The FSAs new past performance rules

The Financial Services Authority (FSA) this week banned all investment funds from mentioning their performance record until they have been operating for at least a full year.

The policy was unveiled by the FSA chairman, Sir Howard Davies, during a speech he gave to the Investment Management Association in which he referred to past performance as a 'vexed question". He added: "What firms say about performance should be clear, fair and not misleading."

Once the year mark has been passed, funds such as unit trusts and investment trusts must mention performance only in standardised form and no less prominently than the firm's own information.

"This will counterbalance any attempt by a firm to quote unrepresentative data that shows their product's performance in a particularly good light," the FSA said.

The standard format will be a table showing returns for up to five, rolling, 12-month periods, designed to provide consumers with a reasonably up-to-date snapshot of a fund's performance over the medium term, and give an impression of its riskiness by showing ups and downs.

Firms will be cautioned not to show past performance information in sterling, because the FSA believes that this style of presentation is particularly likely to mislead consumers.

Consumers tend to regard monetary values as a prediction of future returns.