FSA plans tougher disclosure rules for absolute return funds

The Financial Services Authority (FSA) is to strengthen its disclosure requirements for absolute return funds.

In a quarterly consultation, the FSA is proposing that absolute return funds include additional disclosures that there could be a risk to investors’ capital, as well as providing information on the anticipated timescale of receiving a return.

In March the FSA highlighted concerns with absolute return funds in its Retail Conduct Risk Outlook, arguing that the names, investment objectives and literature attached to the funds could give the impression of guaranteeing a return.

The FSA has proposed that fund managers be given six months to implement the changes.

‘We believe that such a disclosure will help avoid the risk that investors are misled by such terms,’ the FSA said. ‘Including such a disclosure in the fund objectives where these terms are used should ensure these warnings are given sufficient prominence in all required disclosure material.’