FSA chief probes unit trusts for abuses

By Charles Pretzlik and Jane Fuller Britain's chief financial regulator believes the £220bn unit trust industry may have fallen victim to abuses similar to those that have rocked US mutual funds.
Callum McCarthy, chairman of the Financial Services Authority, said yesterday: "We're investigating to see whether there have been problems of [market] timing." Mr McCarthy told the Financial Times, in his first interview since taking on the role: "We have done a first cut, and that first cut has emphatically not given us the answer `no, there is no prospect of this happening in the London markets.'
"We're therefore doing a second cut to try to establish the position more clearly."
US asset management groups have lost billions in market value and funds have suffered big outflows since trading abuses came to light. Eliot Spitzer, New York state attorney-general, warned yesterday that his settlements with mutual fund companies involved would be so "painful" that some would cease to exist.
US mutual fund companies gave professionals an advantage over private investors by helping them to trade at stale prices.
UK unit trust prices are set once a day using models that try to reflect the value of the underlying assets.
However, this does not always take full account of earlier movements in overseas markets or forthcoming dividend payments.
The FSA has already asked UK fund managers for details about their dealings with such investors as time-zone arbitrageurs. It is analysing the data to search for suspicious trades.