COLLG 1A
Overview
COLLG 1A.1
Introduction
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About this guide
Structure of collective investment regulation in the United Kingdom
COLLG 1A.1.2
See Notes
(1) There are three broad levels of
regulation of collective investment schemes in
the United Kingdom. These can
be summarised as EU regulation, UK legislation and regulation by the
FSA.
(2)
EU
collective investment scheme product regulation
was introduced in 1985 by the Undertakings for Collective Investment in Transferable
Securities Directive (UCITS Directive)
and has been updated on several occasions by amendments to that Directive,
with a revised version in 2009. If a scheme is
established and authorised in the United
Kingdom and complies with the provisions of the UCITS Directive, it is a UCITS
scheme and is capable of being promoted throughout the EEA. However, not all regulated
collective investment schemes are UCITS
schemes (see COLLG
1A.1.3 G). COLLG 2A (European legislation) provides more detail on the
scope and contents of the UCITS Directive.
(3) The main UK legislation
is the Act (under which AUTs operate) and the Open-Ended Investment
Company Regulations (OEIC Regulations)
(under which ICVCs (also known
as OEICs) operate). COLLG 3A (The FSA's responsibilities under the Act)
provides details on the
FSA's
responsibilities under the Act; how a firm may
go about applying for authorisation of a unit
trust scheme or recognition of an overseas scheme;
and what notifications are required to the
FSA
in terms of changes to those schemes. COLLG 4A (The
FSA's
responsibilities under the OEIC Regulations)
provides details on the
FSA's
responsibilities under the OEIC Regulations; how a firm may
go about applying for authorisation of an ICVC;
and what notifications are required to the
FSA
in respect of changes to the ICVC.
(4) The main
FSA
requirements are set out in the
Handbook,
in particular in COLL. COLL is a specialist sourcebook of the
Handbook and is
structured in a way that gives rules and guidance on specific aspects of AUT and ICVC regulation
and on recognised schemes. COLLG 5A (The COLL sourcebook) provides details of the
structure of COLL.
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What are regulated collective investment schemes?
COLLG 1A.1.3
See Notes
(1)
Regulated
collective investment schemes are collective
investment schemes which are regulated by the
FSA
as authorised
funds or recognised by the
FSA
as recognised
schemes:
(a)
authorised
funds must take the form of an AUT (an authorised unit trust scheme) or an ICVC (an investment
company with variable capital) (as described in more detail
below), must be established in the United
Kingdom and must be:
(i) a UCITS
scheme; or
(ii) a qualified
investor scheme; or
(iii) a non-UCITS
retail scheme; and
(b)
recognised
schemes must be established outside the United
Kingdom and recognised by the
FSA
under:
(ii) section 270 of the Act (Schemes authorised in designated countries
or territories); or
(iii) section 272 of the Act (Individually recognised overseas schemes).
(2) The promotion of regulated
collective investment schemes is restricted by the Act. Under section 238 of the Act (Restrictions on promotion), regulated collective investment schemes may
be promoted by authorised persons. UCITS schemes, non-UCITS
retail schemes and recognised
schemes may be promoted to retail investors. Qualified
investor schemes may only be promoted to certain prescribed
category of investor (see COLLG 5.1.3G(8)).
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What is an AUT?
COLLG 1A.1.4
See Notes
An AUT (or authorised unit trust scheme) is a unit trust scheme which is authorised by
the
FSA
by making an authorisation
order. Under section 237 of the Act (Other
definitions), a unit trust scheme is
a collective investment scheme under
which the property is held on trust for the participants by
the trustee. An AUT is constituted by a trust
deed, entered into by the manager and trustee. Under section 243(4) of the Act (Authorisation orders) the manager and trustee must
be independent of each other.
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What is an ICVC?
COLLG 1A.1.5
See Notes
(1) An ICVC (or investment company with variable capital)
is an open-ended investment company (or OEIC) as defined by section 236 of the Act (Open-ended investment companies) which
is incorporated under the OEIC Regulations.
Section 262 of the Act (Open-ended
investment companies) empowers HM Treasury to make provisions relating to open-ended investment companies, which it
has done by way of the OEIC Regulations,
including provisions relating to the establishment of ICVCs.
The
FSA
may authorise an ICVC by
making an authorisation order under
regulation 14 of the OEIC Regulations.
Paragraph 1(3) of Schedule 5 to the Act states
that an authorised open-ended investment company is
an authorised person. So, an ICVC is an authorised
person.
(2) An ICVC is
constituted by an instrument of incorporation.
Regulation 15(4) of the OEIC Regulations requires
an ICVC to have at least one director. Where there is only one director, that director must
be a body corporate with the permission of acting as the depositary or sole director of
an open-ended investment company. COLL refers to this person as an authorised corporate director (ACD). A depositary must
take responsibility for the safekeeping of the scheme
property. The depositary must
be independent of the ICVC and
each of its directors.
(3) The directors and
the depositary are required
to comply with the OEIC Regulations and
the rules in COLL and,
in accordance with paragraph 6(1) of Schedule 2 to the OEIC
Regulations, are also bound by the provisions of the instrument of incorporation.
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Authorisation to carry on regulated activities
COLLG 1A.1.6
See Notes
(1) No person may
carry on a regulated activity by
way of business in the United Kingdom,
or purport to do so, unless he is an authorised
person (or an exempt person).
This prohibition is referred to in the Act as
the general prohibition. Guidance for persons considering
carrying on regulated activities in
the United Kingdom can be found
in PERG. The
FSA
website page "How do I get authorised?"(http://www.fsa.gov.uk/doing/how) gives guidance on
how to apply to the
FSA
for a
Part
IV permission
. This authorisation is
different to the authorisation of an AUT or
an ICVC, as referred to in COLLG 1A.1.4 G and COLLG
1A.1.5 G respectively.
(2) The following constitute regulated activities:
(3) The
FSA
maintains a public register of persons who have a permission to
carry on a regulated activity.
The register also contains details of all regulated
collective investment schemes and it can be consulted on the
FSA's
website at
www.fsa.gov.uk/fsaregister
.
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COLLG 2A
European Legislation
COLLG 2A.1
Introduction
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Background and scope
COLLG 2A.1.1
See Notes
(1) This section summarises the scope
and content of the UCITS Directive as
amended ("the Directive") as it applies in the United
Kingdom. The Directive establishes a degree of harmonisation
of EEA States' laws governing:
(a) the activities of management companies;
(b) the UCITS they
manage; and
(2) The main topics governed by the
Directive and summarised in this section concern:
(a) the general scope of the Directive;
(c) investment and borrowing powers
and limits;
(d) information for investors,
(e) how the management
company passport works; and
(f)
marketing requirements.
(3) The Directive also covers other
topics which are not summarised in this section. These include:
(a) the ability to establish master-feeder UCITS, with the master
UCITS and feeder UCITS either
in the same or different EEA States;
and
(b) a procedure for the merger of UCITS where the UCITS involved
are established in different EEA States,
or market their units in an EEA State other than the one in which they
are established.
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General scope of the UCITS Directive
COLLG 2A.1.2
See Notes
(1) The Directive applies to any open-ended
collective investment undertaking that is established and authorised as a UCITS in an EEA
State, regardless of whether it is promoted in any other EEA State. However, the Directive applies
only to collective investment undertakings that are promoted to the general
public within the EEA, so collective
investment undertakings that are restricted in their promotion fall outside
the Directive's scope.
(2) Furthermore, the Directive does
not cover collective investment schemes that
are authorised in an EEA State with
different investment and borrowing powers to those covered by the Directive.
So, schemes that invest in
(for example) real property or commodities are
not within the Directive's scope.
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Obligations on the management company and depositary
COLLG 2A.1.3
See Notes
(1) The Directive assigns certain functions
and requirements to a management company and
a depositary. As a result, a UK firm which wishes to operate UCITS schemes or act as a depositary must
first seek authorisation from
the
FSA
. A UK
firm operating a UCITS scheme (a UKmanagement
company) is referred to as the authorised
fund manager (AFM).
(2) In addition, the Directive imposes
certain conduct of business and financial resources requirements on the UCITS management company.
(3) The Directive states that the depositary must be subject to 'public control'
and provide 'sufficient financial and professional guarantees'. The depositary is responsible for the safe keeping
of a UCITS' assets, and for
ensuring that the issue, sale, redemption and cancellation of units and
the calculation of the value of units are
effected in accordance with the law and constituting document of the UCITS.
(4) Two main principles govern the
relationship between the UCITS management
company and the depositary of
a UCITS. First, no single company
may act in both capacities. Second, they must act independently of each other
and, apart from management of a UCITS,
a UCITS management company cannot
engage in any activities other than:
(a) management of other collective
investment undertakings;
(b)
managing
investments; and
(c)
advising on investments and safeguarding
and administering investments, but in either case only where
it also has permission to manage investments.
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Investment and borrowing powers and limits
COLLG 2A.1.4
See Notes
(1) The Directive states the types
of assets a UCITS can invest
in. These include:
(c)
deposits;
(d)
derivatives and
forwards; and
(2) The UCITS
eligible assets Directive, which came into effect in July 2008,
clarifies the definition of terms used in the Directive by setting out criteria
for determining which types of transferable
securities, approved money-market
instruments and derivatives are
eligible to be held by a UCITS.
(3) Within this range of investment
assets there are some detailed spread and concentration rules in the Directive.
The main requirements can be summarised as follows:
(a) no more than 5% may be invested
in transferable securities or approved money-market instruments with one issuer - this can be raised to 10% but only
in respect of a maximum of 40% of the UCITS value;
(b) no more than 20% may be invested
in deposits with one body;
(c) 100% may be invested in other collective
investment undertakings provided:
(i) no more than 30% is invested in
total in units in collective investment undertakings which are not UCITS and then only in collective investment
undertakings that offer equivalent protection to investors;
(ii) the collective investment undertaking
being invested into is not permitted to invest more than 10% in other collective
investment undertakings; and
(iii) no more than 10% is invested in
any one UCITS (which may be
raised to 20% at the discretion of the Member State and
has been raised to 20% for UKUCITS), except where a feeder
UCITS is investing in a master
UCITS (see COLL 5.8 (Investment powers and borrowing limits for feeder UCITS));
(d) no more than 20% may be invested
in transferable securities and approved money-market instruments issued
by one group;
(e) no more than 20% may be invested
in any combination of transferable securities, approved money-market instruments, deposits, or OTC
derivatives from a single body; and
(f) no more than 5% may be invested
in OTC derivative exposure to
one counterparty, or 10% where the counterparty is an approved
bank.
(4) Where a UCITS has
the investment objective of replicating the composition of a qualifying index,
it may have an exposure of up to 20% in any issuer or
exceptionally up to 35% (but only for one issuer).
A qualifying index is one which has a sufficiently diversified composition,
is a representative benchmark for that market, and is published in an appropriate
manner.
(5) The management
company must employ a specific risk management process to monitor
the risk of all investment positions. Where derivatives are
to be used within a UCITS,
the management company must
notify details of this risk management process and any significant change
to it to its competent authority.
The exposure to all derivative transactions
must not exceed the current net asset value of the UCITS.
The underlying assets representing any derivative position
must be taken into account in applying the spread of limits above. This does
not apply in the case of any derivative which
is on a qualifying index.
(6) A UCITS may
borrow up to 10% in value of its assets, provided the borrowing is on a temporary
basis.
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Information to investors
COLLG 2A.1.5
See Notes
(1) The Directive sets out which documents must be made available or offered
to investors. The three main documentary requirements are:
(a) the prospectus;
(b) the key
investor information document; and
(c) the annual and half-yearly reports
and accounts.
(2) The full prospectus requirements
are included in Annex A of the Directive and provide detailed information
on the main parties involved in operating the UCITS,
the investment objectives and policy of the UCITS,
and general day-to-day operating matters such as dealing times and income
allocation.
(3) In addition to the prospectus, the management
company must publish a key
investor information document for each UCITS.
This is intended to be a standardised document used
for selling UCITS throughout
the EEA. It must be provided
to any prospective investor free of charge so that they can take investment
decisions on an informed basis. The required contents for the key investor information document are set
out in the KII Regulation,
which is directly applicable in each Member State.
(4) Reports and accounts must be prepared
on a half-yearly and annual basis and the latest report must be supplied to
investors free of charge. They must also be available at the place specified
in the prospectus. The required
contents for the report and accounts are set out in Schedule B of the Directive.
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The management company passport
COLLG 2A.1.6
See Notes
(1) Chapter III of the Directive provides
the framework for a UCITS management company to
provide services in another EEA State by
way of a branch or cross border services.
(2)
UK
firms which are UCITS management
companies can operate UCITS established
in other EEA states (see SUP 13 (Exercise
of passport rights by UK firms) and COLL 12 (Management company and product passports under
the UCITS Directive) for more information).
(3) A non-UK management
company may operate a UKUCITS by way of branch or cross border services in accordance with
the provision of Schedule 3 to the Act and
if so it is defined in the
Handbook as an EEA UCITS management company.
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Marketing requirements
COLLG 2A.1.7
See Notes
(1) Chapter XI of the Directive provides
the framework for a UCITS to
be marketed in another EEA State.
A UCITS is required to comply
with the marketing and advertising
rules in the relevant Host State (Article
91) and is also required to maintain facilities in the Host
State (Article 92).
(2) Certain documents must
be provided to the Host State regulator in
the relevant EEA State at the
same time as notification of the proposal to market there. Before a UCITS can begin marketing in
a Host State, it must submit
a notification letter to the Home State regulator,
together with the instrument constituting
the scheme, the prospectus, key investor information document and the
most recent annual and half-yearly reports. The Home
State regulator has ten working days in which to process the
notification and transmit it to the Host State
regulator. The UCITS may
begin accessing the market immediately following transmission of the notification
(Article 93).
(3) The relevant information and documents distributed in the Host State are required to be the same as
those that the UCITS provides
in its Home State. In addition,
the key investor information document must
be published in an official language of the Host
State or another language if approved by the relevant Host State regulator (Article 94). The other documents may either be translated in the
same way, or published in a language customary in the sphere of international
finance (English is accepted to be such a language).
(4) A UKUCITS may access the market in another EEA State using the procedure set out in
Schedule 3 to the Act.
(5) A UCITS from
another EEA State may access
the market in the United Kingdom in
accordance with the procedure set out in section 264 of the Act.
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COLLG 3A
The FSA's
responsibilities under the Act
COLLG 3A.1
Introduction
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COLLG 3A.1.1
See Notes
Part XVII of the Act deals specifically with collective
investment schemes. The main features and practical effects
of Part XVII, and how the
FSA
exercises its responsibilities,
are described below. References to sections are to the numbered sections of
Part XVII.
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Promotion of schemes in the United Kingdom (section 238)
COLLG 3A.1.2
See Notes
(1) Before a scheme can
be promoted to the public in the United Kingdom,
it must be authorised or recognised by the
FSA
as a regulated
collective investment scheme (see COLLG 1A.1.3 G).
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Application for authorisation as an authorised unit trust (sections 242 and 243)
COLLG 3A.1.3
See Notes
(1) The
FSA
requires an application for authorisation
of a unit trust scheme to be
made jointly by the manager and trustee, both of which must be:
(b) independent of each other (see COLL
6.9.2 G (Independence
of depositaries and scheme operators) which provides guidance on
independence).
(2) The application must contain details
of the manager and trustee, of the scheme itself,
and of other persons to whom
functions are to be delegated (e.g. the registrar and
the investment adviser).
(3) Application forms are available
free of charge from the forms page at
http://fsahandbook.info/FSA/form_links.jsp.
(4) A fee is
payable and must be submitted with the application (see FEES
3 Annex 2 R (Application
and notification fees payable in relation to collective investment schemes)).
(5) The following items must be provided
with the application:
(a) a copy of the trust
deed;
(b) a solicitor's certificate
stating that the trust deed complies
with the rules made under section
247 (Trust scheme rules);
(c) a copy of the prospectus,
with a checklist indicating the location of the information required by COLL to be contained in it;
(d) in the case of an application relating
to the authorisation of a UCITS scheme,
a copy of the key investor information document;
and
(e) if applicable, documents evidencing
any guarantee arrangement.
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Determining and refusing applications (sections 244 and 245)
COLLG 3A.1.4
See Notes
(1) Under section 244 (Determination
of applications), the
FSA
has:in which to consider a completed
application following its receipt and must inform the manager and trustee of its decision within that timescale.
In practice, the
FSA
aims to process 75% of completed
applications relating to a UCITS scheme within
6 weeks. If the
FSA
is satisfied with the application, an authorisation order is issued for the scheme.
(2) If the
FSA
proposes to refuse an application,
it must give a warning notice which
will contain the reasons for the refusal. If, having given the warning notice, it decides to refuse the
application, a decision notice will
be sent and the applicant may refer the matter to the Tribunal.
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Revocation of authorisation (section 254)
COLLG 3A.1.5
See Notes
(1) The
FSA
can revoke an authorisation
order if:
(a) the requirements of authorisation
are no longer satisfied; or
(b) the manager or trustee has contravened any provision of
the Act or any rules or
regulations made under it, or has given false or misleading information to
the
FSA
; or
(c) no regulated
activity is being carried on in relation to the scheme and the period of that inactivity
began at least twelve months earlier;
or
(d) it is undesirable for investors
or potential investors that the authorised
unit trust scheme should continue.
(2) The
FSA
may refuse to revoke an authorisation order if it considers that:
(a) any matter should be investigated
prior to revocation; or
(b) revocation would not be in the
interests of investors; or
(c) revocation would be incompatible
with the UCITS Directive.
(3) If the
FSA
proposes to revoke an authorisation order, a separate warning notice will be sent to the manager and trustee.
The same procedures as stated for refusal of authorisation, in relation to
the warning notice and decision notice, will apply.
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Notification of changes to unit trusts (sections 251 and 252A)
COLLG 3A.1.6
See Notes
(1) The manager must
give written notice to the
FSA
when:
(a) an alteration to the authorised unit trust scheme is proposed;
or
(b) it is proposed that the trustee should retire and be replaced.
(2) Any proposal that involves a change
in the trust deed must be accompanied
by a solicitor's certificate stating that the change will not affect
the compliance of the trust deed with
the rules.
(4) The
FSA
has one month following
receipt of notice under section 251 (Alteration of schemes and changes or
manager or trustee) to consider whether or not to refuse the proposal. In
the case of a notice under section 252A (Proposal to convert a non-feeder
UCITS) the period available to the
FSA
is 15 working days.
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Powers of intervention (sections 257 and 281)
COLLG 3A.1.7
See Notes
The
FSA
has powers of intervention if
there is a breach of the Act or COLL, or if it is in the interests of unitholders or potential unitholders in
a scheme. In respect of an AUT, directions can be made for the manager to suspend the issue and redemption of units or
to wind up the scheme.
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Scheme particulars (section 248)
COLLG 3A.1.8
See Notes
The Act empowers
the
FSA
to require a manager to
publish scheme particulars. COLL 4 (Investor
relations) which refers to the scheme particulars as
a prospectus, sets out details
of the required contents, the timing of publication, and how and when the prospectus must be offered to prospective
investors.
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Recognition of overseas schemes
COLLG 3A.1.9
See Notes
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Recognition of schemes constituted in other EEA states (section 264)
COLLG 3A.1.10
See Notes
(1) Section 264 covers schemes constituted in another EEA State that are certified by their Home State regulator as meeting the requirements
of the UCITS Directive (EEA UCITS schemes). The scheme becomes
recognised as soon as its Home State regulator has
transmitted to the
FSA
the notification of the schemeoperator's intention
to access the market in the United Kingdom,
together with the documents prescribed
in Article 93 of the Directive that the schemeoperator has filed with its Home State regulator.
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Recognition of schemes authorised in designated territories (section 270)
COLLG 3A.1.11
See Notes
(1) Section 270 covers schemes that are managed in and authorised
under the law of a country or territory outside the United
Kingdom that has been designated for this purpose by an order
made by HM Treasury ("the Designation Order"). These include Jersey, Guernsey
and the Isle of Man. It should be noted that HM Treasury:
(a) retains responsibility for the
designation of countries or territories and must be satisfied that their laws
and practices relating to the authorisation and regulation of their collective investment schemes provide a level
of protection at least equivalent to that provided under the Act;
(b) must be content that adequate arrangements
exist for co-operation between regulators in each country or territory and
the
FSA
; and
(c) may request the
FSA
provide a report on the regimes
of regulation in existing or prospective designated territories.
(2) Notification forms are available,
free of charge, at the
FSA
website and COLL 9.3 (Section 270 and
272 recognised schemes) provides further information on the documents to
be supplied to the
FSA. The scheme becomes
recognised on the
FSA's
written approval, or automatically
after two months from notification.
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Recognition of individual overseas schemes (section 272)
COLLG 3A.1.12
See Notes
(1) Section 272 covers overseas schemes that are not recognised by virtue
of section 264 or section 270. The
FSA
may make an order declaring the scheme to be recognised if it is satisfied
that the scheme will afford
adequate protection (i.e. a similar level of protection to that provided under
the Act) for investors, and the
arrangements for the scheme's constitution
and management, and the powers and duties of the operator and
of any trustee or depositary, are also "adequate". In deciding
what is adequate, the
FSA
will consider the rules applicable to AUTs or ICVCs.
(2) A section 272 application requires
detailed and rigorous analysis of all aspects of the scheme and
the level of investor protection provided by the regime under which the scheme operates, so the
FSA
has 6 months in
which to determine a completed application. Details of the information and documents required for a section 272 application
can be found in COLL 9.3 (Section 270 and 272 recognised schemes).
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Subsequent notification in respect of schemes recognised under section 272 of the Act
COLLG 3A.1.13
See Notes
(1) The
FSA
wishes to be informed of changes
in the information supplied by the operator of
a section 272 scheme under COLL
9.3.1 D (Information
and documents to be supplied for a section 270 notification or section 272
application).
(2) Any revised documents sent
under (1) should be certified as true copies of the originals and accompanied,
where relevant, by written evidence of the approval of the overseas
regulator to the change.
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Refusal of approval: schemes recognised under sections 270 and 272 of the Act
COLLG 3A.1.14
See Notes
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Revocation of recognition of overseas schemes
COLLG 3A.1.15
See Notes
(1) If the operator of
a scheme recognised under section
264 gives written notice to the
FSA
under section 264(6) that it desires
the scheme to no longer be
recognised, then the scheme ceases
to be recognised.
(2) Under section 279 (Revocation of
recognition), the
FSA
may direct that a scheme shall cease to be recognised under
section 270, or revoke its recognition under section 272, on similar grounds
to those provided for in the revocation of authorised
funds under section 254 (Revocation of authorisation order otherwise
than by consent).
(3) If the
FSA
proposes to give a direction under
section 279 or to revoke a scheme's recognition,
it will give a warning notice.
Should the
FSA
decide to give a direction or revoke
recognition, it will issue a decision notice.
Thereafter, the matter may be referred to the Tribunal.
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Scheme facilities in the United Kingdom (section 283)
COLLG 3A.1.16
See Notes
This section enables the
FSA
to make rules requiring recognised schemes to maintain scheme facilities in the United
Kingdom and to provide certain information to be supplied on
request. Details are contained in COLL 9.4 (Facilities in the United Kingdom).
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COLLG 4A
The FSAs Responsibilities under the OEIC Regulations
COLLG 4A.1
Introduction
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COLLG 4A.1.1
See Notes
Section 262 (Open-ended investment companies) of the Act provides for HM Treasury to make regulations governing the establishment and regulation of ICVCs. Rather than merely adopting various parts of UK company law, HM Treasury chose a 'stand alone' approach for its OEIC Regulations. The main features and practical effects of those regulations are outlined below.
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Applications for authorisation (Regulations 12-17)
COLLG 4A.1.2
See Notes
(1) The
FSA
requires an application for authorisation of an ICVC to be made jointly by the ACD and depositary, both of which must be:
(b) independent of each other (see COLL 6.9.2 G (Independence of depositaries and scheme operators) which provides guidance on independence).
(2) The application must contain details of the ACD and depositary, and any other person proposed as a director of the ICVC, of the scheme itself, and of other persons to whom functions are to be delegated (e.g. the registrar and the investment adviser).
(3) Application forms are available free of charge from the forms page at
http://fsahandbook.info/FSA/form_links.jsp.
(4) A fee is payable and must be submitted with the application (see FEES 3 Annex 2 R (Application and notification fees payable in relation to collective investment schemes)).
(5) The following items must be provided with the application:
(b) a solicitor's certificate stating that the instrument of incorporation complies with Schedule 2 to the OEIC Regulations and with COLL;
(c) a copy of the prospectus, with a checklist indicating the location of the information required by COLL to be contained in it;
(d) in the case of an authorisation application relating to a UCITS scheme, a copy of the key investor information document; and
(e) if applicable, documents evidencing any guarantee arrangement.
(6) The name of the ICVC must not be undesirable or misleading and must not be the same as that of an existing company. Regulation 19 includes a list of words and expressions that are prohibited from inclusion within the name of an ICVC and further guidance can be found in COLL 6.9 (Independence, names and UCITS business restrictions). As with an AUT, the aim of the ICVC must be reasonably capable of being achieved.
to determine a completed application, but aims to process 75% of applications for UCITS schemes within six weeks. If the
FSA
is satisfied with the application, an authorisation order is issued. The ICVC becomes incorporated when the authorisation order is issued.- 14/12/2012
Notification of changes to ICVCs (Regulations 21 and 22A)
COLLG 4A.1.3
See Notes
(1) The
FSA's
approval is required before the following changes can take place:
(a) any alteration to the instrument of incorporation;
(b) any significant alteration to the prospectus;
(c) any reconstruction or amalgamation involving the ICVC;
(e) any proposal to replace a director, appoint an additional director, or decrease the number of directors in post; and
(f) any proposal to replace the depositary.
(2) Any notice proposing to change the instrument of incorporation must be accompanied by a solicitor's certificate confirming that the change will not affect compliance of the instrument with Schedule 2 to the OEIC Regulations and COLL as they relate to the contents of the instrument.
(3) The
FSA
has one month following written notification under Regulation 21 (The Authority's approval for certain changes in respect of a company) to consider whether or not to refuse the proposal. In the case of a notice under Regulation 22A (The Authority's approval for conversion of a feeder UCITS) the period available to the
FSA
is 15 working days.
- 14/12/2012
Revocation of authorisation (Regulation 23)
COLLG 4A.1.4
See Notes
The
FSA
can revoke or refuse to revoke an authorisation order on similar grounds to those for an AUT. If it proposes to do so, similar procedures for warning notices and decision notices as for AUTs apply (see COLLG 3A.1.5 G (2)).
- 14/12/2012
Power of intervention (Regulation 25)
COLLG 4A.1.5
See Notes
The
FSA
has a power of intervention if it appears there is a breach of the Act or a rule of COLL, or if it is desirable to give a direction to protect the interests of investors in the ICVC. Directions can be given to cease the issue or redemption of units or any class of unit in the ICVC or for the winding up of the ICVC.
- 14/12/2012
Corporate Code
COLLG 4A.1.6
See Notes
(1) Certain provisions of the Companies Acts will apply to ICVCs, as they are incorporated bodies (especially, but not exclusively, regarding the holding of meetings).
(2) Regulations 34 to 70 lay down the corporate code for ICVCs. The code contains provisions dealing with the operation of ICVCs and includes a number of general company law provisions, for example personal liability for contracts and deeds and punishment for fraudulent trading. The operation of an ICVC is also governed by COLL.
- 14/12/2012
The FSA's registration function
COLLG 4A.1.7
See Notes
In accordance with Part IV of the OEIC Regulations, the
FSA
is required to maintain a register of ICVCs, allocate to each a registered number, and carry out certain other registration functions.
- 14/12/2012
Sub-funds of umbrella ICVC
COLLG 4A.1.8
See Notes
Regulations 11A, 11B and 33C implement a protected cell regime for sub-funds of umbrellaICVCs. As a result a unitholder in a solvent sub-fund of an umbrellaICVC receives protection in respect of liabilities of and claims against: (i) the umbrella company; and (ii) any other sub-fund. COLL provides for:
(1) disclosure requirements in respect of the limited recourse to the assets and liabilities of a particular sub-fund in the instrument constituting the scheme (see COLL 3.2.6 R (Table: contents of the instrument constituting the scheme) paragraph 22A) and the prospectus (see COLL 4.2.5 R (Table: contents of the prospectus) paragraph 2A);
(2) limitations on cross sub-fund investment (see COLL 5.2 (General investment powers and limits for UCITS schemes) for UCITS schemes and COLL 5.6 (Investment powers and borrowing limits for non-UCITS retail schemes) for non-UCITS retail schemes); and
(3) duties on the ACD to take appropriate action in relation to foreign law contracts which after prompt investigation appear to be inconsistent with the principle of limited recourse (see COLL 6.6.5A R (Duties of the ACD of an ICVC: umbrella schemes)).
- 14/12/2012
COLLG 5A
The COLL sourcebook
COLLG 5A.1
Introduction
- 14/12/2012
COLLG 5A.1.1
See Notes
(1)
COLL is a specialist sourcebook that sits in Block 6 (Specialist Sourcebooks) of the
FSA Handbook
. It provides the detailed framework within which authorised funds operate and includes requirements relating to recognised schemes.
(2) The material in COLL (excluding chapter 9) forms a major part of the product regulation regime for ICVCs and AUTs, supplementing the material in the OEIC Regulations (for ICVCs) and chapter III of Part XVII of the Act (for AUTs) and giving effect to the relevant parts of the UCITS Directive. This is shown in the diagram at COLLG 5A.1.5 G.
(3) The sourcebook is designed as a two-tier approach, depending on whether the authorised fund is capable of being promoted to the general public (a retail scheme) or is sold to sophisticated investors (a qualified investor scheme).
- 14/12/2012
Definition of terms in COLL
COLLG 5A.1.2
See Notes
Some parts of COLL relate only to ICVCs and some parts only to AUTs. However, most of COLL covers both ICVCs and AUTs, so some of the defined terms included relate equally to both ICVCs and AUTs (together defined as "authorised funds"). Other key terms are:
(2) "depositary", which when used for an authorised fund refers to both the depositary of an ICVC and the trustee of an AUT; and
(3) "unit", which according to the context can refer to a "share" in an ICVC, a "unit" in an AUT, and the rights or interests of participants in other types of collective investment scheme.
- 14/12/2012
Outline of the content of COLL
COLLG 5A.1.3
See Notes
The contents of COLL are outlined below.
- (1) COLL 1 (Introduction) sets out which firms COLL applies to and gives an overview of the types of authorised fund.
- (2) COLL 2 (Authorised fund applications) sets out the initial application requirements for authorised funds and the rules concerning notifications which need to be made to the FSA in its role as registrar of ICVCs.
- (3) COLL 3 (Constitution) includes requirements regarding the contents of the instrument constituting the scheme for authorised funds that are retail schemes and other matters relating to their constitutional features, such as classes of units.
- (4) COLL 4 (Investor relations) includes consumer-facing material relating to authorised funds that are retail schemes. So, material on the prospectus, key investor information document, simplified prospectus (for non-UCITS retail schemes or feeder NURS, where the authorised fund manager opts to produce this), and reports and accounts is included in that chapter, together with rules relating to when unitholders must be notified of events and when meetings of unitholders, are required. The chapter also includes the information to be given to unitholders of a feeder UCITS in certain circumstances. (A key investor information document is not required for a non-UCITS retail scheme or feeder NURS. However, an authorised fund manager of such a scheme can choose to produce an equivalent document to the key investor information document, which is referred to as a NURS-KII document, by applying for a modification by consent(see www.fsa.gov.uk/pages/doing/regulated/notify/waiver/consent/cobs_coll.shtml). If an authorised fund manager of such a scheme does not choose to produce a NURS-KII document it must produce a key features document, in accordance with the provisions of COBS 13.3 (Contents of a key features document), or opt to produce a simplified prospectus).
- (5) COLL 5 (Investment and borrowing powers) requires authorised funds that are retail schemes, their authorised fund managers and depositaries, to comply with rules on the investment composition of the scheme. It is divided up as follows:
- (a) COLL 5.2 to COLL 5.3 implement the UCITS Directive requirements which require quality, spread and counterparty limits to be imposed on the assets of funds within the scope of the Directive (as set out in COLLG 2A.1.4 G);
- (b) COLL 5.4 provides rules on stock lending;
- (c) COLL 5.5 provides rules on holding cash and near cash, borrowing and lending;
- (d) COLL 5.6 provides investment rules for non-UCITS retail schemes;
- (e) COLL 5.7 provides a regime for a non-UCITS retail scheme that is to be operated as a fund of alternative investment funds (FAIF). The authorised fund manager of such a fund must carry out certain additional due diligence procedures in relation to the funds in which the FAIF is to invest;
- (f) COLL 5.8 sets out investment powers and limits for a UCITS scheme that is to be operated as a feeder UCITS. It also sets out what other provisions in COLL 5 are applicable to a feeder UCITS; and
- (g) COLL 5.9 specifies the permitted investments for a UCITS scheme or a non-UCITS retail scheme operating as a money market fund or a short-term money market fund. These restrictions reflect CESR's guidelines on a common definition of European money market funds.
- (6) COLL 6 (Operating duties and responsibilities) contains rules on the day-to-day operation of authorised funds that are retail schemes. In particular:
- (a) COLL 6.2 sets out rules relating to dealing in units, including the issue and cancellation of units;
- (b) COLL 6.3 sets out how authorised funds must be valued and prices of units calculated and published;
- (c) COLL 6.4 provides requirements relating to the register of unitholders in an AUT (see the OEIC Regulations for ICVCs) and any plan register;
- (d) COLL 6.5 sets out rules relating to the appointment and replacement of the authorised fund manager and depositary;
- (e) COLL 6.6 imposes certain powers and duties on the authorised fund manager and the depositary and COLL 6.6A imposes certain powers and duties on the authorised fund managers of UCITS schemes and on a UK UCITS management company of an EEA UCITS scheme;
- (f) COLL 6.7 lays down conditions concerning charges and expenses that may be taken when investors buy or sell units, and what payments may be made out of the scheme property;
- (g) COLL 6.8 provides rules and guidance on the calculation and distribution of income;
- (h) COLL 6.9 gives guidance relating to independence of the depositary and management company, scheme names and the restrictions on the business of the UCITS;
- (i) COLL 6.10 sets out the oversight responsibilities of senior personnel in relation to a UCITS scheme;
- (j) COLL 6.11 and COLL 6.12 set out more detail about the risk controls and risk management policy that must be employed in relation to a UCITS scheme; and
- (k) COLL 6.13 sets out record-keeping requirements in relation to a UCITS scheme.
- (7) COLL 7 (Suspension of dealings and termination of authorised funds) includes the requirements for suspension of dealing in the units of authorised funds and how they may be wound up (including termination of sub-funds). COLL 7.7 provides rules in relation to mergers subject to the UCITS Directive.
- (8) COLL 8 (Qualified Investor Schemes) provides a framework of rules for a scheme which restricts subscription to certain prescribed categories of investor (principally professional clients and sophisticated investors). For such a scheme, the FSA considers that not all the detailed product rule protections that apply to retail schemes are necessary. This type of scheme, called a qualified investor scheme, satisfies the essential features of an authorised product and so distinguishes itself from an unregulated collective investment scheme, but otherwise is allowed more flexibility in its operation compared to the framework for retail schemes. COLL 2 (Authorised fund applications) contains details of the application procedure for qualified investor schemes.
- (9) COLL 9 (Recognised Schemes) applies to collective investment schemes established outside the United Kingdom. It brings together the material relating to the admission to marketing of such schemes in the United Kingdom, supplementing material in chapter V of Part XVIIof the Act (Recognised overseas schemes).
- (10) COLL 10 (Fees) is no longer used as the provisions are set out in FEES.
- (11) COLL 11 (Master-feeder arrangements under the UCITS Directive) sets out various Directive requirements applicable to feeder UCITS and master UCITS, including the arrangements for co-ordination and information-sharing between the UCITS management companies, depositaries and auditors of each scheme.
- (12) COLL 12 (Management company and product passports under the UCITS Directive) provides more information about the rules that are applicable to the use of the UCITS management company passport and the UCITS product passport. It sets out which rules in COLL are applicable to an EEA UCITS management company that wishes to operate a UCITS scheme in the UK through the exercise of passporting rights.
- (13) COLL 13 (Operation of a feeder NURS) sets out requirements relating to the operation of a feeder NURS and certain types of qualifying master scheme. Such operational obligations concern, for example, information which is to be obtained and/or provided pre-investment, and the treatment of a charge made to a feeder NURS for acquisition or disposal of units in a qualifying master scheme.
- 14/12/2012
Related Sourcebooks
COLLG 5A.1.4
See Notes
(1) There are a number of other parts of the
FSA's Handbook
that are particularly relevant to those having a responsibility in relation to authorised funds. These include:
(a)
PRIN (The Principles for Businesses);
(b)
SYSC (Senior Management Arrangements, Systems and Controls);
(c)
APER (The Statements of Principle and Code of Practice for Approved Persons);
(d)
FEES (the Fees manual), which includes details of the application and periodic fees payable for authorised funds and recognised schemes;
(e)
COBS (the Conduct of Business sourcebook);
(f)
CASS (the Client Assets sourcebook);
(g)
SUP (the Supervision manual);
(h)
DEPP (the Decision Procedure and Penalties manual);
(i)
DISP (Dispute resolution: complaints); and
(j)
COMP (Compensation).
(2)
UPRU (the Prudential sourcebook for UCITS firms) sets out the financial resources requirements for an authorised fund manager of a UCITS scheme where that manager is undertaking only scheme management activity. BIPRU (the Prudential sourcebook for Banks, Building Societies and Investment Firms) applies certain requirements to the authorised fund manager of a UCITS scheme where that manager is a UCITS investment firm. Both sourcebooks include certain requirements of the UCITS Directive.
(3)
IPRU(INV) (the Interim Prudential sourcebook for Investment Businesses) sets out the financial resources requirements for an authorised fund manager of a qualified investor scheme or a non-UCITS retail scheme, unless the authorised fund manager is a BIPRU investment firm, in which case BIPRU (the Prudential sourcebook for Banks, Building Societies and Investment Firms) sets out the financial resources requirements.
(4) In addition to the listed sourcebooks, Regulatory Guides may also be of relevance. For example EG link 14 (Collective Investment Schemes) sets out the
FSA's
policies and procedures concerning the use of its enforcement powers in relation to regulated collective investment schemes.
- 14/12/2012
