Warning over changes to charity common funds

Plans to switch their regulation from the Charity Commission to the FSA could lead to higher fees, experts warn

Plans to change the nature of specialist charity investment funds and move their regulation from the Charity Commission to the Financial Services Authority could cause problems and lead to higher fees, third sector finance specialists have warned.

A Treasury consultation opened last week on proposals to replace the main types of charity fund - common investment funds and common deposit funds - with a new product, the charity authorised investment fund, which would be regulated by the FSA.

Michael Quicke, chief executive of specialist charity investment management firm CCLA, said he had several concerns about the proposal, not least that the new AIF would not be a charity itself - unlike CIFs and CDFs. Charities could face higher fees if they ended up being treated as private retail investors, he said.

"Charities would be treated by the FSA as if they had the same level of investment expertise as the ordinary man on the street," he said. "The FSA has developed complicated rules to protect ordinary retail investors, but these cost money. I think we would see fees rise to cover that cost.

"The FSA should find a separate way to regulate charities. They should not just be lumped in with the general public."

He said he was also concerned that the proposed non-charitable fund could face tax difficulties. "If the new AIFs aren't charities, it opens up some extremely complex tax issues, especially around how their investments outside the UK are treated," he said.

John Low, chief executive of the Charities Aid Foundation, said he was concerned about the fact that the replacements for CIFs would not be charities.

"Charities like the idea of having their money looked after by a board of trustees," he said. "CIFs are charities; their members are their investors."

Low also said he was concerned about the Conservative Party's plan to abolish the FSA. "I don't want regulation moved from the commission to the FSA only for it to be abolished six months later," he said.

But the transfer of regulatory authority could also be a good thing, he said.

"The FSA has the potential to protect charity assets much better," he said. "The commission doesn't have the expertise or the power of the FSA."

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