FSA Finalises New Split Cap Rules

by Carla Johnson, Investors Offshore.com

06 October 2003

The UK's Financial Services Authority (FSA) on Thursday announced that it has finalised new rules for investment companies, designed to address the issues raised by the high profile collapse of several split capital investment trusts last year.

FSA managing director, Michael Foot explained that:

"The changes will ensure clearer warnings for investors about the nature of these products and associated key risks and will also place limits on the investment practices that accelerated the collapse of some splits." He continued:

"We have also considered carefully the issues surrounding the governance of investment companies and will be making changes to our rules that enhance the independence of the investment company from its manager."

The new safeguards which have been introduced to the UK's Listing Rules are:

• Limits on cross-holdings. Under the amended rules, listed investment companies may not invest more than 10% of their gross assets in another listed UK investment company unless they are a 'fund of funds', in which case they may invest no more than 15% of their assets in such a firm.
• The inclusion of risk factors (specific to the issuer, and its industry, investment policy, and securities) in all listing documents.
• Increased portfolio disclosure.
• New Conduct of Business risk warnings for investors planning to become involved in highly geared investment companies.
• Increased board independence.
• The requirement for prior shareholder approval of any material change to the stated investment policy of an investment company at any point.

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