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FSA warns ‘cash’ fund name could be misleading

The FSA has labelled the use of the word ‘cash’ in fund names as “potentially misleading” and unveiled a wide-ranging clampdown on money market funds.

The watchdog says cash implies investors’ capital is secure, but money market funds can slip into negative yields because their annual management charges erode capital, especially in a low interest environment.

It also says it has concerns that there is a lack of criteria around the types of asset the funds are permitted to invest in.

An FSA life insurance newsletter says: “The current low interest rate environment has created negative yields in some funds, causing capital to erode by applying annual management charges. Further concerns were highlighted in relation to the governance and oversight of these funds, with poor monitoring practices and, in some cases, a lack of criteria around permitted underlying investments.”

The FSA says it is contacting relevant firms requesting remedial action.

The statement comes after a review of money market funds which was triggered by the revaluation of Standard Life’s pension sterling fund in January 2009 which saw it lose 5 per cent of its value. Standard Life was fined £2.45m in January 2010 due to the way the fund was marketed.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Better late than never.

  2. Stable doors and horses anyone?!

  3. How could any self respecting fund manager have the audacity to manage a fund where the charges exceed any growth.

  4. So it takes from Jan 2009 until now – almost 2 yrs!! – for the FSA to issue a note……

  5. Nothing like being proactive and ahead of the game. And the FSA could never be accused of that.

    Not only has the horse bolted but it won a couple of Grand Nationals in the time it took our beloved regulator to notice that something was up.

    Oh well, at least they have £2.45m in the kitty fr this years Xmas party.

  6. Nil growth should equal Nil charges.

  7. You must be joking 2nd November 2010 at 5:16 pm

    If we want to talk about misleading (and there’s no ‘potentially’ here) lets talk about illustrations!

    Three growth rates, all positive.

    All assumed to be a consistent return, year after year after year.

    The effect of charges compares against a utopian (i.e. impossible) cost free return

    I don’t really need to go on, do I?

    And to answer lesley’s question above… pretty much every fund manager of every fund will occassionally have charges which exceed gorwth. Thing’s don’t always go up now do they!

  8. Surprised that FSA did not state that it is ‘interesting’, their favourite word.

  9. It is also MISLEADING for the FSA to try and convince the general public that it is doing anything useful other than looking after its own interests.

  10. Interesting.

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