The FSA is to tighten up the listing rules for closed end funds to include greater clarity on their ...
The FSA is to tighten up the listing rules for closed end funds to include greater clarity on their investment policy, gearing, risk management and corporate governance.
In an apparent response to the cross-holdings that contributed to the collapse of the split-cap sector, FSA chairman Howard Davies said the wide-ranging regulatory upgrade will limit the percentage of total assets that can be invested in other funds.
The alterations to the listing rules governing the interests of investors in investment companies, including investment trusts, will be consulted on early next year. They aim to provide increased safeguards for investment companies employing investment managers, including annual appointments to be ratified by shareholders, new rules on the independence of investment managers from investment company boards and limits on severance arrangements included in investment management agreements.
Davies told the general accountability session of the Treasury select committee, the FSA will make permanent the rule which currently requires shareholder approval for material changes in investment policy only in the first three years.
Prominent 'appropriate risk warnings' will be required in any prospectus or listing documents, in language that investors will clearly understand, he said. Rules regarding the disclosure of factors affecting the risks faced by an investment company within the body of a prospectus will also be enhanced. The changes are clearly designed to address many of the complaints raised by investors who lost money on split-capital trusts.
Davies said the FSA will pay particular regard to transitional arrangements and the effect of the changes on funds of funds.
He also said the regulator is on alert for problems financial services firms may face due to the equity market downturn, particularly among life insurance and occupational pension schemes. The FSA appears before the committee twice a year to discuss regulatory matters.
At the same meeting he said regulation of the retail investment market is not effective enough and will take almost two years to fix.
Davies told the committee the FSA is in the process of upgrading regulation, with a focus on broker sales of mortgages and insurance, but the new rules will not be in place until October 2004.
He said investors do not always understand their options when taking out a mortgage, a situation aggravated by the more than 4,000 products from which they must choose.
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