For immediate release Thursday 30 July 1998

AUTIF WELCOMES GOVERNMENT PROPOSALS TO MODERNISE REGULATION OF INVESTMENT FUNDS

The Association of Unit Trusts and Investment Funds (AUTIF) today welcomed the Government’s intention to include in the Financial Services and Markets Bill a more flexible framework for the regulation of authorised investment funds.

At the same time the Association expressed disappointment that the further development of open ended investment companies is to be delayed.

Philip Warland, Director General of the Association said:

"We are very pleased at the Government’s intention to modernise the regulatory framework for investment funds. We will, of course, have to consider the detail, but we believe that their approach should allow the industry to be more innovative and responsive to the needs of UK investors. It should also help add to the attractions of the UK as a base for funds which are to be marketed to a wider international audience."

The proposed legislation should remove difficulties faced by successive Governments in legislating for open ended investment companies (oeics), where it has become clear that primary legislation is needed. Of particular significance is that it should also allow new types of fund to be introduced without the need for secondary legislation (see paragraph 9.6 of HM Treasury Consultation Document).

The announcement removes considerable uncertainty about the timing of the next stage in the development of oeics. The industry is, nonetheless, disappointed that the introduction of a wider range of open ended investment companies will be delayed until the Bill comes into force. This continuing delay will cause disruption to the development plans of a number of firms who had intended to establish oeics.

Mr Warland said:

"This delay is unfortunate as it prevents a number of firms from going ahead with plans to rationalise their product ranges and offer a wider choice to investors. The proposed approach should, however, give scope for a more coherent and radical look at present structures and help to ensure that the problems encountered with the introduction of oeics never happen again."

The Association stressed the need for the Government to extend the regime, (due to expire on 30 June 1999), under which managers are able to streamline their range of funds without prohibitive stamp duty charges.

"The expiry date for the present regime was set when it was expected that the second stage of oeics would follow soon after the first,"

said Mr Warland.

"We shall be urging the Government to make an early commitment to extend the date, since managers cannot proceed with the rationalisation of their entire product ranges until the second stage of oeics is in place."

For further comment please contact:

Philip Warland, Director General, AUTIF, 0171 831 0898
Anne McMeehan, Director of Communications, AUTIF, 0171 831 0898
Sheila Nicoll, Director, Legal & Fiscal Affairs, AUTIF, 0171 831 0898
Susie Poote, Communications Assistant, AUTIF, 0171 831 0898

Notes For Editors

1. The Government, has said that it intends that much of the existing detail of the regulation of authorised investment funds should be taken out of legislation, and is transferring to the Financial Services Authority powers to decide on how they should be regulated. In particular, new types of fund should be capable of being introduced without having to go back to Parliament for approval. This brings regulation of funds more into line with the philosophy for the rest of the regulatory system. In particular we hope that it will allow the UK to match the innovative fund structures developed in other jurisdictions much more swiftly.
2. The detailed clauses which would be included in the Bill have, however, not been published.
3. Since January 1997 it has been possible to establish authorised securities and warrant funds in corporate form, as open ended investment companies. It was anticipated at the time that legislation to introduce the second stage of oeics, (oeics 2) allowing other categories of fund (funds of funds, money market funds, future and options funds, property funds) to be established in corporate form would follow shortly after the first stage. Following the change of Government, Mrs Liddell, then Economic Secretary, announced in November 1997 that she agreed in principle to the introduction of legislation to allow money market funds and funds of funds to become oeics, but no legislation has been brought forward.
4. A number of managers who run a range of different types of funds have been waiting for oeics 2 so that they can convert their whole range of funds to oeics and rationalise their systems. Running unit trusts and oeics alongside each other would be expensive and administratively complex. A particular difficulty is faced by managers operating oeics who wish to provide cash ISAs via investment funds – they will only be able to do so through a unit trust.
5. A stamp duty "moratorium" is at present in place, allowing the merger of unit trusts, particularly into oeics, without imposition of stamp duty. The date for expiry of this regime was set at 30 June 1999 when it was believed that this would allow a good two years for all types of unit trusts to be capable of being merged into oeics. To meet the original intentions, the expiry for the regime needs to be at least two years after the enactment of the new Bill.