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FSA probe clears split caps as &#39efficient equity vehicle&#39

The problems associated with split-capital investment trusts have been confined to a minority in the sector, with the balance posing no potential problems to investors, the FSA said last week in its much anticipated report.

For those who understand and accept the associated risks, split caps remain a valid investment vehicle, says the regulator.

As expected by the industry, the feedback paper does not draw any conclusions about any potential misselling of split-caps but says it will keep an eye on those producing and distributing marketing material.

Speaking at an FSA-hosted conference on the regulation of investment firms in London last week, managing director John Tiner said preliminary enquiries have revealed that marketing material provided to investors and IFAs has not adequately disclosed the risks of investing in certain splits.

It also says that it will investigate specific instances where there has been alleged collusive behaviour between managers of splits and any possible misselling of the products by advisers.

The paper says it will consider whether there is a need to make alterations to its handbook for regulated firms.

Tiner said: “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. It is still an efficient investment vehicle for customers who want to invest in equity markets, but only if they understand and accept the associated risks.”

AITC communications Annabel Brodie-Smith says: “We are pleased this paper has clarified the FSA&#39s position on the issue because there has been a lot of speculation. We would like to see these investigations concluded as soon as possible.”

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