Powers

Part

CIS Collective Investment Schemes

Chapter

Powers & Duties

Printed on: 14/11/2024

Rulebook at: 01/01/2007

CIS 7

Powers & Duties

CIS 7.1

Introduction

01/12/2004

Application

CIS 7.1.1

The rules and guidance in this chapter apply in accordance with CIS 7.1.5 R (Table of application).

01/12/2004

Purpose

CIS 7.1.2

This chapter assists in achieving the regulatory objective of protecting consumers as envisaged by section 2 and 5 of the Act, and supports, in their application to ICVCs and AUTs, Principles 3, 8 and 10, namely that a firm must:

(1) take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems;

(2) manage conflicts of interest fairly; and

(3) arrange adequate protection of clients' assets when it is responsible for them.

01/12/2004

Content of CIS 7

CIS 7.1.3

(1) This chapter includes rules:

(a) to apportion responsibilities between the ACD, any other directors and the depositary of an ICVC;

(b) to apportion responsibilities between the manager and trustee of an AUT;

(c) to require the depositary of an ICVC to check that the ACD is carrying out certain of its functions in accordance with the rules in this sourcebook applicable to it;

(d) to require the trustee of an AUT to check that the manager is carrying out certain of its functions in accordance with those rules;

(e) relating to the depositary's duties in respect of the safe custody of the scheme property of an authorised fund;

(f) to avoid conflicts of interest that could prejudice investors; and

(g) to provide safeguards when the directors or depositary of an ICVC, or the manager or trustee of an AUT, have certain of their functions carried out by a third party.

(2) CIS 7.1.4 G to CIS 7.6.3 R concern the powers, duties and responsibilities of the directors, including the ACD, and the depositary of an ICVC. CIS 7.7 to CIS 7.11 and CIS 7 Annex 1 G concern the powers and duties of the manager and of the trustee of an AUT.

01/12/2004

ICVCs

CIS 7.1.4

(1) The OEIC regulations require:

(a) an ICVC to have at least one director; and

(b) that if an ICVC has only one director, that director must be a body corporate which is an authorised person and has permission to act as a director of an ICVC;

(c) the business of an ICVC to be managed, where an ICVC has one director, by that director, or, where an ICVC has more than one director, by the directors, subject to the rules in this sourcebook as to the allocation between the directors of responsibilities for the management of the ICVC.

(2) This chapter includes the main rules that deal with the allocation mentioned in (1)(c), although other rules in this sourcebook also allocate responsibilities between directors. This chapter includes provisions concerning the appointment and termination of the appointment of an ACD.

(3) Each ICVC must have an ACD (or equivalent). Where an ICVC is formed with a sole director, that director will have to satisfy the requirements mentioned in (1)(b) and will be the ACD. In these circumstances the provisions that allocate responsibilities between directors do not apply. However, because under the OEIC regulations the ACD will then be responsible for the management of the ICVC, the disapplication will not result in a reduction in the ACD's responsibilities.

(4) Where there is more than one director, unless there is a vacancy in the position of ACD, no director other than the ACD is responsible for the exercise of any functions which, under this chapter, are to be exercised exclusively by the ACD. However, the board of directors is responsible for oversight of the ACD in the manner provided for in this chapter.

(5) The depositary is responsible for the safekeeping of scheme property entrusted to it. It has a number of other responsibilities and powers under this chapter and these responsibilities include ensuring that the ICVC is managed in accordance with the rules referred to in CIS 7.4.1 R (General duties of the depositary).

(6) It should be noted that the depositary and the directors are not only required to comply with the OEIC regulations and the rules in this sourcebook relevant to them, but, in accordance with paragraph 6(1) of schedule 2 to the OEIC regulations, they are also bound by the provisions of the ICVC's instrument of incorporation.

(7) The directors (including the ACD in its role as such) and the depositary may each, to the extent permitted by this chapter, retain the services of others to assist them to perform their respective functions. Where there is a vacancy in the position of an ACD, the directors must appoint one or more authorised persons to assist them in performing the functions that it would otherwise be the duty of the ACD to perform. Where there are no directors, the depositary's powers are extended, temporarily, to enable it to manage the scheme property.

(8) CIS 7.6.3 R (Conflicts of interest) also contains requirements relating to transactions entered into between the ICVC and certain persons directly or indirectly connected with it. A transaction which complies with that rule remains subject to regulation 44 of the OEIC regulations, under which certain transactions between an ICVC and a director of it, or an associate of any such director, may be voidable.

13/02/2004

CIS 7.1.5

Table of application

This table belongs to CIS 7.1.1 R

Paragraph or section number

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager

Trustee

7.1.1G-7.1.3G

7.1.4G

7.2.1R

7.2.2R-7.2.3R

7.3.1R-7.3.2G

7.3.3R-7.3.4R

7.4

7.5.1R

7.5.2R

7.5.3R

7.6

7.7

7.8

7.9

7.10

7.11

Note: "x" means "applies".

01/12/2004

CIS 7.2

Directors

01/12/2004

The directors

CIS 7.2.1

(1) If there is only one director of the type described in CIS 7.1.4 G (1)(b), it must be an ACD or an EEA UCITS management company, but if there is more than one director that is a body corporate, the directors must appoint one of the directors that is a body corporate to be the ACD.

(1A) If an EEA UCITS management company is the sole director, that company must carry out the functions of the ACD as set out in CIS 7.3.1 R (Functions of the ACD).

(2) At any time when the ACD is not the sole director and (5) does not apply, no director other than the ACD:

(a) is responsible for any of the functions for which the ACD is made responsible by CIS 7.3.1 R (The ACD), but the other directors must exercise reasonable care to ensure that the ACD undertakes those functions in a competent manner and the ACD must give those directors the information and explanations they consider necessary for this purpose; and

(b) has any power to undertake the management of the ICVC to the extent that the management is to be undertaken by the ACD in accordance with CIS 7.3.1 R.

(3) In the event of:

(a) any person becoming or ceasing to be a director;

(b) the appointment of an ACD being terminated;

(d) a corporate director (including the ACD) becoming aware of any change of its controller;

the FSA must, immediately after the event, be notified in writing of that event; in the case of (a), by the ACD; in the case of (b), by the ACD whose appointment is being terminated; in the case of (c), by the new ACD; and in the case of (d), by the corporate director concerned.

(4) A director must not appoint an alternate director.

(5) At any time when there is no person acting as ACD, the directors have the responsibilities and duties that an ACD would have had under CIS 7.3.1 R (Functions of the ACD), but this does not affect the powers of the directors under CIS 7.6.1 R (Committees and appointments).

(6) At any time that (5) applies, the directors must retain the services of one or more authorised persons to assist them in performing the functions referred to in CIS 7.3.1 R(2) and (3) (Functions of the ACD).

(7) Where a document is to be executed by the ICVC in accordance with regulation 57 of the OEIC regulations, unless (5) applies, it must be executed by the ACD and may also be signed (or executed) by one or more of any other directors.

(8) At any time when the ACD is the sole director it must, to the extent that such action is not already required by the OEIC regulations or by rules in this sourcebook, be responsible for and have the duty to take the action envisaged by CIS 7.3.1 R(3)(d).

(9) At any time when the ACD is sole director this rule (CIS 7.2.1 R) does not exclude the ACD's functions under CIS 7.3.1 R(2) and (3) which are then necessary under the requirements of the OEIC regulations.

13/02/2004

Appointment of an ACD

CIS 7.2.2

(1) Before, or on, the termination of the appointment of an ACD, the directors (or director) of the ICVC must take all practicable steps to appoint as the new ACD another person who is qualified to act as ACD and whose appointment must, if made before that termination, take effect immediately on that termination.

(2) If the ICVC ceases to have any director, the depositary has power to appoint a body corporate as a director and the ACD of the ICVC (provided the body corporate is an authorised person and is not prohibited from acting as the ACD of an ICVC by or under any rule).

(3) For an ICVC that holds annual general meetings under the OEIC Regulations, the appointment of an ACD (other than the first ACD), whether under (1) or (2), must terminate at the close of the annual general meeting next following the date of the appointment or (if later) upon the expiration of 12 months from the date the appointment takes effect, unless the appointment has been approved by a resolution of the shareholders before the close of that annual general meeting or expiration (as the case may be).

(4) An ACD must not voluntarily terminate its appointment as ACD unless the termination is at the same time as the commencement of the appointment of a successor ACD.

06/04/2006

Termination of appointment of ACD

CIS 7.2.3

(1) The appointment of an ACD as ACD terminates immediately upon it ceasing to be a director.

(2) The appointment of an ACD as ACD terminates if a notice of termination of that appointment, the terms of which have been approved by a resolution of the board of directors, is given to the ACD.

(3) If there is no director other than the ACD, the appointment of an ACD as ACD terminates if a notice of termination of that appointment is given by the depositary to the ACD and to the ICVC, following any of the following events:

(a) the ACD goes into liquidation (except a voluntary liquidation for the purpose of a scheme of arrangement upon terms previously approved in writing by the depositary); or

(b) a receiver is appointed in relation to the ACD or any part of it; or

(4) Any termination under (2) or (3) takes effect when the notice is given, or on any subsequent time for its effect stated in the notice, or, if later, the time at which the termination is permitted to take effect under regulation 21 of the OEIC regulations (the Authority's approval for certain changes in respect of a company).

(5) Unless the termination of the appointment of an ACD takes effect at the same time as the appointment of a successor ACD, the depositary must ensure that the termination is published in a manner that the depositary considers appropriate.

(6) The depositary is entitled to be reimbursed out of the scheme property for its out of pocket expenses in complying with (5).

01/12/2004

CIS 7.3

Functions of the ACD

01/12/2004

CIS 7.3.1

(1) This rule (CIS 7.3.1 R) does not apply at any time when the ACD is the sole director of the ICVC.

(2) The ACD must carry out such functions as are necessary in order to ensure compliance with the rules in this sourcebook that impose obligations upon the ICVC or the ACD. The ACD's duties under this paragraph are not restricted by (3).

(3) The functions to be carried out by the ACD include:

(a) making decisions as to the constituents of the scheme property of the ICVC in accordance with the investment objectives and policy of the ICVC;

(b) instructing the depositary from time to time in writing how rights attaching to the ownership of the scheme property are to be exercised, but not in any case where, under CIS 7.4.5 R (Exercise of rights in respect of the scheme property), the depositary has the right to exercise (or not exercise) voting rights after consultation with the directors;

(c) taking all reasonable steps, and exercising due diligence, to ensure that the shares in the ICVC are priced in accordance with CIS 4 (Single-pricing and dealing);

(d) taking action immediately to rectify any breach of CIS 4 and, where the breach relates to the incorrect pricing of shares or to the late payment in respect of the issue of shares, rectification must, unless the depositary otherwise directs, extend to the reimbursement or payment, or arranging the reimbursement or payment, of money:

(i) by the ACD to shareholders and former shareholders;

(ii) by the ACD to the ICVC; or

(iii) by the ICVC to the ACD;

but rectification need not, unless the depositary otherwise directs, extend to any such reimbursement or payment where it appears to the depositary that the incorrect pricing, or late payment in respect of issue, is of minimal significance; and

(e) ensuring that the ICVC complies with the obligations imposed by, and, when appropriate, exercises the powers provided by, the following provisions of the OEIC regulations:

(i) 21 : (The Authority's approval for certain changes in respect of ICVC);

(ii) 36 : (Inspection of directors' service contracts);

(iii) 46 : (Share certificates), subject to regulation 47 (exceptions from regulation 46);

(iv) 48 : (Bearer shares);

(v) 50 : (Power to close register);

(vi) 54(1) : (Name to appear in correspondence etc);

(vii) 55 : (Particulars to appear in correspondence etc);

(viii) Schedule 3 : (Register of shareholders) excluding paragraph 12 of Schedule 4; and

(ix) Schedule 4: (Share transfers).

01/12/2004

Valuation and pricing : for ICVCs

CIS 7.3.2

For the purposes of CIS 7.3.1 R (3)(c)and (d), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) recording and reporting of incorrect pricing; and

(3) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Maintenance of records

CIS 7.3.3

(1) The ACD must make and retain such accounting and other records for the ICVC as are necessary:

(a) to enable the ICVC to comply with the OEIC regulations and the rules in this sourcebook; and

(b) to demonstrate at any time that such compliance has been achieved.

(2) The ACD must make and retain for a period of six years from the date each record is made a daily record of the shares in the ICVC held, acquired or disposed of by the ACD, including the classes of such shares, and of the balance of any acquisitions and disposals.

(3) Unless the policy of the ACD stated in the prospectus is neither to require a dilution levy nor to make a dilution adjustment, it must make and retain for a period of six years from the date each record is made a daily record of:

(a) how it calculates and estimates dilution; and

(b) its policy and method for determining the amount of any dilution levy or dilution adjustment.

01/08/2002

Maintenance of capital

CIS 7.3.4

If, at any time after the size of the ICVC's capital (as provided for the purposes of sub-paragraph 4(1)(c) of Schedule 2 to the OEIC regulations in paragraph 4(2) of that Schedule) has reached the minimum size provided in its instrument of incorporation, the size of that capital either falls below that minimum or exceeds the maximum size provided in the instrument of incorporation, the ACD must immediately notify the FSA of that fact.

01/12/2004

CIS 7.4

The depositary

01/12/2004

General duties of the depositary

CIS 7.4.1

(1) The depositary must take reasonable care to ensure that:

(a) the ICVC is managed in accordance with:

(i) CIS 4 (Single-pricing and dealing);

(ii) CIS 9 (Income); and

(iii) in relation to umbrella schemes, CIS 12.5.4 R (Income) and CIS 12.5.7 R (Investment and borrowing powers);

(b) the ICVC is managed without infringement of any provision of the instrument of incorporation that relates to:

(i) the initial offer or issue or cancellation or sale or redemption or pricing of shares;

(ii) the dilution levy, dilution adjustment or SDRT provision;

(iii) the valuation of the scheme property;

(iv) accounting periods (including half-yearly accounting periods);

(v) the calculation of income available for allocation;

(vi) the allocation, payment or retention of income; and

(vii) unclaimed distributions; and

(c) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A (Investment and borrowing powers).

(2) The depositary must, in so far as not required under (1)(a)(i), take reasonable care to ensure on a continuing basis that:

(a) the ACD is adopting procedures and methods which are appropriate to ensure that the price of a share is calculated for each valuation point in accordance with CIS 4 (Single-pricing and dealing); and

(b) the ACD has maintained sufficient records to show compliance with CIS 4 (Single-pricing and dealing).

(3) The depositary, when acting in its capacity as depositary, must act solely in the interests of the shareholders.

(4) The depositary:

(a) must take reasonable care to ensure that;

(i) the ACD considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(c) and (d) (Dilution levy and SDRT provision) and the amount or rate of any SDRT provision that is imposed; and

(ii) in that consideration the ACD has, so far as the depositary is aware, taken account of all factors that are material and relevant to the ACD's decision; and

(b) subject to (a), has no duty in respect of the ACD's exercise of discretion referred to in (a).

(5) The depositary:

(a) must also take reasonable care to ensure that;

(i) the ACD considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(a) or (b) (Dilution levy and SDRT provision) or CIS 4.6.4 R (Dilution adjustment) (as the case may be) and, if applicable, the rate or amount of any dilution levy or dilution adjustment that is imposed;

(ii) in that consideration the ACD has, so far as the depositary is aware, taken account of all factors that are material and relevant to the ACD's decision; and

(iii) when the ACD considers whether or not to exercise the power under CIS 4.6.4 R (Dilution adjustment), the ACD has, so far as the depositary is aware, acted in accordance with the restrictions imposed by that rule; and

(b) subject to (a), has no duty in respect of the ACD's exercise of discretion referred to in (a).

01/11/2002

Valuation and pricing

CIS 7.4.2

For the purposes of CIS 7.4.1 R(1)(a)(i) and CIS 7.4.1 R(2), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) depositary's review of the ACD's controls and systems;

(3) the recording and reporting of incorrect pricing; and

(4) procedures to be adopted following incorrect prices, including action that should be taken to rectify a breach.

01/12/2004

Duty to inform the FSA : for ICVCs

CIS 7.4.3

(1) The depositary must inform the FSA immediately upon becoming aware of any circumstance where there is no longer certainty that:

(a) the ICVC is managed in accordance with CIS 7.4.1R(a)(i), (ii) and (iii) (General duties of the depositary); and

(b) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 (Investment and borrowing powers);

unless the depositary has taken reasonable care to determine that the circumstance in question is not, and is not likely to become, materially significant.

(2) If the depositary becomes aware of a circumstance which it needs to investigate in order to ascertain whether its duty to inform the FSA under (1) arises, then:

(a) the depositary must inform the FSA of that circumstance immediately after it determines, having taken reasonable care that the circumstance is, or is likely to become, materially significant, or if no such determination is made within 90 days of so becoming aware, then the depositary must inform the FSA immediately; or

(b) the FSA need not be notified where the depositary determines the circumstance is not, or is not likely to become, materially significant.

(3) The depositary must not retire voluntarily unless, before its retirement, it has ensured that the new depositary has been informed of any circumstance of which the retiring depositary has informed the FSA in accordance with (1) or (2), or which is being investigated for the purpose of (2).

01/12/2004

Control by the depositary over the scheme property

CIS 7.4.4

(1) The depositary is responsible for the safekeeping of all of the scheme property of the ICVC (other than tangible movable property) entrusted to it. The depositary's duties under this paragraph are not restricted by (2).

(2) The depositary must:

(a) take all steps and execute all documents to ensure that transactions properly entered into for the account of the ICVC in accordance with CIS 7.2.1 R (5) and (6) (The directors) or CIS 7.3.1 R (3)(a) (The ACD) are completed;

(b) ensure that any of that scheme property in registered form is, as soon as practicable, registered in the name of the depositary, its nominee or a person retained by it under CIS 7.6.1 R (Committees and appointments);

(c) take into its custody or under its control all of the deeds and other documents relating to title to the scheme property other than in respect of transactions in derivatives or forward transactions; and

(d) ensure that any transaction in derivatives or forward transaction is entered into in such a manner as to ensure that any resulting benefit is received by the depositary.

(3) The depositary is responsible for the collection of any income due to be paid for the account of the ICVC and must hold and deal with any income so collected in accordance with CIS 9 (Income).

(4) The depositary must keep such records as are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate that it has achieved such compliance.

01/12/2004

Exercise of rights in respect of the scheme property

CIS 7.4.5

(1) The depositary must, subject to (2), take all steps and execute all such documents as are necessary to secure that instructions properly given to it by the ACD as to the exercise of rights (including voting rights) attaching to the ownership of scheme property are carried out.

(2) The depositary may exercise (or not exercise) any right of voting conferred by any of the scheme property of the ICVC which consists of units in any other collective investment scheme managed or otherwise operated by any director of the ICVC or by an associate of any such director, but only after consultation with the directors of the ICVC.

01/12/2004

CIS 7.5

The ICVC, its directors and the depositary

01/12/2004

Dealings in scheme property

CIS 7.5.1

(1) The ACD may give instructions as to the acquisition or disposal of property for the account of the ICVC. The authority of the depositary to give those instructions is not required, except in the case of the acquisition or disposal of immovable property.

(2) Where the depositary is of the opinion that a particular acquisition or disposal of property for the account of the ICVC exceeds the powers conferred on the ICVC by the rules in this sourcebook (and in particular CIS 5 or CIS 5A (Investment and borrowing powers)), the depositary may require the ACD to cancel the transaction or make a corresponding disposal or acquisition to secure restoration of the previous situation and to meet any resulting loss or expense.

(3) Where the depositary is of the opinion that:

(a) an acquisition of property for the account of the ICVC necessarily involves documents evidencing title being kept in the custody of a person other than the depositary; and

(b) the depositary cannot reasonably be expected to accept the responsibility which would otherwise be placed upon it if it were to permit custody by that other person;

the ACD must (for the account of the ICVC), if the depositary so requests, either cancel the transaction or make a corresponding disposal.

01/11/2002

ICVC without a Director

CIS 7.5.2

(1) If the ICVC ceases to have any directors, the depositary has the power:

(a) to retain the services of an authorised person to carry out the functions referred to in CIS 7.3.1 R (3)(a)and(b) (The ACD); or

(b) provided it is not prohibited from doing so by any law or any rule, to manage the scheme property itself on behalf of the ICVC;

until in either case; a director is appointed; or a winding up of the ICVC is commenced.

01/12/2004

Duties of the ACD and depositary: investment and borrowing powers

CIS 7.5.3

(1) The ACD must take all reasonable steps and exercise due diligence to avoid the scheme property being used or invested contrary to any provision in CIS 5 or CIS 5A (Investment and borrowing powers), except to the extent permitted by (6)(c).

(2) The depositary must take all reasonable steps and exercise due diligence to monitor the management of the scheme property sufficiently to ensure that the ACD complies with (1).

(3) The ACD must, immediately upon becoming aware of any breach of any provision in CIS 5 or CIS 5A , take action, at its own expense, to rectify that breach, unless the breach occurred as the result of a circumstance of one of the types described in (5) and (6).

(4) When this paragraph (4) applies as a result of (5) or (6), the ACD must take the steps necessary to ensure a restoration of compliance with CIS 5 or CIS 5A as soon as is reasonably practicable having regard to the interests of the shareholders and, in any event, within the period specified in (8) or, when applicable, (9).

(5) Paragraph (4) applies:

(a) where the scheme property is used or invested at any time contrary to any provision of CIS 5 or CIS 5A (other than a provision excusing a failure to comply on a temporary basis); and

(b) the reason for the contravention is beyond the control of both the ACD and the depositary.

(6)

(a) Paragraph (4) applies to a transaction ("subsequent transaction") deriving from a right (such as the right to convert stock or subscribe to a rights issue) attributable to an investment ("original investment") of the ICVC if:

(i) the subsequent transaction, but for this rule (CIS 7.5.3 R) would constitute a breach of CIS 5 or CIS 5A; and

(ii) at the time of the acquisition of the original investment, it was reasonable for the ACD, on the assumption that any right attached to the original investment when it was acquired would be exercised, to expect that a breach would not be caused by the subsequent transaction.

(b) In this paragraph (6) reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the depositary or the ICVC.

(c) Nothing in CIS 5 or CIS 5A prevents the ICVC from entering into a transaction of the type described in (a) provided that the ACD obtains the prior written consent of the depositary.

(7) Immediately upon the depositary becoming aware of any circumstance described in (5) or any breach resulting from the exercise of, or receipt of a benefit from, a right in the circumstance described in (6), it must take the steps necessary to ensure that the ACD complies with (4).

(8) The maximum period for restoration of compliance under (4) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (9):

(a) except where (b), (c) or (d) applies, for six months;

(b) where the transaction in question was a transaction in derivatives or a forward transaction under CIS 5.2.22 R (Permitted transactions (derivatives and forwards)) or CIS 5A.6 (Futures and options schemes) or CIS 5.7A (Geared futures and options schemes), until the close of business five business days later;

(c) where the transaction in question was entered into for hedging purposes under CIS 5.2.22 R (Permitted transactions (derivatives and forwards)) or under CIS 5A.13 (Efficient portfolio management), until the close of business five business days later; and

(d) where the ICVC is a property scheme and the property in question is an immovable, for two years.

(9) The period specified at (8)(b) and (c) (five business days) is extended:

(a) if the transaction involved a delivery of a commodity, from five to twenty business days;

(b) if the reason for the contravention in (5) is the inability of the ACD to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives market, until five business days after:

(i) the inability resulting for any such limit is removed; or

(ii) it becomes, to the knowledge of the ACD, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

01/11/2002

CIS 7.6

Committee, appointments and conflicts of interest

01/12/2004

Committees and appointments

CIS 7.6.1

(1) The directors have the power to delegate to any director, or any committee consisting of one or more directors, any of the directors' powers or duties, but the directors remain responsible for the acts or omissions of any such director or committee as if they were acts or omissions of the directors. This paragraph (1) is subject to CIS 7.2.1 R (3) (The directors).

(2) The ACD or the directors have the power to retain the services of anyone, including the depositary, to assist the ACD or the directors (as the case may be) to perform their respective functions, provided that:

(a) a mandate in relation to managing investments of the scheme property is not given to:

(i) the depositary;

(ii) any other person whose interests may conflict with those of the ACD or the holders; or

(iii) any other person who is not authorised or registered for managing of investments and is not subject to prudential supervision (unless there is agreement in place between the FSA and the overseas regulator of the delegate ensuring adequate co-operation);

(b) the ACD ensures that at all times it may monitor effectively the relevant activities of any person so retained; and

(i) give further instructions to the person so retained; and

(ii) withdraw the mandate with immediate effect when this is in the interests of the holders.

(d) the mandate does not prevent effective supervision of the ACD and it must not prevent the ACD from acting, or the scheme from being managed, in the best interests of the holders.

(3) The depositary has the power to retain the services of anyone, including a director of the ICVC, to assist the depositary to perform its functions, but must not retain the services of:

(a) the ICVC or any director of the ICVC to assist the depositary to perform:

(i) any function of oversight in respect of the ICVC, its directors or any of them; or

(ii) any function of custody or control of the scheme property of the ICVC;

(b) an associate of the ICVC or of any of the directors of the ICVC to assist the depositary to perform any function in (a)(i);

(c) a nominee company or anyone else to assist it to perform the function of being a custodian of documents evidencing title to scheme property of the ICVC unless the arrangements with the custodian prohibit the custodian from releasing the documents into the possession of a third party without the consent of the depositary.

(4) Subject to the provisions of the OEIC Regulations and to (1) where services are retained under (2) the responsibility which the ACD had in respect of such services prior to that retention of services will remain unaffected.

(5) Where a depositary retains services under (3):

(a) if it retains the services of a director of the ICVC, or an associate of such a director or its own associate to assist in the performance of its functions, then its liability in respect of those services shall remain unaffected, and

(b) in any other case it will not be held responsible by virtue of the rules in CIS for any act or omission of the person so retained if it can show:

(i) that it was reasonable for it to obtain assistance to perform the function in question;

(ii) that the person retained was and remained competent to provide assistance in the performance of the function in question; and

(iii) that it had taken reasonable care to ensure that the assistance in question was provided by the person retained in a competent manner.

(6) At any time when CIS 7.2.1 R (5)(The directors) applies, the directors have, in respect of the functions conferred on the ACD in accordance with CIS 7.3.1 R (The ACD), the same rights and responsibilities as for an ACD under this rule.

13/02/2004

Appointments and responsibility for regulatory obligations

CIS 7.6.2

(1) SYSC 3.2 contains guidance relating to delegation, including external delegation. SYSC 3.2.4 G(1) states that a firm cannot contract out of its regulatory obligations, but this does not affect CIS 7.6.1 R(5).

(2) SUP 15.8.6 R requires an ACD of a UCITS scheme to inform the FSA where any of its duties is delegated to another person.

13/02/2004

Conflict of interests

CIS 7.6.3

(1) The ACD, any other director and the depositary, must respectively take all reasonable steps to ensure that a transaction within any of (a) to (f) is not entered into:

(a) the placing of cash forming part of the scheme property in any current, deposit or loan account with an affected person unless the affected person is an eligible institution or an approved bank and the arm's length requirement in (2) is satisfied;

(b) the lending of money by an affected person to, or for the account of, the ICVC, unless the affected person is an eligible institution or an approved bank, and the arm's length requirement in (2) is satisfied;

(c) the sale of, or dealing in, property by an affected person, to, or with, the ICVC (or the depositary for the account of the ICVC), unless (3) applies; and for the purpose of this paragraph (c), a sale includes any lease or other transaction under which movable or immovable property is made available by the ICVC;

(d) the vesting of property (other than cash) by an affected person in the ICVC or the depositary for the account of the ICVC against the issue of shares in the ICVC, unless:

(i) paragraph (3) applies; or

(ii) it is vested for the purpose of arrangements by which the whole or part of the property of a body corporate or a collective investment scheme becomes the first property of the ICVC and the holders of shares or units in the body corporate or collective investment scheme become the first shareholders in the ICVC;

(e) the purchase of scheme property by an affected person from the ICVC (or the depositary acting for the account of the ICVC), unless CIS 4.5.4 R (In specie cancellation) applies, or unless (3) applies. For the purpose of this paragraph (e), a purchase includes any lease or other transaction under which scheme property that is movable or immovable property is made available by the ICVC.

(f) transactions within CIS 5.4 (Stock lending) or CIS 5A.14 (Stock lending) by an affected person with, or in relation to, the ICVC unless the arm's length requirement in (2) is satisfied.

(2) The arm's length requirement is that the arrangements are at least as favourable to the ICVC as would be any comparable arrangement effected on normal commercial terms negotiated at arm's length between the affected person and an independent party.

(3) There is no breach of (1)(c), (d) or (e) if (4) (best execution on-exchange) or (5) (independent valuation) or (6) (arm's length transaction) applies.

(4) There is best execution on-exchange for the purposes of (3) if:

(a) the property is an approved security or an approved derivative;

(b) the transaction is effected under the rules of the relevant exchange with or through a person who is bound by those rules;

(d) the ACD has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are the best available for the ICVC.

(5) There is independent valuation for the purposes of (3) if:

(a) the value of the property is certified in writing for the purpose of the transaction by a person selected or approved by the depositary as:

(i) independent of any affected person; and

(ii) qualified to value property of the relevant kind; and

(b) the depositary is of the opinion that the terms of the transaction are not likely to result in any material prejudice to shareholders.

(6) There is an arm's length transaction for the purposes of (3) if:

(a) paragraph (4)(a) is not satisfied; and

(b) it is not reasonably practicable to obtain an independent valuation under (5); and

(c) the depositary has reliable evidence that the transaction is or will be on terms which satisfy the arm's length requirement in (2).

(7) Paragraphs (1)(a) to (f) are subject to any provision in the instrument of incorporation forbidding the taking of advantage of all or any of them.

01/11/2002

CIS 7.7

AUTs: powers and duties

01/12/2004

Introduction

CIS 7.7.1

(1) The guidance in CIS 7.8.2 G (Valuation and pricing) and the rest of CIS 7 relate to the powers and duties of the manager and the trustee. In addition, both the manager and the trustee have fiduciary duties under the general law relating to trusts, and powers and duties under other chapters of this sourcebook and the trust deed.

(2) Generally, the manager is responsible for managing the AUT: in particular for managing the investments, valuing the scheme property and pricing, selling and redeeming units.

(3) The trustee has duties of oversight and is responsible for the title to investments.

(4) This chapter also contains provisions relating to:

(a) the appointment of the manager or the trustee;

(b) the appointment of an auditor;

(c) transactions where there may be a conflict of interests between the AUT and the manager or the trustee or certain other persons;

(d) the delegation of functions by the manager or the trustee.

01/12/2004

CIS 7.8

The manager

01/12/2004

Management duties

CIS 7.8.1

(1) The manager must manage the AUT in accordance with:

(a) the trust deed;
(b) the rules in this sourcebook; and
(c) the most recently published prospectus.

(2) It is the manager's right and duty, subject to (1), to make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy stated in the prospectus.
(3) The manager must instruct the trustee from time to time in writing how rights attaching to the ownership of the scheme property are to be exercised; but not in any case where, under CIS 7.9.5 R (2) (Exercise of the rights in respect of the scheme property), the trustee has the right to exercise (or not exercise) voting rights after consultation with the manager.
(4) The duty at (1) extends to taking all reasonable steps, and exercising due diligence, to ensure that the units in the AUT are priced in accordance with CIS 4 (for a single-priced AUT) or CIS 15 (for a dual-priced AUT).
(5) The duty at (1) extends to taking action immediately to rectify any breach of CIS 4 or CIS 15 and, where the breach relates to the incorrect pricing of units, or to the late payment in respect of the issue of units, rectification must, unless the trustee otherwise directs, extend to the reimbursement or payment of money:

(a) by the manager to unitholders or to former unitholders;
(b) by the manager to the trustee; or
(c) by the trustee (for the account of the AUT) to the manager;

but rectification need not, unless the trustee otherwise directs, extend to any such reimbursement or payment where it appears to the trustee that the incorrect pricing, or late payment in respect of issue, is of minimal significance.

01/12/2004

Valuation and pricing

CIS 7.8.2

For the purposes of CIS 7.8.1 R(4) and (5), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) recording and reporting of incorrect pricing; and

(3) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Maintenance of records

CIS 7.8.3

(1) The manager must make and retain accounting and other records that are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate at any time that such compliance has been achieved.

(2) The manager must make and retain for a period of six years a daily record of the units held, acquired or disposed of, by it, including the classes of such units, and of the balance of any acquisitions and disposals.

(3) The manager must make the daily record available for inspection in the United Kingdom by the trustee free of charge at all times during ordinary office hours and must supply the trustee with a copy of the record or any part of it on request free of charge.

(4) Except when the policy of the manager stated in the prospectus is neither to require a dilution levy nor to make a dilution adjustment, it must make and retain for a period of six years from the date each record is made a daily record of:

(a) how it calculates and estimates dilution;

(b) its policy and method for determining the amount of any dilution levy or dilution adjustment.

01/08/2002

Manager to supply information to trustee

CIS 7.8.4

The manager must on the request of the trustee immediately supply it with such information concerning the management and administration of the AUT as the trustee may reasonably require.

01/12/2004

Auditor

CIS 7.8.5

(1) The manager must, at the outset and upon any vacancy, with the approval of the trustee appoint as an auditor for the AUT any person qualified for appointment as auditor of an authorised person.

(2) The audit fees of the auditor are determined by the manager with the approval of the trustee.

(3) The manager may, with the approval of the trustee, at any time, remove an auditor; this power exists notwithstanding anything in any agreement between the persons concerned.

01/12/2004

Tax returns

CIS 7.8.6

The manager must from time to time prepare and supply to the trustee the returns relating to the scheme property required to be submitted by the trustee to HM Revenue and Customs.

21/04/2005

CIS 7.9

The trustee

01/12/2004

Oversight by the trustee of the manager

CIS 7.9.1

(1) The trustee must take reasonable care to ensure:

(a) except in relation to CIS 5 or CIS 5A (Investment and borrowing powers), and subject to (4) and (5), that the AUT is managed by the manager in accordance with CIS 7.8.1 R (Management duties); and
(b) in relation to CIS 5 or CIS 5A (Investment and borrowing powers), that decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A as appropriate.

(2) The trustee must take reasonable care to ensure on a continuing basis that:

(a) the manager is adopting procedures and methods which are appropriate to ensure that:

(i) the price of a unit of a single-priced AUT is calculated for each valuation point in accordance with CIS 4; and
(ii) the prices at which units of a dual-priced AUT are sold and redeemed are within the limits for the time being prescribed by CIS 15.4.4 R (Sale price parameters) and CIS 15.4.9 R (Redemption price parameters); and

(b) the manager makes and retains sufficient records to show compliance with CIS 4 or CIS 15 as the case may be.

(3) If the trustee taking reasonable care is at any time not certain of any matter specified in (2), it must inform the FSA.
(4) The trustee:

(a) must take reasonable care to ensure that:

(i) the manager considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(c) and (d) (Dilution levy and SDRT provision) or, for dual-priced AUTs, CIS 15.6.3 R (1)(SDRT provision) and the amount or rate of any SDRT provision that is imposed; and
(ii) in that consideration the manager has, so far as the trustee is aware, taken account of all factors that are material and relevant to the manager's decision; and

(b) subject to (a), has no duty in respect of the manager's exercise of discretion referred to in (a).

(5) The trustee of a single-priced AUT:

(a) must also take reasonable care to ensure that:

(i) the manager considers whether or not to exercise the power provided by CIS 4.6.3 R (1)(a) or (b) (Dilution levy and SDRT provision) or CIS 4.6.4 R (Dilution adjustment) (as the case may be) and, if applicable, the amount or rate of any dilution levy or dilution adjustment that is imposed; and
(ii) in that consideration the manager has, so far as the trustee is aware, taken account of all factors that are material and relevant to the manager's decision; and
(iii) when the manager considers whether or not to exercise the power under CIS 4.6.4 R (Dilution adjustment), the manager has, so far as the trustee is aware, acted in accordance with the restrictions imposed by that rule; and

(b) subject to (a), has no duty in respect of the manager's exercise of discretion referred to in (a).

01/11/2002

Valuation and pricing : for AUTs

CIS 7.9.2

For the purposes of CIS 7.9.1 R(1)(a) and CIS 7.9.1 R(2), CIS 7 Annex 1 G contains guidance on the valuation and pricing of authorised funds, including:

(1) pricing controls and the valuation of the scheme property;

(2) a trustee's review of the manager's controls and systems;

(3) the recording and reporting of incorrect pricing; and

(4) procedures to be adopted following incorrect prices, including action that should be taken to rectify any breach.

01/12/2004

Duty to inform the FSA : for AUTs

CIS 7.9.3

(1) The trustee must inform the FSA immediately upon becoming aware of any circumstance as a result of which there is no longer certainty that:

(a) except in relation to CIS 5 or CIS 5A (Investment and borrowing powers), the AUT is managed by the manager in accordance with CIS 7.8.1 R (1) (Management duties); and

(b) decisions about the constituents of the scheme property do not cause an infringement of CIS 5 or CIS 5A;

unless the trustee has taken reasonable care to determine that the circumstance in question is not, and is not likely to become, materially significant.

(2) If the trustee becomes aware of a circumstance which it needs to investigate in order to ascertain whether its duty to inform under (1) arises, then:

(a) the trustee must inform the FSA of that circumstance immediately after it determines the circumstance is, or is likely to become, materially significant, or if no such determination is made within 90 days of so becoming aware, then the depositary must inform the FSA immediately after the end of the 90 days; or

(b) the FSA need not be notified where the trustee determines the circumstance is not, or is not likely to become, materially significant.

(3) The trustee must not retire voluntarily unless, before its retirement, it has ensured that the new trustee has been informed of any circumstance of which the retiring trustee has informed the FSA in accordance with (1) or (2) or which is being investigated for the purpose of (2).

01/11/2002

Control by the trustee over the scheme property

CIS 7.9.4

(1) The trustee must take all steps and complete all documents which are necessary to secure that transactions for the account of the AUT properly entered into by the manager in accordance with its powers under the rules in this sourcebook are completed.

(2) The trustee must take into its custody or under its control all the capital property of the AUT and hold it in trust for the unitholders in accordance with the rules in this sourcebook and the trust deed.

(3) The trustee is responsible for the collection of any income due to be paid for the account of the AUT and for claiming any repayment of tax, and must hold any income received in trust for the unitholders in accordance with the rules in this sourcebook and the trust deed.

(4) The trustee must make and retain such records as are necessary:

(a) to enable it to comply with the rules in this sourcebook; and

(b) to demonstrate that such compliance by it has been achieved.

01/12/2004

Exercise of the rights in respect of the scheme property

CIS 7.9.5

(1) The trustee must take all steps and execute all such documents as are necessary to secure that instructions properly given to it by the manager as to the exercise of rights (including voting rights) attaching to the ownership of scheme property are carried out.

(2) The trustee may exercise (or not exercise) any right of voting conferred by any of the scheme property which is:

(a) units in any other collective investment scheme managed or otherwise operated by the manager or by an associate of the manager; or

(b) shares in an approved investment trust which form part of the scheme property of a feeder fund managed or otherwise operated by the manager or by an associate of the manager;

but in either case, only after consultation with the manager.

(3) The trustee must, upon the written request of the manager, from time to time execute and deliver or cause to be executed or delivered to the manager or its nominees such powers of attorney or proxies as the manager may reasonably require, in such name or names as the manager may request, authorising such attorneys and proxies to vote, consent or otherwise act in respect of all or any part of the scheme property not included in (2).

(4) The trustee must, without undue delay, forward to the manager all notices of meetings, reports, circulars, proxy solicitations and other documents of a like nature received by it as registered holder of any investment.

(5) In this rule (CIS 7.9.5 R):

(a) "voting" includes giving any consent to or approval of any arrangement, scheme or resolution or any alteration in or abandonment of any rights attaching to any part of the scheme property; and

(b) "right" includes a requisition or joining in a requisition to convene any meeting or a right to give notice of any resolution or to circulate any statement or to consent to any short notice of any meeting.

01/12/2004

CIS 7.10

The manager and the trustee

01/12/2004

Duties of the manager and trustee under the general law

CIS 7.10.1

(1) The duties of the manager and the trustee imposed on them by the rules in this sourcebook and by the trust deed are in addition to, and not in derogation from, the duties which are otherwise imposed on them by law.

(2) The manager and the trustee are required to fulfil those other duties by this rule (CIS 7.10.1 R) as well as by the general law.

(3) The manager and the trustee have, as a result of this rule (CIS 7.10.1 R), all the powers conferred on them by the general law.

(4) Paragraphs (1), (2) and (3) apply only in so far as the duties imposed or powers conferred by the general law are not qualified or restricted by the rules in this sourcebook and by the trust deed.

01/12/2004

Dealings in scheme property

CIS 7.10.2

(1) The manager may give instructions as to the acquisition or disposal of property for the account of the AUT. The authority of the trustee to give those instructions is not required except in the case of the acquisition or disposal of immovable property.

(2) Where the trustee is of the opinion that a particular acquisition or disposal of property for the account of the AUT by the manager exceeds the powers conferred on the manager by the rules in this sourcebook (and in particular CIS 5 or CIS 5A), the trustee may require the manager to cancel the transaction or make a corresponding acquisition or disposal to secure restoration of the previous situation and to meet any resulting loss or expense.

(3) Where the trustee is of the opinion that:

(a) an acquisition of property by the manager necessarily involves documents evidencing title being kept in the custody of a person other than the trustee; and

(b) the trustee cannot reasonably be expected to accept the responsibility which would otherwise be placed upon it if it were to permit custody by such a person;

the manager must (for the account of the AUT) cancel the transaction or make a corresponding disposal if the trustee so requests.

01/11/2002

Duties of the manager and trustee: investment and borrowing powers

CIS 7.10.3

(1) The manager must take all reasonable steps and exercise all due diligence to avoid the scheme property being used or invested contrary to any provision in CIS 5 or CIS 5A (Investment and borrowing powers), except to the extent permitted by (6)(c).

(2) The trustee must take all reasonable steps and exercise due diligence to monitor the management of the scheme property sufficiently to ensure that the manager complies with (1).

(3) The manager must, immediately upon becoming aware of any breach of any provision in CIS 5 or CIS 5A, take action, at its own expense, to rectify that breach, unless the breach occurred as a result of a circumstance of one of the types described in (5) and (6).

(4) When this paragraph (4) applies, as a result of (5) or (6), the manager must take the steps necessary to ensure a restoration of compliance with CIS 5 or CIS 5A as soon as is reasonably practicable having regard to the interests of the unitholders and, in any event, within the period specified in (8) or, when applicable, (9).

(5) Paragraph (4) applies:

(a) where the scheme property is used or invested at any time contrary to any provision of CIS 5 or CIS 5A (other than a provision excusing a failure to comply on a temporary basis); and

(b) the reason for the contravention is beyond the control of both the manager and trustee.

(6)

(i) the subsequent transaction, but for this rule CIS 7.10.3 R, would constitute a breach of CIS 5 or CIS 5A; and

(ii) at the time of the acquisition of the original investment, it was reasonable for the manager, on the assumption that any right attached to the original investment when it was acquired would be exercised, to expect that a breach would not be caused by the subsequent transaction.

(b) In this paragraph (6) reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the trustee or the manager.

(c) Nothing in CIS 5 or CIS 5A prevents the manager from entering into a transaction of the type described in (a) provided that it has obtained the prior written consent of the trustee.

(7) Immediately upon the trustee becoming aware of any circumstance described in (5) or any breach resulting from the exercise of, or receipt of a benefit from, a right in the circumstance described in (6), it must take the steps necessary to ensure that the manager complies with (4).

(8) The maximum period for restoration of compliance under (4) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (9):

(a) except where (b), (c) or (d) applies, for six months;

(b) where the transaction in question was a transaction in derivatives or a forward transaction under CIS 5A.6 (Futures and options schemes) or CIS 5A.7 (Geared futures and options schemes) or CIS 5, until the close of business five business days later;

(c) where the transaction in question was entered into under CIS 5A.13 (Efficient portfolio management), until the close of business five business days later; and

(d) where the AUT is a property scheme and the property in question is an immovable, for two years.

(9) The period specified at (8)(b) and (c) (five business days) is extended:

(a) if the transaction involved a delivery of a commodity, from five to 20 business days;

(b) if the reason for the contravention in (5) is the inability of the manager to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives market, until five business days after:

(i) the inability resulting from any such limit is removed; or

(ii) it becomes, to the knowledge of the manager, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

01/11/2002

Delegation

CIS 7.10.4

(1) The manager may delegate any function to any person, including the trustee, provided that:

(a) a mandate in relation to managing investments of the scheme property is not given to:

(i) the trustee;

(ii) any other person whose interests may conflict with those of the manager or the holders; or

(iii) any other person who is not authorised or registered for managing investments and is not subject to prudential supervision (unless there is agreement in place between the FSA and the overseas regulator of the delegate ensuring adequate co-operation);

(b) the manager ensures that at all times it may monitor effectively the relevant activities of any person so retained; and

(i) give further instructions to the person so retained;

(ii) withdraw the mandate with immediate effect when this is in the interests of the holders;

(d) the mandate does not prevent effective supervision of the manager and must not prevent the manager from acting, or the scheme from being managed, in the best interest of the holders.

(2) The trustee must not delegate:

(a) to the manager:

(i) any function of oversight in respect of the manager; or

(ii) any function of custody or control of the scheme property; or

(b) to an associate of the manager, any function in (a)(i).

(3) The trustee must not delegate to anyone the function of being a custodian of documents evidencing title to scheme property unless the arrangements with the custodian prevent the custodian from releasing the documents into the possession of a third party without the consent of the trustee.

(4) Subject to (2) and (3), the trustee may delegate any function to any person including the manager.

(5) Where delegation occurs under (1) the responsibility which the manager had in respect of such delegated services prior to that delegation will remain unaffected.

(6) Where delegation occurs under (4):

(a) if the trustee delegates any function to the manager or to an associate of its own or of the manager, the trustee's liability in respect of the function remains unaffected; and

(b) in any other case the trustee will not be held responsible by virtue of the rules in CIS for any act or omission of the delegate if it can show:

(i) that it was reasonable for a delegate to be employed for the function in question;

(ii) that the delegate was and remained competent to undertake the function in question; and

(iii) that it had taken reasonable care to ensure that the function in question was undertaken by the agent in a competent manner.

13/02/2004

Delegation and responsibility for regulatory obligations

CIS 7.10.5

(1) SYSC 3.2 contains guidance relating to delegation, including external delegation, and SYSC 3.2.4 G (1) states that a firm cannot contract out of its regulatory obligations, but this does not affect CIS 7.10.4 R(6).

(2) SUP 15.8.6 R requires an ACD of a UCITS scheme to inform the FSA where one of its duties is delegated to another person.

13/02/2004

Conflict of interests

CIS 7.10.6

(1) The manager and the trustee must respectively take all reasonable steps to ensure that a transaction within any of (a) to (f) is not entered into:

(a) the placing of cash forming part of the scheme property or standing to the credit of the distribution account in any current, deposit or loan account with an affected person unless the affected person is an eligible institution or an approved bank and the arms length requirement in (2) is satisfied;

(b) the lending of money by an affected person to, or for the account of, the AUT unless the affected person is an eligible institution or an approved bank, and the arm's length requirement in (2) is satisfied;

(c) the sale of, or dealing in, property to, or with, the trustee for the account of the AUT unless (3) applies and, for the purpose of this paragraph (c), a sale includes any lease or other transaction under which movable or immovable scheme property is made available by the trustee;

(d) the vesting of property (other than cash) by an affected person in the trustee against the issue of units in the AUT, unless upon a unitisation or unless (3) applies;

(e) the purchase of scheme property by an affected person from the trustee, acting for the account of the AUT, unless either CIS 4.5.4 R or CIS 15.5.4 R (In specie cancellation) or (3) applies. For the purpose of this paragraph (6), a purchase includes any lease or other transaction under which movable or immovable scheme property is made available by the AUT.

(f) transactions within CIS 5A.14 (Stock lending) or CIS 5.4 in relation to the AUT unless the arm's length requirement in (2) is satisfied.

(2) The arm's length requirement is that the arrangements are at least as favourable to the AUT as would be those of any comparable arrangement effected on normal commercial terms negotiated at arm's length between the affected person and an independent party.

(3) There is no breach of (1)(c), (d) or (e) if (4) (Best execution on exchange) or (5) (Independent valuation) or (6) (Arm's length transaction) applies.

(4) There is best execution on-exchange for the purposes of (3) if:

(a) the property is an approved security or an approved derivative;

(b) the transaction is effected under the rules of the relevant exchange with or through a user who is bound by those rules;

(d) the manager has taken all reasonable steps to effect the transaction or to ensure that it is effected on the terms which are the best available for the AUT.

(5) There is independent valuation for the purposes of (3) if:

(a) the value of the property is certified in writing for the purpose of the transaction by a person selected or approved by the trustee as:

(i) independent of any affected person; and

(ii) qualified to value property of the relevant kind; and

(b) the trustee is of the opinion that the terms of the transaction are not likely to result in any material prejudice to unitholders.

(6) There is an arm's length transaction for the purposes of (3) if:

(a) paragraph (4)(a) is not satisfied; and

(b) it is not reasonably practicable to obtain an independent valuation under (5); and

(c) the trustee has reliable evidence that the transaction is or will be on terms which satisfy the arm's length requirement in (2).

(7) Paragraphs (1)(a) to (f) are subject to any provision in the trust deed forbidding the taking of advantage of all or any of them.

01/11/2002

CIS 7.11

New managers and trustees

01/12/2004

Replacement of a manager

CIS 7.11.1

(1) The manager for the time being is subject to removal by written notice given by the trustee to the manager upon any of the following events:

(a) the manager goes into liquidation (except voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the trustee);

(b) a receiver is appointed of the undertaking or any part of it;

(d) for good and sufficient reason the trustee is of the opinion and so states in writing that a change of manager is desirable in the interest of the unitholders;

(e) an extraordinary resolution is passed removing the manager (or to determine that it be removed as soon as this is permitted by law);

(f) unitholders of three quarters in value of the units in existence (excluding units held or treated as held by the manager or by any associate of the manager) make a request in writing to the trustee that the manager should be removed.

(2) On receipt of a notice by the trustee under (1), the manager ceases to be the manager; and the trustee must by deed appoint another person eligible under the Act to be the manager of the AUT upon and subject to that other's entering into such deed or deeds as the trustee may require.

(3) If the name of the AUT contains a reference to the name of the former manager, the former manager is entitled to require the new manager and the trustee immediately on receipt of a notice under (2) to propose a change in the name of the AUT.

01/12/2004

Retirement of a manager

CIS 7.11.2

(1) The manager has the right to retire in favour of another person eligible under the Act and approved in writing by the trustee upon:

(a) the retiring manager appointing that person by deed as manager of the AUT in its place and assigning to that person all its rights and duties as such a manager; and

(b) the new manager entering into such deed or deeds as the trustee reasonably considers necessary or desirable to be entered into by that person in order to secure the due performance of its duties as a manager.

(2) Upon retirement, the retiring manager:

(a) is released from all further obligations under the rules in this sourcebook and under the trust deed. However, this does not affect the rights of the trustee or of any unitholder or any other person in respect of any act or omission on the part of the retiring manager before his retirement; and

(b) may retain any consideration paid to it in connection with the change without having to account for it to any or all of the unitholders.

(3) Upon the retirement of the retiring manager the new manager may exercise all the powers and enjoy all the rights and becomes subject to all the duties and obligations of the manager under the rules in this sourcebook and under the trust deed as if the new manager had originally been a party to the trust deed.

01/12/2004

Consequences of retirement

CIS 7.11.3

(1) Upon the removal or retirement of the manager, the removed or retiring manager:

(a) remains entitled to all units held or treated as held by it;

(b) is to be registered in the register in respect of those units; and

(2) Paragraph (1) is subject to any restriction in the trust deed deriving from CIS 2.2.4 (1)(j) (Limited categories of holder).

01/12/2004

Retirement of the trustee

CIS 7.11.4

(1) The trustee may not retire voluntarily except upon the appointment of a new trustee.

(2) When the trustee wishes to retire or ceases to be an authorised person, the manager may, subject to section 251 of the Act (Alteration of schemes and changes of manager or trustee), by a supplemental trust deed, appoint another person eligible under section 243 of the Act (Authorisation orders) to be the trustee in its place.

01/12/2004

CIS 7 Annex 1

G Valuation and Pricing of authorised funds

01/12/2004

G Valuation and Pricing of authorised funds

This table belongs to CIS 7G

Introduction

Application

(1)

(a)

This Section 1. applies to authorised fund managers and depositaries;

(b)

Section 2. applies to authorised fund managers;

(c)

Section 3. applies to depositaries; and

(d)

Sections 4. and 5. apply to authorised fund managers and depositaries, as indicated.

Explanation

(2)

(a)

This annex provides details of the types of checks and standards of control which an authorised fund manager and the depositary of authorised funds should have in place for the valuation of the scheme property and pricing of units.

(b)

This annex then sets out conditions under which the FSA would not consider it necessary for a pricing error of below a certain amount to result in compensation being payable to an investor.

(c)

This annex relates to CIS 7.3.2 G, CIS 7.4.2 G, CIS 7.8.2 G and CIS 7.9.2 G.

Pricing controls by authorised fund managers

Introduction

(1)

This section details the type of control regime the FSA considers that an authorised fund manager should employ to satisfy its obligations under CIS 7.3.1 R (3)(c) and CIS 7.8.1 R (4).

(2)

Evidence of persistent or repetitive errors, or errors consistently in an authorised fund manager's favour, is likely to make it more difficult for an authorised fund manager to demonstrate it meets the standards in this section.

Method for valuing scheme property

(3)

An authorised fund manager should determine its method for valuing the scheme property and apply it on a consistent basis.

Source of share prices and currency rates

(4)

(a)

Share prices and currency rates used should be up to date and from a reputable source.

(b)

The mere use of a source for prices and rates does not amount to delegation under CIS 7.10.4 R (Delegation) and obtaining assistance under CIS 7.6.1 R (Committees and appointments).

(c)

Although it should not be necessary to carry out significant substantive checking, the reliability of the source of prices and rates should be kept under regular review and doubtful prices or rates should be followed up.

Valuation agents

(5)

(a)

The use of a third party to carry out the valuation function amounts to delegation, in accordance with CIS 7.10.4 R (Delegation) and obtaining assistance under CIS 7.6.1 R (Committees and appointments).

(b)

Where the pricing function is delegated under CIS 7.10.4 R or when assistance is obtained under CIS 7.6.1 R, the authorised fund manager should satisfy itself that the valuation agent's system is robust and will produce accurate results.

(c)

An authorised fund manager should keep the valuation agent's controls and procedures under review. That review should ensure that changes to controls and procedures, including a series of minor changes, do not have a significant adverse effect on the accuracy of the system.

(d)

An authorised fund manager should review the outputs from the system regularly, and on any significant system change.

(e)

In addition, if the valuation agent is also responsible for calculating dealing prices of units, an authorised fund manager should regularly review this system.

Reconciliation

(6)

(a)

Unless the valuation and record keeping systems are integrated, the valuation output should be agreed with an authorised fund manager's records of the authorised fund at each valuation point.

(b)

In addition, an authorised fund manager's records, including debtors and creditors, should be agreed with the depositary's records of stocks and both capital and income cash on a frequency agreed between the authorised fund manager and depositary. Reconciling items need to be followed up promptly, and debtors reviewed for recoverability.

Inclusion of investment transactions in valuations

(7)

(a)

Systems should be in place by which all investment transactions are confirmed as quickly as possible in writing or by electronic means to an authorised fund manager or to a valuation agent.

(b)

It is desirable that all deals to which the authorised fund is committed, which have been notified not less than one hour before a valuation, are included in that valuation, at estimated prices if necessary.

(c)

Unless, however, there is likely to be significant movement in the price of a unit, it is more important that an accurate cut-off procedure is in place to ensure that omissions or duplications do not take place, than it is to ensure that estimates are included in a valuation.

Prices obtained otherwise than from the main pricing source

(8)

(a)

Where prices are obtained otherwise than from the main pricing source (for example unquoted, suspended, or illiquid stocks), an authorised fund manager should maintain a record of the source and basis for the value placed on the investment.

(b)

The methodology, procedure and controls for the valuation of those stocks should be regularly reviewed to ensure that the valuations are fair and reasonable in the circumstances.

Investment and borrowing powers/compliance

(9)

Procedures should be in place to monitor the applicable rules in CIS 5 or CIS 5A and, if breaches occur, to ensure they are rectified in accordance with CIS 7.5.3 R or CIS 7.10.3 R.

Unapproved securities

(10)

To assist with the identification of the level of investment in securities that are not approved securities, the authorised fund manager should notify the depositary of any trade in unapproved securities as soon as reasonably practicable.

Dividends, interest and expenses

(11)

(a)

A system should be in place to ensure that dividends are accounted for as soon as stocks are quoted ex-dividend, unless, as with some foreign stocks, it is prudent to account for them only on receipt.

(b)

Fixed interest dividends and interest should be accrued at each valuation point unless the level of materiality makes a longer interval appropriate.

(c)

Similar considerations apply to the expenses of an authorised fund.

Tax positions relevant to the authorised fund

(12)

(a)

The full tax position should be reviewed regularly, including the basis for the current tax charge, the assumptions being used, and the tax rate applicable.

(b)

Adjustments should be made for substantive changes (for example alterations to the tax profile or likely tax charge) when they occur.

Dual-priced AUTs

(13)

In the case of dual-priced AUTs, the justification for figures included for dealing expenses and commissions included in the price of a unit should be reviewed regularly, separately for different markets of different sectors. Adjustment should be made for substantive changes (for example changes in the rate or basis of stamp duty) as and when they occur.

Valuation limits

(14)

(a)

An authorised fund manager should fix a percentage or absolute limit for certain key elements of the valuation, so that any movement outside these limits is investigated. The investigation and its outcome should be evidenced and retained by the authorised fund manager.

(b)

These key elements could, where relevant, include:

(i)

the movement of the prices and values of individual stocks;

(ii)

changes in currency rates; and

(iii)

accrual figures for income, expenses, and tax.

Prices which appear not to have changed after a fixed period of time should be investigated, since this may be the result of a price movement having been missed.

Cash

(15)

Cash should be reconciled to the bank account regularly, with outstanding items promptly followed up, and a full reconciliation should be sent to the depositary at a frequency agreed with the depositary.

Recording of units in issue

(16)

Controls should be in place to ensure that the correct number of units in issue is recorded at each valuation point. This should be reconciled with the register of unitholders or shareholders at a frequency agreed with the depositary.

Verification by the fund manager of the assets of the authorised fund

(17)

A copy of the valuation used to produce the price of the units should be sent to the fund manager at least weekly, which he should check. When the authorised fund's valuation point is less frequent than weekly, a copy of the valuation used should be sent to the fund manager as soon as practicable after the valuation point.

Pricing checks by depositaries

Introduction

(1)

This section provides details of the types of checks a depositary should carry out to be satisfied that the authorised fund manager adopts controls and systems which are appropriate to ensure that prices of units are calculated in accordance with CIS 4 or CIS 15, and to ensure that the likelihood of incorrect prices will be minimised. These checks also apply where a manager has delegated all or some of its pricing functions to a third party or where an ACD has obtained the assistance of a third party to carry out all or some of its pricing functions.

Review by the depositary of authorised fund manager's controls and systems

(2)

A depositary should thoroughly review an authorised fund manager's controls and systems to confirm that they are satisfactory.

(3)

This review should be carried out:

(a)

at the start of a depositary's appointment, taking into account (where relevant) any relevant report made by the retiring depositary in accordance with CIS 7.4.3 R (3) (Duty to inform the FSA : for ICVCs) and CIS 7.9.3 R (3) (Duty to inform the FSA : for AUTs); and

(b)

thereafter, on a frequency dependent on the risk profile of the authorised fund;

(c)

when major changes are made by an authorised fund manager to its systems; and

(d)

when necessary, to ensure that a series of minor changes do not have a significant adverse effect on the integrity of the systems.

(4)

A review should be carried out more frequently where a depositary knows or suspects that an authorised fund manager's controls and systems are weak or are otherwise unsatisfactory. In particular, the prices of unapproved securities and (where unquoted) the basis for their calculation should be subjected to frequent verification, and an examination of the sources of the prices of those security should be carried out.

(5)

Additionally, a depositary should from time to time review other aspects of the valuation of the scheme property of each authorised fund for which it is responsible, verifying, on a sample basis, if necessary, the assets, liabilities, accruals, units in issue, security prices and any other relevant matters, for example an accumulation factor or a currency conversion factor.

(6)

The depositary's review should include an analysis of the controls in place to determine the extent to which reliance can be placed in them.

(7)

A depositary should ensure that any issues, which are identified in any such review, are properly followed up and resolved.

(8)

Where an authorised fund manager's systems are manual, or have been installed or amended recently and are therefore unproven, the level of checking will need to be increased accordingly. This will also be necessary where a number of instances of incorrect pricing have previously been identified.

Recording and reporting of instances of incorrect pricing

Recording and reporting by the authorised fund manager

(1)

An authorised fund manager should record each instance where the fourth significant figure of a price of a unit is incorrect, and, as soon as the error is discovered, report the fact to the depositary together with details of the action taken, or to be taken, to avoid repetition.

Reporting by the depositary

(2)

In accordance with CIS 7.4.3 R and CIS 7.9.3 R (Duty to inform the FSA), the depositary should report any breach or potential breach of the rules in CIS 4 or CIS 15 immediately to the FSA. This would extend to instances of incorrect pricing of units or late payment. However, notification should relate to instances which the depositary considers material only. Materiality should be determined by taking into account a number of factors, including:

(a)

whether an authorised fund manager has followed the pricing controls set out in Section 2;

(b)

the significance of any breakdown in management controls or other checking procedures;

(c)

the significance of any failure of systems, including situations where inadequate back-up arrangements exist;

(d)

the duration of an error (the longer an error persists, the more likely that it will have a material effect on a price);

(e)

the level of compensation to be paid to holders in an authorised fund; and

(f)

an authorised fund manager's ability (or otherwise) to meet the need for compensation in full.

Factor (a) would tend to decrease materiality whereas the other factors mentioned will tend to increase it.

(3)

A depositary should also report to the FSA immediately any instance of incorrect pricing where the error is greater than 0.5% of the price of a unit, where a depositary believes that reimbursement or payment is inappropriate and should not be paid by an authorised fund manager.

(4)

In accordance with SUP 16.6.13R, a depositary should also make a return to the FSA on a quarterly basis which summarises, by authorised fund manager, the number of instances of incorrect pricing during a particular period. This should include:

(5)

(a)

the number of errors which were greater than 0.5% of the price of a unit; and

(b)

the number of errors which were less than 0.5% of the price of a unit where a depositary did not consider an authorised fund manager's controls and systems to be adequate.

Incorrect pricing of units and reimbursement or payment

Introduction

(1)

(a)

CIS 7.3.1 R (3)(d) and CIS 7.8.1 R (5) place a duty on the authorised fund manager to take action to reimburse affected holders, former holders, and the scheme itself, for certain instances of incorrect pricing or late payment. Paragraph (8) and CIS 7 Annex 1, 2 sets out how money could be paid or reimbursed. This annex does not overrule any legal right to claim compensation.

(b)

However, reimbursement or payment may not be required, if it appears to the depositary that the incorrect pricing is of minimal significance. Paragraphs (4) to (6) outline the conditions which the depositary should take into account in considering whether an instance of incorrect pricing is of minimal significance.

(2)

The word "normally" is used throughout this Section 5 to denote "unless the depositary directs otherwise".

(3)

If a depositary deems it appropriate, it may, in spite of the circumstances outlined in (4), agree to a payment from the authorised fund manager or from the authorised fund to the holders, former holders, the authorised fund or the authorised fund manager (where appropriate), following an instance of incorrect pricing.

Instances where incorrect pricing is normally of minimal significance

(4)

A depositary may consider that the instance of incorrect pricing or late payment is of minimal significance if:

(a)

the authorised fund manager and depositary meet the standards of control set out in Section 2 and Section 3 of this Annex; and

(b)

in the case of incorrect pricing, the error in pricing of a unit is less than 0.5% of the correct price.

Instances where incorrect pricing is not normally of minimal significance

(5)

Any instances of incorrect pricing not covered by (4) will not normally be of minimal significance.

(6)

Where either a single factor or more than one factor causes an incorrect price over a period of time, the incorrect price is normally not of minimal significance:

(a)

if the standards in Sections 2 and 3 are not met, for all days on which there is an incorrect price; or

(b)

otherwise, only on those days where as a result the price is incorrect by 0.5% or more of the price of a unit.

(7)

If a depositary considers that reimbursement or payment is inappropriate, it should report the matter to the FSA, together with its recommendation and justification. The depositary should take into account the need to avoid prejudice to the rights of holders, or the rights of holders in a class of units.

(8)

The summary table sets out the effect of this annex on some circumstances in which incorrect pricing can occur, and how holders, former holders, the authorised fund or the authorised fund manager can be reimbursed or paid.

(9)

It may not be practicable, or even, in some cases, legally permissible for the authorised fund manager to obtain reimbursement from holders, where the holders have benefited from the incorrect price.

(10)

In all cases where reimbursement or payment is normally required, amounts due to be reimbursed to holders for individual sums under £10 will not, normally, need to be paid, although an authorised fund manager may pay such a sum, or may wish to make up smaller amounts to a higher figure (such as the £10 minimum).

Summary table (This table forms part of Section 5, paragraph (8) of this Annex).

GAINS LOSSES

Authorised fund

Authorised fund manager

Incoming holder

Outgoing holder

Authorised fund

Authorised fund manager

Incoming holder

Outgoing holder

DEALINGS BETWEEN AN AUTHORISED FUND AND AUTHORISED FUND MANAGER (WHETHER OR NOT UNITS ARE SOLD OR REDEEMED FROM HOLDERS )

The authorised fund gains in relation to the authorised fund manager
(issue at too high or cancellation at too low a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the depositary will normally compensate the authorised fund manager from the authorised fund.

The authorised fund loses vis-à-vis the authorised fund manager
(issue at too low or cancellation at too high a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the depositary will normally direct the authorised fund manager to compensate the authorised fund.

DEALINGS BETWEEN HOLDERS AND THE AUTHORISED FUND MANAGER (WHETHER OR NOT THERE IS AN ISSUE OR CANCELLATION OF UNITS

Incoming holders gain in relation to the authorised fund manager
(New holders buy units at too low a price). If:

(1)

incorrect price by less than 0.5%: no action;

(2)

incorrect price by 0.5% or more: see paragraph (9) of this Section 5.

Incoming holders lose vis-à-vis the authorised fund manager
(New holders buy units at too high a price). If:

(1)

incorrect price by less than 0.5%: normally no action;

(2)

incorrect price by 0.5% or more: the authorised fund manager will normally compensate incoming holders

Outgoing holders gain in relation to an authorised fund manager
(Outgoing holders sell at too high a price). If:

(1)

incorrect price by less than 0.5%: no action;

(2)

incorrect price by 0.5% or more: see paragraph (9) of this Section 5.

Outgoing holders lose in relation to the authorised fund manager
(Outgoing holders sell at too low a price). If:

(1)

Incorrect price by less than 0.5%: normally no action;

(2)

Incorrect price by 0.5% or more: the authorised fund manager will normally compensate outgoing holders.

01/11/2002