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Split-cap pressure is mounting on FSA

Industry opinion is growing that the FSA should have intervened and forced split-capital product companies to include risk warnings in their UK prospectuses.

Although the official scope of the regulator only stretches to marketing literature, industry sources believe that the FSA should have acted to ensure adequate warnings were included in prospectuses issued before flotation.

The FSA says regulation of prospectuses falls under the jurisdiction of the UK London Listings Authority. But control of the UKLA was passed from the London Stock Exchange to the FSA as the competent authority to act as regulator under the Financial Stock Markets Act in May 2000.

The Guernsey regulator began insisting that risk warnings were included in prospectuses for offshore splits almost two years ago. These statements clearly detailed the systemic risk caused by the cross-holdings between funds and the “incestuous” nature of some trusts.

Invesco Institutional business development director Angus Pottinger says: “The investment policy must be stated in the prospectus and the marketing material should be entirely consistent with this. If it is not, then surely this gap would constitute non-disclosure.”

Class Law split-cap lawyer Stephen Alexander says: “Did the FSA have responsibility for the prospectuses as well as the marketing material and if it had a knowledge of the inherent problems with split caps – no matter how it got it – why did it not inform investors more quickly?”

FSA spokesman Rob McIvor says: “The UKLA does not write prospectuses. Guernsey prospectuses contained investment strategy warnings which may have been worded differently than the UK ones.”

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