What are the implications of governance for collective investment schemes?

Question

What are the implications of governance for collective investment schemes?

Answer

The core principles identified in the governance for collective investment schemes (CIS) aim at providing efficient regulation of global securities markets. In this way, a primary goal of investor protection is to enable investors to assess the risks related to investing in specific collective investment schemes (International Organization of Securities Commissions, 2006). The legal and regulatory framework under which the respective schemes operate can impose particular standards related to fiduciary obligations, valuation and custody of assets, financial reporting mechanisms, and disclosure or transparency issues. Depending on a country’s jurisdiction, CIS investors tend to have specific fundamental rights, such as being entitled to receive precise information about these investment schemes, rights to exit the respective CIS and possibility to vote on different matters (FCA, 2016). In assessing the dimensions of governance for CIS, it can be illustrated that internal controls are rather important in ensuring that such schemes are operated in an efficient and consistent manner. Such operations should correspond to applicable legal requirements, as well as the specific benefits of CIS investors. In terms of transparency issues as part of the CIS framework, the information about CIS activities should be transparent enough to enable greater levels of trust among investors, considering that transparency is positively related to market competition among CIS investors (International Organization of Securities Commissions, 2006). As a result, investors will be able to better understand the precise risks related to CIS investments, thereby the possibility of making sound investment decisions will be quite extensive. It is essential to note that the framework for CIS governance needs to represent the unique nature and scope of CIS operations, implying the importance to protect CIS assets from loss through efficient disclosure rules, as well as open accounting and auditing standards (FCA, 2016).

References

FCA (2016) [Online] The Collective Investment Scheme Information Guide. Available at: https://www.handbook.fca.org.uk/handbook/COLLG.pdf [Accessed on 26/10/16]. International Organization of Securities Commissions (2006) [Online] Examination of Governance for Collective Investment Schemes. Available at: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD219.pdf [Accessed on 26/10/16].