The Investment Management Association (IMA) has submitted its response to the proposed Volcker Rule, part of the US Dodd Frank legislation due to be implemented in July this year.
The main aim of the Volcker Rule is to prohibit US banks from engaging in proprietary trading while also owning private equity or hedge funds. It seeks to achieve this by banning any banking entity from investing in ‘covered funds'. IMA has concerns that the current definition of ‘covered funds' is too wide.
Commenting, Julie Patterson, Director of Authorised Funds and Tax at the IMA said:
"Currently, all regulated non-US funds - including unit trusts and OEICs - could be considered ‘covered funds'. This would unreasonably limit investment into non-US funds. The definition of covered funds needs to be revised to ensure that UK authorised funds are treated in the same way as US mutual funds.
"Also, the exception for activities undertaken solely outside the USA is drawn so tightly that it does not reflect what has been widely understood for many years under US securities law. Therefore, as drafted, the exception will in practice not be available to many activities. And even where it is available, the current drafting might imply that the affected entities are still subject to certain requirements.
"There is a specific issue for unit trusts. Trustees of such funds have safe-keeping and oversight duties but should not be regarded as 'sponsors' of the funds. Again, the current wording in relation to trustee services might imply that is the case. This would bring all unit trusts - both authorised and unauthorised - under the rules, which cannot be the intention."
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