Invesco moves to allay UK market timing fear

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The UK arm of Invesco has hired Ernst & Young to carry out a thorough investigation of its business in an attempt to prove it is free of market-timing abuses which have taken place at its US sister.

Mike Webb, the chief executive of Invesco Perpetual in the UK, said the firm of accountants had been hired in order to shore up confidence among British investors that the business had stringent processes in place to detect and stamp out the controversial form of trading.

The company's Anglo-American parent, Amvescap, has been warned by the New York attorney general Eliot Spitzer that it might be sued over evidence of market timing at Invesco in the United States.

Last week Amvescap admitted some of its employees had used market timing, and signalled that it would try to settle Mr Spitzer's case out of court - which will probably cost it millions of dollars in compensation.

Market timing is a form of arbitrage which allows a small group of investors to take advantage of the fact that unit trusts are priced only once a day by dipping into the funds at lower prices. The move advantages these short-term traders, usually hedge funds, but disadvantages long-term investors, who are usually private individuals.

Mr Webb said: "This issue is about confidence and the more leading companies can do to prove confidence to investors, the better."

Hiring Ernst & Young was not a direct response to revelations of the company's transgression in the US, Mr Webb added, but instead to heightened concerns about whether the City has been guilty of market timing.

Following Mr Spitzer's high-profile pursuit of American companies which have engaged in market timing, the Financial Services Authority has turned the spotlight on the UK fund management industry.

The FSA is in the process of carrying out a series of intensive visits to Britain's top 25 fund managers to establish whether the problem exists here. It aims to finish the investigation by the end of the month.

A number of fund managers said privately that they believed the FSA has so far unearthed a few examples of market timing, but has decided the problem is not systemic in the UK. The regulator is, however, expected to come up with a series of changes to tighten current regulations to make it even harder for would-be market timers to evade detection.

Ernst & Young will delve into the checks and balances in place at Invesco for up to two months. "This is not a wait and see thing," Mr Webb said. "We have done our own review but we want to make sure anybody who has questions can see it is not just us but an independent body.

"Any significant players in the UK will be considering doing the same," Mr Webb added.