The Financial Services Authority confirmed in a Policy Statement today that it will allow fund managers more flexibility to adopt single or dual pricing of units in authorised Collective Investment Schemes.
Currently, investment companies with variable capital (ICVCs) have to value units on a single-pricing basis while authorised unit trusts (AUTs) are able to quote either single or dual prices. The dual-pricing method is based on one price being quoted to investors who want to buy units and a different, lower price to those who want to sell units. The single pricing method first introduced for ICVCs in 1997 is based on a mid-market value between bid and offer prices.
Dan Waters, FSA Director Retail Policy and Asset Management Sector Leader, said:
"No method of unit pricing is perfect or demonstrably superior to others in every situation. The flexibility we are introducing fits with the principles-based regulation we seek to operate, so that each fund manager may 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."
The FSA consulted on the basis of allowing both AUTs and ICVCs the flexibility to adopt dual pricing or single pricing methods in CP 06/7, published in April 2006. Without this, the introduction of the new Collective Investment Schemes sourcebook (COLL) would in effect have mandated single pricing for all authorised funds from February 2007.
Market failure analysis and cost benefit analysis conducted by the FSA for CP 06/7 suggested that 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.
The response to CP06/7 generally supported the greater flexibility proposed and the FSA has decided to proceed on this basis by making amendments to rules and guidance in COLL that will come into effect from 6 October.
