The UK’s Financial Services Authority will introduce changes to the listing rules for investment funds, which it hopes will give retail investors a better deal.

The FSA is planning to introduce rules requiring greater clarity around such issues as investment policy, fund borrowings, risks and how they will be mitigated, as well as corporate governance. One change will limit the percentage of total assets that can be invested in other funds. Another will also require that investment managers be appointed annually with that appointment to be ratified by shareholders. The FSA will also introduce new rules governing the independence of investment managers from investment company boards and place limits on any severance arrangements included within investment management agreements.

A new rule requiring that shareholders must approve any material change in investment policy will be introduced (currently, shareholders have to approve a change only in the first three years). A further requirement is for appropriate risk warnings to be included in a prominent place in any prospectus. The FSA will also enhance the disclosure requirements to retail investors of the risks associated with investing in the shares of investment companies.

It will consult on the above-proposed measures and in so doing will have regard to such issues as transitional arrangements and the particular position of ‘funds of funds’. The FSA will consult on these changes to the listing rules in early 2003.