Efforts by U.K. regulator the Financial Services Authority to establish the U.K. as the jurisdiction of choice for fund-wrapped derivatives have yet to take off. Regulatory changes this week will allow short selling in U.K. authorized investment funds, but City accountants and lawyers say they have seen little interest from funds to use these extended powers.
The U.K. is one of only three jurisdictions to interpret a European directive known as The Undertaking for Collective Investment In Securities III to allow short selling in authorized funds. Philip Warland, senior advisor in investment management at PricewaterhouseCoopers in London, said although he has worked with several fund managers to structure funds under the U.K. regime, the process has not been straightforward. "It does take a certain amount of agility to get this working," he noted.
Officials say concern the Committee of European Securities Regulators may overrule the FSA's interpretation of the UCITS directive means many banks are likely to wait for the ruling before structuring any deals (DW, 1/7). After discussing a tax treatment for short-selling funds that would have put the structures at a disadvantage compared to offshore funds, U.K. tax authority the Inland Revenue confirmed it would offer favorable tax treatment of the structures (DW, 12/17). But even this has failed to ignite interest in the U.K. market, say accountants. One noted, "People think the U.K. tax regime is not stable."
