The Financial Services Authority (FSA) is taking a closer look at firms operating as Authorised Corporate Directors (ACD), after warning of potential conflicts of interest.
The regulator said in its Retail Conduct Risk outlook, released today, it had increased its supervisory focus on firms operating as ACDs after warning it was concerned over risks to investors.
In the paper it said: "Many of the investment managers used under the Host ACDs model are small, newly established firms which lack the systems and controls found in larger and more established investment managers.
"The OEICs managed by these firms often offer strategies with higher risks than offered by more traditional OEICS. We are particularly concerned that host ACDs might lack the specialist skills and systems needed to safeguard investors in these complex funds."
The FSA said as a result it had "increased its supervisory focus" on Host ACD firms, to ensure they met obligations required.
Its announcement comes amid the continuing furore over the Arch cru scandal, which has seen millions of pounds of investors' money lost.
Consumers affected have directed their anger on Capita, the funds' ACD, but so far it has not been forced to compensate investors in full.
The FSA also noted today that Host ACDs may suffer from a conflict of interest when carrying out their duties.
It said: "In theory the Host ACD appoints and supervises the investment manager, but the commercial reality is that the Host ACD is a service provider to the investment manager (or to the IFA sponsor).
"The resulting conflict of interest may inhibit the Host ACD from providing appropriate challenge. Consumers who buy OEICs could suffer detriment if the Host ACD is unable to challenge the investment manager."
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