UK study warns on securities lending practices
05 September 2011 London
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Research from UK-based investment firm SCM Private reveals that the practice of stock lending is widespread within the UK retail fund management industry and warns that disclosures of those practices are inadequate.
Key findings from the study show that 19 out of the 20 UK retail fund managers surveyed can lend up to 100 per cent of their clients' funds and at least half of the total surveyed participate in stock lending. That represents £143 billion (€163.1 bn) in funds under management though not all those funds are necessarily involved in the practice.
Current UK legislation, notes SCM Private, does not require retail fund managers to disclose the risks of stock lending in their investor marketing materials or to lend less than 100 per cent of their assets. Nor are there any requirements to publish daily individual stock lending exposures, names of the largest borrowers or precise composition of the collateral backing loans.
"We believe that many investors will not be aware that certain retail funds are legally permitted to potentially risk 100 per cent of their savings through stock lending," said Gina Miller, co-founder of SCM Private. "In our opinion, the minimum levels of disclosure and protection for retail investors contained within UK legislation are totally inadequate."
Key findings from the study show that 19 out of the 20 UK retail fund managers surveyed can lend up to 100 per cent of their clients' funds and at least half of the total surveyed participate in stock lending. That represents £143 billion (€163.1 bn) in funds under management though not all those funds are necessarily involved in the practice.
Current UK legislation, notes SCM Private, does not require retail fund managers to disclose the risks of stock lending in their investor marketing materials or to lend less than 100 per cent of their assets. Nor are there any requirements to publish daily individual stock lending exposures, names of the largest borrowers or precise composition of the collateral backing loans.
"We believe that many investors will not be aware that certain retail funds are legally permitted to potentially risk 100 per cent of their savings through stock lending," said Gina Miller, co-founder of SCM Private. "In our opinion, the minimum levels of disclosure and protection for retail investors contained within UK legislation are totally inadequate."
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