership INREV Institute and Faculty of Actuaries Investment Association Isio

PS21/14
Annex 1
Financial Conduct Authority
A new authorised fund regime for investing in long term assets John Forbes Consulting Lane, Clark & Peacock Law Society Legal and General Investment Management London Stock Exchange Group London Stock Exchange Investment Fund Group M&G Macfarlanes Mercer NatWest Trustees and Depositaries Royal Institution of Chartered Surveyors Royal London Asset Management Schroders ShareSoc / UKSA Simmons & Simmons State Street The Thomson's Partnership LLP Transparency Task Force XPS Pensions

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Annex 2
Financial Conduct Authority
A new authorised fund regime for investing in long term assets
Annex 2
Abbreviations used in this paper
Abbreviation Description
ACS authorised contractual scheme
AFM authorised fund manager
AIFM alternative investment fund manager
AIFMD Alternative Investment Fund Managers Directive CBA cost benefit analysis COBS Conduct of Business sourcebook COLL Collective Investment Schemes sourcebook CP consultation paper CTI Cost Transparency Initiative DC defined contribution DWP Department for Work and Pensions ESG Environmental, Social and Governance FAIF fund of alternative investment funds FCA Financial Conduct Authority FPC Financial Policy Committee FUND Investment Funds sourcebook IOSCO International Organization of Securities Commissions LR Listing Rules sourcebook LTAF long-term asset fund NMPI non-mainstream pooled investment NRRS non-readily realisable security NURS non-UCITS retail scheme OEIC open-ended investment company

PS21/14
Annex 2
Financial Conduct Authority
A new authorised fund regime for investing in long term assets Abbreviation Description PAIF property authorised investment fund PFWG Productive Finance Working Group PRA Prudential Regulation Authority PROD Product Intervention and Product Governance sourcebook PS policy statement QIS qualified investor scheme UCITS undertaking for collective investment in transferable securities All our publications are available to download from www.fca.org.uk. If you would like to receive this paper in an alternative format, please call 020 7066 7948 or email: publications_graphics@fca.org.uk or write to: Editorial and Digital team, Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN Sign up for our news and publications alerts

PS21/14
Appendix 1
Financial Conduct Authority
A new authorised fund regime for investing in long term assets
Appendix 1
Made rules (legal instrument)

FCA 2021/41
LONG-TERM ASSET FUND INSTRUMENT 2021
Powers exercised
A. The Financial Conduct Authority (“the FCA”) makes this instrument in the exercise of the following powers and related provisions in or under:
(1) the following sections of the Financial Services and Markets Act 2000 (“the Act”):
(a) section 59 (Approval for particular arrangements); (b) section 60 (Applications for approval); (c) section 60A (Vetting of candidate by an authorised person); (d) section 61 (Determination of applications); (e) section 62A (Changes in responsibilities of senior managers); (f) section 137A (The FCA’s general rules); (g) section 137D (FCA general rules: product intervention); (h) section 137R (Financial promotion rules); (i) section 137T (General supplementary powers); (j) section 138D (Action for damages); (k) section 139A (Power of the FCA to give guidance); (l) section 242 (Application for authorisation of unit trust schemes); (m) section 247 (Trust scheme rules); (n) section 248 (Scheme particulars rules); (o) section 261C (Applications for authorisation of contractual schemes); (p) section 261I (Contractual scheme rules); (q) section 261J (Contractual scheme particulars rules); (r) section 340 (Appointment); (s) paragraph 23 of Schedule 1ZA (Fees); (2) regulations 6 (FCA rules) and 12 (Applications for authorisation) of the Open￾Ended Investment Companies Regulations 2001 (SI 2001/1228); and (3) the other rule and guidance making powers listed in Schedule 4 (Powers exercised) to the General Provisions of the FCA’s Handbook. B. The rule-making provisions listed above are specified for the purposes of section 138G(2) (Rule-making instruments) of the Act. Commencement
C. This instrument comes into force on 15 November 2021.
Amendments to the Handbook
D. The modules of the FCA’s Handbook of rules and guidance listed in column (1) below are amended in accordance with the Annexes to this instrument listed in column (2) below.

FCA 2021/41
(1) (2)
Glossary of definitions Annex A
Senior Management Arrangements, Systems and Controls sourcebook (SYSC)
Annex B
Fees manual (FEES) Annex C
Conduct of Business sourcebook (COBS) Annex D Collective Investment Schemes sourcebook (COLL) Annex E Citation E. This instrument may be cited as the Long-Term Asset Fund Instrument 2021. By order of the Board 21 October 2021

FCA 2021/41
Annex A
Amendments to the Glossary of definitions
In this Annex, underlining indicates new text and striking through indicates deleted text, unless indicated otherwise. Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. conditional permitted long-term asset fund in relation to conditional permitted links, and in respect of a firm’s business with linked policyholders, a long-term asset fund. feeder LTAF an LTAF which is dedicated to units in either:
(a) a single qualifying master LTAF; or
(b) a single sub-fund of a qualifying master LTAF that is an umbrella. intermediate unitholder in a long-term asset fund a firm whose name is entered in the register of a long-term asset fund, or which holds units in a long-term asset fund indirectly through a third party acting as a nominee, and is not the beneficial owner of the relevant unit, and:
(a) does not manage investments on behalf of the relevant beneficial owner of the unit; or (b) does not act as a depositary of a collective investment scheme or on behalf of such a depositary in connection with its role in holding property subject to the scheme. For the purposes of this definition, “register” has the meaning set out in paragraph (3) of the Glossary definition of “register”. long-term asset fund an authorised fund whose authorised fund manager operates, or proposes to operate, it in accordance with the rules in COLL 15 (Long-term asset funds). LTAF a long-term asset fund. notice period (in relation to a long-term asset fund) has the meaning given in COLL 15.8.12R(2)(f) (Dealing: redemption of units). qualifying master LTAF where a feeder LTAF is dedicated to units in a single collective investment scheme which is a second scheme that operates in accordance with the principle of prudent risk spreading (see COLL 15.6.3R (Prudent spread of risk)) and that meets the requirements in COLL 15.6.9R (Investment in collective investment schemes), that collective investment scheme.

FCA 2021/41 quarterly reporting period
(in COLL) a period determined in accordance with COLL 15.5.9R(2) (Quarterly reports). redemption determination (in relation to a long-term asset fund) has the meaning given in COLL 15.8.12R(1) (Dealing: redemption of units). Amend the following definitions as shown. appropriate valuer (in COLL) a person who complies with the requirements requirements of COLL 5.6.18R(7) (Investment in property), or COLL 8.4.11R(4) (Investment in property) or COLL 15.6.18R(4) (Investment in property). CoCo fund an unregulated collective investment scheme, qualified investor scheme, long-term asset fund or a special purpose vehicle under which the investment returns received by the investor, or the scheme or vehicle’s ability to fulfil any payment obligations to the investor, are wholly or predominantly linked to, contingent on, highly sensitive to or dependent on, the performance of or changes in the value of contingent convertible instruments. conditional permitted links where the conditions in COBS 21.3.16R are met, the property in COBS 21.3.15R that an insurermay use, whether by linking to it directly or via permitted units, for the purposes of determining property-linked benefits or index-linked benefits under linked long￾term contracts of insurance. distribution account (in COLL) the account to which the amount of income of an authorised fund allocated to classes of units that distribute income must be transferred as at the end of each annual accounting period under COLL 6.8.3R (Income allocation and distribution), or COLL 8.5.15R (Income) or COLL 15.8.18R (Income). excluded security any of the following investments:
…
(h) a security issued by a regulated collective investment scheme other than:
(A) a qualified investor scheme; or
(B) a long-term asset fund. inherently illiquid asset an asset which is:
…

FCA 2021/41
(6) a unit in a qualified investor scheme where that qualified investor scheme:
…
(b) permits redemptions of units on timescales which do not reflect the time typically needed to sell, liquidate or close out the assets in which the qualified investor scheme invests, those assets being ones which fall within paragraphs (1) to (5) above or (6A) and (7) below; and … (6A) a unit in a long-term asset fund where that long-term asset fund:
(a) would itself meet condition (1) of the definition of a FIIA if it were a non-UCITS retail scheme; and (b) is not in the process of winding up or termination; (7) a unit in an open-ended unregulated collective investment scheme where that unregulated collective investment scheme:
(a) aims to invest at least 50% of the value of the property of the unregulated collective investment scheme in assets falling within paragraphs (1) to (6) (6A) above; … intermediate holding vehicle a company, trust or partnership but not a collective investment scheme, whose purpose is to enable the holding of overseas immovables on behalf of a non-UCITS retail scheme, or a qualified investor scheme or a long-term asset fund. non-mainstream pooled investment any of the following investments:
…
(b) a unit in a qualified investor scheme; (ba) a unit in a long-term asset fund; (c) … …

FCA 2021/41 non-UCITS retail scheme an authorised fund which is neither not a UCITS scheme, or a qualified investor scheme or a long-term asset fund. permitted scheme interests (a) [deleted] (b) in respect of a firm’s firm’s business with linked policyholders any of the following:
(i) an authorised fund, except a long-term asset fund; … permitted links the property in COBS 21.3.1R(1) and (2)(a) to (l) that an insurer insurer may use, whether by linking to it directly or via permitted units, for the purposes of determining property-linked benefits or index-linked benefits under linked long-term contracts of insurance contracts of insurance. permitted units in relation to permitted links, units or beneficial interests in any real or notional fund that invests in permitted links or conditional permitted links, or both, and is managed either:
(a) …
… prospectus …
(2) (except in LR and PRR) (in relation to a collective investment scheme) a document containing information about the scheme and complying with the requirements requirements in COLL 4.2.5R (Table: contents of the prospectus), COLL 8.3.4R (Table: contents of qualified investor scheme prospectus), or COLL 9.3.2R (Additional information required in the prospectus for an application under section 272), or COLL 15.4.5R (Table: contents of a long-term asset fund prospectus), applicable to a prospectus of a scheme of the type concerned. qualifying scheme … (c) (in COBS 9.4.11R, COBS 19.1, andCOBS 19.2 and COBS
21) in addition to the schemes in (a) as qualified by (b), a
defined contribution occupational pension scheme that is a qualifying scheme for the purposes of the Pensions Act 2008. register …

FCA 2021/41
(3) (in COLL) the register of unitholders kept under Schedule 3 to the OEIC Regulations, or COLL 6.4.4R (Register:
general requirements and contents), or COLL 8.5.8R (The register of unitholders: AUTs or ACSs), or COLL 15.7.12R (The register of unitholders: AUTs or ACSs) as appropriate or, in relation to a collective investment scheme that is not an authorised fund, a record of the holders (other than of bearer certificates) of units in it. standing independent valuer the person appointed as such under COLL 5.6.20R (Standing independent valuer and valuation), and COLL 8.4.13R(1) (Standing independent valuer and valuation), or COLL 15.6.22R(1) (Standing independent valuer and valuation). valuation point (in COLL) a valuation point fixed by the authorised fund manager for the purpose of COLL 6.3.4R (Valuation points), or COLL 8.5.9R (Valuation, pricing and dealing) or COLL 15.8.2R (Valuation, pricing and dealing) or, in the case of a regulated money market fund, the applicable requirements of article 29 to
article 32 of the Money Market Funds Regulation.

FCA 2021/41
Annex B
Amendments to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) In this Annex, underlining indicates new text and striking through indicates deleted text. 24 Senior managers and certification regime: Allocation of prescribed responsibilities …
24.2 Allocation of FCA-prescribed senior management responsibilities: Main
allocation rules
…
What the FCA-prescribed senior management responsibilities are …
24.2.6 R Table: FCA-prescribed senior management responsibilities
FCA-prescribed senior management responsibility Explanation Reference letter … (20) The responsibilities allocated under COLL 6.6.27R, or COLL 8.5.22R or COLL 15.7.24R (Allocation of responsibility for compliance to an approved person). Only applies to a firm to which the rules in column (1) apply. (za) … …

FCA 2021/41
Annex C
Amendments to the Fees manual (FEES)
In this Annex, underlining indicates new text and striking through indicates deleted text. 3 Application, Notification and Vetting Fees … 3 Annex 2R Application and notification fees payable in relation to collective investment schemes, LTIFs, money market funds and AIFs marketed in the UK … Legislative provision Nature and purpose of fee Payable by Amount of fee (£) Umbrella factor (note 1) …
Part 2 Application fees payable for firms to be subject to COLL
Regulation 12 of the OEIC
Regulations
This section applies to funds where an application is also made to be authorised under the Money Market Funds Regulation. On application for an order declaring a scheme to be an ICVC, where the scheme is a:
An applicant
… …
Qualified investor scheme
2,400
Long-term asset fund
2,400
Section 242 of
the Act
This section applies to funds where an application is also made to be authorised On application for an order declaring a scheme to be an AUT, where the scheme is a:
An applicant
… …
Qualified investor scheme
2,400

FCA 2021/41 under the
Money Market
Funds
Regulation
Long-term asset fund
2,400
…
Section 261C
of the Act
This section applies to funds where an application is also made to be authorised under the Money Market Funds Regulation On application for an order declaring a scheme to be an ACS, where the scheme is a:
An applicant
… …
Qualified investor scheme
2,400
Long-term asset fund
2,400
Section 272 of
the Act
On application for an order declaring a scheme to be recognised where the scheme is:
An applicant a non-UK AIF or
AIF equivalent to a
UK UCITS, non￾UCITS retail scheme, or a qualified investor scheme or a long￾term asset fund 8,000 2 … …
Part 2B Application fees payable for UK or non-EEA firms applying for
authorisation under article 5 of the Money Market Funds Regulation
Article 5 of
the Money
UK AIF (apart from those authorised as a
UK UCITS, a non￾UCITS retail

FCA 2021/41
Market Funds
Regulation scheme, or a qualified investor scheme or a long￾term asset fund) … …

FCA 2021/41
Annex D
Amendments to the Conduct of Business sourcebook (COBS) In this Annex, underlining indicates new text and striking through indicates deleted text, unless indicated otherwise. 4 Communicating with clients, including financial promotions …
4.12 Restrictions on the promotion of non-mainstream pooled investments
…
Sophisticated and high net worth investors: guidance on certification by authorised person and reliance on self-certification Exemptions from the restrictions on the promotion of non-mainstream pooled investments
4.12.4 R …
(5) Title of Exemption Promotion to: Promotion of a non-mainstream pooled investment which is:
…
11. Excluded
communications
Any person. Any non￾mainstream pooled investment, provided the financial promotion is an excluded communication. [See COBS 4.12.12G, and COBS 4.12.13G and COBS 4.12.13AG.] … …
4.12.10 G (1) …
(2) (a) For example, a retail client whose investment experience is limited to mainstream investments such as securities issued

FCA 2021/41 by listed companies, life policies or units in regulated collective investment schemes (other than qualified investor schemes or long-term asset funds) is generally unlikely to possess the requisite knowledge to adequately understand the risks associated with investing in non-mainstream pooled investments. … Qualified investor schemes
4.12.13 G …
Long-term asset funds
4.12.13
A
G A firm which wishes to rely on the excluded communications exemption in COBS 4.12.4R(5) to promote units in a long-term asset fund to a retail clientshould have regard to its duties under the Principles and the client’s best interests rule. As explained in COLL 15.1.4G (Long-term asset funds – explanation), long-term asset funds are authorised funds which are intended only for professional clients and for retail clients who are sophisticated investors or certified high net worth investors. … 21 Permitted Links and conditional permitted links
21.1 Application
…
21.1.-1A R Where this chapter sets out conditions or requirements in relation to conditional permitted links, those conditions or requirements also apply in relation to any conditional permitted links that a linked fund invests in via permitted units. …
21.3 Further rules for firms engaged in linked-long-term insurance business
…
Conditional permitted links
21.3.15 R A conditional permitted link is any of the following property where the
conditions in COBS 21.3.16R are met:
(1) conditional permitted unlisted securities; (2) conditional permitted immovables; (3) conditional permitted loans; and

FCA 2021/41
(4) conditional permitted scheme interests.; and (5) (only in respect of a linked fund included in the default arrangement of a qualifying scheme) conditional permitted long-term asset funds.
21.3.16 R …
(3) (only in respect of conditional permitted long-term asset funds) the linked fund investing in conditional permitted long-term asset funds may only be included in the default arrangement of a qualifying scheme. …
21.3.18 G The assessment in COBS 21.3.16R(2), in relation to a linked fund which is
included in a default or similar arrangement for a pension scheme, would include ongoing consideration of:
(1) whether the investment risks of any conditional permitted links remain suitable and appropriate for a particular cohort of linked policyholders, including as that cohort moves toward retirement.; and (2) where the linked fund contains conditional permitted long-term asset funds, the total exposure of the default arrangement to conditional permitted long-term asset funds and other investments of similar risk profile to that of conditional permitted long-term asset funds. Conditional permitted links: requirements … 21.3.19 A R The gross assets that a linked fund invests in conditional permitted long￾term asset funds must not be included in any part of the calculation when working out whether the limit set out in COBS 21.3.19R has been exceeded.
21.3.20 R Where a linked fund is invested in any conditional permitted link, the
information that a firm must give a linked policyholder under COBS 21.2.4R must also prominently include, clearly and in language capable of being understood by a linked policyholder:
(1) an explanation of the risks associated with any conditional permitted links and/or gross assets in permitted scheme interests in (b)(v) of the Glossary definition of that term exceeding 20%, how these might crystallise and how they might impact on a linked policyholder; (2) … …

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Annex E
Amendments to the Collective Investment Schemes sourcebook (COLL) In this Annex, underlining indicates new text and striking through indicates deleted text, unless indicated otherwise. 1 Introduction …
1.2 Types of authorised fund
Types of authorised fund
1.2.1 R An application for an authorisation order must propose that the scheme be
one of the following types:
…
(2) a non-UCITS retail scheme, including:
…
(b) a non-UCITS retail scheme which is an umbrella with sub￾funds operating as:
…
(iii) a mixture of (i) and (ii); or
(3) a qualified investor scheme.; or
(4) a long-term asset fund.
…
Types of authorised fund – explanation
1.2.2 G …
(3A) (a) A long-term asset fund may be promoted only to:
(i) professional clients; and
(ii) retail clients who are sophisticated investors or certified high net worth investors, on the same terms as non-mainstream pooled investments.

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(b) A long-term asset fund is an AIF and must be managed by a full-scope UK AIFM (see COLL 15.2.2R (Authorised fund manager to be a full-scope UK AIFM)). (c) Under the Act and the UK AIFM regime, the FCA is able to impose stricter requirements on an AIFM or an AIF marketed to retail clients than the requirements that apply to an AIF marketed only to professional clients. This sourcebook contains stricter requirements for an AIF which is a long-term asset fund. (d) A full-scope UK AIFM must also comply with the requirements in FUND and any other applicable provisions of the UK AIFM regime. (e) A long-term asset fund could change to become a qualified investor scheme, a non-UCITS retail scheme or a UCITS scheme, provided it complies with the necessary conditions. The authorised fund manager of an LTAF may need to make significant changes to the LTAF’s constitution, objectives and investment powers for it to become a UCITS scheme or a non￾UCITS retail scheme. (f) A qualified investor scheme could become authorised as a long-term asset fund if the authorised fund manager operates, or proposes to operate, the scheme in accordance with the rules in COLL 15 (Long-term asset funds). (g) The nature of the assets that are held (or expected to be held) by a long-term asset fund means that it will not be able to seek authorisation as a regulated money market fund, or to have the characteristics of such a fund without significant changes to its constitution, objectives and investment powers. See also
article 6 of the Money Market Funds Regulation.
(4) The changes referred to in (2), and (3) and (3A) require approval by the FCA and further information on that process is provided in COLLG 3A.1.6G (Notification of changes to unit trusts (sections 251 and 252A)) and COLLG 4A.1.3G (Notification of changes to ICVCs (Regulations 21 and 22A)). … 4 Investor Relations …
4.5 Reports and accounts
…

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Comparative information
4.5.10 R The comparative information required by COLL 4.5.7R (Contents of the
annual long report), and COLL 8.3.5AR (Contents of the annual report), and COLL 15.5.3R (Contents of the annual report) must be shown for the last three annual accounting periods (or all of the authorised fund’s annual accounting periods, if fewer than three) and must set out:
…
…
…
5 Investment and borrowing powers
5.1 Introduction
…
Indicative overview of investment and borrowing powers
5.1.4 G This table belongs to COLL 5.1.2G(2).
Scheme investments and investment techniques Limits for UCITS schemes Limits for non￾UCITS retail schemes … Regulated schemes other than qualified investor schemes and long-term asset funds Yes None Yes None Unregulated schemes, and qualified investor schemes, and long-term asset funds No N/A Yes 20%(C) (D) … Note: Meaning of terms used:
…
“(C)” …
“(D)” The second scheme would also need to meet the applicable requirements specified in the rules. …

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6 Operating duties and responsibilities
…
6.9 Independence, names and UCITS business restrictions
…
Use of the term ‘UCITS ETF’
6.9.8B G …
Use of the term ‘long-term asset fund’ or ‘LTAF’ 6.9.8C R (1) Paragraph (2) applies to the authorised fund manager of a UCITS scheme or a non-UCITS retail scheme, an ICVC which is such a scheme, and any other directors of such an ICVC. (2) The scheme or sub-fund:
(a) must not use ‘Long-Term Asset Fund’ or ‘LTAF’ in its name; and (b) must not otherwise suggest through its name that it is a fund which invests in long-term assets or describe itself as such. 6.9.8D G (1) The term ‘Long-Term Asset Fund’ or ‘LTAF’ is reserved for long￾term asset funds (see COLL 15). (2) Only AIFs that are authorised in accordance with the LTIF Regulation may use the designation ‘LTIF’ or ‘long-term investment fund’. … 8 Qualified investor schemes …
8.2 Constitution
…
Names of schemes, sub-funds, and classes of units
8.2.3 R (1) …
(2) [deleted] Paragraph (3) applies to an authorised fund manager of a qualified investor scheme, an ICVC which is such a scheme, and any other directors of such an ICVC. (3) The scheme or sub-fund:

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(a) must not use ‘Long-Term Asset Fund’ or ‘LTAF’ in its name; and (b) must not otherwise suggest through its name that it is a fund which invests in long-term assets or describe itself as such. Undesirable and misleading names
8.2.4 G (1) COLL 6.9.6G (Undesirable and misleading names) contains guidance
as to names which may be undesirable or misleading.
(2) The term ‘Long-Term Asset Fund’ or ‘LTAF’ is reserved for long￾term asset funds (see COLL 15). (3) Only AIFs that are authorised in accordance with the LTIF Regulation may use the designation ‘LTIF’ or ‘long-term investment fund’. …
8.3 Investor relations
…
Drawing up and availability of a prospectus … 8.3.2A G (1) … (2) The requirements of the PRIIPs Regulation are directly applicable form part of UK law. … … 14 Charity authorised investment funds
14.1 Introduction
…
Types of charity authorised investment fund
14.1.3 R (1) A charity authorised investment fund may be:
…
(b) a non-UCITS retail scheme; or
(c) a qualified investor scheme.; or

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(d) a long-term asset fund.
Insert the following chapter after COLL 14. All of the text is new and is not underlined. 15 Long-term asset funds
15.1 Introduction
Application
15.1.1 R (1) This chapter applies to:
(a) an authorised fund manager of an AUT, ACS or an ICVC; (b) any other director of an ICVC; (c) the depositary of an AUT, ACS or an ICVC; and (d) an ICVC, which is a long-term asset fund. (2) Where this chapter refers to rules in any other chapter of this sourcebook, those rules and any relevant guidance should be applied as if they referred to long-term asset funds. Purpose
15.1.2 G (1) This chapter assists in achieving the statutory objective of securing an
appropriate degree of protection for consumers in respect of authorised fundsthat are only intended for investors that are, in general, prepared to accept a higher degree of risk in their investments or have a higher degree of experience and expertise than investors in a UCITS scheme or a non-UCITS retail scheme. (2) A long-term asset fund is essentially a type of scheme where different types of permitted asset may be included as part of the scheme property, depending on the investment objectives and policy of that scheme and within any restrictions in the rules. The FCA expects the investment strategy of an LTAF to be to invest at least 50% of the scheme property of an LTAF in assets that are illiquid and need to be held over the longer term.

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(3) In comparison to qualified investor schemes, long-term asset funds have greater flexibility in their investment powers. Therefore, to assist the FCA in achieving the statutory objective of securing an appropriate degree of protection for consumers, this chapter balances this additional flexibility by placing other requirements on the authorised fund managers and depositaries of LTAFs. (4) This chapter ceases to apply where a long-term asset fund has converted to be authorised as a UCITS scheme, a non-UCITS retail scheme or a qualified investor scheme. Long-term asset funds: eligible investors
15.1.3 R (1) Subject to (3), the authorised fund manager of a long-term asset fund
must take reasonable care to ensure that ownership of units in that scheme is recorded in the register only for a person to whom such units may be promoted under COBS 4.12.4R (Exemptions from the restrictions on the promotion of non-mainstream pooled investments). (2) In addition to (1), the authorised contractual scheme manager of a long-term asset fund which is an ACS must take reasonable care to ensure that ownership of units in that scheme is only recorded in the register for a person that meets the criteria set out in COLL 15 Annex 1R (ACS Long-term asset funds: eligible investors). (3) The authorised fund manager will be regarded as complying with (1) and (2) to the extent that it can show that it was reasonable for it to rely on relevant information provided by another person. Long-term asset funds - explanation
15.1.4 G (1) Long-term asset funds are authorised funds which are intended only
for professional clients and for retail clients who are sophisticated investors or certified high net worth investors. For this reason, long￾term asset funds are subject to a restriction on promotion under COBS 4.12.3R (Restrictions on the promotion of non-mainstream pooled investments). (2) The authorised contractual scheme manager of a long-term asset fund which is an ACS must take reasonable care to ensure that it accepts subscription to units in the LTAF only from a person to whom such units may be promoted under COBS 4.12.4R (Exemptions from the restrictions on the promotion of non-mainstream pooled investments) and who also meets the criteria in COLL 15 Annex 1R. Application and notification procedures
15.1.5 G Details of the application procedures in respect of long-term asset funds are
contained in COLL 2.1 (Authorised fund applications). Further information is available on the FCA website at www.fca.org.uk/firms/authorised￾recognised-funds/apply-fund-authorisation.

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15.2 Eligibility to act as the authorised fund manager
Application
15.2.1 R This section applies to:
(1) the authorised fund manager of an AUT, ACS or an ICVC; (2) any other director of an ICVC; (3) the depositary of an AUT, ACS or an ICVC; and (4) an ICVC, which is a long-term asset fund. Authorised fund manager to be a full-scope UK AIFM
15.2.2 R The authorised fund manager of a long-term asset fund must be a full-scope
UK AIFM.
15.2.3 G (1) To ensure an appropriate degree of consumer protection, only a full￾scope UK AIFM is able to act as the authorised fund manager for an
LTAF.
(2) Full-scope UK AIFMs that manage authorised AIFs are subject to the requirements of both COLL and FUND, and must also comply with any other applicable provisions of the UK AIFM regime, including the AIFMD level 2 regulation and the AIFMD UK regulation. Small authorised UK AIFMs are subject to a more limited set of rules and requirements. Competence and resources of the authorised fund manager
15.2.4 R (1) The authorised fund manager of a long-term asset fund must, having
regard to the investment objectives, policy and strategy of the LTAF:
(a) possess the knowledge, skills and experience necessary to understand the activities of the LTAF and, in particular, the risks involved in those activities and the assets which the LTAF holds (or is to hold) in the scheme property; and (b) employ sufficient personnel with the skills, knowledge and expertise necessary for discharging the responsibilities allocated to them. (2) The authorised fund manager may not rely on a delegation or outsourcing arrangement to satisfy (1).
15.2.5 R The authorised fund manager of a long-term asset fund must at all times be
able to demonstrate to the FCA that it complies with COLL 15.2.4R.

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[Note: Article 22 of the AIFMD level 2 regulation.]
Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets
15.2.6 R (1) The authorised fund manager of a long-term asset fund must appoint
an external valuer to perform the valuation function for the LTAF, but this is subject to (2) and (5). (2) The authorised fund manager need not appoint an external valuer under (1) if:
(a) the authorised fund manager possesses the knowledge, skills and experience necessary to be able to carry out a proper and independent valuation of the assets and types of assets which the long-term asset fund holds or is to hold (see FUND 3.9.4R); and (b) the depositary of the long-term asset fund, having made an assessment of the matters in (a), has determined that the authorised fund manager has the resources and procedures for carrying out a valuation of those assets in accordance with the applicable law, the instrument constituting the fund and FUND
3.9 (Valuation).
(3) The depositary must:
(a) review its determination under (2)(b):
(i) regularly, and in any event at least annually; and (ii) whenever the depositary becomes aware of any circumstances which could affect the determination; (b) for a period of six years, keep a written record of its determination under (2)(b) and any review under (3)(a), and the reasons for the assessment; and (c) provide the FCA with a copy of the written record on request. (4) Where the authorised fund manager performs the valuation function itself in accordance with (2), the authorised fund manager may appoint, as applicable:
(a) for the purpose of valuing immovables in accordance with COLL 15.6.18R (Investment in property), an appropriate valuer; (b) for the purpose of valuing immovables in accordance with COLL 15.6.22R (Standing independent valuer and valuation), a standing independent valuer;

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(c) for the purpose of valuing an asset other than an immovable or property, a delegate appointed in accordance with FUND 3.10 (Delegation) and the relevant provisions of section 8 (Delegation of AIFM functions) of Chapter III of the AIFMD level 2 regulation. (5) The authorised fund manager need not appoint an external valuer under (1) if:
(a) the scheme property of the long-term asset fund is constituted solely of units or shares in other collective investment schemes or AIFs; and (b) an external valuer performs the valuation function of each such collective investment scheme or AIF. [Note: FUND 3.9 (Valuation), FUND 3.10 (Delegation), FUND 3.11.25R (Depositary functions: oversight), article 19(5) of AIFMD, and articles 67 to 74 (Valuation) and article 94(4) (Duties regarding the valuation of shares/units) of the AIFMD level 2 regulation.]
15.2.7 G Where an authorised fund manager appoints an external valuer under COLL
15.2.6R(1) certain additional requirements apply. For example, FUND 3.9.7R(3) (Performance of the valuation function) sets certain conditions relating to the independence of the external valuer, and the authorised fund manager will also need to be able to demonstrate the matters set out in FUND 3.9.9R (Appointment of external valuer). The AIFMD level 2 regulation contains further requirements that apply to the authorised fund manager where an external valuer is used. Certain requirements also apply to the external valuer and the depositary of an LTAF with an external valuer. [Note: Articles 67 to 74 and article 94(4) of the AIFMD level 2 regulation.]
15.2.8 R The governing body of the authorised fund manager of a long-term asset
fund must:
(1) possess the collective knowledge, skills and experience to be able to understand the authorised fund manager’s activities, in particular, the main risks involved in those activities and the assets in which the long-term asset fund is invested; (2) have members that commit sufficient time to properly perform their functions in the authorised fund manager; and (3) have members that act with honesty, integrity and independence of mind. [Note: Article 21 of the AIFMD level 2 regulation.]

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15.2.9 G (1) In order to establish whether an authorised fund manager of a long￾term asset fund conducts its activities honestly, fairly and with due
skills, the FCA is required to assess various matters, including those set out in articles 21 and 22 of the AIFMD level 2 regulation. In addition, under COLL 15.2.4R, the authorised fund manager must possess the knowledge, skills and experience necessary to understand the activities of the LTAF and, in particular, the risks involved in those activities and the assets which the LTAF holds (or is to hold) in the scheme property without relying on delegation arrangements to satisfy the requirement. (2) The authorised fund manager of a long-term asset fund is subject to various other requirements relating to its governance arrangements; its organisational structure; the skills, knowledge, expertise and competence of those it employs; and its obligation to act honestly, fairly and with due skill, care and diligence. See for example the rules in SYSC 4 (General organisational requirements), SYSC 5 (Employees, agents and other relevant persons) and COBS 2.1 (Acting honestly, fairly and professionally). (3) The authorised fund manager of a long-term asset fund should also note the organisational requirements set out in the AIFMD level 2 regulation; for example, article 57 (General requirements).
15.3 Constitution
Application
15.3.1 R This section applies to an authorised fund manager of a long-term asset
fund.
Classes of unit
15.3.2 R A long-term asset fund may issue such classes of unit as are set out in the
instrument constituting the fund, provided the rights of any class are not unfairly prejudicial as against the interests of the unitholders of any other class of units in that scheme. Names of schemes, sub-funds, and classes of units
15.3.3 R (1) The authorised fund manager must ensure that the name of the
scheme, a sub-fund or a class of unit is not undesirable or misleading. (2) The authorised fund manager of a long-term asset fund must include the term ‘long-term asset fund’ or ‘LTAF’ in the name of the scheme and in relation to any sub-fund which is also a long-term asset fund. Undesirable and misleading names
15.3.4 G (1) COLL 6.9.6G (Undesirable and misleading names) contains guidance
as to names which may be undesirable or misleading.

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(2) The term ‘Long-Term Asset Fund’ or ‘LTAF’ is reserved for a long￾term asset fund whose authorised fund manager operates, or proposes to operate, it in accordance with the rules in this chapter. (3) Only AIFs that are authorised in accordance with the LTIF Regulation may use the designation ‘LTIF’ or ‘long-term investment fund’. Instrument constituting the fund
15.3.5 R (1) The statements and provisions required by COLL 15.3.6R must be
included in the instrument constituting the fund of a long-term asset fund. (2) The instrument constituting the fund must not contain any provision that conflicts with any applicable rule.
Table: contents of the instrument constituting the fund
15.3.6 R This table belongs to COLL 15.3.5R.
1 Description of the authorised fund
Information detailing:
(1) the name of the authorised fund;
(2) that the authorised fund is a long-term asset fund; (3) in the case of an ICVC, whether the head office of the company is situated in England and Wales, Wales, Scotland or Northern Ireland. 2 Property Authorised Investment Funds For a property authorised investment fund, a statement that:
(1) it is a property authorised investment fund; (2) no body corporate may seek to obtain or intentionally maintain a holding of more than 10% of the net asset value of the scheme; and (3) in the event that the authorised fund manager reasonably considers that a body corporate holds more than 10% of the net asset value of the scheme, the authorised fund manageris entitled to delay any redemption or cancellation of units in accordance with 8 if the authorised fund manager reasonably considers such action to be:
(a) necessary in order to enable an orderly reduction of the holding to below 10%; and (b) in the interests of the unitholders as a whole.

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3 Constitution
The following statements:
(1) the scheme property of the scheme is entrusted to a depositary for safekeeping (subject to any exception permitted by the rules); (2) if relevant, the duration of the scheme is limited and, if so, for how long; (3) charges and expenses of the scheme may be taken out of scheme property; (4) for an ICVC:
(a) what the maximum and minimum sizes of the scheme’s capital are; and (b) the unitholders are not liable for the debts of the company; (5) for an ICVC which is an umbrella, a statement that the assets of a sub￾fund belong exclusively to that sub-fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the umbrella, or any other sub-fund, and shall not be available for any such purpose; (6) for a co-ownership scheme which is an umbrella, the property subject to a sub-fund is beneficially owned by the participants in that sub-fund as tenants in common (or, in Scotland, is the common property of the participants in that sub-fund) and must not be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund; (7) for a limited partnership scheme, that the scheme prohibits pooling as is mentioned in section 235(3)(a) of the Act in relation to separate parts of the scheme property, with the effect that the scheme cannot be an umbrella; (8) for an AUT:
(a) the trust deed:
(i) is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland; (ii) is binding on each unitholder as if that person had been a party to it, and that the unitholder is bound by its provisions; and

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(iii) authorises and requires the trustee and the managerto do the things required or permitted of them by its terms; (b) subject to the provisions of the trust deed and all the rules made under section 247 of the Act (Trust scheme rules):
(i) the scheme property (other than sums held to the credit of the distribution account) is held by the trustee on trust for the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of individual shares in the scheme property represented by the units held by each unitholder; and (ii) the sums standing to the credit of any distribution account are held by the trustee on trust to distribute or apply them in accordance with COLL 15.8.18R (Income); (c) a unitholder is not liable to make any further payment after having paid the price of the units held, and that no further liability can be imposed on the unitholder in respect of those units; and (d) payments to the trustee by way of remuneration are authorised to be paid (in whole or in part) out of the scheme property; and (9) for an ACS:
(a) the contractualscheme deed:
(i) is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland; (ii) is binding on each unitholder as if that person had been a party to it, and that the unitholder is bound by its provisions; (iii) authorises and requires the depositary and the authorised contractualscheme manager to do the things required or permitted of them by its terms; and (iv) states that units may not be issued to a person other than a person:
(A) who is a:
(i) professional ACS investor; or

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(ii) large ACS investor; or
(iii) person who already holds units in the scheme; and (B) to whom units in a long-term asset fund may be promoted under COBS 4.12.4R; (v) states that the authorised contractualscheme manager of an ACS must redeem units as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in (iv)(A) and (B); (vi) states that for a co-ownership scheme:
(A) the scheme property is beneficially owned by the participants as tenants in common (or, in Scotland, is the common property of the participants); (B) the arrangements constituting the scheme are intended to constitute a co-ownership scheme as defined in section 235A(2) of the Act; and (C) the operator and depositary are required to wind up the scheme if directed to do so by the FCA in exercise of its power under section 261X (Directions) of the Act; (vii) states:
(A) whether the transfer of units in the ACS scheme or, for a co-ownership scheme which is an umbrella (sub-funds of which pursue differing policies in relation to transfer of units), in each particular sub-fund, is either:
(i) prohibited; or
(ii) allowed;
(B) where a transfer of units is allowed by the scheme or, where appropriate the sub-fund, in accordance with (A)(ii), units may only be transferred in accordance with the conditions specified by FCA rules, including that units may not be transferred to a person other than a person:

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(i) who is a:
(1) professional ACS investor; or
(2) large ACS investor; or
(3) person who already holds units in the scheme; and (ii) to whom units in a long-term asset fund may be promoted under COBS 4.12.4R; and (vii) states that for a limited partnership scheme, the scheme is not dissolved on any person ceasing to be a limited partner or nominated partner provided that there remains at least one limited partner; (b) subject to the provisions of the contractualscheme deed and all the rules made under section 261I of the Act (Contractual scheme rules) and for the time being in force:
(i) the scheme property (other than sums standing to the credit of the distribution account) is held by, or to the order of, the depositary for and on behalf of the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of individual shares in the scheme property represented by the units held by each unitholder; and (ii) the sums standing to the credit of any distribution account are held by the depositary to distribute or apply them in accordance with COLL 15.8.18R (Income); and (c) a unitholder in a co-ownership scheme is not liable to make any further payment after having paid the price of the units held, and that no further liability can be imposed on the unitholder in respect of those units; (d) a unitholder in a limited partnership scheme is not liable for the debts or obligations of the limited partnership scheme beyond the amount of the scheme property which is available to the authorised contractualscheme manager to meet such debts or obligations, provided that the unitholder does not take part in the management of the partnership business; (e) the exercise of rights conferred on limited partners by FCA rules does not constitute taking part in the management of the partnership business;

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(f) the limited partners, other than the nominated partner, are to be the participants in the scheme; and (g) the operator of a co-ownership scheme is authorised to:
(i) acquire, manage and dispose of the scheme property; and (ii) enter into contracts which are binding on unitholders for the purposes of, or in connection with, the acquisition, management or disposal of scheme property. 4 Investment objectives A statement of the object of the scheme, in particular the types of investments and assets in which it and each sub-fund (where applicable) may invest and that the object of the scheme is to invest in property of that kind with the aim of spreading investment risk. 5 Units in the scheme A statement of:
(1) the classes of units which the scheme may issue, indicating, for a scheme which is an umbrella, which class or classes may be issued in respect of each sub-fund; and (2) the rights attaching to units of each class (including any provisions for the expression in two denominations of such rights). 6 Limitation on issue of and redemption of units (1) Details as to:
(a) the provisions relating to any restrictions on the right to redeem units in any class; and (b) the circumstances in which the issue of the units of any particular class may be limited. (2) A statement setting out the dealing frequency for sales and redemptions of units in the scheme, and the applicable notice period for redemptions. 7 Income and distribution Details of the person responsible for the calculation, transfer, allocation and distribution of income for any class of unit in issue during the accounting period.

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8 Redemption or cancellation of units on breach of law or rules A statement that where any holding of units by a unitholder is (or is reasonably considered by the authorised fund manager to be) an infringement of any law, governmental regulation or rule, those units must be redeemed or cancelled. 9 Base currency A statement of the base currency of the scheme. 10 Meetings Details of the procedures for the convening of meetings and the procedures relating to resolutions, voting and the voting rights for unitholders. 11 Powers and duties of the authorised fund manager and depositary Where relevant, details of any function to be undertaken by the authorised fund manager and depositary which the rulesin COLL require to be stated in the instrument constituting the fund. 12 Termination and suspension Details of:
(1) the grounds under which the authorised fund manager may initiate a suspension of the scheme and any associated procedures; and (2) the methodology for determining the rights of unitholders to participate in the scheme property on winding up. 13 Investment in overseas property through an intermediate holding vehicle If investment in an overseas immovable is to be made through an intermediate holding vehicle or a series of intermediate holding vehicles, a statement that the purpose of that intermediate holding vehicle or series of intermediate holding vehicleswill be to enable the holding of overseas immovables by the scheme. 14 Other relevant matters Details of those matters which enable the scheme, authorised fund manager or depositary to obtain any privilege or power conferred by the rules in COLL which is not otherwise provided for in the instrument constituting the fund.

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Limited issue
15.3.7 R Units whose issue may be limited can only be issued if permitted by the
instrument constituting the fund, under the conditions set out in the prospectus and provided that this will not materially prejudice any existing unitholders in the scheme.
15.4 Prospectus and other pre-sale notifications
Application
15.4.1 R This section applies to:
(1) the authorised fund manager of an AUT, ACS or an ICVC; and (2) an ICVC, which is a long-term asset fund. Drawing up and availability of a prospectus
15.4.2 R (1) An authorised fund manager must ensure that a prospectus of a long￾term asset fund is drawn up which contains:
(a) the information specified in COLL 15.4.5R (Table: contents of long-term asset fund prospectus); (b) the information for investors required by FUND 3.2.2R and FUND 3.2.3R (Prior disclosure of information to investors); and (c) the information for investors required by FUND 3.2.5R and FUND 3.2.6R (Periodic disclosure), unless the up-to-date information has been published in the scheme’s most recent annual report or half-yearly report. (2) An authorised fund manager must:
(a) revise the prospectus immediately upon the occurrence of any materially significant change in the information required to be stated within it; (b) include the date of any revision in a prominent manner in the revised prospectus; (c) send a copy of the original and any revised prospectus to the FCA; and (d) review the prospectus periodically and revise it to take account of any significant change or new matter.

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(3) The prospectus must not contain any provision which is unfairly prejudicial to the interests of unitholders generally or to the unitholders of any class of units. (4) The authorised fund manager must ensure that the prospectus does not contain any provision that conflicts with any applicable rule. (5) An ICVC or the authorised fund manager of an AUT or ACS must offer a copy of the scheme’s most recent prospectus free of charge to any person eligible to invest in a long-term asset fund, prior to the purchase of any units.
15.4.3 G (1) The information specified in COLL 15.4.5R (Table: contents of long￾term asset fund prospectus) includes the provisions specified in FUND
3.2.2R(1) to (12) and (16), as well as certain additional pieces of information. A ‘Note’ indicates whether the information is derived from FUND 3.2.2R. (2) The authorised fund manager of an LTAF will also need to comply with FUND 3.2.2R by providing investors with the information specified in FUND 3.2.2R(13) to (15) and (17). False or misleading prospectus
15.4.4 R The authorised fund manager must ensure that the prospectus does not
contain any untrue or misleading statement or omit any matter required by the rules in this sourcebook to be included in it.
Table: contents of a long-term asset fund prospectus
15.4.5 R This table belongs to COLL 15.4.2R.
1 Document status
A statement that this document is the prospectus of the authorised fund valid as at a particular date which shall be the date of the document. 2 Description of the authorised fund Information detailing:
(1) the name of the authorised fund;
(2) its FCA product reference number (PRN); (3) that the authorised fund is either an ICVC, ACS or an AUT; (4) that the scheme is a long-term asset fund; (5) where relevant, that the shareholders in an ICVC are not liable for the debts of the authorised fund;

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(6) where relevant, the address of the ICVC’s head office and the address in the United Kingdom for service on the ICVC of documents required or authorised to be served on it; (7) the effective date of the authorisation order made by the FCA and, if the duration of the authorised fund is not unlimited, when it will or may terminate; (8) the base currency for the authorised fund; (9) where relevant, the maximum and minimum sizes of the ICVC’s capital; (10) for an ACS that is a limited partnership scheme, the address of the proposed principal place of business of the limited partnership scheme; and (11) a description of the other main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, the applicable law and the existence or absence of any legal instruments providing for the recognition and enforcement of judgments. [Note: FUND 3.2.2R(3).] 3 Investment objectives, policy and strategy The following particulars, which must be set out fairly, clearly and in plain language:
(1) Information to enable a unitholder to ascertain:
(a) the investment objectives of the authorised fund; (b) the authorised fund’sinvestment policy for achieving those investment objectives, including:
(i) the general nature of the portfolio and any intended specialisation; (ii) the policy for providing a prudent spread of risk in the scheme property; and (iii) the policy in relation to the exercise of powers to borrow cash and use leverage, including:
(A) the purposes for which cash borrowing and leverage may be used;

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(B) the nature of the cash borrowing, including whether it is short- or long-term, temporary or otherwise; (C) the types and sources of leverage permitted and the associated risks; (D) any restrictions on the use of leverage and any collateral and asset reuse arrangements; (E) the maximum level of leverage which the authorised fund manager is entitled to employ on behalf of the LTAF; (F) an explanation of how and why that is compatible with the objectives of the LTAF; (c) whether there are any restrictions in the assets which may be held in the scheme property; and (d) the extent (if any) to which that investment policy does not envisage remaining fully invested at all times. (2) A description of the investment strategy of the long-term asset fund which must comply with COLL 15.6.6R (Long-term asset funds:
investment strategy).
[Note: FUND 3.2.2R(1)(a), FUND 3.2.2R(1)(f) and FUND 3.2.2R(1)(g) to (j).] 4 Feeder LTAFs If the LTAF is a feeder LTAF:
(1) the name and (where applicable) the FCA product reference number (PRN) of the qualifying master LTAF; (2) the country or territory where the qualifying master LTAF is established; and (3) the following details of the qualifying master LTAF:
(a) its investment objective, policy and strategy, including its risk profile; (b) the minimum and (if relevant) maximum investment that the feeder LTAF may make in it; (c) how copies of its prospectus may be obtained;

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(d) how the unitholders of the feeder LTAF may obtain further information about it; and (e) a description of all remuneration or reimbursement of costs payable by the feeder LTAF by virtue of its investment in units of the qualifying master LTAF, as well as the aggregate charges of the two schemes. [Note: FUND 3.2.2R(1)(b).] 5 Fund of funds If the LTAF is a fund of funds, information on where the underlying funds are established. [Note: FUND 3.2.2R(1)(c).] 6 Assets in which the LTAF may invest A description of the types of assets in which the LTAF may invest, including, where relevant:
(1) for investment in immovables:
(a) the countries or territories in which the authorised fund may invest in immovables; (b) the authorised fund manager’s policy in relation to insuring any immovables which form part of the scheme property; and (c) the policy of the authorised fund manager in relation to the granting of options over immovables in the scheme property and the purchase of options on immovables. (2) if intended, whether the scheme property may consist of units in collective investmentschemes (“second schemes”) which are managed by or operated by the authorised fund manager or by one of its associates and a statement as to:
(a) the basis of the maximum amount of the charges in respect of transactions in a second scheme; and (b) the extent to which any such charges will be reimbursed to the scheme; (3) if intended, whether the scheme may enter into stock lending arrangements and repo contracts and, if so, what procedures will operate and what collateral will be required. [Note: FUND 3.2.2R(1)(d).]

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7 Investment techniques and associated risks At least the following information, which must be set out fairly, clearly and in plain language, about the investment techniques that the authorised fund manager may employ and all associated risks, including:
(1) having regard to the investment strategy of the long-term asset fund and the type of assets in which the scheme may invest, an explanation of the risks associated with the scheme investing in those assets and how those risks might crystallise; (2) any other risks for unitholders investing in the long-term asset fund; (3) a description of the tools and arrangements the authorised fund manager would propose using, including those required by rules, to mitigate the risks referred to in (1) and (2); and (4) an explanation of the circumstances in which those tools and arrangements would typically be deployed and the likely consequences for investors. [Note: FUND 3.2.2R(1)(e).] 8 Procedures to change of strategy or policy A description of the procedures by which the authorised fund manager of the LTAF may change its investment objective and policy or its investment strategy, or both. [Note: FUND 3.2.2R(2).] 9 Classes of units Information as to:
(1) the names of the classes of units in issue or available for issue and the rights attached to them in so far as they vary from the rights attached to other classes; (2) how unitholders may exercise their voting rights and what these are; and (3) the circumstances where a mandatory redemption, cancellation or conversion of units from one class to another may be required. [Note: FUND 3.2.2R(3), (8), (9), (11) and (12).] 10 Identity and duties of the authorised fund manager, depositary, auditor and other service providers, and investors’ rights (1) The following particulars of the authorised fund manager:

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(a) its name and the nature of its corporate form; (b) the country or territory of its incorporation; (c) the date of its incorporation and if the duration of its corporate status is limited, when that status will or may cease; (d) if it is a subsidiary, the name of its ultimate holding company and the country or territory in which that holding company is incorporated; (e) the address of its registered office, its head office, and, if different, the address of its principal place of business in the United Kingdom; (f) the amount of its issued share capital and how much of it is paid up; (g) for an ICVC, a summary of the material provisions of the contract between the ICVC and the authorised fund manager which may be relevant to unitholders including provisions (if any) relating to termination, compensation on termination and indemnity; (h) the names of the directors of the authorised fund manager; and (i) a description of the duties of the authorised fund manager. (2) Where the LTAF is an ICVC, other than for the ACD:
(a) the names and positions in the ICVC of the directors; and (b) the manner, amount and calculation of the remuneration of the directors. (3) The following particulars of the depositary (a) its name and the nature of its corporate form; (b) the country or territory of its incorporation; (c) the address of its registered office and the address of its head office if that is different from the address of its registered office; (d) if neither its registered office nor its head office is in the United Kingdom, the address of its principal place of business in the United Kingdom; and (e) a description of the duties of the depositary.

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(4) If an investment adviser or any other person is retained to provide services in connection with the business of the authorised fund:
(a) the name of the person;
(b) whether or not the person is authorised by the FCA; and (c) a description of the duties of the person. (5) The name of the auditor of the authorised fund and a description of the duties of the auditor. [Note: FUND 3.2.2R(4).] 11 Professional liability A description of how the authorised fund manager complies with the requirements referred to in IPRU-INV 11.3.11G (Professional negligence) relating to professional liability risk. [Note: FUND 3.2.2R(5).] 12 Delegation arrangements To the extent not covered by (10), a description of:
(1) any AIFM management function delegated by the authorised fund manager; (2) any safe-keeping function delegated by the depositary; (3) the identity of each delegate appointed under FUND 3.10 (Delegation); and (4) any conflicts of interest that may arise from such delegation. [Note: FUND 3.2.2R(6).] 13 Valuation of scheme property and due diligence (1) A statement setting out whether the valuation function is performed by an external valuer or the authorised fund manager and:
(a) where an external valuer is used to perform the valuation function, an explanation of how that person meets the requirements set out in FUND 3.9.7R(3) (Performance of the valuation function) and the relevant requirements in articles 67 to 74 of the AIFMD level 2 regulation, and how the authorised fund manager is able to demonstrate the matters specified in FUND 3.9.9R (Appointment of an external valuer) and FUND 3.10.2R(2)(f) (General delegation requirements); or

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(b) where the authorised fund manager performs the valuation function itself, details of the depositary’s determination of the matters referred to in COLL 15.2.6R(2) (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets). (2) A description of the valuation procedure and of the pricing methodology for valuing assets, including the methods used in valuing hard-to-value assets, in line with FUND 3.9 (Valuation), and details as to:
(a) how frequently and at what times of the day the scheme property will be regularly valued to determine the price at which units in the scheme may be purchased from or redeemed by the authorised fund manager and a description of any circumstance where the scheme property may be specially valued; (b) in relation to each purpose for which the scheme property must be valued and each category of asset held in the scheme property, the basis on which it will be valued, identifying any codes of good practice used by the external valuer (where relevant) or the authorised fund manager; and (c) how the price of units of each class will be determined, including a statement that a forward price basis is to be applied. (3) Details as to:
(a) the authorised fund manager’s policies and procedures in relation to the selection and ongoing monitoring of investments (see article 18(2) of the AIFMD level 2 regulation); (b) the arrangements for ensuring that investment decisions on behalf of the long-term asset fund are carried out in compliance with the objectives and the investment strategy of the scheme (see article 18(3) of the AIFMD level 2 regulation); (c) how the authorised fund manager will carry out due diligence in line with good market practice. [Note: FUND 3.2.2R(7).] [Note 2: Articles 67 to 71 of the AIFMD level 2 regulation contain detailed requirements relating to the valuation of assets by full-scope UK AIFMs. Articles 18 and 19 of the AIFMD level 2 regulation also contain detailed requirements relating to the due diligence obligations of full-scope UK AIFMs.]

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14 Fees, charges and expenses
A description of all fees, charges and expenses, including:
(1) the maximum amounts directly or indirectly borne by investors; (2) the payments that may be made out of the scheme property to any person whether by way of remuneration for services, reimbursement of expense, or charge or other payment and for each category of remuneration, expense, charge or payment the following should be specified:
(a) (i) the person to whom the remuneration, charge, expense or payment is payable or made; (ii) what that payment is for; (iii) the current rates or amounts of such remuneration, charge, expense or payment; (iv) how the remuneration, charge, expense or payment will be calculated; (v) when it will be paid; and (vi) where a performance fee is taken, whether by the authorised fund manager or any other person providing services to the authorised fund manager or the long￾term asset fund in relation to the operation of the scheme, examples of how the performance fee works in plain English and the maximum it can amount to; (b) if notice has been given to unitholders of the authorised fund manager’s intention to:
(i) introduce a new category of remuneration for its services; (ii) increase the basis of any current charge; or (iii) change the basis of the treatment of a payment from the capital property set out in COLL 15.8.16R(2) (Payments), particulars of that introduction or increase and when it will take place; and (c) if, in accordance with COLL 15.8.16R(2) (Payments), all or
part of the remuneration or expense are to be treated as a
capital charge:

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(i) that fact; and
(ii) the basis of the charge which may be so treated; and (3) if the authorised fund manager makes any charges on sale or redemption of units, details of the charging structure and how notice will be provided to unitholders of any increase. [Note: FUND 3.2.2R(9).] [Note 2: Annex VI of the onshored Commission Delegated Regulation (EU) 2017/653 laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents, sets out detailed requirements in relation to the costs to be disclosed in a key information document.] 15 Fair treatment of investors and investor rights (1) A description of how the authorised fund manager ensures a fair treatment of investors. (2) Whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of:
(a) that preferential treatment;
(b) the type of investors who obtain such preferential treatment; and (c) where relevant, their legal or economic links with the LTAF or the authorised fund manager. (3) A description of the rights of investors. [Note: FUND 3.2.2R(4), (10) and (11).] 16 Dealing The procedure and conditions for the issue, sale, redemption and cancellation of units or shares including details of the following, in fair, clear and plain language, using worked examples to explain how these procedures might apply to unitholders in practice:
(1) the dealing days and times in the dealing day on which the authorised fund manager will receive and determine requests for the sale and redemption of units, including any cut-off point for receiving redemption requests before the authorised fund manager makes the next redemption determination (see COLL 15.8.12R(2)(a) (Dealing:
redemption of units));
(2) the procedures for effecting the issue and cancellation of units;

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(3) the procedures for effecting the sale and redemption of units and the settlement of transactions; (4) the steps required to be taken by a unitholder in redeeming units in the long-term asset fund (see COLL 15.8.12R (Dealing: redemption of units)), using worked examples to explain how these arrangements may affect unitholders in the scheme, including:
(a) the notice period, and the normal period that unitholders will need to wait from the authorised fund manager accepting a unitholder’s instruction to redeem units in the LTAF to payment of the appropriate proceeds of redemption to the unitholder; (b) (if applicable) the circumstances and periods where:
(i) the execution of a redemption request may be deferred; (ii) payment may be deferred; or (iii) a limit on the amount that can be redeemed may be applied, and if so, the effect on the unitholder of such a deferral or limit (see COLL 15.8.12R(6) (Dealing: redemption of units)); (c) that the notice period may be extended when the scheme is suspended in accordance with COLL 15.10.3R (Suspension); and (d) that once the authorised fund manager has accepted a unitholder’s request to redeem units in the LTAF it is irrevocable and they will not be able to withdraw that request; (5) a description of the LTAF’s liquidity risk management, including how an investor’s ability to redeem units in the LTAF may be affected in exceptional circumstances, and the circumstances in which the redemption of units may be suspended; (6) the days and times in the day on which recalculation of the price will commence; (7) details of the minimum number or value of each type of unit in the authorised fund which:
(a) any one person may hold; and
(b) may be the subject of any one transaction of sale or redemption;

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(8) the circumstances in which the authorised fund managermay arrange for, and the procedure for, a redemption of units in specie; (9) the circumstances in which the further issue of units in any particular class may be limited and the procedures relating to this; (10) the circumstances in which direct issue or cancellation of units by the ICVC or the depositary of an AUT or ACS (as appropriate) may occur and the relevant procedures for such issues and cancellations; (11) whether a unitholder may effect transfer of title to units on the authority of an electronic communication and if so the conditions that must be satisfied in order to effect a transfer; (12) if the authorised fund manager deals as principal in units of the scheme and holds them for that purpose, a statement of its policy for doing so and, where applicable:
(a) a description of when the authorised fund manager may retain any profits it earns and absorb any losses it incurs for these activities; and (b) a statement of non-accountability as referred to in COLL 15.8.17G; and (13) any other features relating to dealing in units in the scheme which unitholders would reasonably expect to be aware of, including (but not limited to):
(a) any minimum periods for which unitholdersmust hold units in any class of the scheme; (b) any limits or caps on the number or value of units in any class that a unitholder may redeem, whether on one occasion or over a period of time; (c) whether the scheme may use side-pockets, and if so the procedures for their use, using worked examples to explain the effects or consequences that these features may have on unitholders in the scheme. [Note: FUND 3.2.2R(8).] 17 Issue of units in ACSs: eligible investors (1) A statement that units may not be issued to a person other than to a person:

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(a) who is a:
(i) professional ACS investor; or
(ii) large ACS investor; or
(iii) person who already holds units in the scheme; and (b) to whom units in a long-term asset fund may be promoted under COBS 4.12.4R. (2) A statement that the authorised contractualscheme manager of an ACS must redeem units as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in (1). [Note: FUND 3.2.2R(12).] 18 Transfer of units in ACSs (1) A statement whether the transfer of units in the ACS scheme is either:
(a) prohibited; or
(b) allowed; by the instrument constituting the fund and prospectus. (2) A statement that where transfer of units is allowed by the instrument constituting the fund and prospectusin accordance with (1)(b), units may only be transferred in accordance with the conditions specified by FCA rules, including that units may not be transferred to a person other than a person:
(a) who is a:
(i) professional ACS investor; or
(ii) large ACS investor; or
(iii) person who already holds units in the scheme; and (b) to whom units in a long-term asset fund may be promoted under COBS 4.12.4R. (3) For a co-ownership scheme which is an umbrella, a statement in accordance with (1)(a) or (1)(b) and, where appropriate, a statement in accordance with (2), must also be made for the sub-funds. Where individual sub-funds have differing policies in relation to transfer of units, separate statements are required.

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[Note: FUND 3.2.2R(12).]
19 Prime brokerage firms
(1) The identity of any prime brokerage firm.
(2) A description of any material arrangements of the LTAF with its prime brokerage firm and the way any conflicts of interest are managed. (3) The provision in the contract with the depositary on the possibility of transfer and reuse of the scheme property of the LTAF. (4) Information about any transfer of liability to the prime brokerage firm that may exist. [Note: FUND 3.2.2R(16).] 20 Distributions and accounting dates Relevant details of accounting and distribution dates and a description of the procedures:
(1) for determining and applying income (including how any distributable income is paid); and (2) relating to unclaimed distributions. 21 The register of unitholders Details of the address in the United Kingdom where the register of unitholders is kept and can be inspected by unitholders. 22 Property Authorised Investment Funds For a property authorised investment fund, a statement that:
(1) it is a property authorised investment fund; (2) no body corporate may seek to obtain or intentionally maintain a holding of more than 10% of the net asset value of the scheme; and (3) in the event that the authorised fund manager reasonably considers that a body corporate holds more than 10% of the net asset value of the scheme, the authorised fund manageris entitled to delay any redemption or cancellation of units if the authorised fund manager reasonably considers such action to be:
(a) necessary in order to enable an orderly reduction of the holding to below 10%; and

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(b) in the interests of the unitholders as a whole.
23 General information
Details as to:
(1) when annual and half-yearly reports will be published; and (2) the address at which copies of the instrument constituting the fund, any amending instrument and the most recent annual reports may be inspected and from which copies may be obtained. 24 Winding up of the LTAF Information detailing the circumstances in which the authorised fund may be wound up under the rules in COLL and a summary of the procedure for, and the rights of unitholders under, such a winding up. 25 Information on the umbrella In the case of a scheme which is an umbrella, the following information:
(1) that a unitholder may exchange units in one sub-fund for units in another sub-fund and that such an exchange is treated as a redemption and sale; (2) what charges may be made on exchanging units in one sub-fund for units in other sub-funds; (3) the policy for allocating between sub-funds any assets of, or costs, charges and expenses payable out of, the scheme property which are not attributable to any particular sub-fund; (4) in respect of each sub-fund, the currency in which the scheme property allocated to it will be valued and the price of units calculated and payments made, if this currency is not the base currency of the umbrella; (5) the circumstances in which a sub-fund may be terminated under the rules in COLL and a summary of the procedures for, and the rights of unitholders under, such a termination; (6) for an ICVC or a co-ownership scheme, that:

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(a) for an ICVC, its sub-funds are segregated portfolios of assets and, accordingly, the assets of a sub-fund belong exclusively to that sub-fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the umbrella, or any other sub-fund, and shall not be available for any such purpose; (b) for a co-ownership scheme, the property subject to a sub-fund is beneficially owned by the participants in that sub-fund as tenants in common (or, in Scotland, is the common property of the participants in that sub-fund) and must not be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund; and (c) for an ICVC or a co-ownership scheme, while the provisions of the OEIC Regulations, and section 261P (Segregated liability in relation to umbrella co-ownership schemes) of the Act in the case of co-ownership schemes, provide for segregated liability between sub-funds, the concept of segregated liability is relatively new. Accordingly, where claims are brought by local creditors in foreign courts or under foreign law contracts, it is not yet known how those foreign courts will react to regulations 11A and 11B of the OEIC Regulations or, as the case may be,
section 261P of the Act; and
(7) the FCA product reference number (PRN) of each sub-fund.
26 Application of the prospectus contents to an umbrella For a scheme which is an umbrella, information required must be stated:
(1) in relation to each sub-fund where the information for any sub-fund differs from that for any other; and (2) for the umbrella as a whole, but only where the information is relevant to the umbrella as a whole. 27 Investment in overseas property through an intermediate holding vehicle If investment in an overseas immovable is to be made through an intermediate holding vehicle or a series of intermediate holding vehicles, a statement:
(1) disclosing the existence of that intermediate holding vehicle or series of intermediate holding vehicles; and (2) confirming that the purpose of that intermediate holding vehicle or series of intermediate holding vehicles is to enable the holding of overseas immovables by the scheme.

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28 Information on authorised contractualschemes A statement that:
(1) a unitholder in a co-ownership scheme is not liable to make any further payment after having paid the price of the units held and that no further liability can be imposed on the unitholder in respect of those units; (2) a unitholder in a limited partnership scheme is not liable for the debts or obligations of the limited partnership scheme beyond the amount of the scheme property which is available to the authorised contractual scheme manager to meet such debts or obligations, provided that the unitholder does not take part in the management of the partnership business; (3) the exercise of rights conferred on limited partners by FCA rules does not constitute taking part in the management of the partnership business; and (4) the scheme property of a co-ownership scheme is beneficially owned by the participants as tenants in common (or, in Scotland, is the common property of the participants). 29 Additional information Any other material information which is within the knowledge of the directors of an ICVC or the authorised fund manager of an AUT or ACS, or which the directors or authorised fund manager would have obtained by the making of reasonable enquiries which investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed judgement about the merits of investing in the authorised fund and the extent and characteristics of the risks accepted by participating. Additional information to be made available on securities financing transactions and total return swaps
15.4.6 G (1) The Securities Financing Transactions Regulation sets out the
additional information which an authorised fund manager of a long￾term asset fund must make available to investors before they invest. (2) COLL 4.2.5BUK and COLL 4.2.5CUK copy out the relevant provisions of that regulation. (3) An authorised fund manager of a long-term asset fund should publish the information in the prospectus.

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(4) An authorised fund manager of a long-term asset fund that does not use securities financing transactions or total return swaps is not required to include the information in COLL 4.2.5CUK in the prospectus or other pre-sale documents. Preparation of key information document in accordance with the PRIIPs regulation
15.4.7 G (1) The PRIIPs Regulation requires the manufacturer of a PRIIP to draw
up a key information document in accordance with the PRIIPs Regulation before that PRIIP is made available to retail investors (as defined in the PRIIPs Regulation). (2) The requirements of the PRIIPs Regulation form part of UK law by virtue of the EUWA. (3) As a result, when a long-term asset fund is made available to retail clients, the authorised fund managerin the United Kingdom must comply with the PRIIPs Regulation and will need to prepare a key information document in accordance with the PRIIPs Regulation, in addition to the prospectus.
15.5 Annual report and investor relations
Application
15.5.1 R This section applies to:
(1) the authorised fund manager of an AUT, ACS or an ICVC; and (2) an ICVC, which is a long-term asset fund. Report and accounts
15.5.2 R (1) The authorised fund manager must prepare a report in respect of each
annual accounting period, half-yearly accounting period and quarterly reporting period. (2) Where the first annual accounting period of a scheme is less than 12 months, a half-yearly report need not be prepared. (3) The authorised fund manager must:
(a) publish the annual report not more than four months after the end of each relevant annual accounting period; (b) publish the half-yearly report not more than two months after the end of each relevant half-yearly accounting period; and

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(c) publish the quarterly report not more than 20 business days after the end of each relevant quarterly reporting period, and in each case provide a copy free of charge on request to any unitholder. (4) The authorised fund manager must provide free of charge, on the request of any person eligible to invest in the scheme, a copy of the latest:
(a) annual report and (if more recent) half-yearly report; and (b) quarterly report, before the conclusion of any sale to such a person. (5) The authorised fund manager must provide a copy of each annual, half-yearly and quarterly report to the FCA. (6) For a scheme which is an umbrella, any annual report provided under (3) or (4) may be a report prepared under COLL 15.5.3R(3), but the authorised fund manager must nevertheless provide free of charge the report prepared under COLL 15.5.3R(2) if a unitholder or any other person eligible to invest in the scheme requests it. Contents of the annual report
15.5.3 R (1) An annual report, other than for a scheme which is an umbrella, must
contain:
(a) the accounts for the annual accounting period prepared in accordance with the requirements of the IMA SORP; (b) the report of the authorised fund manager in accordance with COLL 15.5.6R (Authorised fund manager’s report); (c) comparative information in accordance with COLL 4.5.10R (1A) and (2A) (Comparative information); (d) the report of the depositary in accordance with COLL 15.5.7R (Report of the depositary); and (e) the report of the auditor in accordance with COLL 4.5.12R (Report of the auditor). (2) An annual report on a scheme which is an umbrella must be prepared for the umbrella as a whole and must contain:
(a) for each sub-fund:
(i) the accounts required by (1)(a);

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(ii) the report of the authorised fund manager in accordance with COLL 15.5.6R; and (iii) comparative information in accordance with COLL 4.5.10R(1A) and (2A); (b) the report of the depositary in accordance with COLL 15.5.7R; and (c) the report of the auditor in accordance with COLL 4.5.12R. (3) The authorised fund manager of a scheme which is an umbrella may, in addition to complying with (2), prepare a further annual report for any one or more individual sub-funds of the umbrella, in which case it must contain:
(a) for the sub-fund:
(i) the accounts required by (1)(a);
(ii) the report of the authorised fund manager in accordance with COLL 15.5.6R; and (iii) comparative information in accordance with COLL 4.5.10R(1A) and (2A); (b) the report of the depositary in accordance with COLL 15.5.7R; and (c) the report of the auditor in accordance with COLL 4.5.12R. (4) The directors of an ICVC or the authorised fund manager of an AUT or ACS must ensure that the accounts referred to in (1)(a), (2)(a) and (3)(a) give a true and fair view of the net revenue and the net capital gains or losses on the scheme property of the authorised fund or sub￾fund for the relevant annual accounting period, and of the financial position of the authorised fund or sub-fund as at the end of that period. (5) An annual report of a long-term asset fund must also contain a statement setting out a description of the assessment of value required by COLL 15.7.17R including:
(a) a separate discussion and conclusion for the matters covered in each paragraph of COLL 6.6.21R, and for each other matter that formed part of the assessment, covering the considerations taken into account in the assessment, a summary of its findings and the steps undertaken as part of or as a consequence of the assessment;

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(b) an explanation for any case in which benefits from economies of scale that were identified in the assessment have not been passed on to unitholders; (c) an explanation for any case in which unitholders hold units in a class for which the payments out of scheme property in relation to that class as set out in the prospectus (in this rule, “charges”) are higher than those applying to other classes of the same scheme with substantially similar rights; (d) the conclusion of the authorised fund manager’s assessment of whether the charges are justified in the context of the overall value delivered to the unitholders in the scheme; and (e) if the assessment has identified that the charges are not justified in the context of the overall value delivered to the unitholders, a clear explanation of what action has been or will be taken to address the situation. (6) An annual report of a long-term asset fund must also contain a statement setting out a description of the assessment required by COLL 15.7.20R (Assessment of investment valuations, due diligence, conflicts of interest and liquidity management), including:
(a) a separate discussion and conclusion for each of the matters specified in COLL 15.7.21R (Table: minimum considerations – assessment of investment valuations, due diligence, conflicts of interest and liquidity management) and for each other matter that formed part of the assessment; (b) a summary of the assessment’s findings and the steps undertaken as part of or as a consequence of the assessment; and (c) the conclusion of the authorised fund manager’s assessment of how it managed the LTAF in the best interests of the scheme, its investors and the integrity of the market. Information to be included in annual reports on securities financing transactions and total return swaps
15.5.4 G (1) The Securities Financing Transactions Regulation sets out the
additional information which an authorised fund manager who is a full-scope UK AIFM of a long-term asset fund must include in the scheme’s annual report. (2) COLL 4.5.8ABUK and COLL 4.5.8ACUK copy out the relevant provisions of that regulation.

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(3) An authorised fund manager of a long-term asset fund that has not used securities financing transactions or total return swaps during the relevant annual accounting period is not required to include the information in COLL 4.5.8ACUK in its reports. Contents of the half-yearly report
15.5.5 R (1) A half-yearly report on an authorised fund or sub-fund must contain:
(a) the accounts for the half-yearly accounting period which must be prepared in accordance with the requirements of the IMA SORP; and (b) the report of the authorised fund manager in accordance with COLL 15.5.6R. (2) For a scheme which is an umbrella, the authorised fund managermay choose whether the half-yearly report is prepared for the umbrella as a whole, or for each individual sub-fund, or both. Authorised fund manager’s report
15.5.6 R The report of the authorised fund manager must include:
(1) a review of the investment activities during the period to which the report relates; (2) a portfolio statement prepared in accordance with the requirements of the IMA SORP; (3) in the case of an umbrella which has more than one sub-fund, particulars in the form of a table showing, as at the end of the period to which the report relates:
(a) for each sub-fund, the number of units in that sub-fund that were held by a second sub-fund of that umbrella; and (b) the value of each such holding; or, alternatively, a statement that there were no such holdings as at the end of that period; (4) particulars of any fundamental or significant change to the authorised fund made since the date of the last report; (5) in relation to each scheme or sub-fund which is a long-term asset fund:
(a) the amount of any remuneration, charge, payment or expense paid out of the scheme property during the period to which the report relates;

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(b) the person to whom that amount was paid; (c) what that remuneration, charge, payment or expense was for; and (d) how the remuneration, charge, payment or expense was calculated; and (6) any other information which would enable unitholdersto make an informed judgement on the development of the activities of the authorised fund during the period and the results of those activities as at the end of the period. Report of the depositary
15.5.7 R (1) The depositary must make an annual report to unitholders which must
be included in the annual report.
(2) The depositary’s report must contain:
(a) a description, which may be in summary form, of the duties of the depositary under COLL 15.7.6R and COLL 15.7.7R (Duties of the depositary) and in respect of the safekeeping of the scheme property; (b) in relation to its oversight and monitoring obligations:
(i) a description of the reasonable steps the depositary has taken to ensure that the LTAF has been managed in accordance with each of the matters specified in COLL 15.7.6R(2)(e) (Duties of the depositary); and (ii) where an external valuer has not been appointed, a statement setting out the depositary’s determination of the matters in COLL 15.2.6R(2)(a) (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets); and (c) a statement as to whether in any material respect:
(i) the issue, sale, redemption and cancellation and calculation of the price of the units and the application of the authorised fund’s revenue, have not been carried out in accordance with the rules in this sourcebook and, where applicable, the OEIC Regulations and the instrument constituting the fund; and (ii) the investment and borrowing powers and restrictions applicable to the authorised fund have been exceeded.

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Signing of the annual and half-yearly reports
15.5.8 R The annual reports in COLL 15.5.3R(1) and (2) and the half-yearly reports in
COLL 15.5.5R(1) must:
(1) in the case of an ICVC, if there is:
(a) more than one director, be approved by the board of directors and signed on their behalf by the ACD and at least one other director; or (b) no director other than the ACD, be signed by the ACD; (2) in the case of an AUT or ACS, if the authorised fund manager has:
(a) more than one director, be signed by at least two directors of the authorised fund manager; or (b) only one director, be signed by the director of the authorised fund manager. Quarterly reports
15.5.9 R (1) A quarterly report must contain details of any transactions executed
by, or for or on behalf of, the long-term asset fund in the relevant quarterly reporting period which have resulted in assets being held in the LTAF’s scheme property, including:
(a) the date of each transaction;
(b) details of the asset and type of asset which was the subject of the transaction; and (c) an explanation of how the transaction is consistent with the LTAF’s investment objectives, investment policy and investment strategy. (2) A quarterly reporting period for a long-term asset fund must be determined in accordance with (a) to (c). (a) Each quarterly reporting period must be three months long. (b) There must be four consecutive quarterly reporting periods in each annual accounting period. (c) The first quarterly reporting period in each annual accounting period must begin when the annual accounting period begins.

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Alterations to the scheme and notices to unitholders
15.5.10 R (1) Any proposed change which would be reasonably considered to be a
fundamental change to the scheme requires the prior sanction of an extraordinary resolution of the unitholders. (2) Any proposed change to the scheme which is not within (1) but which would be reasonably considered to be significant, requires the giving of reasonable notice to unitholders to become effective. (3) Alterations affecting only a particular sub-fund or class of units may be approved in accordance with (1) or (2) for the particular sub-fund or class of units, with the consent of, or, as the case may be, notice to, the relevant unitholders. (4) This rule and COLL 15.5.12R (Meetings) will apply (unless the context requires otherwise) to alterations concerning unitholders of a particular sub-fund or class of units rather than the scheme or sub-fund as a whole. Alterations to the scheme and notices to unitholders: guidance
15.5.11 G Although account should be taken of the guidance on fundamental changes
(COLL 4.3.5G (Guidance on fundamental changes)) and significant changes (COLL 4.3.7G (Guidance on significant changes)) the impact of any change to the scheme should be assessed individually based on the nature of the scheme and its investor profile. Meetings
15.5.12 R (1) Details of the procedures for the convening and conducting of
meetings and resolutions must be set out in the instrument constituting the fund and be reasonable and fair as between all relevant parties. (2) The authorised fund manager must record and keep minutes for six years of all proceedings to which COLL 15.5.10R (Alterations to the scheme and notices to unitholders) and this rule are relevant. (3) The provisions in COLL 4.4.12R (Notices to unitholders), COLL 4.4.13R (Other notices) and COLL 4.4.14G (References to writing and electronic documents) apply in relation to long-term asset funds.
15.6 Investment and borrowing powers
Application
15.6.1 R This section applies to:
(1) the authorised fund manager of an AUT, ACS or an ICVC; (2) the depositary of an AUT, ACS or an ICVC; and

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(3) an ICVC, which is a long-term asset fund.
15.6.2 R (1) Where this section refers to a second scheme, and the second scheme
is a feeder scheme, which (in respect of investment in units in collective investment schemes) is dedicated to units in a single collective investment scheme, the reference in this section to the second scheme must be read as if it were a reference to the feeder scheme’s master scheme. (2) Where this section refers to a second scheme, and the second scheme is a master scheme to which (in respect of investment in units in collective investment schemes) the relevant long-term asset fund is dedicated, the reference in this section to the second scheme must be read as if it were a reference to any scheme into which that master scheme invests. Prudent spread of risk
15.6.3 R An authorised fund manager must ensure that, taking account of the
investment objectives, policy and strategy of the long-term asset fund as stated in its most recently published prospectus, the scheme property of the long-term asset fund aims to provide a prudent spread of risk.
15.6.4 G For the purpose of COLL 15.6.3R, an authorised fund manager should
consider the risks to which the LTAF is exposed, including:
(1) whether the assets or investments held in the scheme property provide a sufficient diversification of exposure including, for example, in respect of the underlying assets or investments held by any holding company or other collective investment scheme; (2) the spread of any other risks arising from the assets or investments held in the scheme property of the LTAF such as market risks, credit risks, liquidity risks and counterparty risks. [Note: Article 44 of the AIFMD level 2 regulation.] Investment powers: general
15.6.5 R (1) The scheme property of a long-term asset fund may, subject to the
rules in this chapter, comprise any assets or investments to which it is dedicated. (2) The instrument constituting the fund and the prospectus may further restrict:
(a) the kinds of assets in which the scheme property may be invested;

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(b) the types of transactions permitted and any relevant limits; and (c) the borrowing powers of the scheme. Long-term asset funds: investment strategy
15.6.6 R The investment strategy of a long-term asset fund must be to invest mainly in
long-term illiquid assets.
15.6.7 G The FCA expects the investment strategy of a long-term asset fund to be to
invest at least 50% of the value of the scheme property in unlisted securities and other long-term assets such as interests in immovables or other collective investment schemes investing in such securities or long-term assets. However, a long-term asset fund could have a strategy of investing mainly in a mix of unlisted assets and listed but illiquid assets. Long-term asset funds: general
15.6.8 R The scheme property of a long-term asset fund must, except where otherwise
provided by the rules in this chapter, consist only of one or more of the following to which it is dedicated:
(1) any specified investment:
(a) within articles 74 to 86 of the Regulated Activities Order; (b) within article 89 (Rights to or interests in investments) of the Regulated Activities Order where the right or interest relates to a specified investment within (a); (2) (to the extent not within (a)), an interest in a loan, provided that the loan was not originated to:
(a) a natural person;
(b) the authorised fund manager of the long-term asset fund; (c) the depositary of the long-term asset fund; (d) an affiliated company of the person in (b) or (c); or (e) a person who intends to use, or uses, the credit for the purpose of investing in a derivative, cryptoasset derivative, an unregulated transferable cryptoasset, precious metals or a commodity contract within (5); (3) an interest in an immovable under COLL 15.6.18R (Investment in property); (4) precious metals; or

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(5) a commodity contract traded on an RIE or a recognised overseas investment exchange. [Note: Full-scope UK AIFMs are subject to specific requirements relating to conflicts of interest (see articles 30 to 36 in the AIFMD level 2 regulation and SYSC 10.1.23R to SYSC 10.1.26R (Additional requirements for an AIFM)).] [Note 2: In relation to (2), a borrower who receives money by way of deposit from a person who is not a bank may (if the borrower is acting by way of business) be carrying on the regulated activity of accepting deposits, but an exclusion in the Regulated Activities Order may be available. See also article 2 of the Business Order.] Investment in collective investment schemes
15.6.9 R (1) Subject to (2), a long-term asset fund may invest in units in a scheme
(a ‘second scheme’) only if the second scheme is:
(a) a regulated collective investment scheme; or (b) a scheme not within (a) where the authorised fund manager has taken reasonable care to determine that:
(i) it is the subject of an independent annual audit conducted in accordance with international standards on auditing; (ii) the calculation of the net asset value of each of the second schemes and the maintenance of their accounting records is segregated from the investment management function; and (iii) it (and any master scheme to whose units it is dedicated) is prohibited from investing in the long-term asset fund, or, if there is no such prohibition, the authorised fund manager is satisfied, on reasonable grounds and after making all reasonable enquiries, that no such investment will be made by either the second scheme or any fund in which the second scheme invests. (2) A long-term asset fund must not invest more than 20% in value of the scheme property in units in second schemeswhich are unregulated schemes, qualified investor schemes or long-term asset funds unless the authorised fund manager has carried out appropriate due diligence on each of the second schemes and has taken reasonable care to determine that, after making all reasonable enquiries and on reasonable grounds, the second scheme complies with relevant legal and regulatory requirements.

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(3) The authorised fund manager of a long-term asset fund with more than 20% in value of the scheme property invested in one or more second schemeswhich are unregulated schemes, qualified investor schemes or long-term asset funds must carry out appropriate due diligence on those schemes on an ongoing basis.
15.6.10 G (1) The authorised fund manager of a long-term asset fund carrying out
due diligence for the purpose of COLL 15.6.9R should use reasonable efforts to make enquiries and obtain the information needed to be able to consider the matters specified in COLL 5.7.11G(1) to (12), as if that guidance related to COLL 15.6.9R. (2) Where COLL 5.7.11G(10) refers to COLL 6.3 (Valuation and pricing), that reference should be read as if it were a reference to COLL 15.8.2R (Valuation, pricing and dealing). (3) In addition to the guidance at COLL 5.7.11G the authorised fund manager should, as part of its due diligence process, consider whether the property of each of the second schemes is held in safekeeping by a third party, which is subject to prudential regulation and independent of the investment manager of the second scheme and, if not, what controls over the property of the second scheme are in place to protect investors. (4) Further specific requirements relating to due diligence apply to the authorised fund manager of a long-term asset fund under the rules in this chapter and in articles 18 to 20 of the AIFMD level 2 regulation. Investment in a collective investment scheme that is an umbrella
15.6.11 R Where the second scheme in COLL 15.6.9R is an umbrella, the provisions
apply to each sub-fund as if it were a separate scheme.
Delivery of property under a transaction in derivatives or a commodities contract
15.6.12 R (1) An authorised fund manager must take reasonable care to determine
the following when entering into any transaction in derivatives or any commodity contract which may result in any asset becoming part of the scheme property:
(a) if it is an asset in which the scheme property could be invested, that the transaction:
(i) can be readily closed out; or
(ii) would at the expected time of delivery relate to an asset which could be included in the scheme property under the rules in this chapter; or (b) in any other case, that the transaction can be readily closed out.

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(2) An authorised fund manager may acquire an asset within (1) if its determination has proved incorrect and if it determines that acquisition is in the interests of the unitholders, provided it has the consent of the depositary. (3) Any asset within (1) acquired in accordance with (2) may form part of the scheme property despite any other rule in this chapter until the position can be rectified. Cover for transactions in derivatives and forward transactions
15.6.13 R (1) A transaction in derivatives or a forward transaction may be entered
into only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person, is covered globally under (2). (2) Exposure is globally covered if adequate cover from within the scheme property is available to meet the scheme’s total exposure taking into account any reasonably foreseeable market movement. (3) The total exposure relating to derivatives held in a long-term asset fund may not exceed the net value of the scheme property. (4) No element of cover may be used more than once. Valuation of an OTC derivative
15.6.14 R A transaction in an OTC derivative must be capable of valuation which it
will only be if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:
(1) on the basis of the pricing model; or
(2) on some other reliable basis reflecting an up-to-date market value, which has been agreed between the authorised fund manager and the depositary. Continuing nature of limits and requirements
15.6.15 R (1) An authorised fund manager must, as frequently as necessary to
ensure compliance with COLL 15.6.13R(2) and COLL 15.6.13R(4), re-calculate the amount of cover required in respect of derivatives and forward transactions in existence under this chapter. (2) Derivatives and forward transactions may be retained in the scheme property only so long as they remain covered globally under COLL 15.6.13R.

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(3) An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk of a scheme’s derivatives positions and their contribution to the overall risk profile of the scheme. Permitted stock lending
15.6.16 R (1) The ICVC, or the depositary at the request of the ICVC, or the
depositary of an AUT or ACS at the request of the authorised fund manager, may enter into a repo contract or a stock lending arrangement within section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C). (2) The depositary must ensure that the value of any collateral for the stock lending arrangement is at all times at least equal to the value of the securities transferred by the depositary. (3) In the case of the expiry of validity of any collateral, the duty in (2) is satisfied if the depositary or the authorised fund manager, as appropriate, takes reasonable care to determine that sufficient collateral will be transferred by close of business on the day of expiry. General power to borrow
15.6.17 R (1) The ICVC or depositary of an AUT or ACS (on the instructions of the
authorised fund manager) may borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property. (2) The authorised fund manager must ensure that the authorised fund’s borrowing does not, on any day, exceed 30% of the net value of the scheme property and must take reasonable care to ensure that arrangements are in place that will enable borrowings to be closed out to ensure such compliance. (3) In this rule “borrowing” also includes any arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid. (4) Where the limit in (2) is breached, the authorised fund manager must take action in accordance with the principles set out in COLL 15.7.3R(3) to COLL 15.7.3R(5) (Duties of the authorised fund manager: investment and borrowing powers) to deal with that breach. Investment in property
15.6.18 R (1) Any investment in land or a building held within the scheme property
of a long-term asset fund must be in an immovable within (2).
(2) For an immovable:

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(a) it must be situated in a country or territory identified in the prospectus; (b) the authorised fund manager must have taken reasonable care to determine that the title to the interest in the immovable is a good marketable title; and (c) the authorised fund manager of an AUT or ACS or the ICVC must have received a report from an appropriate valuer that:
(i) contains a valuation of the interest in the immovable (with and without any relevant existing mortgage); and (ii) states that in the appropriate valuer’s opinion the interest in the immovable would, if acquired by the scheme, be capable of being disposed of at that valuation in a timeframe which is consistent with the LTAF’s liquidity profile and redemption policy; (d) unless (c) is satisfied, the authorised fund manager of an AUT or ACS or the ICVC must have received a report from an appropriate valuer valuing the interest in the immovable and stating that:
(i) the immovable is adjacent to or in the vicinity of another immovable included in the scheme property; and (ii) in the opinion of the appropriate valuer, the total value of the interests in both immovables would at least equal the sum of the price payable for the interest in the immovable and the existing value of the interest in the other immovable; and (e) it must not be bought:
(i) if it becomes apparent to the authorised fund manager that the report in either (c) or (d) could no longer reasonably be relied upon; or (ii) at a price more than 105% of the valuation relevant to the interest for that immovable in the report in either (c) or (d). (3) Any contents of any building may be regarded as part of the relevant immovable. (4) An appropriate valuer must be a person who:
(a) has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

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(b) is qualified to be a standing independent valuer of an authorised fund or is considered by the scheme’s standing independent valuerto hold an equivalent qualification; (c) is independent of the ICVC, the depositary and each of the directors of the ICVC or of the authorised fund manager and depositary of the AUT or ACS; and (d) has not been engaged, and whose associates have not been engaged, in relation to the finding of the immovable for the scheme or the finding of the scheme for the immovable. Investment in overseas property through an intermediate holding vehicle
15.6.19 R (1) An overseas immovable may be held by a scheme through an
intermediate holding vehicle whose purpose is to enable the holding of immovables by the scheme or a series of such intermediate holding vehicles, provided that the interests of unitholders are adequately protected. Any investment in an intermediate holding vehicle for the purpose of holding an overseas immovable shall be treated for the purposes of this section as if it were a direct investment in that immovable. (2) An intermediate holding vehicle must be wholly owned by the scheme or another intermediate holding vehicle or series of intermediate holding vehicles wholly owned by the scheme, unless and to the extent that local legislation or regulation relating to the intermediate holding vehicle holding the immovable requires a proportion of local ownership.
15.6.20 G (1) The authorised fund manager may transfer capital and income
between an intermediate holding vehicle and the scheme by the use of inter-company debt if the purpose of this is for investment in immovables and repatriation of income generated by such investment. In using inter-company debt, the authorised fund manager should ensure the following:
(a) a record of inter-company debt is kept in order to provide an accurate audit trail; and (b) interest paid out on the debt instruments is equivalent to the net rental income earned from the immovables after deduction of the intermediate holding vehicle’s reasonable running costs (including tax). (2) An intermediate holding vehicle should undertake the purchase, sale and management of immovables on behalf the scheme in accordance with the scheme’s investment objectives and policy.

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(3) Wherever reasonably practicable, an intermediate holding vehicle should have the same auditor and accounting reference date as the scheme. (4) The accounts of any intermediate holding vehicle should be consolidated into the annual and interim reports of the scheme. (5) The authorised fund manager should provide sufficient information to enable the depositary to fulfil its duties under COLL in relation to the immovables held through an intermediate holding vehicle. Investment limits for immovables
15.6.21 R The following limits apply in respect of immovables held as part of the
scheme property:
(1) the amount secured by mortgages over any immovable must not exceed 100% of the latest valuation by an appropriate valuer under COLL 15.6.18R(2)(c) or COLL 15.6.18R(2)(d) or COLL 15.6.22R, as appropriate; (2) no option may be granted to a person to buy or obtain an interest in any immovable comprised in the scheme property if this might unduly prejudice the ability to provide redemption; and (3) the total of all premiums paid for options to purchase immovables must not exceed 10% of the scheme value in any 12-month period, calculated at the date of the granting of the option. Standing independent valuer and valuation
15.6.22 R (1) In relation to the appointment of a valuer the authorised fund manager
must:
(a) at the outset appoint the standing independent valuer with the approval of the depositary and likewise upon any vacancy; and (b) ensure that any immovables in the scheme property are valued by an appropriate valuer(standing independent valuer) appointed by the authorised fund manager. (2) The following apply in relation to the functions of the standing independent valuer:
(a) the authorised fund manager must ensure that the standing independent valuer appointed under (1), procures the valuation of all the immovables held within the scheme property, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection) at least once a year;

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(b) for the purposes of (a), any inspection in relation to adjacent properties of a similar nature and value may be limited to that of only one such representative property; (c) the authorised fund manager must ensure that the standing independent valuer values the immovables, on the basis of a review of the last full valuation, at least once a month; (d) if either the authorised fund manager or the depositary becomes aware of any matter which appears likely to:
(i) affect the outcome of a valuation of an immovable; or (ii) cause the valuer to decide to value under (a), instead of under (c), it must immediately inform the standing independent valuer of that matter; (e) the authorised fund manager must use its best endeavours to ensure that any other affected person reports to the standing independent valuerimmediately upon that person becoming aware of any matter within (d); and (f) any valuation by the standing independent valuer must be undertaken in accordance with UKVPS 3 and 2.3 of UKVPGA 2 of the RICS Valuation – Global Standards 2017 UK national supplement 2018 (the RICS Red Book) or, in the case of overseas immovables, on an appropriate basis but subject to any provisions of the instrument constituting the fund. (3) In relation to immovables:
(a) any valuation under this rule has effect, until the next valuation under this rule, for the purposes of the value of immovables; and (b) an agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the scheme property unless it reasonably appears to the authorised fund manager to be legally enforceable.
15.6.23 G In considering whether a valuation of overseas immovables by the standing
independent valueris made on an appropriate basis for the purpose of COLL 15.6.22R(2)(f), the authorised fund manager should consider whether that valuation was made in accordance with internationally accepted valuation principles, procedures and definitions as set out in the International Valuation Standards published by the International Valuation Standards Council.

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15.7 Powers and responsibilities of the authorised fund manager and the
depositary
Application
15.7.1 R This section applies to:
(1) an authorised fund manager of an AUT, ACS or an ICVC; (2) any other director of an ICVC; (3) the depositary of an AUT, ACS or an ICVC; and (4) an ICVC, which is a long-term asset fund. Functions of the authorised fund manager
15.7.2 R (1) The authorised fund manager must manage the scheme in accordance
with:
(a) the instrument constituting the fund;
(b) the applicable rules;
(c) the most recently published prospectus; and (d) for an ICVC, the OEIC Regulations. (2) The authorised fund manager must carry out such functions as are necessary to ensure compliance with the rules that impose obligations on the authorised fund manager or ICVC, as appropriate. (3) The authorised fund manager must:
(a) make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy of the scheme; (b) instruct the depositary how rights attaching to the ownership of scheme property are to be exercised; (c) take action immediately to rectify any breach of the pricing methodology set out in the prospectus, which must (unless the authorised fund manager determines on reasonable grounds that the breach is of minimal significance) extend to payment of money:
(i) by the authorised fund managerto unitholders and former unitholders;

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(ii) by the ACD to the ICVC;
(iii) by the ICVC to the ACD;
(iv) by the authorised fund manager of the AUT or ACS to the depositary; or (v) by the depositary (for the account of the AUT or ACS) to the authorised fund manager; (d) ensure where relevant that the ICVC complies with the relevant obligations imposed by, and when appropriate exercises the relevant powers provided under, the OEIC Regulations; (e) maintain such records as are necessary to enable the authorised fund manager or the ICVC, as appropriate, to comply with and demonstrate compliance with the rules in this sourcebook and also in the case of an ICVC, the OEIC Regulations; and (f) maintain for a period of six years a daily record of the units held, acquired or disposed of by the authorised fund manager including the classes of such units, and of the balance of any acquisitions and disposals. Duties of the authorised fund manager: investment and borrowing powers
15.7.3 R (1) An authorised fund manager may give instructions to deal in the
scheme property.
(2) An authorised fund manager must avoid the scheme property being used or invested contrary to any provision in COLL 15.6 (Investment and borrowing powers). (3) An authorised fund manager must immediately on becoming aware of any breach of COLL 15.6 take action, at its own expense, to rectify that breach. (4) An authorised fund manager must take the action in (3) immediately, except in circumstances where doing so would not be in the best interests of unitholders, in which case the action must be taken as soon as such circumstances cease to apply. (5) An authorised fund manager must not postpone taking action in accordance with (3) unless the depositary has given its consent.

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Duties of the ACD or the authorised contractual scheme manager of a co￾ownership scheme: umbrella schemes
15.7.4 R Where reasonable grounds exist for an ACD of an ICVC, or an authorised
contractual scheme manager of a co-ownership scheme which is an umbrella, to consider that a foreign law contract entered into by the ICVC or authorised contractual scheme manager on behalf of the co-ownership scheme may have become inconsistent with the principle of limited recourse stated in the instrument constituting the fund of the ICVC or co-ownership scheme (see COLL 15.3.6R(3)(5) and COLL 15.3.6R(3)(6)), the ACD or authorised contractual scheme manager of the co-ownership scheme must:
(1) promptly investigate whether there is an inconsistency; and (2) if the inconsistency still appears to exist, take appropriate steps to remedy that inconsistency.
15.7.5 G In deciding what steps are appropriate to remedy the inconsistency, the ACD
or authorised contractual scheme manager of the co-ownership scheme should have regard to the best interests of the unitholders. Appropriate steps to remedy the inconsistency may include:
(1) where possible, renegotiating the foreign law contract in a way that remedies the inconsistency; or (2) causing the ICVC or the authorised contractual scheme manager on behalf of the co-ownership scheme to exit the foreign law contract. Duties of the depositary
15.7.6 R (1) The depositary is responsible for the safekeeping of all the scheme
property.
(2) The depositary must:
(a) take all steps to ensure that transactions properly entered into for the account of the scheme are completed; (b) take all steps to ensure that instructions properly given by the authorised fund manager in respect of the exercise of rights related to scheme property are carried out; (c) ensure that any resulting benefit of a derivatives or forward transaction is received by itself in respect of the scheme; (d) hold and deal with any income received in respect of the scheme property in accordance with COLL 15.8.18R (Income); (e) take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:

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(i) the investment objectives, policy and strategy set out in the LTAF’s most recent prospectus; (ii) COLL 15.6 (Investment and borrowing powers); (iii) COLL 15.8.2R (Valuation, pricing and dealing); (iv) COLL 15.8.18 (Income); and (v) any provision of the instrument constituting the fund or the prospectus that relates to the provisions in (ii) to (iv); (f) where applicable, comply with its obligations under COLL 15.2.6R (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets); (g) keep records so as to comply with the rules in this sourcebook and so as to demonstrate such compliance; and (h) be responsible for any other duties as set out in the instrument constituting the fund. (3) If a relevant ICVC ceases to have any directors, the depositary may act in accordance with COLL 6.5.6R (ICVC without a director). (4) This rule applies to the depositary of a long-term asset fund to the extent the provisions are consistent with the requirements of the AIFMD level 2 regulation. [Note: Articles 88 to 90 of the AIFMD level 2 regulation make provision relating to custody and safekeeping of scheme property. The AIFMD level 2 regulation applies to the depositary of a long-term asset fund because an LTAF must be managed by a full-scope UK AIFM.]
15.7.7 R The depositary must also:
(1) ensure that any scheme property in registered form is as soon as reasonably practicable registered in its name or that of its nominee or delegate, as appropriate; and (2) take into its custody or control all documents of title of the scheme property other than in respect of derivatives or forward transactions. Delegation
15.7.8 G (1) The delegation of AIFM management functions by a full-scope UK
AIFM is subject to the rules in FUND 3.10 (Delegation) and articles 75 to 82 of the AIFMD level 2 regulation. See also regulation 26 of the AIFMD UK regulation.

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(2) The authorised fund manager of a long-term asset fund is required to possess the knowledge, skills and experience necessary to understand the activities of the LTAF and, in particular, the risks involved in those activities and the assets which the LTAF holds (or is to hold) in the scheme property.The authorised fund manager cannot rely on a delegation arrangement to satisfy this requirement (see COLL 15.2.4R (Competence and resources of the authorised fund manager)).
15.7.9 G (1) This paragraph applies where the authorised fund manager delegates
portfolio management of particular assets to a third party under FUND
3.10 (Delegation).
(2) Where (1) applies, the authorised fund manager will need to retain adequate risk management systems to identify, measure and monitor the risks relevant to the long-term asset fund’s investment strategy in accordance with the requirements in FUND 3.7 (Risk management) and the applicable requirements of the AIFMD level 2 regulation. [Note: See FUND 3.7 (Risk management) and articles 38 to 47 of the AIFMD level 2 regulation.] Delegation and responsibility for regulatory obligations
15.7.10 G (1) The authorised fund manager of an LTAF should note (and will need
to comply with) article 75 of the AIFMD level 2 regulation. This provides that when delegating the task of carrying out one or more functions on its behalf, an AIFM must comply with various general principles, including the principle that the delegation structure does not allow for the circumvention of the AIFM’s responsibilities or liability, and that the obligations of the AIFM towards the AIF and its investors are not altered as a result of the delegation. (2) Directors of an ICVC and depositaries should also have regard to SYSC 8 (Outsourcing). SYSC 8.1.6R states that a firm remains fully responsible for discharging all of its obligations under the regulatory system if it outsources crucial or important operational functions or any relevant services and activities. Conflicts of interest
15.7.11 R (1) The authorised fund manager and the depositary must ensure that any
transaction in respect of the scheme property undertaken with an affected person is on terms at least as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm’s length with an independent third party. (2) Paragraph (1) is subject to any provision in the instrument constituting the fund and the prospectus imposing a prohibition in relation to any type of transaction. [Note: See articles 30 to 36 of the AIFMD level 2 regulation.]

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The register of unitholders: AUTs or ACSs
15.7.12 R (1) The authorised fund manager or the depositary of an AUT or ACS (in
accordance with their responsibilities as set out in the instrument constituting the fund) must maintain a register of unitholders as a document in accordance with this rule. (2) The register must contain:
(a) the name and address of each unitholder(for joint unitholders no more than four need to be registered); (b) the number of units (including fractions of a unit) of each class held by each unitholder; and (c) the date on which the unitholder was registered in the register for those units. (3) The authorised fund manager or the depositary of an AUT or ACS (as appropriate) must take all reasonable steps and exercise all due diligence to ensure the register is kept complete and up to date. (4) Where relevant, the authorised fund manager must immediately notify the depositary of an AUT or ACS of any information it receives which may affect the accuracy of any entry in the register. (5) In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager as the agent for the scheme provided the authorised contractual scheme manager is not entered in the register as the new unitholder. Valuation of investments – good market practice
15.7.13 R Subject to any legal requirements which apply to the valuation of
investments held or to be held in the scheme property of a long-term asset fund, the authorised fund manager of a long-term asset fund which carries on the valuation function itself must follow good market practice to value the investments held or to be held in the scheme property. [Note: See FUND 3.9 (Valuation) and articles 67 to 71 of the AIFMD level 2 regulation.] Due diligence – good market practice
15.7.14 R Subject to any applicable legal requirements, the authorised fund manager of
a long-term asset fund must use good market practice to:
(1) establish, implement and apply written policies and procedures on due diligence; and

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(2) implement effective arrangements for ensuring that investment decisions on behalf of the long-term asset fund are carried out in compliance with the objectives, investment strategy and, where applicable, the risk limits of the scheme. [Note: See articles 18 to 20 of the AIFMD level 2 regulation.]
15.7.15 G The authorised fund manager may use an appropriate code of good market
practice for the purposes of conducting due diligence on investments held or to be held in the scheme property. Application of assessment of value, assessment of investment valuations, due diligence, conflicts of interest and liquidity management and independent director rules
15.7.16 R COLL 15.7.17R to COLL 15.7.24R apply to an authorised fund manager of
an AUT, ACS or ICVC.
Assessment of value
15.7.17 R (1) An authorised fund manager must conduct an assessment at least
annually for each scheme it manages of whether the payments out of scheme property set out in the prospectus are justified in the context of the overall value delivered to unitholders. (2) In carrying out the assessment required by (1), the AFM must, separately for each class of units in a scheme, consider at least the matters set out in COLL 6.6.21R (Table: minimum considerations – assessment of value).
15.7.18 G The guidance in COLL 6.6.22G applies to interpreting the requirements of
COLL 6.6.21R as applied by COLL 15.7.17R.
15.7.19 E Failure by an AFM to take sufficient steps to address any instance where a
scheme’s charges are not justified in the context of the overall value delivered to unitholders may be relied on as tending to establish contravention of COBS 2.1.1R or COBS 2.1.4R as applicable. Assessment of investment valuations, due diligence, conflicts of interest and liquidity management
15.7.20 R (1) An authorised fund manager of a long-term asset fund must conduct
an assessment at least annually of how it has managed the LTAF in the best interests of the LTAF, the LTAF’s investors and the integrity of the market (see COBS 2.1.4R (AIFMs’ best interests rules)). (2) In carrying out the assessment required by (1), the authorised fund manager must consider at least the matters set out in COLL 15.7.21R (Table: minimum considerations – valuation of investments, due diligence, conflicts of interest and liquidity management assessment).

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Table: minimum considerations – assessment of investment valuations, due
diligence, conflicts of interest and liquidity management
15.7.21 R This table belongs to COLL 15.7.20R.
1 Valuation of investments
(1) Where the authorised fund manager performs the valuation function itself:
(a) how the methodologies maintained by the authorised fund manager to value the LTAF’s investments represent good market practice; (b) where a methodology maintained by the authorised fund manager was changed or modified in relation to the valuation of a particular investment, the rationale for that change; (c) the rationale for any material change to the valuation of an investment held in the scheme property during the relevant period; and (d) the consistency of valuation of the LTAF’s investments with those of the other AIFs managed by the authorised fund manager (2) Where an external valuer has been appointed, the authorised fund manager’s assessment during the relevant period of how:
(a) the external valuer satisfied FUND 3.9.7R(3) (Performance of the valuation function); (b) the authorised fund manager was satisfied that it could demonstrate the matters specified in FUND 3.9.9R (Appointment of an external valuer); and (c) the authorised fund manager was satisfied that it could demonstrate the matters specified in FUND 3.10.2R(2)(f) (General delegation requirements). 2 Due diligence In relation to due diligence carried out on investments, how that due diligence was carried out in accordance with good market practice (see COLL 15.7.14R (Due diligence – good market practice)). 3 Conflicts of interest In relation to conflicts of interest:

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(1) how any conflicts of interest identified by the authorised fund manager under SYSC 10.1.23R (Additional requirements for an AIFM) and article 30 of the AIFMD level 2 regulation have been avoided, managed, monitored and (where applicable) disclosed under SYSC 10.1.24R (Additional requirements for an AIFM) and articles 31 to 36 of the AIFMD level 2 regulation; and (2) how, in relation to each conflict of interest identified, those actions were in the best interests of the LTAF, the LTAF’s investors and the integrity of the market. 4 Liquidity management In relation to the management of liquidity of the long-term asset fund:
(1) how the liquidity profile of the LTAF, taking into account borrowing (if any), has been consistent with its redemption policy; (2) where monitoring of the liquidity risk of the LTAF, including the results of any stress tests, has identified any liquidity management issues, how these were addressed in the best interests of the LTAF, the LTAF’s investors and the integrity of the market; (3) where the authorised fund manager has sold an investment held in the scheme property of the LTAF at a price adjusted to reflect the authorised fund manager’s need to meet redemption requests, how that price was determined to be in the best interests of the LTAF, the LTAF’s investors and the integrity of the market; and (4) how decisions to apply or refrain from applying any dilution levy or adjustment to sales and redemptions of units ensured that all investors in the LTAF were treated fairly, including those investors who were dealing in units of the LTAF, and those investors who (as applicable) were already invested or remained invested in the LTAF. [Note: See FUND 3.6.3R (Liquidity systems and procedures) and articles 46 to 49 of the AIFMD level 2 regulation.] Independent directors
15.7.22 R (1) An authorised fund manager must ensure that at least one quarter of
the members of its governing body are independent natural persons. If the AFM’s governing body comprises fewer than eight members, the AFM must instead ensure that at least two of its members are independent natural persons.

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(2) The authorised fund manager, in appointing an independent member of its governing body, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement. (3) The authorised fund manager must take reasonable steps to ensure that independent members appointed to its governing body have sufficient expertise and experience to be able to make judgements on whether the AFM is managing each scheme in the best interests of unitholders. (4) (a) Independent members of an AFM’s governing body must be appointed for terms of no longer than five years, with a cumulative maximum duration of ten years. (b) If an independent member is appointed to more than one governing body within an AFM’s group, the cumulative maximum duration of ten years referred to in (a) is calculated by adding the durations of each separate appointment and discounting periods during which appointments overlapped to avoid double counting. (c) In relation to a person who served as an independent director of an AFM’s governing body before 1 October 2019, the five-year term(s) and cumulative maximum duration of ten years run from that date. (5) Independent members are not eligible for reappointment to an AFM’s governing body until five years have elapsed from the end of the ten￾year period referred to in (4). (6) The terms of employment on which independent members are appointed must be such as to secure their independence.
15.7.23 G The guidance in COLL 6.6.26G applies to interpreting the requirement for
independence in COLL 15.7.22R.
Allocation of responsibility for compliance to an approved person
15.7.24 R (1) An AFM must allocate responsibility for ensuring its compliance with
COLL 15.7.17R, COLL 15.7.20R, COLL 15.7.22R and COBS 2.1.4R (AIFMs’ best interests rules) to an approved person. (2) Where the chair of the AFM’s governing body is an approved person, the AFM must allocate the responsibility set out in (1) to that person. [Note: See SYSC 24 (Senior managers and certification regime: Allocation of prescribed responsibilities).]

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15.8 Valuation, pricing, dealing and income
Application
15.8.1 R This section applies to:
(1) an authorised fund manager of an AUT, ACS or an ICVC; (2) any other director of an ICVC; (3) the depositary of an AUT, ACS or an ICVC; and (4) an ICVC, which is a long-term asset fund. Valuation, pricing and dealing
15.8.2 R (1) The value of the scheme property is the net value of the scheme
property after deducting any outstanding borrowings (including any capital outstanding on a mortgage of an immovable). (2) Any part of the scheme property which is not an investment (save an immovable) must be valued at fair value. (3) For the purposes of (2), any charges that were paid, or would be payable, on acquiring or disposing of the asset must be excluded from the value of that asset. (4) The value of the scheme property of an authorised fund must, save as otherwise provided in this section, be determined in accordance with the provisions of the instrument constituting the fund and the prospectus, as appropriate. (5) The scheme must have a valuation point on each dealing day and there must be at least one valuation point every month. (6) The authorised fund manager must prepare a valuation in accordance with (4) for each relevant type of unit at each relevant valuation point. (7) The price of a unit must be calculated on the basis of the valuation in (6) in a manner that is fair and reasonable as between unitholders. (8) In respect of each valuation point under (5), the authorised fund manager must publish in an appropriate manner the price of any type of unit based on the valuation carried out in accordance with (6). (9) The authorised fund manager must also provide on request to any unitholder at any time an estimated price for any type of unit in the scheme.

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(10) The period of any initial offer and how it should end must be set out in the prospectus and must not be of unreasonable length. Profits from dealing as principal
15.8.3 R (1) Where an authorised fund manager:
(a) accepts instructions to sell and redeem units as principal; and (b) is able to execute a sale instruction by selling units it has redeemed at the same valuation point, without placing its own capital at risk, subject to (2), the AFM must not retain for its own account, or the account of any of its associates, the difference between the price at which a unit was redeemed (before deduction of any redemption charge) and the price at which the same unit was sold (after deduction of any preliminary charge). Any such difference must be allocated in a way that is fair to unitholders. (2) In calculating the profit arising under (1), the AFM may offset any loss it incurs at the same valuation point, calculated in accordance with (3), when dealing as principal in relation to:
(a) a unit issued at that valuation point to fulfil a sale instruction that cannot be matched against any redeemed unit or any other unit of that class held by the manager as principal; and (b) a unitredeemed and cancelled at that valuation point. (3) The amount of the loss referred to in (2) is:
(a) for units issued in accordance with (2)(a), the difference between the issue price of a unit and the sale price of that unit, less any preliminary charge; (b) for units cancelled in accordance with (2)(b), the difference between the cancellation price of a unit and the redemption price of that unit, before any redemption charge is applied. (4) Where any loss arising under (2) is greater than any profit arising under (1), that loss cannot be offset against any profit arising at a subsequent valuation point. (5) This rule applies to the redemption and sale of units of different classes at the same valuation point, if those classes are treated as one for the purpose of COLL 15.8.6R (Issue and cancellation of units in multiple classes).

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15.8.4 G (1) The authorised fund manager may commit its own capital to hold
units for dealing as principal and may seek to profit from gains in the value of the units it holds, when it issues or redeems units at one valuation point then sells or cancels them at a later valuation point. However, it should not profit from situations in which it is not exposed to an equal risk of loss if the units fall in value, or from the ability to match simultaneous sales and redemptions at different prices at no risk to its own capital. (2) The AFM may allocate any amount arising under COLL 15.8.3R(1) (Profits from dealing as principal) in the interests of investors by paying it into scheme property for the benefit of all unitholders. Alternatively, the AFM may redistribute it individually among the transacting investors. (3) Where the AFM intends to allocate a payment to scheme property, it should determine if the amount (when added to any other amounts of the same kind relating to that class of units) would, if taken into account in the scheme’s valuation, affect the accuracy of the unit prices to four significant figures. If so, and subject to (4) below, the amount should be accrued in each subsequent valuation of the scheme until the payment is transferred. Such payments into scheme property should be made regularly and no less frequently than payments for the AFM’s management charge are transferred out of scheme property. (4) The calculation to be performed under COLL 15.8.3R (Profits from dealing as principal) should be carried out in relation to each valuation point of the scheme on a timely basis. Where it is not practical to do this before unit prices are calculated and published, the AFM should ensure that the accrual represents a reasonable estimate of the total payment it intends to make to scheme property. Issue and cancellation of units
15.8.5 R (1) The authorised fund manager must:
(a) ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to unitholders of that class; and (b) not do or omit anything that would, or might, confer on itself a benefit or advantage at the expense of a unitholder or potential unitholder. (2) For the purposes of (1) the authorised fund manager may take into account sales and redemptions after the valuation point, provided it has systems and controls to ensure compliance with (1).

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(3) The authorised fund manager must arrange for the issue and cancellation of units and pay money or assets to or from the depositary for the account of the scheme as required by the prospectus. (4) The authorised fund manager must keep a record of issues and cancellations made under this rule. (5) The authorised fund manager may arrange for the ICVC, or instruct the depositary of the AUT or ACS, to issue or cancel units where the authorised fund manager would otherwise be obliged to sell or redeem the units in the manner set out in the prospectus. (6) Where the authorised fund manager has not complied with (1), it must correct the error as soon as possible and must reimburse the scheme any costs it may have incurred in correcting the position, subject to any reasonable minimum level for such reimbursement as set out in the prospectus. Issue and cancellation of units in multiple classes
15.8.6 R If a long-term asset fund has two or more classes of unit in issue, the
authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:
(1) the depositary gives its prior agreement; and (2) the relevant classes:
(a) have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or (b) differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property. Transfer of units in an ACS
15.8.7 R (1) Where transfer of units in an ACS is allowed by its contractual scheme
deed and prospectusin accordance with the conditions specified by FCA rules, the authorised contractual scheme manager of the ACS must take reasonable care to ensure that units are only transferred if the conditions specified by the FCA under (2) are met.

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(2) The FCA specifies that for the purposes of (1), and for the purposes of COLL 15.3.6R(3)(9)(a)(vii)(B) (Table: contents of the instrument constituting the fund) and COLL 15.4.5R(18)(2) (Table: contents of long-term asset fund prospectus), units in the ACS may only be transferred to a person:
(a) who is a:
(i) professional ACS investor; or
(ii) large ACS investor; or
(iii) person who already holds units in the scheme; and (b) to whom units in a long-term asset fund may be promoted under COBS 4.12.4R.
15.8.8 G The FCA recognises that some transfers of units arise by operation of law
(such as upon death or bankruptcy of the unitholder, or otherwise) and are accordingly outside the control of the authorised contractual scheme manager. The authorised contractual scheme manager is expected to comply with its responsibilities under COLL 15.8.10R (Redemption of ACS units in an LTAF by an authorised contractual scheme manager) in those cases by redeeming those units. Responsibilities of the authorised contractual scheme manager in relation to ACS units
15.8.9 R (1) The authorised contractual scheme manager of an authorised
contractual scheme which is a long-term asset fund must take reasonable care to ensure that rights or interests in units in the scheme are not acquired by any person from or through an intermediate unitholder in a long-term asset fund, unless:
(a) that person is a:
(i) professional ACS investor; or
(ii) large ACS investor; or
(iii) person who already holds units in the scheme; and (b) units in a long-term asset fund may be promoted to that person under COBS 4.12.4R. (2) The authorised contractual scheme manager will be regarded as complying with (1) to the extent that it can show that it was reasonable for it to rely on relevant information provided by another person.

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Redemption of ACS units in an LTAF by an authorised contractual scheme manager
15.8.10 R The authorised contractual scheme manager of a long-term asset fund which
is an ACS must redeem units in the scheme as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in COLL 15 Annex 1R(1) and (2) (ACS Long-Term Asset Funds: eligible investors). Dealing: sale of units
15.8.11 R The authorised fund manager must, at all times during the dealing day, be
willing to effect the sale of units to any eligible investor (subject to any conditions in the instrument constituting the fund and the prospectus, which must be fair and reasonable as between all unitholders and potential unitholders) for whom the authorised fund manager does not have reasonable grounds to refuse such sale. Dealing: redemption of units
15.8.12 R (1) In this rule, a ‘redemption determination’ is a determination by the
authorised fund manager of the long-term asset fund to:
(a) accept a request by a unitholder to redeemunits in the scheme; (b) refuse a redemption request (see paragraph (2)(c)); or (c) make such other determination in relation to the redemption request as may be provided for in the instrument constituting the fund and the prospectus (see paragraph (6) below, and COLL 15.8.13G(6) and (7)). (2) The redemption arrangements for a long-term asset fund must ensure the following:
(a) A unitholder must be able to submit a request to redeem units before the next date on which the authorised fund manager makes a redemption determination, subject to any cut-off point which may be specified in the prospectus for this purpose. (b) The authorised fund manager must not make redemption determinations more frequently than the dealing frequency of the scheme and, in any event, not more than once a month. (c) The authorised fund manager must accept a unitholder’s request to redeem units in the scheme in accordance with any conditions in the instrument constituting the fund and the prospectus unless the authorised fund manager has reasonable grounds to refuse the redemption request.

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(d) The authorised fund manager must inform the unitholder of the outcome of the redemption determination. (e) If the authorised fund manager accepts the unitholder’s request to redeem units in the scheme:
(i) the redemption request is deemed to be irrevocable; (ii) the authorised fund manager must undertake to effect the redemption at the applicable time, in accordance with any conditions in the instrument constituting the fund and the prospectus; and (iii) the authorised fund manager must confirm to the unitholder:
(A) that the redemption request has been accepted and cannot be revoked; and (B) having regard to the period specified for the purposes of (f), the dates on which it is expected that the redemption will be effected and the appropriate proceeds paid. (f) The authorised fund manager must determine the price for the units being redeemed pursuant to the unitholder’s redemption request at the first valuation point following the end of the notice period specified in the instrument constituting the fund and the prospectus(the ‘notice period’). (g) The notice period must be at least 90 days after the day on which the request to redeem units in the scheme was accepted. (h) The authorised fund manager must redeem the units at the price determined in accordance with (f) and pay the unitholder the appropriate proceeds of redemption in accordance with paragraphs (4) and (5). (3) Subject to COBS 2.1.4R (AIFMs’ best interests rule) and COLL 15.3.2R (Classes of unit), where the long-term asset fund has more than one class of unit, the arrangements for the redemption of units may differ between classes provided the arrangements for all classes of unit ensure the matters specified in (2). (4) After having effected a redemption request, the authorised fund manager must pay the full proceeds of the redemption to the unitholder within any reasonable period specified in the prospectus, unless it has reasonable grounds for withholding payment.

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(5) Payment of proceeds on redemption must be made by the authorised fund manager in any manner provided for in the prospectus which must be fair and reasonable as between redeeming unitholders and continuing unitholders. (6) If the instrument constituting the fund and the prospectus of a long￾term asset fund permit the authorised fund manager to defer or limit a requested redemption, those arrangements must not result in:
(a) the authorised fund manager making redemption determinations more frequently than once a month (see paragraph (2)(b)); or (b) the notice period being shorter than 90 days (see paragraph (2)(g)). Sale and redemption of units: guidance
15.8.13 G (1) The authorised fund manager of a long-term asset fund is required to
ensure that the investment strategy, liquidity profile and redemption policy for the scheme are consistent (see FUND 3.6.2R (Alignment of investment strategy, liquidity profile and redemption policy)). (2) Given the type of investments that a long-term asset fund is likely to hold in its scheme property, the FCA considers that a long-term asset fund will need to operate particular arrangements for the redemption of units. (3) The authorised fund manager of a long-term asset fund must not make redemption determinations more frequently than once a month (see COLL 15.8.12R(2)(b)), which is the maximum frequency for determining such requests and effecting redemptions. The rules also require a long-term asset fund to have a notice period of at least 90 days (see COLL 15.8.12R(2)(g)). This is the minimum notice period for a long-term asset fund. (4) However, the frequency of the days on which redemption determinations are made and the particular notice period which is appropriate for a long-term asset fund will depend on the reasonable expectations of the target investor group and the particular investment objectives, investment policy and investment strategy of the scheme. (5) The authorised fund manager must also comply with the AIFMD level 2 regulation, which contains detailed requirements about liquidity management taking into account the long-term asset fund’s investment strategy, liquidity profile and redemption policy. See, for example, articles 46 to 49 of the AIFMD level 2 regulation.

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(6) Other determinations which an authorised fund manager may make, if provided for in the instrument constituting the fund and the prospectus (see COLL 15.8.12R(1)(c)), could include a deferral of execution of a redemption request or payment, or a limit on the value or number of units which can be redeemed at any one valuation point. (7) Redemption determinationsshould be carried out so that all unitholders who have requested redemption at any one valuation point are treated fairly. Property Authorised Investment Funds
15.8.14 R (1) The authorised fund manager of a long-term asset fund that is also a
property authorised investment fund must take reasonable steps to ensure that no body corporate holds more than 10% of the net asset value of that scheme (the “maximum allowable”). (2) For the purposes of (1), a body corporate shall not be treated as holding more than the maximum allowable to the extent that:
(a) the body corporate holds units in a unit trust scheme which holds shares in the property authorised investment fund; and (b) in their capacity as trustees of the unit trust scheme, the trustees are chargeable in the United Kingdom either to income tax or to corporation tax. (3) Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, the authorised fund manager must:
(a) notify the body corporate of that event; (b) not pay any income distribution to the body corporate; and (c) redeem or cancel units forming the body corporate’s holding down to the maximum allowable within a reasonable timeframe. (4) For the purpose of (3)(c), a reasonable timeframe means the timeframe which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.
15.8.15 G Reasonable steps to monitor the maximum allowable include:
(1) regularly reviewing the register; and
(2) taking reasonable steps to ensure that unitholders are kept informed of the requirement that no body corporate may hold more than 10% of the net asset value of a property authorised investment fund.

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Payments
15.8.16 R (1) An ICVC must not incur any expense in respect of the use of any
movable or immovable property unless the scheme is dedicated to such investment or such property is necessary for the direct pursuit of its business. (2) Payments out of the scheme property may be made from capital property rather than from income, provided the basis for this is set out in the prospectus. Exemption from liability to account for profits
15.8.17 G Except as provided in COLL 15.8.3R (Profits from dealing as principal), an
affected person is not liable to account to another affected person or to the unitholders of the scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:
(1) dealings in the units of a scheme; or
(2) any transaction in scheme property; or (3) the supply of services to the scheme; where disclosure of the non-accountability has been made in the prospectus of the scheme. Income
15.8.18 R (1) A long-term asset fund must have:
(a) an annual accounting period;
(b) a half-yearly accounting period; and
(c) an accounting reference date; the details of which must be set out in the prospectus. (2) COLL 6.8.2R(2) to COLL 6.8.2R(7) (Accounting periods) also apply to the half-yearly accounting period and annual accounting period of a long-term asset fund. (3) A long-term asset fund must have an annual income allocation date, which must be within four months of the accounting reference date. (4) A long-term asset fund may have an interim income allocation date and interim accounting periods and if it does, the interim income allocation date must be within a reasonable period of the end of the relevant interim accounting period as set out in the prospectus.

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(5) COLL 6.8.3R(3) (Income allocation and distribution) to COLL 6.8.3AG (Allocation of income to difference classes of unit) also apply to a long-term asset fund.
15.9 Operational requirements for feeder LTAFs
Application
15.9.1 R This section applies as follows:
(1) COLL 15.9.2R to COLL 15.9.6R apply to the authorised fund manager of a feeder LTAF; (2) COLL 15.9.6R also applies to:
(a) an ICVC that is a feeder LTAF; and
(b) any person acting on behalf of either the feeder LTAF or the authorised fund manager of the feeder LTAF; and (3) COLL 15.9.7R applies to the authorised fund manager of a long-term asset fund which operates as a qualifying master LTAF to a feeder LTAF. Pre-investment requirements of the authorised fund manager of a feeder LTAF
15.9.2 R Before investing in the qualifying master LTAF, the authorised fund
manager of the feeder LTAF must:
(1) be satisfied on reasonable grounds that it can obtain from the qualifying master LTAF all the information necessary to comply on an ongoing basis with the rules in COLL; (2) having consulted with the depositary of the feeder LTAF, be satisfied on reasonable grounds that the depositary of the feeder LTAF can obtain from the qualifying master LTAF, the operator of the qualifying master LTAF or the depositary of the qualifying master LTAF all the information necessary to comply with its duties under COLL 15.7.6R and COLL 15.7.7R (Duties of the depositary); and (3) inform the authorised fund manager of the qualifying master LTAF of the date on which the feeder LTAF will begin to invest into the qualifying master LTAF as a feeder LTAF. Ownership of units in a feeder LTAF
15.9.3 R The authorised fund manager of a feeder LTAF must take reasonable care to
ensure that its units are not owned, including beneficially owned, by the qualifying master LTAF or any other scheme in which the qualifying master LTAF invests.

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Charges made by the qualifying master LTAF or its operator to a feeder LTAF on investment or disposal
15.9.4 R (1) Where the operator or the authorised fund manager of a qualifying
master LTAF imposes any charge which is, or is equivalent in effect to, a preliminary charge or redemption charge on the feeder LTAF for the acquisition or disposal of units in the qualifying master LTAF, the authorised fund manager of the feeder LTAF must pay to the feeder LTAF an amount equal to such charge within four business days following the relevant acquisition or disposal. (2) In this rule, where the operator or authorised fund manager of a qualifying master LTAF requires any addition to or deduction from the consideration paid on the acquisition or disposal of units in the qualifying master LTAF which is, or is equivalent in effect to, a dilution levy made in accordance with the instrument constituting the fund and the prospectus, it is to be treated as part of the price of the units and not as part of any preliminary charge or redemption charge referred to in (1). Avoidance of opportunities for market timing
15.9.5 R The authorised fund manager of a feeder LTAF must take appropriate
measures to co-ordinate the timing of the feeder LTAF’s valuation points and dealing days with those of its qualifying master LTAF, including the publication of dealing prices, in order to avoid market timing of their units, and prevent arbitrage opportunities. Inducements
15.9.6 R Where, in connection with an investment in the units of the qualifying master
LTAF, a distribution fee, commission or other monetary benefit is received by:
(1) a feeder LTAF;
(2) an authorised fund manager of a feeder LTAF; or (3) any person acting on behalf of (1) or (2), that fee, commission or other monetary benefit must be paid into the scheme property of the feeder LTAF within four business days of receipt of that fee, commission or other monetary benefit.

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Obligations to unitholders of a qualifying master LTAF
15.9.7 R Where the qualifying master LTAF is an authorised fund, the authorised fund
manager of the qualifying master LTAF must not, if it would unfairly prejudice the interests of unitholders of the qualifying master LTAF other than the feeder LTAF, provide or make available information to the authorised fund manager of the feeder LTAF without at the same time also providing or making available that information to the unitholders of the qualifying master LTAF other than the feeder LTAF.
15.10 Termination, suspension, and schemes of arrangement
Application
15.10.1 R This section applies to:
(1) an authorised fund manager of an AUT, ACS or an ICVC; (2) any other director of an ICVC; (3) the depositary of an AUT, ACS or an ICVC; and (4) an ICVC, which is a long-term asset fund. Termination
15.10.2 R For a long-term asset fund the provisions in COLL 7.3 to COLL 7.5 will
apply as appropriate as if COLL 7 applied to long-term asset funds. Suspension
15.10.3 R (1) The authorised fund manager may, with the prior agreement of the
depositary, and must without delay, if the depositary so requires, within any parameters which are fair and reasonable in respect of all the unitholders in the scheme and which are set out in the prospectus, temporarily suspend dealings in units of the scheme, a sub-fund or a class. (2) Any suspension within (1) must only be where the authorised fund manager has determined that due to exceptional circumstances the suspension of dealings is in the interests of unitholders or potential unitholders, and the authorised fund manager must have regard to the interests of all the unitholders in the scheme in reaching such an opinion. (3) At the commencement of suspension under (1), the authorised fund manager must immediately inform the FCA of the suspension and the reasons for it.

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(4) The authorised fund manager must ensure that a notification of the suspension is made to unitholders of the authorised fund as soon as practicable after suspension commences. (5) The authorised fund manager and the depositary must ensure that the suspension only continues for as long as it is justified having regard to the interests of the unitholders. (6) The suspension of dealings in units must cease, as soon as (2) no longer applies. (7) The authorised fund manager and the depositary must formally review the suspension at least every 28 days and inform the FCA of the results of this review and any change to the information provided in (3). (8) The authorised fund manager must inform the FCA immediately of the resumption of dealings. Schemes of arrangement
15.10.4 R In relation to an ICVC, ACS or an AUT which is a long-term asset fund, the
provisions in COLL 7.6 (Schemes of arrangement) will apply as appropriate to the authorised fund manager, any other directors of the ICVC and the depositary as if COLL 7.6 applied to a long-term asset fund and did not exclude unitholders becoming unitholders in another long-term asset fund.
Annex
1R ACS Long-term asset funds: Eligible investors This Annex belongs to COLL 15.1.3R and COLL 15.1.4G. For the purposes of the rule on qualified investors in a long-term asset fund which is an ACS (see COLL 15.1.3R(2)), the authorised contractual scheme manager must take reasonable care to ensure that ownership of units in the scheme is only recorded in the register for a person:
(1) who is a:
(a) professional ACS investor; or
(b) large ACS investor; or
(c) person who already holds units in the scheme; and (2) to whom units in a long-term asset fund may be promoted to that person under COBS 4.12.4R …

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Amend the following text as shown.
Schedule 1 Record keeping requirements
Sch 1.1 G 1 Record keeping requirements
Handbook reference
Subject of record
Contents of record
When record must be made
Retention period
…
COLL 14.3.6R …
COLL
15.2.6R(3)
The depositary’s determination
The determination and the reasons for making it As implicit from the rules in COLL 6 years COLL 15.5.12R(2) Minutes of meetings (AFM) Full details As implicit from the rules in COLL 6 years COLL 15.7.2R(3)(e) General record keeping obligations (AFM) Full details As implicit from the rules in COLL As implicit from the rules in COLL COLL 15.7.2R(3)(f) Units held, acquired or disposed of (AFM) Daily record of units held, acquired or disposed of by the AFM As implicit from the rules in COLL 6 years COLL 15.7.6R(2)(g) General record keeping obligation (depositary) Full details As implicit from the rules in COLL As implicit from the rules in COLL COLL 15.8.5R(4) Issues and cancellations of units (AFM) Full details As implicit from the rules in COLL As implicit from the rules in COLL …

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Schedule 2 Notification requirements
…
Sch 2.2 G 1 Notification requirements
Handbook reference
Matter to be notified
Contents of notification
Trigger event Time allowed
…
COLL 14.2.2R …
COLL 15.4.2R Prospectus and revisions
Full documents Before marketing commences
Immediate
COLL
15.5.2R(5)
Annual, half yearly and quarterly reports
Copy of report End of annual or half-yearly accounting period, or quarterly reporting period Immediately on publication COLL 15.10.3R(3) and (8) Suspension and resumption of dealing (AFM) Details, including reason for suspension Occurrence Immediate

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Pub ref: 007757