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FSA forced to retreat on past performance

The FSA has been forced to reverse its opposition to the use of past

performance in promotional literature by a European Union directive

compelling fund managers to include historical performance of their funds

in prospectuses from next February.

Despite its long-running opposition to the importance of past performance,

the regulator will have to include the changes to unit trust and Oeic

managers&#39 literature as a result of two amendments to the European Ucits


The changes, which must be adopted by EU member countries by November and

which take effect in the UK from February 2004, will also require fund

managers to include a profile of typical investors for whom a particular

product is appropriate.

The term historical performance gets only a passing reference in FSA

consultation paper 163, Ucits Management Directive, A Joint Consult-ation,

published last week, and has yet not been defined by the regulator. The FSA

will have the freedom to determine how historical performance is displayed

and how often it is updated but it must implement the changes.

The regulator is expected to consult on the use of past performance in

marketing literature and ads soon.

IMA director (regulation and taxation) Julie Patterson says: “It is

certainly a step down from the FSA&#39s previous position on past performance.”

Threadneedle compliance manager Gareth Taylor says: “The FSA does not have

any discretion on this. The directive actually states historical

performance must be considered.”

Henderson Global Investors head of UK retail Simon Ellis says: “This is

symptomatic of the fact that the regulatory approach in the UK and Europe

is disjointed.”

FSA spokesman David Cliffe says: “If it is required by European law, then

we have to implement it.”


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