UK FCA consults on the registration of authorised funds

The UK Financial Conduct Authority (FCA) has published consultation paper CP26/16, proposing amendments to the regime governing the registration of authorised fund assets. A key driver of the consultation is enabling access to private market investments for funds. Currently, the regulatory rules restrict depositaries' ability to delegate certain registration and safekeeping functions in relation to certain types of private market assets. This means that depositaries (or their controlled nominees) are required to hold legal title to certain types of assets, which may expose them to legal, reputational and financial risk. Consequently, authorised alternative investment funds may be limited as to their ability to invest in such assets where depositaries are unwilling to take on these risks. This set of proposals relates to AIFs rather than UK undertakings for collective investment in transferable securities (UCITS), as UCITS funds are not impacted in the same way as AIFs.

The FCA proposes to ease these restrictions in relation to the registration function, so that depositaries are able to delegate the functions subject to certain conditions. Specifically, the FCA is proposing to allow depositaries of authorised AIFs managed by full-scope AIFMs to delegate certain registration and safekeeping functions for private market assets. For assets which are not safe custody investments or AIF custodial assets, the ability to delegate is limited to affiliates of the authorised fund manager. For assets which are safe custody investments but not AIF custodial assets, depositaries would be able to delegate to a regulated third party. Regarding UCITS, the consultation proposes a new rule that a UCITS depositary must not delegate any function to the authorised fund manager.

Additionally, the consultation covers clarification of the application of the FCA custody rules to depositaries (both AIFs and UK UCITS), and other aspects of the authorised fund registration function requirements. The FCA also proposes to replace the existing modification by consent relating to the Collective Investment Schemes sourcebook (COLL) 5.6.22R (in respect of COLL 5.5.9R on guarantees and indemnities) with a permanent rule change.

The deadline for comments on the consultation is 9 July.

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