UK’s Financial Services Authority To Allow More Flexibility In Unit Pricing

The Financial Services Authority today set out proposals that 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), also known as open-ended investment companies (OEICs), have to value units on a single-pricing basis while authorised unit trusts (AUTs) are able to quote either single or dual prices. The long established 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.

These proposals complete the FSA's review of the rules for authorised funds, which aims to deliver a more streamlined and principles-based regulatory regime and has resulted in the introduction of the new Collective Investment Schemes Sourcebook (COLL). Because the earlier part of the review did not consider the future of dual pricing, COLL would in effect have mandated single pricing for all authorised funds when it comes fully into effect in February 2007.

However market failure analysis and cost benefit analysis conducted by the FSA have indicated that there is not enough evidence of consumer detriment to support such a prescriptive change. Indeed, the analysis 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. And in September 2005 the FSA announced that it would consult on the basis of allowing both AUTs and ICVCs the flexibility to adopt dual pricing or single pricing methods. Today's proposals would amend the rules and guidance in COLL to achieve that aim.

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. 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.”

Subject to the outcome of the Consultation, the new rules on unit pricing will come into effect in February 2007 as part of the COLL rules.