FCA admits seven funds breached ‘trash ratio’
The Financial Conduct Authority (FCA) has revealed the extent to which UK fund managers breached European rules designed to limit liquidity issues behind high-profile scandals.
Regulators across Europe have scrutinised how closely fund managers adhere to Ucits fund rules that limit holdings in unquoted securities to 10 per cent of their portfolio.
Responding to a Freedom of Information request by the Financial Times, the watchdog disclosed that seven UK funds had breached the 10 per cent limit, referred to as the “trash ratio”, since June 2017. This does not include breaches made by Neil Woodford’s Equity Income fund.
The FCA did not disclose the names of the seven funds.
Four of the cases were classed as active, where fund managers make decisions that tip the portfolio over the 10 per cent limit.
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It comes at a difficult time for the outgoing FCA head Andrew Bailey who will face questions at the Treasury Committee later today.
He has faced criticism from campaigner Gina Miller who has branded Bailey’s tenure as head of the FCA as “toxic”. Last month Miller said: “Andrew Bailey’s tenure as CEO of the FCA has been characterised by a toxic cocktail of negligence, incompetence and indifference to the needs of ordinary depositors, investors and pensioners”.
The Financial Times also reported that Bailey had previously understated the number of breaches while testifying to the committee. Last year he said that one fund other than Woodford’s fund had breached the limit in the last year. The watchdog’s figures show two funds had breached the rules in that period.
A spokesperson for the FCA said: “It is for the depositaries to ensure that any managers breaching any rules resolve these in a timely manner, in the best interests of investors. The FCA’s role is to ensure that these depositaries report the breaches to the FCA and resolve them properly.”
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