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The Financial Conduct Authority (FCA) closed its fourth consultation on the implementation of the Markets in Financial Instruments Directive (MiFID II).
The directive classifies all local authorities as retail investors in an effort to protect small treasury managers from being mis-sold complex investment products.
But in the UK, treasury managers are often also responsible for managing local government pension scheme (LGPS) assets, including alternative and illiquid asset classes.
The rules could damage the government-endorsed pooling project underway across the LGPS.
The 89 LGPS funds in England and Wales have created eight asset pools aimed at improving efficiencies and increasing investment in UK infrastructure, but the PLSA warned that the MiFID II rules threatened to limit access to such asset classes and urged the regulator to make an explicit exemption for the pools.
The FCA proposed amendments to its existing handbook allowing local authorities fitting certain criteria to be considered as professional clients through “elected professional status”.
But the PLSA, which represents pension funds, said the plan was too complex and risked significant disruption to LGPS funds’ investment strategies.
The Local Government Association has expressed fears LGPS funds would be forced into a fire sale of assets without an adequate resolution.
In its response to the consultation, the PLSA said LGPS funds would be forced to go through a “significant and time-consuming process that … provides no guarantees that future investment strategies will be able to be effectively executed with existing managers or existing terms”.