No fund trading abuses in Britain, regulator says

(March 19, 2004) Britain’s financial services regulator has found no evidence of late trading of mutual funds. And although examples of market timing were uncovered, long-term investors have not been harmed, says the Financial Services Authority (FSA).

The FSA launched a trading investigation in the wake of a series of mutual fund scandals in the U.S., which have so far tarnished about a dozen fund firms.

“The picture we have uncovered (in Britain) is generally quite an encouraging one,” said the FSA’s Michael Foot.

“Although there is evidence of market timing having occurred within our funds, looking at all the evidence we have amassed, we can find no sign either that market timing is widespread or that it has been a major source of detriment to long-term investors,” Foot added in a statement.

British investigators looked at nearly 10,000 mutual fund transactions but only 118 required follow-ups.

Late trading of funds is not a concern, the FSA says, largely due to the way Britain’s fund industry is structured. Most deals are placed directly with the fund manager and are overseen by a trustee.

Most occurrences of market timing were short-lived, the FSA adds, with fund managers taking swift action to terminate relationships where clients have attempted to time funds. The regulator has asked fund managers to calculate the effect of market timing and expects to make compensation payments to some funds.

The Ontario Securities Commission (OSC) completed the first phase of its probe into Canadian mutual fund trading practices last month, finding no evidence of systemic abuse.

The provincial regulator is now studying data from the second stage of the probe, looking at fund closing prices, assets, subscriptions and redemptions over a two-year period, as well as large trades processed outside FundServ, which handles about 50% of all Canadian trades.

IFIC has maintained that late trading is likely not an issue in Canada, since the vast majority of trades are processed by FundServ, Investors Group or the big banks, all with strict time-stamping protocols in place.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com