Summary
These 1988 regulations prescribe detailed investment and borrowing powers for authorised unit trust schemes, specifying approved markets and securities, valuation methodologies, concentration limits (e.g., max 10% in non-approved securities), hedging transaction rules with 10% collateral limits, mandatory risk spreading, and manager/trustee due diligence duties. The rules are highly prescriptive, dictating exactly what assets can be held and under what conditions, with technical compliance requirements throughout.
Reason
The regulation imposes heavy-handed micro-management of portfolio construction that stifles innovation, inflates compliance costs, and reduces UK fund competitiveness. By dictating specific asset allocations, borrowing limits, and hedging parameters, it prevents managers from tailoring strategies to investor preferences and market opportunities—creating deadweight losses passed to consumers. In a free market, investors should freely choose risk exposures; sophisticated participants don't need the state to prescribe their portfolios. The unseen costs include lost business to jurisdictions with lighter touch, higher fees, and constrained capital formation that undermines Britain's financial leadership post-Brexit.