he FSA has labelled the use of the word "cash" in fund names as potentially misleading and unveiled a clampdown on money market funds.
The regulator says cash implies investors' capital is secure but many of the funds have slipped into negative yields because annual management charges have eroded capital in a low-interest-rate environment.
It also believes there is a lack of criteria over the investments that the funds are allowed to buy into.
An FSA life insurance newsletter says: "Further concerns were highlighted in relation to the governance and oversight of these funds, with poor monitoring practices."
An FSA spokeswoman says the regulator investigated the unit- linked life fund industry but the findings apply to retail funds as well.
She says: "If there is a risk to the initial investment, then fund managers should reconsider using the word 'cash'. We want fund managers to consider how to draw attention to the risk in this area."
The Investment Management Association's money market sector contains 32 funds and 21 use the word cash in their name, including the pound 639m BlackRock cash fund.
The FSA clampdown comes after the revaluation of Standard Life's pension sterling fund in January 2009 which saw it lose 5 per cent of its value. Standard Life was fined pound 2.45m in January for failings in the way that the fund was marketed.
In August 2009, the Association of British Insurers split its money market sector, creating a new deposit and treasury sector with stricter rules on underlying investments.
Premier's pound 100m UK money market fund manager Paul Smith says: "Obviously, with the base rate at 50 basis points and fund total expense ratios generally higher, it is more difficult to provide positive returns. Therefore, a money market fund needs to work harder."
http://www.americanchronicle.com/articles/yb/151931442
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