§ 12.7 p.m.
§ Lord McIntosh of Haringey rose to move, That the draft regulations laid before the House on 27th February be approved [10th Report. from the Joint Committee].
§ The noble Lord said: My Lords, the regulations set out the legal framework for the establishment, carrying on and regulation of open-ended investment companies—or OEICs, as they are more commonly known. By way of background, I should explain that an OEIC is a type of company whose business is investment in securities such as shares of other companies. It issues shares to its investors and its capital may go up or down as shares are issued or cancelled. Its investments are managed by a fund manager, who must be authorised by the FSA.
§ The assets of an OEIC—the investments that it owns—must be held by a depository, who must also be authorised by the FSA. The depository plays a key role, similar to that of the unit trust trustee, and must be legally independent of the directors of the OEIC. That independence requirement is an important feature of the robust framework of protection for investors within which OEICs operate. The investment assets of the OEIC must be well distributed to spread investment risk and the OEIC itself and the key players must be authorised.
§ Those principles were established in the existing regulations governing OEICs—the Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996. The regulations before your Lordships today make no major changes. They rationalise and modernise the regulatory structure for OEICs. The provisions of the regulations also represent an important liberalisation. They will pave the way towards extending the range of authorised OEICs available for sale in the UK. It will be for the FSA to determine the categories of funds that may be established as OEICs. For the moment, only those that invest in transferable securities—that is, stocks and shares—can be marketed to the general public.
§ Providers of funds want to take advantage of the economic and marketing benefits of OEICs for a wider variety of funds—for example, money market funds, which can be used as a convenient and stable way of 1119 parking investment assets. The Government believe that fund providers should be able to offer as much variety of fund types as is prudent. Many in the investment funds industry are eagerly awaiting this extension in the range of OEICs available.
§ This is a win-win situation. By opening up the scope for fund providers to offer a wide variety of funds in OEIC form, the regulations will give fund providers an efficiency advantage and customers will have the advantage of more choice with no detriment to investor protection.
§ A further significant change introduced by the regulations is an extension in the role of the FSA to act as a single point of contact on OEICs. As well as regulating OEICs, it will also be responsible for registering OEICs and maintaining the register. Under existing regulations, the registration is undertaken at Companies House. That is a cumbersome and unnecessary split of responsibilities. The new provisions represent a significant rationalisation, which has been welcomed by the investment funds industry.
§ The regulations simplify matters by setting out that the provisions for OEICs are broadly the same as those for unit trusts, as set out in the Act. Therefore, there should be no significant divergence in the regulations which govern authorised unit trusts and OEICs. Such a divergence could have caused confusion and potential costs. In addition, a consistent approach by the FSA will benefit providers who choose to offer both unit trusts and OEICs.
§ To minimise disruption for providers, companies constituted under existing regulations will be treated as formed under these regulations. In recent years, extensive consultation has taken place on the regulation of OEICs, and we are grateful for the detailed work that the respondents have undertaken on these complex regulations.
§ The OEIC is a modern, flexible and transparent investment product. It has proved popular in the relatively brief period for which it has been available. These regulations will result in greater potential flexibility and choice for investors because of the range of OEICs available. They set a firm foundation from which OEICs can go from strength to strength. I commend them to the House. I beg to move.
§ Moved, That the draft regulations laid before the House on 27th February be approved [10th Report from the Joint Committee].—(Lord McIntosh of Haringey.)
§ On Question, Motion agreed to.