FSA Announces Release Of Market Timing Probe

by Robin Pilgrim, LawAndTax-News.com, London

22 March 2004

Following the conclusion of its investigation into potential market timing activity in the UK investment market, the Financial Services Authority revealed that although some evidence of market timing had been found in authorised collective investment schemes (CIS), it did not appear to have caused a great deal of harm to long term investors.

Speaking with regard to the results of the probe, FSA managing director, Michael Foot confirmed that:

"The picture we have uncovered is generally quite an encouraging one. Although there is evidence of market timing having occurred within our authorised funds, looking at all the evidence we have amassed, we can find no sign either that market timing is widespread or that it has been a major source of detriment to long term investors."

According to the financial services regulator, the relationships between the UK CIS fund managers concerned and the market timing clients appeared to be of a different nature to those uncovered in the US, where evidence has been found of significant financial benefit for fund managers as a result of their relationships.

In the UK, 9,620 transactions were examined as part of the FSA investigation, and only 118 eventually required follow up during on site visits.

In addition, the FSA found no evidence of late trading in the UK CIS, which it suggested was in large part due to the industry framework in the United Kingdom, whereby deals are placed directly with the fund manager before valuation points, and an important control function is provided by the trustee in UK funds.

Outlining further action to be taken in order to ensure that the threat presented to investors by market timing activity is minimised, the FSA revealed that it will be continuing to look to fund managers to demonstrate management of conflicts of interest in accordance with UK rules, and will be pushing ahead with the package of reforms to the regulation of funds in the UK that were published last year.

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