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ABI could add cash fund sector

The Association of British Insurers could introduce a new cash fund sector in the wake of its probe into money market funds.

Last week, the ABI said that it it reviewing its money market sector in a bid to improve consumer clarity in light of current economic circumstances. It says it will propose options for reform in April which will be followed by a review of other ABI fund sectors.

The review follows Standard Life’s decision to compensate pension sterling fund investors after it emerged that the fund had over 40 per cent invested in mortgage-backed securities rather than being “wholly invested in cash” as its literature suggested.

ABI spokesman Jon French says the need for the probe was crystallised over the past three to four weeks due to market conditions. He denies that the outcry over the Standard Life fund led to the review.

French says: “One suggestion is that we introduce an additional sector for funds which are genuinely invested in cash compared with money market funds that are invested in money market instruments close to cash. We will also examine options such as changes in the assets which are permissible within different sectors and changes to sector definitions.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “This is a depressingly transparent case of shutting the stable door after the horse has bolted. We welcome the move but it is a painfully overdue acknowledge- ment that the sector definitions need an overhaul.

“I believe the ABI needs to come up with two definitions, one for genuine cash or near-cash funds and another one that is more akin to what we currently know as money market funds. My instinct is that the vast majority of investors will go for the cash variation.”

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