Miscellaneous Unauthorised Co-ownership AIFs
The concept and definition of a "contractual scheme" is set out at section 235A of FMSA 2000. Contractual schemes are a form of collective investment scheme as per section 235A(2) and section 235A(5) of FSMA 2000. They can be established as a co-ownership scheme (section 235A(2) to (4) of FSMA 2000), or as a partnership scheme (section 235A(5) to (7) of FSMA 2000). If the contractual scheme is established as a co-ownership scheme it is not prevented from being established as an umbrella structure 42 (section 235(4) of FSMA 2000).
	A contractual scheme can apply to the FCA for authorisation, per sections 261C to 261D of FSMA 2000, and therefore become an authorised contractual scheme, by virtue of an authorisation order under section 261D(1) of FSMA 2000. If it is structured as a co-ownership scheme, it will therefore be a CoACS.
	Sections 261M to 261P of FSMA 2000 sets out the rights and liabilities of participants in CoACS. These provisions afford CoACS with the following:
section 261M of FSMA 2000 makes provision about the contracts in the scheme;
section 261N of FSMA 2000 limits an investor’s rights and liabilities - to which they are entitled or subject under, or in connection with, contracts in the scheme - to the period that they are a participant;
section 261O of FSMA 2000 limits an investor’s liability for debts incurred under, or in connection with, contracts which the operator is authorised to enter on their behalf; and
section 261P of FSMA 2000 provides for the segregation of liabilities of participants in sub-funds, where a co-ownership scheme is constituted as an umbrella fund.
	These provisions (sections 261M to 261P of FSMA 2000) do not apply to a co-ownership scheme that does not benefit from an authorisation order and therefore would not apply to a new investment vehicle, like the unauthorised contractual scheme, that is structured as an unauthorised co-ownership AIF with a corresponding tax treatment, if such a vehicle was introduced into statute.
	The power taken in this measure enables HM Treasury to essentially apply, as relevant, the effects of sections 261M to 261O and section 261P(1) and (2) of FSMA 2000 to a contractual scheme, that is a co-ownership scheme, but which does not benefit from an authorisation order (noting that of section 261P of FSMA 2000, only section 261P(1) and (2) of FSMA 2000 would be relevant for the unauthorised contractual scheme in any event). Any such scheme would likely be an alternative investment fund ("AIF"), as per section 417(1) of FSMA 2000 and so the power is scoped to only apply to AIFs (hence the term, "unauthorised co-ownership AIF" within the measure). The likely exercise of this power will therefore be to make provision that corresponds or is similar to sections 261M to 261O and section 261P(1) and (2) of FSMA 2000, for a new investment vehicle that benefits from a corresponding tax treatment and is structured as an unauthorised co-ownership AIF. This is in the event that such a vehicle was introduced into statute, like the unauthorised contractual scheme.
	Separately, this measure also amends section 261E of FSMA 2000, to clarify that section 261E of FSMA 2000 is relevant for the purposes of authorised contractual schemes with regards to section 261D(1)(a) of FSMA 2000, reflecting the title of the section.