Facts about funds
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How UK funds are regulated to protect your investment
UK authorised funds, their managers and their trustees/depositaries are authorised by the Financial Services Authority (FSA) and, therefore, governed by strict regulations. This section aims to explain how your interests are protected.
What happens if the fund management company goes bust?
How does regulation aim to protect my interests?
How might I make a complaint about a fund, if I need to?
How can I claim compensation?
How can I protect myself against identity theft and fraud?
What happens if the fund management company goes bust?
Your investment in funds legally belong to you and not the manager. Fund assets are held in trust for investors and kept separate from the manager.
Your money is pooled with that of other investors. You own units or shares in the fund.
In UK authorised funds, there are two key players working on your behalf:
- The fund manager, who decides how to invest the money and manage the fund’s assets, but has no ownership rights or access to those assets.
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A trustee or depositary, which is appointed to safeguard the fund’s assets and, therefore, your investment. They oversee the activities of the manager, ensuring they carry out their job properly and in your interests.
So, if the fund management company were to go out of business, your investment is protected. You continue to own your investment and the fund's assets are still invested as before. They are not impacted by any financial difficulties in the fund management company.
By contrast, if you deposit money with a bank or invest in an insurance product, the money goes directly onto the balance sheet of that institution. This means if the bank or insurance company goes out of business, then you risk losing your money, unless you can claim it back from the liquidator / administrator or from the Financial Services Compensation Scheme (FSCS).
How does regulation aim to protect my interests?
There are a number of rules and regulations that dictate what a fund and the investment manager can and cannot do. These include:
Limits on what types of assets they can invest your money in
The information the fund manager provides to the investor
Restrictions on the way funds can be promoted and sold
The costs and charges that can be paid by investors
How might I make a complaint about a UK fund, if I need to?
You have access to a regulated complaints procedure. If you have any complaints about funds you have invested in, then you should contact the organisation (eg. the fund management company or financial adviser) that you bought them from.
The Financial Ombudsman Service (FOS) is an independent organisation that deals with complaints about financial organisations and may require them to compensate investors. Before going to the FOS, you must first contact the organisation concerned outlining your complaint.
Contact the FOS for more information about the complaints procedures and to find out what they do.
www.financial-ombudsman.org.uk
How can I claim compensation?
Your investment in UK funds is covered by the Financial Services Compensation Scheme (FSCS). The FSCS is a regulated compensation scheme. However, because of the way funds are run, the value of your investment should be covered if the fund management firm goes out of business.
If there was mis-management of the fund by the UK manager, or by the UK trustee or depositary (for example, if the fund invested in the wrong type of asset), then the firm would be required by the regulator to compensate the fund (and outgoing investors, if appropriate) from its own money. If it did not have enough money and, therefore, went out of business, then the outstanding compensation would be covered by the FSCS up to £50,000 per person.
Contact the FSCS directly for more information.
How can I protect myself against identity theft and fraud?
Financial crime can affect us all. Whichever way you choose to save and invest, whether it is a bank deposit account or fund, you need to make it as difficult as possible for criminals to use the financial system to commit fraud or any other illegal activity.