These regulations, effective immediately after the Co-ownership Contractual Schemes (Tax) Regulations 2025, apply sections 261M to 261O and 261P(1) and (2) of the Financial Services and Markets Act 2000 to unauthorised co-ownership Alternative Investment Funds (AIFs) that are or were Reserved Investor Funds (RIFs), with modifications.
The regulations extend to all UK jurisdictions and define relevant terms such as 'the Act' and 'RIF'.
They specify the rights and liabilities of participants in these AIFs and define 'UK-based' for the purpose of these regulations.
Arguments For
Clarifying Legal Framework: The regulations provide clarity and legal certainty regarding the rights and liabilities of participants in unauthorised co-ownership AIFs that are or were RIFs.
Consistency and Fairness: Extending existing provisions ensures consistent treatment of participants across different types of AIFs, promoting fairness and reducing potential legal disputes.
Protecting Investor Interests: By applying sections 261M to 261O and 261P(1) and (2) of the Financial Services and Markets Act 2000, the regulations aim to safeguard investor interests in specific scenarios.
Preventing Regulatory Gaps: These regulations address potential regulatory gaps concerning unauthorised co-ownership AIFs, promoting better oversight and risk management within the financial system.
Arguments Against
Potential Unintended Consequences: Extending the existing provisions may produce unintended consequences due to the complexity of the situation pertaining to unauthorised AIFs and other regulatory frameworks that may be in effect.
Implementation Challenges: Ensuring effective implementation and enforcement of these regulations might prove challenging, given the difficulty in accurately identifying and monitoring all relevant AIFs.
Administrative Burden: Implementing these regulations could increase the administrative burden for both involved parties and regulating bodies.
Limited Impact Assessment: The lack of a full impact assessment raises concerns about the potential broader effects of the regulations on the financial sector.
- Citation, commencement and extent (1) These Regulations may be cited as the Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025. (2) These Regulations come into force immediately after the Co-ownership Contractual Schemes (Tax) Regulations 2025 come into force. (3) These Regulations extend to England and Wales, Scotland and Northern Ireland.
This section establishes the title, effective date, and geographical scope of the regulations.
The regulations' title is specified and it states that they go into effect immediately after the Co-ownership Contractual Schemes (Tax) Regulations 2025.
The regulations apply across the UK.
- Interpretation In these Regulations— “the Act” means the Financial Services and Markets Act 2000; “RIF” has the meaning given by section 20(1) (collective investment schemes: co-ownership schemes) of the Finance (No. 2) Act 2024;
This section provides definitions for key terms used within the regulations. 'The Act' is defined as the Financial Services and Markets Act 2000, and 'RIF' is defined according to Section 20(1) of the Finance (No. 2) Act 2024.
- Rights and liabilities of participants (1) The following provisions of the Act apply in connection with any unauthorised co-ownership AIF that is a RIF, with the modifications specified in paragraph (2)— (a) section 261M (contracts); (b) section 261N (effect of becoming or ceasing to be a participant); (c) section 261O (limited liability); (d) section 261P(1) and (2) (segregated liability in relation to umbrella co-ownership schemes). (2) The modifications are— (a) any reference to a “stand-alone co-ownership scheme” is to be treated as a reference to a RIF that is not an umbrella co-ownership scheme (interpreted in accordance with sub-paragraph (b)). (b) any reference to an “umbrella co-ownership scheme” is to be treated as a reference to a RIF that satisfies the conditions in section 237(6)(b) and (c) of the Act. (c) any reference to a sub-scheme of an umbrella co-ownership scheme (interpreted in accordance with sub-paragraph (b)) is to be treated as arrangements constituting the scheme so far as they relate to a separate part of property. (3) The provisions referred to in paragraph (1)(a) to (d), read with the modifications specified in paragraph (2), apply in connection with any unauthorised co-ownership AIF that— (a) was previously a RIF, (b) is currently not a RIF, and (c) is UK-based (see paragraph (4)). (4) For the purpose of paragraph (3)(c), an unauthorised co-ownership AIF will be “UK-based” if it meets the conditions set out in regulation 6 (a UK-based scheme) of the Co-ownership Contractual Schemes (Tax) Regulations 2025.
This section details the application of specific sections (261M, 261N, 261O, 261P(1) and (2)) from the Financial Services and Markets Act 2000 to unauthorised co-ownership AIFs that are, or were previously, RIFs.
Important modifications to the application are specified and clarified.
The section defines what constitutes, for its purposes, a "UK-based" AIF.
Explanatory Note (This note is not part of the Regulations) Sections 261M to 261O and 261P(1) and (2) of the Financial Services and Markets Act 2000 (“the Act”) make provision about contracts and the rights and liabilities of participants in relation to co-ownership schemes authorised by an authorisation order under section 261D(1) of the Act. Section 261M confers certain rights on the operators of such schemes to act on behalf of participants in relation to authorised contracts. Section 261N makes provision about the effects of a person becoming or ceasing to be a participant, in terms of rights they acquire and the liabilities to which they are subject in relation to authorised contracts. Section 261O limits the liability of participants for debts incurred under, or in connection with, contracts which the operator is authorised to enter into on their behalf. Section 261P(1) and (2) provides for the segregation of the liabilities of participants in sub-schemes (where a co-ownership scheme is constituted as an umbrella co-ownership scheme). These Regulations apply, with modifications, sections 261M to 261O and 261P(1) and (2) so that they also apply in connection with any unauthorised co-ownership AIF that is a RIF (Reserved Investor Fund (Contractual Scheme)) and any unauthorised co-ownership AIF that was previously a RIF but is currently not a RIF (provided it is UK-based). A full impact assessment has not been published for this instrument as it has no impact on the private sector, the voluntary sector/civil society organisations.
The explanatory note provides context and background.
It summarises the provisions from the Financial Services and Markets Act 2000 which these regulations extend and explains that the regulations apply them, with modifications, to unauthorised AIFs which are currently or formerly RIFs.
The note also mentions the absence of a full impact assessment, citing a lack of impact on the private, voluntary, or civil society sectors.