The U.K. structured products industry has been given a major boost by its regulator, the Financial Services Authority, after it issued a paper paving the way for onshore hedge funds to be sold via a UCITS wrapper. Mathew Webb, a structurer in the fund-linked products group at Credit Suisse First Boston in London, said, "Any opportunity to increase the availability of structured products on funds within this wrapper is welcome." The wrapper allows the funds to be registered in one European Union member state and then sold in the other countries with minimal extra conditions.
The paper is based on a European Commission recommendation and the FSA plans to implement this in April. The commission's recommendation will likely be applied by all domestic regulators, but the FSA appears to be one of the first to consult on amendments and officials say this is a helping hand for the U.K. fund business.
The FSA consultation paper says UCITS III funds will be able to short sell securities and back this up synthetically, or with cash if the trade is cash-settled. Tim Cornick, a partner in the investment funds group at City law firm Macfarlanes, said if the FSA goes ahead with this interpretation the U.K. fund industry would have a head start on the rest of the continent.
Some structurers have been looking at ways of synthetically going short within UCITS III funds since the directive was first implemented in February, but officials say the FSA's rapid response and clarification of the latest recommendation will help U.K. business. Mike Chadney, director in investor solutions at Henderson Global Investors, said the clarification is welcome. "We will look to use all the tools that will enable us to add value for clients," said Chadney.
Although the U.K.'s regulatory environment is favoring the development of the funds business, officials warned the Inland Revenue, the U.K. tax authority, could still hold back growth by not clarifying the tax treatment of trading profits (DW, 9/10). Roger Turner, a partner in PricewaterhouseCoopers' financial services regulatory practice, noted, "There are still some questions around how the Inland Revenue will tax some aspects of UCITS III funds."
