Regulatory protection for investors in funds where management of assets is outsourced will be remove...
Regulatory protection for investors in funds where management of assets is outsourced will be removed if the FSA's proposed code of inter-professional conduct is not altered, according to Autif.
The proposed code, set out in Consultation Paper 83 published in February, is designed to be a 'light' regime with a large degree of self-regulation because it covers relationships between sophisticated financial businesses well able to protect their own rights. However, under the current wording, CP83's scope would include the relationship between a fund manager and the asset manager to which it outsources.
That means if a dispute arises resulting from damage to investor interest, it will be the courts and not the regulator's offices where the dispute will be resolved.
Therefore, Autif believes that the relationships between unit trust managers and the asset managers to which they outsource must be exempted from the proposals in CP83 before it becomes practice at N2, the as-yet-unspecified date at which the FSA assumes its full power, to safeguard the existing rights of underlying investors.
Currently, business between the two parties in such a relationship is regulated by Imro.
If CP83 is not changed, Autif believes that unit trust and Oeic managers will have to rewrite the contracts between themselves and the managers they outsource to in order to ensure they continue to receive and can, if necessary, legally enforce, the same level of service under the conditions ensured by the regulator.
Julie Patterson, senior international policy adviser at Autif, said that the association was seeking a meeting with the FSA to set out its arguments.
She said: "In a nutshell, we are saying that our members, the unit trust and Oeic managers, often delegate the management of funds to another entity. In that case, what you have is a relationship between two authorised firms. But, what we are arguing is that there are underlying retail investors who should be protected.
"We are arguing that the business between the asset manager and the unit trust or Oeic manager should actually come under the Conduct of Business Sourcebook which is designed to give retail investors protection. It should not be subject to a specially designed regime for inter-professional business."
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