FSA Unveils New 'Simplified Prospectus' Rules

by Robin Pilgrim, LawAndTax-News.com, London

27 April 2005

The UK's Financial Services Authority last week published final rules and guidance for implementing EU requirements on product disclosure information for consumers in relation to collective investment schemes such as Unit Trusts and OEICs that hold a UCITS certificate, enabling them to be marketed in other countries in the European Economic Area (EEA).

The product information will be contained in a new document known as the Simplified Prospectus, which EU rules require be offered to anyone who wants to invest in a collective investment scheme that holds a UCITS certificate.

According to the FSA, the new EU information requirements include:

• A 'Total Expense Ratio' (TER) figure showing the costs and charges of the fund. The figure will not take account of front-end charges, exit costs or certain fund expenses such as dealing costs;
• A 'Portfolio Turnover Rate' (PTR) figure, to reflect the volume of dealing within the fund; and
• The historic performance of each UCITS fund showing up to ten years' annual returns.

Dan Waters, the FSA's Director of Retail Policy and Asset Management Sector Leader, explained that:

"The Simplified Prospectus is the final building block completing our implementation of the Third UCITS Directive. The EU rules provide a common set of content requirements that aim to see that consumers get consistent information about UCITS funds bought in any EEA state."

However, he went on to add that:

"We also want to make sure that prospectuses are clear and readily understandable for consumers in the UK. So we propose to retain our existing approach to providing customer-friendly product information – for example, we ask firms to use a 'Question and Answer' format to set out the information required, because we know from research that consumers find this style of presentation helpful."

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