Treasury may put investment trusts under FSA regulation

Investment trust companies may be regulated after the failure of a number of split capital funds, which saw thousands of investors lose their money.

The Government responded yesterday to a damning report on the split capital trust market from the Treasury Select Committee published in February, and said there were grounds to regulate the trusts to give better protection to investors. The committee found that many consumers had bought in to split capital funds as low risk when they were, in fact, highly geared to the stock market.

The Treasury said: "We accept that there may be a case for bringing investment trusts fully within regulation by the FSA." It is now working with the FSA on proposals, which it expects to publish in the Autumn.

Nick Greenwood, of the fund manager Iimia, said: "The problem has been that investment trusts have become more and more complex. There is a big gap in the rules that leaves highly complicated products completely unregulated."

The Association of Investment Trust Companies remained cool to the idea of full regulation for its members, saying it was "open-minded to the idea". The FSA is investigating a number of firms for evidence of mis-selling, but rejected the committee's call for an investigation of every fund manager in the sector. It is under pressure from MPs to force fund managers to compensate investors.

Aberdeen Asset Management, one of the firms under investigation by the FSA, rejected the committee's findings that fund managers were guilty of colluding with others in a "magic circle" that acted against shareholder interests. "Allegations of collusion ... appear not to have been based on concrete evidence," the company said. The group has been plunged into financial difficulty following the collapse of a number of its split capital trusts.