FSA Unveils New Performance Data Rules For Fund Firms

by Robin Pilgrim, LawAndTax-News.com, London

04 June 2004

Under new rules introduced by the UK's Financial Services Authority (FSA), which came into force on Tuesday, financial services firms will no longer be permitted to "cherry pick" data about historical fund performance for their advertising material.

The new regulations stipulate that:

• Where past performance information is used in advertisements, it must be accompanied by standardised data, set out in a table, showing discrete annual returns for the previous five years. These figures must be expressed as a percentage and will give consumers a better understanding of the volatility of the investment and how it has performed over a period of time.
• Where less than five years performance is available, then a firm should give information for as many 12-month periods as possible, updated to the previous quarter. Firms should indicate (using dashes or an explanation) where there is no information available for the 'missing years.'
• Where data is available for less than one twelve month period, past performance information may not be included. This is because a period of less than a year will not give a 'clear, fair and not misleading' impression of longer term performance. However, this information will still be available to intermediaries and professionals because only advertisements aimed at retail investors are covered by the FSA's advertising rules.

According to the FSA, the updated rules on performance data are part of a wider package of measures designed to improve the way in which past performance data is used in advertising.

Other elements of the package include a drive to improve the balance in fund advertising by reducing the emphasis on past performance, the strengthening of warnings by forcing firms to put them in the main body of the advertisement rather than in the small print, and an effort to prevent firms from making a link between past and future performance.

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