FSA consults on the sales regime for Child Trust Funds

Dan Waters, director of the FSA's retail policy division, said:

"All children born on or after 1 September 2002 qualify for a Child Trust Fund. They will be taken out by experienced consumers and those less familiar with savings and investment products. Our regulatory proposals are designed to help ensure that consumers have what they need to take properly informed decisions."

The proposals include:

• requiring firms to notify the FSA of their intention to be a CTF provider, and to have the relevant permissions in place. The firm will also have to show that it has adequate systems and resources in place to deal with the potentially high volumes of accounts;

• amending the definition of 'private customer' generally to treat only the registered contact, who will manage the account on behalf of the child, as the customer;

• extending the existing financial promotion rules to the sale of CTFs. This is to ensure advertisements contain a balanced description and include associated risk warnings, and that where advice is offered, it is suitable;

• requiring all types of CTFs to include risk warnings in the information for customers to the effect that, once subscribed, money cannot be taken out of the CTF by anyone other than the child at age 18;

• extending current disclosure requirements so that, when first opening a CTF, the registered contact will be given a Key Features Document (if investing in a packaged product), or 'key information' (if opening a savings account).

The closing date for comments on this CP is 3 September 2004. The FSA plans to make its rules in October 2004 and bring them into force on 1 December 2004.

Consumer information and education The government plans to launch a multi-media campaign later this year and CTF information packs will be sent out from January 2005. The FSA is discussing with the Inland Revenue the contributions that it might usefully make to this pack. The FSA will review its consumer materials to ensure that it includes appropriate references to CTFs. CTFs will also be taken into account alongside all other products in developing and putting into practice the national financial capability strategy.

Notes for editors

1. The Consultation Paper Child Trust Funds is available on the FSA website.

2. In October 2003, the government announced its detailed proposals for Child Trust Funds. Legislative effect has been given to CTFs through the Child Trust Funds Act 2004 and the Child Trust Fund Regulations 2004.

3. Children born on or after 1 September 2002 will receive a government contribution with which to open their CTF of 250. An additional contribution of 250 will be provided for children of low income families. A voucher entitling the child to this money will be given to the parent claiming Child Benefit.

4. From January 2005 CTF vouchers will be sent to those children entitled to a CTF. As of that time, firms will be able to start processing CTF applications but will not be able to accept subscriptions until April 2005.

5. The statutory minimum standards for stakeholder Child Trust Funds include:

   • penalty-free transfers between accounts and between CTF providers (except for stamp duty and dealing expenses);
     

   • minimum subscriptions of 10;
     

   • asset diversification and 'lifestyling'; and
     

   • an annual management charge capped at 1.5% of fund value.

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; securing the appropriate degree of protection for 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.