FINANCIAL SERVICES AND MARKETS
THE OPEN ENDED INVESTMENT COMPANIES (COMPANIES WITH VARIABLE CAPITAL) REGULATIONS
1. In the course of the Parliamentary progress of the Financial Services and Markets Bill ("the FSM Bill") the Government promised to publish for consultation a draft of these regulations. The Treasury now invites comments on the draft regulations in this document. They are to be made under Clause 237 of the Bill.
2. The draft regulations largely follow the Open Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996 ("the ECA regulations"), which they will eventually replace. Further amendments may be required to reflect changes to the Bill arising from the Parliamentary process.
Effects of the Regulations
3. The principal change brought about by the regulations is that the formation of an open-ended investment company ("oeic") will no longer be governed by the European Directive on Undertakings for Collective Investment in Transferable Securities ("the UCITS Directive"), as the regulations themselves will be made under the FSM Bill, whereas the ECA regulations were made under the European Communities Act 1972.
4. The effect of this is that, following the appropriate amendments to FSA regulations, it will be possible to incorporate open-ended investment companies that invest otherwise than in transferable securities (equities and bonds).
5. The details of the investment objectives of oeics will be for FSA to decide but the types of schemes that will become available in this form will include money market and property funds, and funds of funds.
6. The only other substantive changes these regulations will bring about are to:
a. provide for the registration of the oeic by the Financial Services Authority ("FSA") (Regulation 4);
b. allow for the modification or waiver of the application of FSA rules to the company, its directors or the depositary, in similar terms to the general modification or waiver provisions in Clause 224 of the Bill (Regulation 7);
c. provide for the issuance of warning notices when it is proposed to refuse approval of certain changes related to an open ended investment company (Regulation 21);
d. ensure that companies constituted under the ECA regulations are treated as formed under these regulations.
Impact of the changes
7. There are around 200 authorised collective investment schemes that under the proposed arrangements will be able to adopt corporate form by becoming oeics, which they cannot do under current rules. A significant proportion of the funds held by these schemes can be expected to be placed in oeics in order to obtain the economic and marketing benefits that they can confer.
8. Following the ECA regulations, so far around 20% of funds under management in collective investment schemes are in oeics. Anecdotal evidence suggests that, once the range of permitted investments is extended beyond transferable securities, this proportion can be expected to become even higher.
Regulatory impact
9. In allowing for an additional type of vehicle for certain collective investments, whilst leaving existing vehicles still available, the regulations will impose no negative regulatory impact. There may indeed be compliance cost savings through the economies of scale derived from the increased value of funds that will be capable of being held in oeics.
10. Please reply by 30 April 2000 to:
Mr G Foley
Home Financial Services Team
H M Treasury
Parliament St
LONDON
SW1P 3AG
Telephone 0171 270 5292
Fax 0171 451 7544
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