The FSA has announced it is to investigate specific cases of alleged collusion in the split cap sector, start enforcement proceedings on marketing material , and investigate the possibility of misselling by advisers.
FSA managing director John Tiner says: "It is important to recognise that while a minority of funds have created a contagious cocktail of cross-investment and high borrowing, the investment trust sector as a whole does not currently pose particular risks or problems.
"Sadly, our inquiries reveal that in many cases marketing material provided to investors and advisers has not been adequately disclosed or explained the risks of investing in certain splits. These inquiries also raise a concern that advisers have not always given their clients a detailed explanation of the risks.
"See these investments promoted as safe as houses, or having more safety features than a Volvo suggests to me that some funds and advisers have been either deluding their customers or deluding themselves."