Managers warned on use of Ucits III

The Financial Services Authority (FSA) expresses concern at the increasing use of the new Ucits III powers, especially the use of derivatives, in its annual Financial Risk Outlook published last week.*

There is a potential lack of back and middle office staff with sufficient training to use the new powers effectively, according to the report.

This, the FSA says, leads to “risks … of incorrect trades, mandate breaches or valuation errors” through lack of expertise or the use of outsourcing without the necessary oversight.

It has also given rise to tough competition between companies to recruit high-quality staff, according to the report.

The rapid rise of new Ucits III products is evidenced by the number of 130/30 funds being launched aimed at retail investors. The funds are supposed to hold 130% long exposure and 30% short exposure.

“The main points that we wanted to make is that new product development is very important to ensure progress,” says Robin Gordon-Walker of the FSA retail team.

“But if a firm is developing them they must ensure that they have the right resources in order to ensure that the customer is treated fairly,” he adds.

“The UK is noted for its innovations but we want to make sure that firms do not run ahead of themselves,” he adds.* Available at