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Tax issues force delay in plans for UK retail funds of alternative investment funds

The Financial Services Authority has announced that there will be a delay in the publication of its policy statement and final rules putting flesh on its proposals to allow retail consumer

The Financial Services Authority has announced that there will be a delay in the publication of its policy statement and final rules putting flesh on its proposals to allow retail consumers to invest in funds of hedge funds and other alternative investments sold by firms authorised in the UK.

In a statement, the FSA said it had planned to issue the policy statement and final rules toward the end of this year in order to give market participants the opportunity to prepare for the introduction of funds of alternative investment funds, including funds of hedge funds, in the UK retail market next year.

However, the regulator has acknowledged that the process has been complicated by various taxation issues involved in the operation of the new funds of alternative investment funds regime.

The UK Treasury is currently considering these issues in conjunction with the offshore funds regime, on which a discussion paper was issued in October, with a deadline for responses of January 9. The FSA has therefore decided to delay publication of its proposals until the situation is clearer, which is likely to be early in the new year.

‘We recognise the difficulties of trying to resolve the complex issues raised by the offshore funds tax regime,’ says Dan Waters, the FSA’s director of retail policy and themes. ‘We continue in our constructive discussions with the Treasury, however, and are working closely together to find a way for FAIFs to operate competitively within the UK retail market. This provides an opportunity for further discussion and consideration before the final publication.’

The FSA published a consultation paper on funds of alternative investment funds in March this year which proposed introducing retail-oriented funds of alternative investment funds into the existing FSA regulatory regime for non-UCITS retail schemes.

The paper also proposed relaxing the 20 per cent restriction on investment by such funds in unregulated collective investment schemes, applying principles-based due diligence guidance for managers running funds of alternative investment funds, and bringing the qualified investor schemes regime into line with the FSA’s revised approach for non-UCITS retail schemes. Although the regulator has not yet published feedback from the consultation paper, it says the industry has expressed support for the approach it outlined.

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