New launches or existing authorised funds that wish to convert will be able to operate under the new rules from 1 April 2004. The rules will then apply to all authorised funds from 13 February 2007, to coincide with the implementation of the UCITS Management Directive.
Michael Folger, Director of Conduct of Business Standards for the FSA commented:
"The consultation drew out widespread support for our proposals, along with useful comments on details. As a result, we have implemented the proposals with only limited changes. We now have a modernised, slimmed-down rulebook with prescription pruned back sharply."
The new regime is intended to:
- provide a type of fund (now called Qualified Investor Schemes) for investment by institutional and expert investors;
- remove the existing categorisation of non-UCITS authorised funds (separate categories of UCITS authorised funds were removed in November 2002) and to provide more flexible rules on authorised fund investments;
- provide further flexibility for fund managers to manage their funds;
- set out a framework to determine when investors should be consulted and to provide more useful information for investors in regular reports;
- allow limited redemption of units in certain circumstances;
- introduce unit classes for Authorised Unit Trusts, align rules on expenses and allow performance fees; and
- retain the current governance structure, pending further review following discussion with the industry.
The FSA consultation did not propose the introduction of UK-authorised hedge funds. However, the widening of investment and borrowing powers and the ability to undertake short selling proposed for qualified investor schemes would allow funds to employ some investment approaches commonly adopted by hedge funds.
CP185 also proposed additional guidance on fair value pricing (FVP) to help fund managers counter the detrimental effects that can arise for continuing investors if arbitrageurs buy and sell units in order to exploit stale pricing (an activity known as "market timing"). The additional guidance, which the FSA Board has now made, clarifies that funds have the ability to refuse to sell units to persons whose dealing activities may cause detriment to continuing unit-holders. Separately, FSA is also working with the Investment Management Association on the development of an industry code on the use of FVP.
The details of the new regime are set out in a policy statement (The CIS Sourcebook - a new approach), published today. This also provides feedback on the specific responses to CP185.
