FCA has updated on its work reviewing potential closet tracker funds and closet constrained funds – funds that look like and charge fees in the same way as active funds do, but are managed like passive funds. Closet constrained funds do make active decisions, but on a restricted basis around their benchmarks.
FCA is concerned to ensure investors receive clear communications, with proper disclosures as to their objectives and policies. FCA carried out a review of 84 funds including funds that had the potential to be closet funds. It was satisfied with the descriptions provided to investors for only 20 of them, although some of the disclosures were not material and required just clarification. As a result, it has worked with or is still working with many firms to make improvements and £34m in compensation has already been paid.