UK's Financial Services Authority To Introduce New Rules For Investment Companies

The Financial Services Authority will introduce changes to the Listing Rules governing the interests of investors in investment companies (including investment trusts), FSA chairman Howard Davies told the Treasury Select Committee today (November 14th). The following changes are being put forward:

1. Greater clarity in respect of
   • investment policy to be followed
   • gearing (borrowings)
   • risks and how they will be mitigated
   • corporate governance
2. A limit on the percentage of total assets that can be invested in other funds.
3. Increased safeguards relating to investment companies which employ investment managers including
   • investment managers to be appointed annually with that appointment to be ratified by shareholders
   • new rules governing the independence of investment managers from investment company boards
   • limits on any severance arrangements included within investment management agreements
4. A new rule requiring that shareholders must approve any material change in investment policy (at present shareholders have to approve a change only in the first three years).
5. The introduction of a further requirement for appropriate risk warnings to be included in a prominent place in any prospectus or listing particulars, in language that investors will clearly understand, together with rules enhancing disclosure of factors affecting the risks faced by an investment company, to be placed within the body of a prospectus.
6. A limit on the percentage of total assets that can be held in the form of holdings in other funds

The FSA will also enhance the disclosure requirements to retail investors of the risks associated with investing in the shares of investment companies.

It will consult on the above-proposed measures and in doing so will have regard to such issues as transitional arrangements, and the particular position of "funds of funds".