Retail investors should have access to a wider range of investment opportunities and product features as well as better information about the progress of their investments, under new rules for collective investment schemes.
From April 1st, 2004, all new and existing authorised funds will be able to convert to UCITS authorised funds, according to details of the FSA’s reworking of the Collective Investment Schemes Sourcebook, but will be required to do so by February 13th, 2007 when UCITS (III) Management Directive is implemented.
Most of the changes concern technicalities only fund managers will need to deal with, following consultation – in CP185 - with the investment industry last summer.
That said, the FSA says it will get rid of the non-UCITS authorised funds category to provide more flexible rules on authorised fund investments, reducing eight categories of retail investment schemes to just one – UCITS authorised funds.
This means property funds will not be Isa-able as property funds cannot be included within the UCTIS regime, however, property funds could at least gain greater popularity thanks to these changes as investors would only be able to redeem holdings every six months on a date set and could therefore benefit the target return set by the investment firm.
A new type of fund – known as Qualified Investor Schemes – will also be established for institutional and expert investors, which carries lighter touch regulation than currently required on institutional products.
Previous FSA proposals for UCTIS reform also did not allow the introduction of UK-authorised hedge funds within the new regime, however, widening of investment and borrowing powers under qualified investor schemes – including certain rules under which short-selling is allowed – should give all professional funds the option of employing investment approaches commonly adopted by hedge funds.
Additional changes have been made to protect retail investors against damaging practices of short-selling too, as funds will be able to refuse to sell units “to persons whose dealing activities may cause detriment to continuing unit-holders”, says the FSA.
New CIS rules should at least align rules on expenses and allow the use of performance fees - details of which will have to be declared upfront and can only be used if funds make gains - as well as introduce unit classes for authorised unit trusts, reduce inefficiencies of regulation and maintain the current governance structure.
Having last week declared market timing – where closed pricing can be used to buy units at a slightly better price because of when units are priced – is not a significant problem in the UK, the FSA says it is now working with the Investment Management Association to develop of an industry code on the use of “fair value pricing”.IFAonline
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