The European Long-term Investment Funds Regulations 2015

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make necessary changes to primary and secondary legislation to give effect to Regulation (EU) No 760/2015 of the European Parliament and of the Council of 29th April 2015 on European Long-term Investment Funds (OJ L123, 19.5.2015, p.98) (“the ELTIF Regulation”).

European Long-term Investment Funds (“ELTIFs”) are a new type of European alternative investment fund (“EU AIF”). In order to apply for authorisation as an ELTIF, a fund must be an authorised EU AIF and must be managed by an authorised alternative investment fund manager (“AIFM”).

Regulation 3 makes amendments to the Financial Services and Markets Act 2000 (c. 8) to clarify that the Financial Conduct Authority’s (FCA’s) powers to vary or cancel the permission of a full-scope UK AIFM (i.e. a full-scope UK AIFM defined in regulation 2 of the Alternative Investment Fund Manager Regulations 2013 (S.I. 2013/1773)) may be exercised where it appears to the FCA that the manager has seriously or systematically infringed the ELTIF Regulation. It also makes amendments to clarify that the FCA may use its powers of intervention in respect of an incoming EEA AIFM (i.e. an AIFM that is exercising an EEA passport right in the United Kingdom) if it appears to the FCA that the AIFM has contravened, or is likely to contravene, a requirement imposed by the ELTIF Regulation. It also makes clear that the criminal offence of misleading the FCA applies to a person who knowingly or recklessly gives the FCA false or misleading information in purported compliance with a requirement imposed by the ELTIF Regulation.

Regulation 4 inserts a new Part 3A into the Alternative Investment Fund Managers Regulations 2013 to enable the FCA to direct the manner in which applications for authorisation as ELTIFs are to be made and to set out the procedures to be followed by the FCA when proposing or deciding to refuse applications for authorisation as an ELTIF, and when proposing or deciding to revoke an ELTIF’s authorisation.

Regulations 5 and 6 amend the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (S.I. 2005/1529), and the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 to clarify that communications permitted under the ELTIF Regulation are not to amount to unauthorised financial promotions.

Regulation 7 amends the Financial Services and Markets Act 2000 (Compensation Scheme: Electing Participants) Regulations 2001 (S.I. 2001/1783) to confirm that EEA managers who manage United Kingdom-authorised ELTIFs are not permitted to elect to be covered by the Financial Services Compensation Scheme (FSCS), as they are automatically covered by the FSCS as a result of FCA rules.

Regulation 8 amends the Financial Services and Markets Act 2000 (Qualifying EU Provisions) Order 2013 (S.I. 2013/419) to specify the ELTIF Regulation and directly applicable EU Regulations made under the ELTIF Regulation as qualifying EU provisions for the purposes of various provisions of the Financial Services and Markets Act 2000. The amendments enable the FCA to enforce directly applicable requirements arising from the ELTIF Regulation and directly applicable EU Regulations made under it in relation to persons in the United Kingdom.

Regulation 9 amends the Limited Partnerships Act 1907 (c.24) to ensure the legal structure of an ELTIF cannot lead to any additional liability for limited partners beyond their original capital commitment, as required by Article 30 of the ELTIF Regulation in respect of ELTIFs marketed to retail investors. It makes certain other modifications to that Act as a consequence. In an investment fund structured as a limited partnership, retail investors participate in the fund as limited partners.

An impact assessment has not been produced for this instrument as no significant impact on the costs of business or the voluntary sector is foreseen.