Draft rules signal shake-up in investment

BY SIMON PINCOMBE

The Treasury yesterday signalled a fundamental shake-up of the British investment industry with the publication of draft regulations for a corporate version of unit trusts.

The Government hopes the introduction into the UK in early 1996 of open- ended investment companies (OEICs) - unit trusts adapted to meet European standards - will reverse the recent heavy flow of mutual funds to other European financial centres.

Announcing the plans to Parliament, Anthony Nelson, Treasury minister, said: "We aim for the UK fund management industry to win business back from other European savings centres and establish a new era in domestic savings."

The new corporate structure - to be established under European Community Act regulations - is expected to prove extemely popular with domestic investors because of its flexibility and pricing structure. Industry analysts predict OEICs will spell the end of the traditional unit trusts savings vehicle.

Philip Warland, director-general of the Association of Unit Trusts and Investment Funds, said: "Within two years, the majority of unit trusts will be converted."

OEICs will either be created as new funds are established or by unit trust-holders agreeing to switch funds. The November Budget provided for the conversion of unit trusts to OEICs without charge to capital gains tax and the Treasury yesterday said that OEICs will have the same tax treatment as authorised unit trusts. They will be eligible for inclusion in personal equity plans.

But some fund managers question whether OEICs will be able to attract funds back to the UK, especially since the dividends from UK OEICs will be taxable. Luxembourg and Dublin have built up thriving mutual fund industries on the back of OEICs at the expense of London. "It may stem the flood, but it is unlikely to reverse the trend," one fund manager said.

Unlike unit trusts , OEICs will be bought and sold at a single price, eliminating the bid/offer spread which adds to investors' charges. This can be as high as 13 per cent and has been a big deterrent to overseas investors.

Under the Treasury rules, OEICs will be set up as companies with variable capital. Like unit trusts they will be open-ended because the size of the share capital will vary as investors buy and sell. This contrasts with closed-end investment trusts which cannot raise money by creating new units. OEICs may or may not have a Stock Exchange listing.

The Treasury envisages that an OEIC will offer investors flexibility through a greater variety of investments within the same fund. The company will act as an umbrella for different sub-funds without the need to set up separate trusts each time. OEICs will be able to offer many different classes of share which might cater for different charging structures and different currencies.

The proposed board of an OEIC would have a minimum of three members: a "designated corporate director" (equivalent to a unit trust fund manager) and two others members to be elected by rotation. One of these will be "a depositary" - equivalent to the unit trust trustee.

One key issue to be resolved is whether the depositary should be fully independent of the designated corporate director.

The Treasury is inviting comments by 1 September. More detailed draft product regulations will be issued by the Securities and Investments Board, the chief City regulator responsible for investor protection, in the summer.

'Open Ended Investment Companies - a second consultation document' is available from Mrs Janet Robbins , HM Treasury, London.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
News
i100
Arts and Entertainment
tvPoldark, TV review
News
(David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor