Open‐ended investment companies
| Date | 01 February 1997 |
| Published date | 01 February 1997 |
| Pages | 118-124 |
| DOI | https://doi.org/10.1108/eb024917 |
| Author | Paula Diggle |
| Subject Matter | Accounting & finance |
Open-ended investment companies
Paula Diggle
Received: 20th January, 1997
HM Treasury, Parliament Street, London SWAP 3AG; tel: 0171 270 5473;
fax: 0171 270 4694
Journal of Financial Regulation and Compliance Volume 5 Number 2
Paula Diggle is head of financial services
at HM Treasury. Her responsibilities
include liaison with the Securities and
Investments Board and policy on regula-
tion of retail financial services.
ABSTRACT
Parliament has recently approved Treasury leg-
islation defining the structure of the UK-based
open-ended investment company (OEIC). This
paper reports on the changes made in response
to messages received in consultation, especially
in the area of
corporate
governance. It also con-
siders proposals
for a deregulation order to give
OEICs further investment powers. This was in
the consultation phase at the time of going to
press.
CONTEXT
UK government policy generally favours
promotion of competition. So, apart from
the requirements of taxation, product regu-
lation is not a technique commonly used in
regulating financial business. Until earlier
this year, the authorised unit trust was a
major exception to this, driven in part by
the requirements of the UCITS Directive1
and a long history of public marketing. It
may, therefore, seem strange that the
Treasury has recently promoted legislation
to permit the creation of another regulated
product, the open ended investment com-
pany (OEIC).2,3
This initiative sprang out of the Treas-
ury's desire to promote the competitiveness
of the UK financial services industry. Fund
managers believe that they will more easily
be able to take advantage of the single Eur-
opean market in pooled collective invest-
ment vehicles if they are able to market a
corporate form of fund like that familiar to
investors elsewhere in Europe. In fact, the
commitment to legislate to permit the for-
mation of UK4 OEICs dates back to the
1985 white paper5 which paved the way
for the Financial Services Act 1986 (FSA).
In preparing legislation for the OEIC,
the Treasury came to realise that this exer-
cise would also be a valuable opportunity
to develop a modern and flexible collective
investment instrument for the domestic
market. The legislation, therefore, deliber-
ately permits as much choice for fund pro-
moters as is compatible with maintaining
standards of investor protection equivalent
to those available in the authorised unit
trust.
The problems encountered with certain
authorised unit trusts in the autumn of
1996 caused some to question whether that
was a sound objective for the OEIC legisla-
tion. These problems came to light after
the main Regulations for OEICs had been
laid before Parliament, but before they
were debated by the two Houses. During
the debates ministers reaffirmed the com-
mitment to the unit trust standard, charac-
terising the compliance problems as
isolated and inherently unusual. They
endorsed the judgment of the SIB Chair-
Journal of Financial Regulations
and Compliance. Vol. 5, No. 2,
1997,
pp. 118-124
© Henry Stewart Publications,
1358-1988
Page 118
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