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Open-Ended Investment Companies (Amendment) Regulations 2011

My Lords, again those questions were short, sharp and to the point. Let me go straight to trying to answer them. First, my noble friend Lord Newby asked about the interaction with Europe and what else is coming from Europe. The main thing that I see is an up-side opportunity in the link to the UCITS directive and the push to make sure that UK and other fund managers are able to sell products safely on a pan-European basis. I am not aware of any particular threats, but I am aware that, given the ongoing work that is looking again at the UCITS directive, there is further opportunity to complete the single market. UCITS 4 has just been implemented, and the UCITS 5 proposals that are expected from the Commission in 2012 are likely to include consumer protection measures on, for example, the use of depositories, so these regulations are part of a piece. As my noble friend said, these regulations are certainly pro-competitive but, as I touched on in my opening remarks, they also act to protect investors—they work for both the provider and the user of these products. Just to be absolutely clear, the regulations are being introduced not as a reaction to some disaster or something having gone wrong but because there is an untidiness and lack of clarity that we should tidy up ahead of the game. I will answer the questions of the noble Lord, Lord Tunnicliffe. First, on new Regulation 11A(4), this refers to assets and liabilities which belong to the sub-funds; they do not belong to the umbrella company but have been billed to it for practical or legal reasons. They then have to be pushed down to the sub-funds. For example, there are certain generic costs such as Companies House fees and VAT for which the umbrella company, as the only entity with legal personality, is responsible but then needs to attribute to the sub-funds. It is put in there not as a means of driving a coach and horses through; it is there to deal with appropriate liabilities in particular, which have to be allocated down below the umbrella. There was then a question about the transition period. The Government certainly recognise the importance of clarity for consumers. This is one reason why the protected cell regime will become mandatory after the transition period. In that transition period, the FSA rules require OEICs that are unprotected to make this clear in their prospectuses. Once an OEIC has converted, it will declare that it is protected. The FSA considers this approach to be proportionate and appropriate, given the low risks involved. Lastly, there was a question about the impact assessment and the comment on page 10 about the UK regime being ““viewed as less favourable””. Incidentally, this was not an impact assessment that I signed off myself so I had the pleasure of reading it afterwards. I am sure that when the noble Lord, Lord Tunnicliffe, mentioned junior people signing it off, he was referring not to my honourable friend the Financial Secretary or the officials who draft these things but to the authorship. The authorship is every bit as expert as is needed. It is great, anyway, to know that some people read the fine print. This is a long preamble to answering the noble Lord’s question. The other major reasons why people might see the UK regime as less favourable concern perceived tax treatment of funds. The Government are taking steps to address this. For example, only last week the Government announced that they intend to improve the operation of the tax regime for property-authorised investment funds. This will mean that under some circumstances, investors may exchange their units in a dedicated PAIF feeder fund for units in the PAIFs, and vice versa, without incurring a charge to tax on capital gains at the time of exchange. This was a specific response to industry representations and will improve the competitiveness of the UK funds regime. We are responsive to other issues out there, which are generally around taxation. I hope that that deals with the Committee’s questions. This is legislation that strengthens investor protection in a way that brings considerable benefits to the competitiveness of the UK as a domicile of funds. I therefore commend these regulations to the Committee. Motion agreed.