News

Doing the splits

by Compliance Monitor and the Deloitte & Touche Regulatory Consulting Practice

Howard Davies, chairman of the Financial Services Authority, received an unusually rough ride in the Commons Treasury Select Committee on 14 November when he faced allegations of complacency over the regulator’s handling of collapses in the split capital investment trust sector. Michael Fallon, MP, accused Mr Davies and the FSA of being “asleep on the job” amidst revelations that Peter Moff att, Director of Investment Business at the Guernsey Financial Services Commission, had met FSA officials to express his concerns about the sector in January 2001. The FSA denied allegations of a cover-up and contended that its initial enquiries early last year had revealed no evidence of a “magic circle” of brokers, and directors and investment trust managers who reaped rewards by borrowing heavily and buying into each other’s shares. Mr Davies told the Committee that the FSA would be proposing changes to the Listing Rules to protect those who put their money into investment companies, including investment trusts, in early 2003 . These would mean improved disclosure by firms of investment policy, gearing, risks and their control, and corporate governance. A limit on the percentage investment in other funds is to be introduced. Investment managers would have to be appointed annually, subject to the approval of shareholders, and there would be limits on payments made if a manager was removed, with rules to provide for manager independence of the company board. Shareholders would have to ratify any material revision to investment policy (as against the current policy when such approval is only needed in the first three years) and risk warnings would have to be displayed prominently on the prospectus or listing particulars with more detail on the determinants of risk confronting the investment company written in the text of the prospectus.