The Investment Management Association (IMA) has thrown its support behind a new law that ring-fences sub-funds in open-ended investment companies (OEICs).

The protected cell regime (PCR) legislation, brought into force on Wednesday 21 December, means that one sub-fund in an OEIC umbrella fund cannot draw upon the assets of another sub-fund to cover its liabilities.

Julie Patterson, director of Authorised Funds at the IMA, commented, ‘The risk of a sub-fund ending up with more liabilities than assets is miniscule, but the new PCR removes the potential for cross liability between sub-funds.’

The plan to draft PCR legislation had been confirmed by the Treasury in September as a way to bring UK regulation in line with European jurisdictions that already operate protected cell regimes.

Under the previous law, if a sub-fund within an OEIC umbrella structure collapsed with liabilities exceeding its assets, it could draw on assets from a completely separate sub-fund to cover those liabilities.

Patterson explained, ‘The PCR is therefore a further welcome step to improve investor confidence and to enhance the competitiveness of the UK as a key fund domicile.’
 
‘This, together with the launch next year of tax-transparent funds, cements the UK’s position as a fund domicile of choice.’