The Investment Management Association (IMA) is concerned about the effectiveness of the FSA's proposals to deal with fund descriptions that may imply a level of capital protection or guarantee on positive returns when no guarantee exists.
In its response, the IMA recommends an alternative approach and highlights other ways of providing more effective risk disclosure.
The FSA suggests that risk-related information should be included in the investment objectives of a fund's prospectus but the IMA outlines a number of reasons why this would not achieve the FSA's goal:
1. It would not cover all investment products that use such descriptions or all funds that may be promoted in the UK. This is because prospectus requirements apply only to UK authorised funds, so there would not be consistent and reliable information for consumers across all products and funds marketed to retail investors.
2. Risk disclosure should not be part of the investment objectives section because investment objectives set out the aim of the fund not the risks.
3. Whilst fund prospectuses are available to investors, few investors request them in practice.
Julie Patterson, IMA Director of Authorised Funds and Tax, said:
"We think it makes more sense to review the FSA's financial promotion provisions, as these are what investors see. They also capture all products marketed in the UK to investors.
"Furthermore, European regulation already requires firms to produce a Key Investor Information Document (KIID) for all UCITS funds, which includes a risk and rewards section.
"If the FSA is of the view that further disclosure for UCITS is required, we recommend close collaboration with ESMA* in order to deliver a harmonised approach across all UCITS so that investors can compare funds on a like-for-like basis."
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