The Financial Services Authority is considering scrapping a requirement to adopt only single pricing on open-ended investment companies (Oeics) and might allow fund managers to decide for themselves how to price the units of all investment funds.
According to a consultation paper issued this morning, the FSA needs to review the current pricing structure of authorised unit trusts (Auts) and Oeics as the two offerings currently operate on different pricing regimes, and the arrival of new FSA rules on fund management requires the situation be harmonised.
The FSA points out in CP 06/07 - Single and dual pricing for authorised collective investment funds – implementation of the Collective Investment Schemes Sourcebook (COLL) in 2007 in theory means all existing unit trusts would have to change from a dual pricing regime to single pricing, to build consistency within all investment offerings.
As it stands, investment companies with variable capital (ICVCs), also known as Oeics, have to value units on a single-pricing basis while Auts can quote either single or dual prices.
However, officials note there is no apparent consumer detriment, based on market failure and cost benefit analyses already conducted, to maintaining the use of long-established ‘bid/offer’ dual pricing which tends to be used by authorised unit trusts, alongside single pricing which provides a mid-market value between the ‘bid’ or price at which the investor sells the units and the ‘offer’ or price at which units are bought by the investor.
Moreover, FSA analysis suggests “greater flexibility would be desirable and that fund managers should be allowed to select the pricing mechanism that best matches their assessment of the information needs and expectations of investors in their funds”.
As a result, The FSA consultation is now feedback to assess whether fund managers should be given the option of choosing which pricing process they would prefer to use, and whatever the outcome of the consultation, new rules will be implemented in February 2007.
Dan Waters, the FSA’s director of retail policy and asset management sector leader, says allowing fund managers to decide for themselves how to price funds would fit the concept of a principles-based regulatory regime.
"No method of unit pricing is perfect or demonstrably superior to others in every situation,” says Waters.
“It fits with the principles-based regulation we seek to operate that each fund manager should judge for itself how to meet the needs and expectations of investors, provided the method adopted is compatible with fundamental standards of accuracy, fairness to all unitholders and transparency, and can be understood by investors,” he adds.
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