The Financial Conduct Authority (FCA) has reversed its decision to exclude Long-Term Asset funds (LTAFs) from coverage by the Financial Services Compensation Scheme (FSCS) based on consultation with industry stakeholders.
The FSCS compensates for up to £85,000 to consumers when a regulated financial firm goes out of business.
During the consultation, some respondents said removing FSCS cover from LTAFs could “undermine the work of developing LTAFs for retail, their potential success and could impact consumer confidence, which is at odds with the aims of broadening access to retail customers”.
Critics pointed out that there were already significant barriers to bringing retail LTAFs to the market, including the need for technological investments, compliance with the Consumer Duty and FCA approval.
Players also stated that singling out LTAFs as a “risky” product would be “wrong” because, even though there are “specific liquidity and valuation considerations”, LTAFs will likely provide greater diversification and lower volatility than other products covered by the FSCS.
Additionally, industry players said that considering FSCS protection on a product-by-product basis “risks creating confusion and inconsistency”. Instead, they argued that FSCS cover should be assessed as a whole.
The FCA has now shifted its approach, stating that it will consider changes to the scope of FSCS protection for retail investments comprehensively rather than excluding specific investment products.
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