FSA widens the range of unit trusts and Open-Ended Investment Companies

The rules also allow for the introduction of "limited issue" and "guaranteed" funds to enable firms to offer new products, including those which offer some protection against unit price falls.

The rules enable UK authorised funds to:

• Extend the range of investments of funds, that qualify for the EU passport, from those investing in shares and bonds to a broader mix of assets such as derivatives, deposits and funds of funds;

• Cap the number of units that are issued (under existing rules funds have to remain open to investors). This will make it easier for a fund to offer some form of protection of returns; and

• Use the words "guaranteed" or terms implying a degree of capital security in their names where that is justified by the arrangements put in place and to use such terms would not mislead investors.

Range of investments
The expansion in investment choice results from early implementation of a European Directive on UCITS (Undertakings for Collective Investment in Transferable Securities). The amendments allow fund operators to mix different asset types in one fund.

Limited Issue Funds
These rule changes will allow scheme operators to cap the number of units in issue and so enable them to be managed more efficiently particularly in illiquid markets (such as smaller companies and some emerging markets). These changes will also allow funds to structure products that provide some sort of downside protection.

Guaranteed funds
New guidance covers arrangements whereby the FSA may allow authorised funds to include the word "guaranteed" or other terms implying a degree of capital security in their names. Previously the FSA has not permitted funds to use such terms.

Funds will be able to label themselves as "guaranteed" if there is a separate full money back guarantee. Other terms implying a degree of capital security will be permitted in controlled circumstances.

Disclosure
Effective disclosure to investors of how funds will take advantage of these wider powers is a key part of the new rules. Consumer facing material must include details of investment policies and any guarantees or limits on issue.

Notes for editors

1. UCITS are collective investment schemes, which are undertakings for investment in transferable securities qualifying for passporting rights within the EEA under Directive 85/611/EEC.

2. The UCITS Directive was amended by two Directives that came into force on 13 February 2002. These rules implement the amending directive relating to extended investment powers (2001/108/EC). The rules were consulted on in CP135 and are published today in a Policy Statement Feedback on CP135.

3. Collective investment schemes set up in the UK, which are for marketing to the public must be authorised by the FSA within a detailed set of rules as to their constitution and operation.

4. The new rules come into effect for use on an optional basis on 1 November 2002. There are transitional provisions governing when the new investment rules must be complied with.

5. The new rule changes affect the CIS Specialist Sourcebook.

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.