COLL Collective Investment Schemes

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COLL 1

Introduction

COLL 1.1

Applications and purpose

  • 01/12/2004

Application

COLL 1.1.1

handbook-guidance
(1) This sourcebook, except for COLL 9 (Recognised schemes), applies to:
(a) investment companies with variable capital (ICVCs);
(b) ACDs, other directors and depositaries of ICVCs; and
(c) managers and trustees of authorised unit trust schemes (AUTs).
(2) COLL 9 applies to operators of schemes that are recognised schemes and to those seeking to secure recognised status for such schemes.

COLL 1.1.1A

handbook-rule
This sourcebook does not apply to an incoming ECA provider acting as such.
  • 01/11/2007

Purpose

COLL 1.1.2

handbook-guidance
(1) The general purpose of this sourcebook is to contribute to the FSA meeting its regulatory objective of the protection of consumers. It provides a regime of product regulation for authorised funds, which sets appropriate standards of protection for investors by specifying a number of features of those products and how they are to be operated.
(2) In addition, this sourcebook implements part of the requirements of the UCITS Directive to meet EU law obligations relevant to authorised funds, with other requirements implemented in other parts of the Handbook.

The Collective Investment Schemes Information Guide

COLL 1.1.3

handbook-guidance
The Collective Investment Schemes Information Guide COLLG provides some general background material on the regulatory structure surrounding scheme regulation in the UK.
  • 01/04/2004

COLL 1.2

Types of authorised fund

  • 01/12/2004

Types of authorised fund

COLL 1.2.1

handbook-rule
An application for an authorisation order must propose that the scheme be one of the following types:
(1) a UCITS scheme;
(2) a non-UCITS retail scheme including a non-UCITS retail scheme operating as a fund of alternative investment funds (FAIF); or
(3) a qualified investor scheme.

Types of authorised fund - explanation

COLL 1.2.2

handbook-guidance
(1) UCITS schemes have to comply with the conditions necessary in order to enjoy the rights available under the UCITS Directive. Such schemes must in particular comply with:
(a) COLL 3.2.8 R (UCITS obligations); and
(b) the investment and borrowing powers rules for UCITS schemes set out in COLL 5.2 to COLL 5.5.
(2) Non-UCITS retail schemes are schemes that do not comply with all the conditions set out in the UCITS Directive. Such schemes could become UCITS schemes provided they are changed, so as to comply with the conditions set out in the UCITS Directive. Non-UCITS retail schemes operating as FAIFs have wider powers to invest in collective investment schemes than other non-UCITS retail schemes.
(3) Qualified investor schemes may only be promoted to professional investors on the same terms as unregulated collective investment schemes. Such schemes could change to become non-UCITS retail schemes or UCITS schemes.
(4) The changes referred to in (2) and (3) require approval by the FSA and further information on that process is provided in COLLG 3.1.5 G (Notification of changes to unit trusts (section 251)) and COLLG 4.1.3 G (Notification of changes to ICVCs (Regulation 21)).

Export chapter as

COLL 2

Authorised fund applications

COLL 2.1

Authorised fund applications

  • 01/12/2004

Application

COLL 2.1.1

handbook-rule
This chapter applies to any person seeking to arrange for the authorisation of a scheme.
  • 01/04/2004

Purpose

COLL 2.1.2

handbook-guidance
This chapter helps in achieving the regulatory objective of protecting consumers by ensuring that any application for authorisation of a fund meets certain standards.
  • 01/04/2004

Explanation

COLL 2.1.3

handbook-guidance
(1) This chapter sets out the requirements that a person must follow in applying for an authorisation order for a scheme under regulation 12 of the OEIC Regulations (Applications for authorisation) or section 242 of the Act (Applications for authorisation of unit trust schemes) .
(2) COLLG 3 (The FSA's responsibilities under the Act) and COLLG 4 (The FSA's responsibilities under the OEIC Regulations) provide more information on what the Act and the OEIC Regulations require in relation to ongoing notifications to the FSA .
  • 01/04/2004

Specific requirements on application

COLL 2.1.4

handbook-directions
An application for an authorisation order in respect of an authorised fund must be:
(1) in writing in the manner directed and contain the information required in the application form available from the FSA ;
(2) addressed for the attention of a member of FSA staff responsible for collective investment scheme authorisation matters; and
(3) delivered to the FSA's address by one of the following methods:
(a) posting; or
(b) leaving it at the FSA's address and obtaining a time-stamped receipt; or
(c) delivery by hand to a member of FSA staff responsible for collective investment scheme authorisation matters.
  • 01/04/2004

Export chapter as

COLL 3

Constitution

COLL 3.1

Introduction

  • 01/12/2004

Application

COLL 3.1.1

handbook-rule
This chapter applies to:
(1) an authorised fund manager of an AUT or an ICVC;
(2) any other director of an ICVC;
(3) a depositary of an AUT or an ICVC; and
(4) an ICVC,
where the AUT or ICVC is a UCITS scheme or a non-UCITS retail scheme.
  • 01/04/2004

Purpose

COLL 3.1.2

handbook-guidance
This chapter assists in achieving the regulatory objective of protecting consumers. In particular:
(1) COLL 3.2 (The instrument constituting the scheme) contains requirements about provisions which must be included in the instrument constituting the scheme to give a similar degree of protection for investors in an ICVC or in an AUT; and
(2) COLL 3.3 (Units) provides rules and guidance which deal with the classes of units to ensure that investors in each class are treated equally.
  • 01/04/2004

COLL 3.2

The instrument constituting the scheme

  • 01/12/2004

Application

COLL 3.2.1

handbook-rule
This section applies to:
(1) an authorised fund manager of an AUT or ICVC;
(2) any other director of an ICVC;
(3) a depositary of an AUT or an ICVC; and
(4) an ICVC,
except COLL 3.2.8 R (UCITS obligations), which applies only to an ICVC or to the manager of an AUT where the ICVC or AUT is a UCITS scheme.
  • 01/04/2004

Relationship between the instrument constituting the scheme and the rulesRelationship between the instrument constituting the fund and the rules

COLL 3.2.2

handbook-rule
(1) The instrument constituting the scheme must not contain any provision that:
(a) conflicts with any rule in this sourcebook;
(b) prevents units in the scheme being marketed in the United Kingdom; or
(c) is unfairly prejudicial to the interests of unitholders generally or to the unitholders of any class of units.
(2) Any power conferred by the rules on the ICVC, the authorised fund manager, any other director of the ICVC, or the depositary, whether in a sole or joint capacity, is subject to any restriction in the instrument constituting the scheme.
  • 01/04/2004

The trust deed for AUTs

COLL 3.2.3

handbook-rule
An AUT must be constituted by a trust deed made between the manager and the trustee.
  • 01/04/2004

Matters which must be included in the instrument constituting the scheme

COLL 3.2.4

handbook-rule
The statements and provisions required by COLL 3.2.6 R (Table: contents of the instrument constituting the scheme) must be included in the instrument constituting the scheme, where appropriate.
  • 01/04/2004

The instrument constituting the scheme: OEIC Regulations and trust law requirements

COLL 3.2.5

handbook-guidance
(1) Several of the matters set out in COLL 3.2.6 R are required to be included in the instrument constituting the scheme under the OEIC Regulations or as a consequence of relevant trust law. In addition, further statements are required if the scheme or the authorised fund manager are to take advantage of the powers under the rules in this sourcebook.
(2) Additional matters which are not contained in COLL 3.2.6 R may be required to be included in the instrument constituting the scheme in order to comply with the OEIC Regulations, (particularly Schedule 2 - Instrument of Incorporation) and for the purposes of making the scheme eligible under relevant tax, pensions, or charities legislation.
  • 01/04/2004

Table: contents of the instrument constituting the scheme

COLL 3.2.6

handbook-rule
This table belongs to COLL 3.2.4 R (Matters which must be included in the instrument constituting the scheme)

Umbrella scheme with only one sub-fund

COLL 3.2.7

handbook-rule
(1) [deleted]
(2) [deleted]
(3) [deleted]

UCITS obligations

COLL 3.2.8

handbook-rule
(1) The instrument constituting a UCITS scheme may not be amended in such a way that it ceases to be a UCITS scheme.
(2) If it is proposed to market units of a UCITS scheme in any EEA State other than the United Kingdom, the authorised fund manager of that scheme must notify the FSA of its proposal, specifying the EEA State concerned.
(3) The ICVC or the manager must make the notification in (2) no later than the notification to the authorities in that EEA State of that proposal.

COLL 3.3

Units

  • 01/12/2004

Application

COLL 3.3.1

handbook-rule
This section applies to an authorised fund manager, an ICVC and the trustee of an AUT.
  • 01/04/2004

Classes of units

COLL 3.3.2

handbook-guidance
(1) The instrument constituting the scheme may provide for different classes of unit to be issued in an authorised fund and, for a scheme which is an umbrella, provide that classes of units may be issued for each sub-fund.
(2) In order to be satisfied that COLL 3.2.2 R (Relationship between the instrument constituting the scheme and the rules) is complied with, the FSA will take into account the principles in (a) to (c) when considering proposals for unit classes:
(a) a unit class should not provide any advantage for that class if that would result in prejudice to unitholders of any other class;
(b) the nature, operation and effect of the new unit class should be capable of being explained clearly to prospective investors in the prospectus; and
(c) the effect of the new unit class should not appear to be contrary to the purpose of any part of this sourcebook.
  • 01/04/2004

Currency class units

COLL 3.3.3

handbook-guidance
A currency class unit differs from other units mainly in that its price, having been calculated initially in the base currency, will be quoted, and normally paid for, in the currency of the designation of the class. Income distributions will also be paid in the currency of designation of the class.
  • 01/04/2004

Currency class units: requirements

COLL 3.3.4

handbook-rule
For a currency class unit:
(1) the currency of the class concerned must not be the base currency (or, in the case of a sub-fund which, in accordance with a statement in the prospectus, is to be valued in some other currency, the currency of the class may be in the base currency, but must not be in that other currency);
(2) the price must be expressed in the currency of the class concerned;
(3) any distribution must be paid in the currency of the class concerned; and
(4) statements of amounts of money or values included in statements and in tax certificates must be given in the currency of the class concerned (whether or not also given in the base currency).
  • 01/04/2004

Rights of unit classes

COLL 3.3.5

handbook-rule
(1) If any class of units in an authorised fund has different rights from another class of units in that fund, the instrument constituting the scheme must provide how the proportion of the value of the scheme property and the proportion of income available for allocation attributable to each such class must be calculated.
(2) For an authorised fund which is not an umbrella, the instrument constituting the scheme must not provide for any class of units in respect of which:
(a) the extent of the rights to participate in the capital property, income property or distribution account would be determined differently from the extent of the corresponding rights for any other class of units; or
(b) payments or accumulation of income or capital would differ in source or form from those of any other class of units.
(3) For a scheme which is an umbrella, the provisions in (2)(a) apply to classes of units in respect of each sub-fund as if each sub-fund were a separate scheme.
(4) Paragraphs (2) and (3) do not prohibit a difference between the rights attached to one class of units and to another class of units that relates solely to:
(a) the accumulation of income by way of periodical credit to capital rather than distribution; or
(b) charges and expenses that may be taken out of the scheme property or payable by the unitholders; or
(c) the currency in which prices or values are expressed or payments made; or
(d) the use of derivatives and forward transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between the currency of a class of unitsand either the base currency of the scheme or any currency in which all or part of the scheme property is denominated or valued (in this section referred to as a "class hedging transaction").

Hedging of unit classes

COLL 3.3.5A

handbook-rule
A class hedging transaction must:
(1) be undertaken in accordance with the requirements of COLL 5 (Investment and borrowing powers); and
(2) (for the purposes of valuing scheme property and calculating the price of units in accordance with COLL 6.3 (Valuation and pricing)) be attributed only to the class of unitsfor which it is undertaken.

Guidance on hedging of unit classes

COLL 3.3.5B

handbook-guidance
(1) Before undertaking a class hedging transaction for a class of units, the authorised fund manager should:
(a) ensure that the relevant prospectus clearly:
(i) states that such a transaction may be undertaken for the relevant class of units ; and
(ii) explains the nature of the risks that such a transaction may pose to investors in all classes;
(b) consult the depositary about the adequacy of the systems and controls it uses to ensure compliance with COLL 3.3.5A R (Hedging of unit classes); and
(c) consult the schemeauditor and, where appropriate, depositary to determine how:
(i) the transaction will be treated in the scheme's accounts; and
(ii) any consequential tax liability will be met;
(in each case) without prejudice to unitholders of classes other than the relevant hedged class.
(2) Class hedging transactions should be entered into for the purpose of reducing risk by limiting the effect of movements in exchange rates on the value of a unit. Such transactions are not limited to currency class units. The authorised fund manager should ensure that the total value of the hedged position does not exceed the value of the relevant class of units unless there is adequate cover and it is reasonable for it to do so on a temporary basis for reasons of efficiency (for example, to avoid the need to make small and frequent adjusting transactions). In such cases, the difference between the value of the hedged position and the value of the class of unitsshould not be so large as to be speculative or to constitute an investment strategy.

Requirement: larger and smaller denomination shares in an ICVC

COLL 3.3.6

handbook-rule
(1) This rule applies whenever the instrument of incorporation of an ICVC provides, in relation to any class, for smaller denomination shares and larger denomination shares.
(2) Whenever a registered holding includes a number of smaller denomination shares that can be consolidated into a larger denomination share of the same class, the ACD must consolidate the relevant number of those smaller denomination shares into a larger denomination share.
(3) The ACD may, to effect a transaction in shares, substitute for a larger denomination share the relevant number of smaller denomination shares, in which case (2) does not apply to the resulting smaller denomination shareholding or holdings until immediately after the completion of the transaction.
  • 01/04/2004

Characteristics of larger and smaller denomination shares in an ICVC

COLL 3.3.7

handbook-guidance
Regulation 45 of the OEIC Regulations (Shares) allows the rights attached to a share in an ICVC of any class to be expressed in two denominations, in which case the 'smaller' denomination must be such proportion of the 'larger' denomination (a standard share) as is fixed by the ICVC's instrument of incorporation as described in COLL 3.2.6R (19). This will enable holdings to consist of more or less than a complete number of larger denomination shares.
  • 01/04/2004

Sub-division and consolidation of units

COLL 3.3.8

handbook-rule
(1) The directors of an ICVC or the manager of an AUT may, unless expressly forbidden to do so by the instrument constituting the scheme, determine that:
(a) each unit of any class is to be subdivided into two or more units; or
(b) units of any class are to be consolidated.
(2) The ICVC or the manager must (unless it has done so before the sub-division or consolidation became effective) immediately give notice to each unitholder (or the first named of joint unitholders) of any sub-division or consolidation under (1).
  • 01/04/2004

Guarantees and capital protection

COLL 3.3.9

handbook-rule
If there is any arrangement intended to result in a particular capital or income return from a holding of units in an authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding:
(1) that arrangement or protection must not be such as to cause the possibility of a conflict of interest as between:
(a) unitholders and the authorised fund manager or depositary; or
(b) unitholders intended and not intended to benefit from the arrangement; and
(2) where, in accordance with any statement required by COLL 4.2.5R (27)(c)(iv) (Table: contents of the prospectus), action is required by the unitholders to obtain the benefit of any guarantee, the authorised fund manager must provide reasonable notice in writing to unitholders before such action is required.
  • 01/04/2004

Switching rights: umbrella schemes

COLL 3.3.10

handbook-guidance
(1) In accordance with section 235(4) of the Act (Collective investment schemes), the participants in a scheme which is an umbrella are entitled to exchange rights in one sub-fund for rights in another sub-fund of the umbrella.
(2) To satisfy (1), where any sub-fund in a scheme which is an umbrella has provisions in its prospectus limiting the issue of units in that sub-fund, the authorised fund manager should ensure that at least two sub-funds are able to issue units at any time. In the case of an umbrella consisting of a single sub-fund that limits the issue of units, where the ICVC or the manager of such an umbrella intends to offer additional sub-funds, it should ensure that unitholders will have the right to switch at all times between two or more sub-funds in that umbrella.

Export chapter as

COLL 4

Investor Relations

COLL 4.1

Introduction

  • 01/12/2004

Application

COLL 4.1.1

handbook-rule
This chapter applies to:
(1) an authorised fund manager of an AUT or an ICVC;
(2) any other director of an ICVC;
(3) a depositary of an AUT or an ICVC; and
(4) an ICVC,
where such AUT or ICVC is a UCITS scheme or a non-UCITS retail scheme.
  • 01/04/2004

Purpose

COLL 4.1.2

handbook-guidance
This chapter helps in achieving the regulatory objective of protecting consumers by ensuring consumers have access to up-to-date detailed information about an authorised fund particularly before buying units and thereafter an appropriate level of investor involvement exists by providing a framework for them to:
(1) participate in the decisions on key issues concerning the authorised fund; and
(2) be sent regular and relevant information about the authorised fund.
  • 01/04/2004

COLL 4.2

Pre-sale notifications

  • 01/12/2004

Application

COLL 4.2.1

handbook-rule
This section applies to an authorised fund manager, an ICVC and any other director of an ICVC
  • 01/04/2004

Publishing the prospectus

COLL 4.2.2

handbook-rule
(1) A prospectus must be drawn up in English and published as a document by the authorised fund manager and, for an ICVC, it must be approved by the directors.
(2) The authorised fund manager must ensure that the prospectus:
(a) contains the information required by COLL 4.2.5 R (Table: contents of the prospectus);
(b) does not contain any provision which is unfairly prejudicial to the interests of unitholders generally or to the unitholders of any class of units;
(c) does not contain any provision that conflicts with any rule in this sourcebook; and
(d) is kept up-to-date and that revisions are made to it, whenever appropriate.
  • 01/04/2004

Availability of prospectus and long report

COLL 4.2.3

handbook-rule
(1) An ICVC or the manager of an AUT must:
(a) supply a copy of the scheme's most recent prospectus drawn up and published in accordance with COLL 4.2.2 R (Publishing the prospectus) free of charge to any person on request; and
(b) file a copy of the scheme's original prospectus, together with all revisions thereto, with the FSA .
(2) An ICVC or the manager of an AUT which in either case is a UCITS scheme intending to market units in the territory of another EEA State must:
(a) ensure that the following documents are drawn up in the, or one of the, official languages of the EEA State or a language approved by the Host State regulator:
(i) the prospectus;
(ii) the instrument constituting the scheme; and
(iii) the latest annual and half-yearly long reports of the scheme;
(b) supply copies of the most recent version of the documents in (a) to any purchaser of units free of charge on request, and
(c) file copies of the most recent version of the documents in (a) with the competent authority of each such Host State, provided in the language, or one of the, languages of that State or a language approved by the competent authority of that State.
(3) An authorised fund manager must, upon the request of a unitholder in a UCITS scheme that it manages, provide information supplementary to the prospectus of that scheme relating to:
(a) the quantitative limits applying to the risk management of that scheme;
(b) the methods used in relation to (a); and
(c) any recent development of the risk and yields of the main categories of investment.

False or misleading prospectus

COLL 4.2.4

handbook-rule
(1) The authorised fund manager:
(a) must ensure that the prospectus of the authorised fund does not contain any untrue or misleading statement or omit any matter required by the rules in this sourcebook to be included in it; and
(b) is liable to pay compensation to any person who has acquired any units in the authorised fund and suffered loss in respect of them as a result of such statement or omission; this is in addition to any liability incurred apart from under this rule.
(2) The authorised fund manager is not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if, at the time when the prospectus was made available to the public, it had taken reasonable care to determine that the statement was true and not misleading, or that the omission was appropriate, and that:
(a) it continued to take such reasonable care until the time of the relevant acquisition of units in the scheme; or
(b) the acquisition took place before it was reasonably practicable to bring a correction to the attention of potential purchasers; or
(c) it had already taken all reasonable steps to ensure that a correction was brought to the attention of potential purchasers; or
(d) the person who acquired the units was not materially influenced or affected by that statement or omission in making the decision to invest.
(3) The authorised fund manager is also not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if:
(a) before the acquisition a correction had been published in a manner calculated to bring it to the attention of persons likely to acquire the units in question; or
(b) it took all reasonable steps to secure such publication and had reasonable grounds to conclude that publication had taken place before the units were acquired.
(4) The authorised fund manager is not liable to pay compensation under (1)(b) if the person who acquired the units knew at the time of the acquisition that the statement was untrue or misleading or knew of the omission.
(5) For the purposes of this rule a revised prospectus will be treated as a different prospectus from the original one.
(6) References in this rule to the acquisition of units include references to contracting to acquire them.
  • 01/04/2004

Table: contents of the prospectus

COLL 4.2.5

handbook-rule
This table belongs to COLL 4.2.2 R (Publishing the prospectus).

Guidance on contents of the prospectus

COLL 4.2.6

handbook-guidance
(1) In relation to COLL 4.2.5R (3)(b) the prospectus might include:
(a) a description of the extent (if any) to which that policy does not envisage the authorised fund remaining fully invested at all times;
(b) for a non-UCITS retail scheme which may invest in immovable property:
(i) the maximum extent to which the scheme property may be invested in immovables; and
(ii) a statement of the policy of the authorised fund manager in relation to insurance of immovables forming part of the scheme property; and
(c) a description of any restrictions in the assets in which investment may be made, including restrictions in the extent to which the authorised fund may invest in any category of asset, indicating (if appropriate) where the restrictions are more onerous than those imposed by COLL 5 (Investment and borrowing powers).
(2) In relation to COLL 4.2.5R (13), the type of payments are likely to include management fees (such as periodic and performance fees), depositary fees, custodian fees, transaction fees, registrar fees, audit fees and FSA fees. Expenses which represent properly incurred costs of the scheme may also be treated as a type of payment for this purpose.
(3) In relation to COLL 4.2.5R (27), the prospectus might include a statement of the authorised fund manager's policy in relation to holding units in the scheme as principal, and in particular whether it seeks to make a profit from doing so. It might also include a prominent statement of non-accountability referred to in COLL 6.7.16 G (Exemptions from liability to account for profits).
(4) In relation to COLL 4.2.5 R (16)(a), where the prospectus includes provisions for both a single-priced authorised fund and a dual-priced authorised fund, it should state prominently which method of pricing is applicable to which authorised fund, and explain how the differences between them may affect unitholders (for example if a unitholder exchanges units in a single-priced authorised fund for units in a dual-priced authorised fund, or vice versa).
(5) Additional matters which are not contained in COLL 4.2.5 R may be required to be included in the prospectus, for example for the purposes of making the scheme eligible under relevant tax legislation.

COLL 4.3

Approvals and notifications

  • 01/12/2004

Application

COLL 4.3.1

handbook-rule
This section applies to an authorised fund manager.
  • 01/04/2004

Explanation

COLL 4.3.2

handbook-guidance
(1) The diagram in COLL 4.3.3 G explains how an authorised fund manager should treat changes it is proposing to a scheme and provides an overview of the rules and guidance in this section.
(2) Regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company) and section 251 of the Act (Alteration of schemes and changes of manager or trustee) require the prior approval of the FSA for certain proposed changes to an authorised fund, including a change of the authorised fund manager or depositary or a change to the instrument constituting the scheme . This should be kept in mind when considering any proposed change.
  • 01/04/2004

Diagram: Change event

COLL 4.3.3

handbook-guidance
This diagram belongs to COLL 4.3.2 G.
  • 01/04/2004

Fundamental change requiring prior approval by meeting

COLL 4.3.4

handbook-rule
(1) The authorised fund manager, must, by way of an extraordinary resolution, obtain prior approval from the unitholders for any proposed change to the scheme which, in accordance with (2), is a fundamental change.
(2) A fundamental change is a change or event which:
(a) changes the purposes or nature of the scheme; or
(b) may materially prejudice a unitholder; or
(c) alters the risk profile of the scheme; or
(d) introduces any new type of payment out of scheme property.
  • 01/04/2004

Guidance on fundamental changes

COLL 4.3.5

handbook-guidance
(1) Any change may be fundamental depending on its degree of materiality and effect on the scheme and its unitholders. Consequently an authorised fund manager will need to determine whether in each case a particular change is fundamental in nature or not.
(2) For the purpose of COLL 4.3.4R (2)(a) to COLL 4.3.4R (2)(c) a fundamental change to a scheme is likely to include:
(a) any proposal for a scheme of arrangement referred to in COLL 7.6.2 R (Schemes of arrangement: requirements);
(b) a change in the investment policy to achieve capital growth from investment in one country rather than another;
(c) a change in the investment objective or policy to achieve capital growth through investment in fixed interest rather than equity investments;
(d) a change in the investment policy to allow the authorised fund to invest in derivatives as an investment strategy which increases its volatility;
(e) a change to the characteristics of a scheme to distribute income annually rather than monthly; or
(f) the introduction of limited redemption arrangements.
  • 01/04/2004

Significant change requiring pre-event notification

COLL 4.3.6

handbook-rule
(1) The authorised fund manager must give prior written notice to unitholders, in respect of any proposed change to the operation of a scheme that, in accordance with (2), constitutes a significant change.
(2) A significant change is a change or event which is not fundamental in accordance with COLL 4.3.4 R but which:
(a) affects a unitholder's ability to exercise his rights in relation to his investment; or
(b) would reasonably be expected to cause the unitholder to reconsider his participation in the scheme; or
(c) results in any increased payments out of the scheme property to an authorised fund manager or any other director of an ICVC or an associate of either; or
(d) materially increases other types of payment out of scheme property.
(3) The notice period in (1) must be of a reasonable length (and must not be less than 60 days).
  • 01/04/2004

Guidance on significant changes

COLL 4.3.7

handbook-guidance
(1) Changes may be significant depending in each case on their degree of materiality and effect on the scheme and its unitholders. Consequently the authorised fund manager will need to determine whether in each case a particular change is significant in nature or not.
(2) For the purpose of COLL 4.3.6 R a significant change is likely to include:
(a) a change in the method of price publication;
(b) a change in any operational policy such as dilution policy or allocation of payments policy;
(c) an increase in the preliminary charge where units are purchased through a group savings plan; or
(d) a change in the pricing arrangements for units of the scheme so as to cause a single-priced authorised fund to become a dual-priced authorised fund, or vice versa.
(3) Where the directors of an ICVC elect to discontinue holding annual general meetings under paragraph 37A of the OEIC Regulations, they are required to give 60 days' written notice to shareholders. For the purpose of COLL 4.3.6 R this should be treated as a significant change to the operation of the scheme.

Notifiable changes

COLL 4.3.8

handbook-rule
(1) The authorised fund manager must inform unitholders in an appropriate manner and timescale of any notifiable changes that are reasonably likely to affect, or have affected, the operation of the scheme.
(2) A notifiable change is a change or event, other than a fundamental change under COLL 4.3.4 R or a significant change under COLL 4.3.6 R, which a unitholder must be made aware of unless the authorised fund manager concludes that the change is insignificant.
  • 01/04/2004

Guidance on notifiable changes

COLL 4.3.9

handbook-guidance
(1) The circumstances causing a notifiable change may or may not be within the control of the authorised fund manager.
(2) For the purpose of COLL 4.3.8 R (Notifiable changes) a notifiable change might include:
(a) a change of named investment manager where the authorised fund has been marketed on the basis of that individual's involvement;
(b) a significant political event which impacts on the authorised fund or its operation;
(c) a change to the time of the valuation point;
(d) the introduction of limited issue arrangements; or
(e) a change of the depositary or a change in the name of the authorised fund.
(3) The appropriate manner and timescale of notification would depend on the nature of the change or event. Consequently the authorised fund manager will need to assess each change or event individually.
(4) An appropriate manner of notification could include:
(a) sending an immediate notification to the unitholder;
(b) publishing the information on a website; or
(c) the information being included in the next long report of the scheme.
  • 01/04/2004

COLL 4.4

Meetings of unitholders and service of notices

  • 01/12/2004

Application

COLL 4.4.1

handbook-rule
This section applies to an authorised fund manager, a depositary and any other director of an ICVC.
  • 01/04/2004

General meetings

COLL 4.4.2

handbook-rule
(1) The authorised fund manager, the depositary or the other directors of an ICVC may convene a general meeting of unitholders at any time.
(2) The unitholders may request the convening of a general meeting by a requisition which must:
(a) state the objects of the meeting;
(b) be dated;
(c) be signed by unitholders who, at that date, are registered as the unitholders of units representing not less than one-tenth in value (or such lower proportion stated in the instrument constituting the scheme ) of all of the units then in issue; and
(d) be deposited at the head office of the ICVC or with the trustee.
(3) The authorised fund manager, the depositary or the other directors of an ICVC must on receipt of a requisition that complies with (2), immediately convene a general meeting of the authorised fund for a date no later than eight weeks after receipt of the requisition.
  • 01/04/2004

Class meetings

COLL 4.4.3

handbook-rule
This section applies, unless the context otherwise requires, to class meetings by reference to the units of the class concerned and the unitholders and prices of such units.
  • 01/04/2004

Special meaning of unitholder in COLL 4.4

COLL 4.4.4

handbook-rule
(1) Unless a unit in the authorised fund is a participating security, in this section "unitholders" means unitholders as at a cut-off date selected by the authorised fund manager which is a reasonable time before notices of the relevant meeting are sent out.
(2) If any unit in the authorised fund is a participating security, a registered unitholder of such a unit is entitled to receive a notice of a meeting or a notice of an adjourned meeting under COLL 4.4.5 R (Notice of general meetings), if entered on the register at the close of business on a day to be determined by the authorised fund manager, which must not be more than 21 days before the notices of the meeting are sent out.
(3) For the purposes of (2), in COLL 4.4.6 R (Quorum) to COLL 4.4.11 R (Chairman, adjournments and minutes) "unitholders" in relation to those units means:
(a) the persons entered on the register at a time to be determined by the authorised fund manager and stated in the notice of the meeting, which must not be more than 48 hours before the time fixed for the meeting; or
(b) in the case of bearer units, unitholders of bearer units which were in issue at the time applicable under (a).
  • 01/04/2004

Notice of general meetings

COLL 4.4.5

handbook-rule
(1) Where the authorised fund manager, the depositary or the other directors of an ICVC decide to convene a general meeting of unitholders:
(a) each unitholder must be given at least 14 days written notice, inclusive of the date on which the notice is first served and the day of the meeting; and
(b) the notice must specify the place, day and hour of the meeting and the terms of the resolutions to be proposed and a copy of the notice must be sent to the depositary.
(2) The accidental omission to give notice to, or the non-receipt of notice by, any unitholder does not invalidate the proceedings at any meeting.
(3) Notice of an adjourned meeting of unitholders must be given to each unitholder, stating that while two unitholders present in person or proxy are required to constitute a quorum at the adjourned meeting, this may be reduced to one in accordance with COLL 4.4.6R (3), should two such unitholders not be present after a reasonable time of convening of the meeting.
(4) Paragraph (1)(a) does not apply to the notice of an adjourned meeting.
  • 01/04/2004

Quorum

COLL 4.4.6

handbook-rule
(1) The quorum required to conduct business at a meeting of unitholders is two unitholders, present in person or by proxy.
(2) If after a reasonable time from the time for the start of the meeting, a quorum is not present, the meeting:
(a) if convened on the requisition of unitholders, must be dissolved; and
(b) in any other case, must stand adjourned to:
(i) a day and time which is seven or more days after the day and time of the meeting; and
(ii) a place to be appointed by the chairman.
(3) If, at an adjourned meeting under (2)(b), a quorum is not present after a reasonable time from the time for the meeting, one person entitled to be counted in a quorum present at the meeting shall constitute a quorum.
  • 01/04/2004

Resolutions

COLL 4.4.7

handbook-rule
(1) Except where an extraordinary resolution is specifically required or permitted, any resolution of unitholders is passed by a simple majority of the votes validly cast at a general meeting of unitholders.
(2) In the case of an equality of, or an absence of, votes cast, the chairman is entitled to a casting vote.
(3) Where a resolution (including an extraordinary resolution) is required to conduct business at a meeting of unitholders and every unitholder is prohibited under COLL 4.4.8R (4) from voting, it shall not be necessary to convene such a meeting and a resolution may, with the prior written agreement of the depositary to the process, instead be passed with the written consent of unitholders representing 50% or more, or for an extraordinary resolution 75% or more, of the units of the scheme in issue.

Voting rights

COLL 4.4.8

handbook-rule
(1) On a show of hands every unitholder who is present in person has one vote.
(2) On a poll:
(a) votes may be given either personally or by proxy or in another manner permitted by the instrument constituting the scheme;
(b) the voting rights for each unit must be the proportion of the voting rights attached to all of the units in issue that the price of the unit bears to the aggregate price or prices of all of the units in issue:
(i) if any unit is a participating security, at the time determined under COLL 4.4.4R (2) (Special meaning of unitholder in COLL 4.4);
(ii) otherwise at the date specified in COLL 4.4.4R (1); and
(c) a unitholder need not use all his votes or cast all his votes in the same way.
(3) For joint unitholders, the vote of the most senior who votes, whether in person or by proxy, must be accepted to the exclusion of the votes of the other joint unitholders. For this purpose seniority must be determined by the order in which the names stand in the register of unitholders.
(4) No director of the ICVC or the manager can be counted in the quorum of, and no such director or the manager nor any of their associates may vote at, any meeting of the authorised fund.
(5) The prohibition in (4) does not apply to any units held on behalf of, or jointly with, a person who, if himself the registered unitholder, would be entitled to vote and from whom the director, the manager or its associate have received voting instructions.
(6) For the purpose of this section, units held, or treated as held, by the authorised fund manager or any other director of the ICVC, must not, except as mentioned in (5), be regarded as being in issue.

Right to demand a poll

COLL 4.4.9

handbook-rule
(1) A resolution put to the vote of a general meeting must be determined on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by:
(a) the chairman;
(b) at least two unitholders; or
(c) the depositary.
(2) Unless a poll is demanded in accordance with (1), a declaration by the chairman as to the result of a resolution is conclusive evidence of the fact.
  • 01/04/2004

Proxies

COLL 4.4.10

handbook-rule
(1) A unitholder may appoint another person to attend a general meeting and vote in his place.
(2) Unless the instrument constituting the scheme provides otherwise, a unitholder may appoint more than one proxy to attend on the same occasion but a proxy may vote only on a poll.
(3) Every notice calling a meeting of a scheme must contain a reasonably prominent statement that a unitholder entitled to attend and vote may appoint a proxy.
(4) For the appointment to be effective, any document relating to the appointment of a proxy must not be required to be received by the ICVC or any other person more than 48 hours before the meeting or adjourned meeting
  • 01/04/2004

Chairman, adjournment and minutes

COLL 4.4.11

handbook-rule
(1) A meeting of unitholders must have a chairman, nominated:
(a) in the case of an AUT, by the trustee;
(b) in the case of an ICVC, by a director other than the ACD or an associate of the ACD or, if no such nomination is made, by the depositary.
(2) If the chairman is not present after a reasonable time from the time for the meeting, the unitholders present must choose one of them to be chairman.
(3) The chairman:
(a) may, with the consent of any meeting of unitholders at which a quorum is present; and
(b) must, if so directed by the meeting;

adjourn the meeting from time to time and from place to place.
(4) Business must not be transacted at any adjourned meeting, except business which might have lawfully been transacted at the original meeting.
(5) The authorised fund manager must ensure that:
(a) minutes of all resolutions and proceedings at every meeting of unitholders are made and kept; and
(b) any minute made in (a) is signed by the chairman of the meeting of unitholders.
(6) Any minute referred to in (5)(b) is conclusive evidence of the matters stated in it.

Notices to unitholders

COLL 4.4.12

handbook-rule
(1) Where this sourcebook requires any notice or document to be served upon a unitholder, it is duly served :
(a) for units held by a registered unitholder, if it is:
(i) sent by post to or left at the unitholder's address as appearing in the register; or
(ii) sent by using an electronic medium in accordance with COLL 4.4.13 R (Other notices); or
(b) for units represented by bearer certificates, if given in the manner provided for in the prospectus.
(2) Any notice or document served by post is deemed to have been served on the second business day following the day on which it is posted.
(3) Any document left at a registered address or delivered other than by post is deemed to have been served on that day.

Other notices

COLL 4.4.13

handbook-rule
(1) Any document or notice to be served on or information to be given to, any person, including the FSA , must be in legible form.
(2) For the purposes of this rule, any form is legible form which:
(a) is consistent with the ICVC's, the directors', the authorised fund manager's or the depositary's knowledge of how the recipient of the document wishes or expects to receive the document;
(b) is capable of being provided in hard copy by the authorised fund manager, the depositary or any other director of the ICVC;
(c) enables the recipient to know or record the time of receipt; and
(d) is reasonable in the context.
(3)
(a) In this sourcebook, any requirement that a document be signed may be satisfied by an electronic signature or electronic evidence of assent.
(b) In relation to an AUT, where transfer of title to units is to be effected on the authority of an electronic communication, the manager must take reasonable steps to ensure that any electronic communication purporting to be made by the unitholder or his agent is in fact made by that person.

References to writing and electronic documents

COLL 4.4.14

handbook-guidance
In this sourcebook references to writing and the use of electronic media should be construed in accordance with GEN 2.2.14 R (References to writing) and its related guidance provisions.
  • 01/04/2004

Service of notice Regulations

COLL 4.4.15

handbook-guidance
The provisions in this section relating to the service and delivery of notices and documents both to unitholders and to the FSA , disapply the provisions of The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) under the power in Regulation 1(6) of those Regulations.
  • 01/04/2004

COLL 4.5

Reports and accounts

  • 01/12/2004

Application

COLL 4.5.1

handbook-rule
The rules and guidance in this section apply to an authorised fund manager, a depositary and any other director of an ICVC.
  • 01/04/2004

Explanation

COLL 4.5.2

handbook-guidance
In order to provide the unitholders with regular and relevant information about the progress of the authorised fund, the authorised fund manager must:
(1) prepare a short report and a long report half-yearly and annually;
(2) send the short report to all unitholders; and
(3) make the long report available to unitholders on request.
  • 01/04/2004

Preparation of long and short reports

COLL 4.5.3

handbook-rule
(1) The authorised fund manager must for each annual accounting period and half-yearly accounting period, prepare a short report and a long report for a scheme.
(2) For a scheme which is an umbrella, the authorised fund manager must prepare a short report for each sub-fund but this is not necessary for the umbrella as a whole.
(3) Where the first annual accounting period of a scheme is less than 12 months, a half-yearly report need not be prepared.
(4) [deleted]

ICVC requirements

COLL 4.5.4

handbook-guidance
(1) The OEIC Regulations contain requirements for the preparation of annual and half-yearly reports and make the directors of an ICVC responsible for the preparation of annual and half-yearly reports on the ICVC.
(2) Regulations 66 (Reports: preparation), 67 (Reports: accounts) and 68 (Reports: voluntary revision) of the OEIC Regulations also contain a number of other requirements relating to reports and accounts of an ICVC.
  • 01/04/2004

Contents of a short report

COLL 4.5.5

handbook-rule
(1) The short report for an authorised fund, or for a scheme which is an umbrella, its sub-fund, must contain for the relevant period:
(a) the name of the scheme or sub-fund, its stated investment objectives and the policy and strategy pursued for achieving those objectives, a brief assessment of its risk profile and the name and address of the authorised fund manager;
(b) a review of the scheme or sub-fund's investment activities and investment performance during the period;
(c) a performance record consistent with COLL 4.5.10R (1) (Comparative table) so as to enable a unitholder to put into context the results of the investment activities of the scheme during the period;
(d) sufficient information to enable unitholders to form a view on where the portfolio is invested at the end of the period and the extent to which that has changed over the period;
(e) any other significant information which would reasonably enable unitholders to make an informed judgement on the activities of the scheme or sub-fund during the period and the results of those activities at the end of the period; and
(f) a statement that the latest long report is available on request.
(2) The authorised fund manager must take reasonable steps to ensure that the short report is structured and written in such a way that it can be easily understood by the average investor.
(3) The short report must form a separate stand-alone document which must not include any extraneous material.
(4) The inclusion in a single document of the short reports of more than one of an authorised fund manager's schemes with the same accounting periods, or of more than one sub-fund in an umbrella, is not a contravention of (3) if each such report is discrete and easily identifiable.
(5) The authorised fund manager must ensure that the information given in the short report is consistent with the long report for the relevant accounting period prepared under COLL 4.5.7 R (Contents of the annual long report) or COLL 4.5.8 R(Contents of the half-yearly long report).

Significant information to be contained in the short report

COLL 4.5.6

handbook-guidance
For the purpose of COLL 4.5.5R (1)(d) and COLL 4.5.5R (1)(e) the authorised fund manager should consider including the following as sufficient and significant information:
(1) particulars of any fundamental change to the scheme which required unitholder approval by meeting during the period;
(2) particulars of any significant change to the operation of the scheme requiring pre-notification, but this need only be given if the change impacts on the unitholders' ability to make an informed judgement on the activities of the scheme;
(3) particulars of any other developments in relation to the investment policy and strategy of the scheme, or the instruments used by it during the period;
(4) the total expense ratio at the end of the period;
(5) particulars of any qualification of the reports of the auditor and depositary; and
(6) particulars of any income or distribution relating to the period.

Contents of the annual long report

COLL 4.5.7

handbook-rule
(1) An annual long report on an authorised fund, other than a scheme which is an umbrella, must contain:
(a) the accounts for the annual accounting period which must be prepared in accordance with the requirements of the IMA SORP;
(b) the report of the authorised fund manager in accordance with COLL 4.5.9 R (Authorised fund manager's report);
(c) the comparative table in accordance with COLL 4.5.10 R (Comparative table);
(d) the report of the depositary in accordance with COLL 4.5.11 R (Report of the depositary); and
(e) the report of the auditor in accordance with COLL 4.5.12 R (Report of the auditor).
(2) An annual long report on a scheme which is an umbrella must be prepared for the umbrella as a whole and must contain:
(a) for each sub-fund:
(i) the accounts for the annual accounting period which must be prepared in accordance with the requirements of the IMA SORP;
(ii) the report of the authorised fund manager in accordance with COLL 4.5.9 R; and
(iii) the comparative table in accordance with COLL 4.5.10 R;
(b) the aggregation of the accounts required by (a)(i) for each sub-fund;
(c) the report of the depositary in accordance with COLL 4.5.11 R; and
(d) the report of the auditor in accordance with COLL 4.5.12 R.
(3) The directors of an ICVC or the manager of an AUT must ensure that the accounts referred to in (1)(a), (2)(a) and (4)(a) give a true and fair view of the net revenue and the net capital gains or losses on the scheme property of the authorised fund, or, in the case of (2)(a) and (4)(a), the sub-fund, for the annual accounting period in question and the financial position of the authorised fund or sub-fund as at the end of that period.
(4) The authorised fund manager of a scheme which is an umbrella may, in addition to complying with (2), prepare a further annual long report for any one or more individual sub-funds of the scheme, in which case it must contain:
(a) in relation to the sub-fund:
(i) the accounts for the annual accounting period which must be prepared in accordance with the requirements of the IMA SORP;
(ii) the report of the authorised fund manager in accordance with COLL 4.5.9 R; and
(iii) the comparative table in accordance with COLL 4.5.10 R;
(b) the report of the depositary in accordance with COLL 4.5.11 R; and
(c) the report of the auditor in accordance with COLL 4.5.12 R.

Contents of the half-yearly long report

COLL 4.5.8

handbook-rule
(1) A half-yearly long report on an authorised fund, other than for a scheme which is an umbrella, must contain:
(a) the accounts for the half-yearly accounting period which must be prepared in accordance with the requirements of the IMA SORP; and
(b) the report of the authorised fund manager in accordance with COLL 4.5.9 R (Authorised fund manager's report).
(2) A half-yearly long report on a scheme which is an umbrella must be prepared for the umbrella as a whole and must contain:
(a) for each sub-fund:
(i) the accounts for the half-yearly accounting period which must be prepared in accordance with the requirements of the IMA SORP; and
(ii) the report of the authorised fund manager in accordance with COLL 4.5.9 R; and
(b) the aggregation of the accounts in (a)(i) for each sub-fund.
(3) The authorised fund manager of a scheme which is an umbrella may, in addition to complying with (2), prepare a further half-yearly long report for any one or more individual sub-funds of the scheme. Such reports must contain the accounts and the report of the authorised fund manager that would be required by (1) if the sub-fund were a separate authorised fund.

Annual and half-yearly long reports for sub-funds of an umbrella

COLL 4.5.8A

handbook-guidance
The authorised fund manager may, but need not, prepare annual and half-yearly long reports for any individual sub-fund of an umbrella in accordance with COLL 4.5.7R (4) and COLL 4.5.8R (3) and make them available on request to any unitholder investing in the relevant sub-fund. However, if the authorised fund manager does so, this does not relieve it of its duty:
(1) to prepare annual and half-yearly long reports on the umbrella as a whole (COLL 4.5.7R (2) and COLL 4.5.8R (2)); and
(2) to make available and publish the annual and half-yearly long reports for the umbrella as a whole (COLL 4.5.14 R).
  • 06/04/2006

Signing of annual and half-yearly reports

COLL 4.5.8B

handbook-rule
The annual reports in COLL 4.5.7R (1) and (2), and the half-yearly reports in COLL 4.5.8R (1) and (2), must:
(1) in the case of an ICVC, if there is:
(a) more than one director, be approved by the board of directors and signed on their behalf by the ACD and at least one other director; or
(b) no director other than the ACD, be signed by the ACD;
(2) in the case of an AUT, if the authorised fund manager has:
(a) more than one director, be signed by at least two directors of the authorised fund manager; or
(b) only one director, be signed by the director of the authorised fund manager.
  • 06/03/2010

Authorised fund manager's report

COLL 4.5.9

handbook-rule
The matters set out in (1) to (13) must be included in any authorised fund manager's report, except where otherwise indicated:
(1) the names and addresses of :
(a) the authorised fund manager;
(b) the depositary;
(c) the registrar;
(d) any investment adviser;
(e) the auditor; and
(f) for a scheme which invests in immovables, the standing independent valuer;
(2) (for an ICVC), the names of any directors other than the ACD;
(3) a statement of the authorised status of the scheme;
(4) (for an ICVC) a statement that the unitholders of the ICVC are not liable for the debts of the ICVC;
(5) the investment objectives of the authorised fund;
(6) the policy and strategy pursued for achieving those objectives;
(7) a review of the investment activities during the period to which the report relates;
(7A) a portfolio statement prepared in accordance with the requirements of the IMA SORP;
(8) particulars of any fundamental changes in accordance with COLL 4.3.4 R (Fundamental change requiring prior approval by meeting) made since the date of the last report;
(9) particulars of any significant changes which have occurred in accordance with COLL 4.3.6 R (Significant change requiring pre-event notification) since the date of the last report;
(10) any other information which would enable unitholders to make an informed judgement on the development of the activities of the authorised fund during this period and the results of those activities as at the end of that period;
(11) for a report on an umbrella prepared in accordance with COLL 4.5.7R (2) or COLL 4.5.8R (2) :
(a) (for an ICVC), a statement to the effect that, as a sub-fund is not a legal entity, if the assets attributable to any sub-fund were insufficient to meet the liabilities attributable to it, the shortfall might have to be met out of the assets attributable to one or more other sub-funds of the ICVC; and
(b) information required by (1) to (10) must be given for each sub-fund, if it would vary from that given in respect of the umbrella as a whole;
(12) for a UCITS scheme which invests a substantial proportion of its assets in other schemes, a statement as to the maximum proportion of management fees charged to the scheme itself and to other schemes in which that scheme invests; and
(13) for a report on an individual sub-fund of a scheme which is an umbrella prepared in accordance with COLL 4.5.7R (4) or COLL 4.5.8R (3):
(a) (for an ICVC) a statement corresponding to that required by (11)(a) making it clear that if the liability relates to another sub-fund of the umbrella, the shortfall or any part of it might have to be met out of the assets of the sub-fund to which the report relates; and
(b) a statement that the latest long report prepared for the umbrella as a whole is available on request.

Comparative table

COLL 4.5.10

handbook-rule
The comparative table required by COLL 4.5.7R (1)(c) (Contents of the annual long report) must set out:
(1) a performance record over the last five calendar years, or if the authorised fund has not been in existence during the whole of that period, over the whole period in which it has been in existence, showing:
(a) the highest and the lowest price of a unit of each class in issue during each of those years; and
(b) the net income distributed (or, for accumulation units, allocated) for a unit of each class in issue during each of those years, taking account of any sub-division or consolidation of units that occurred during that period;
(2) as at the end of each of the last three annual accounting periods (or all of the authorised fund's annual accounting periods, if less than three):
(a) the total net asset value of the scheme property at the end of each of those years;
(b) the net asset value per unit of each class; and
(c)
(i) (for a report of the directors of an ICVC) the number of units of each class in issue; or
(ii) (for a report of the manager of an AUT) the number of units of each class in existence or treated as in existence; and
(3) if, in the period covered by the table:
(a) the authorised fund has been the subject of any event (such as a scheme of arrangement) having a material effect on the size of the authorised fund, but excluding any issue or cancellation of units for cash; or
(b) there have been changes in the investment objectives of the authorised fund;
(c) an indication, related in the body of the table to the relevant year in the table, of the date of the event or change in the investment objectives and a brief description of its nature.
  • 01/04/2004

Report of the depositary

COLL 4.5.11

handbook-rule
(1) The depositary must make an annual report to unitholders which must be included in the annual report.
(2) The annual report must contain:
(a) a description, which may be in summary form, of the duties of the depositary under COLL 6.6.4 (General duties of the depositary) and in respect of the safekeeping of the scheme property; and
(b) a statement whether, in any material respect:
(i) the issue, sale, redemption and cancellation, and calculation of the price of the units and the application of the authorised fund's revenue, have not been carried out in accordance with the rules in this sourcebook and, where applicable, the OEIC Regulations and the instrument constituting the scheme; and
(ii) the investment and borrowing powers and restrictions applicable to the authorised fund have been exceeded.

Report of the auditor

COLL 4.5.12

handbook-rule
The authorised fund manager must ensure that the report of the auditor to the unitholders includes the following statements:
(1) whether, in the auditor's opinion, the accounts have been properly prepared in accordance with the IMA SORP, the rules in this sourcebook, and the instrument constituting the scheme;
(2) whether, in the auditor's opinion, the accounts give a true and fair view of the net revenue and the net capital gains or losses on the scheme property of the authorised fund (or, as the case may be, the scheme property attributable to the sub-fund) for the annual accounting period in question and the financial position of the authorised fund or sub-fund as at the end of that period;
(3) whether the auditor is of the opinion that proper accounting records for the authorised fund (or, as the case may be, sub-fund) have not been kept or whether the accounts are not in agreement with those records;
(4) whether the auditor has been given all the information and explanations which, to the best of his knowledge and belief, are necessary for the purposes of his audit; and
(5) whether the auditor is of the opinion that the information given in the report of the directors or in the report of the authorised fund manager for that period is consistent with the accounts.

Provision of short report

COLL 4.5.13

handbook-rule
(1) The authorised fund manager must, within four months after the end of each annual accounting period and within two months after the end of each half-yearly accounting period, respectively provide free of charge the short report in accordance with (2).
(2) The authorised fund manager must send a copy of the report:
(a) to each unitholder (or to the first named of joint unitholders) entered in or entitled to be entered in the register at the close of business on the last day of the relevant accounting period;
(b) to each unitholder of bearer units at his request; and
(c) to any other person free of charge on request.
(3) Unitholders in a scheme which is an umbrella must be provided with a report relating to the particular sub-fund in which they hold units subject to providing the long report on the umbrella on request in accordance with COLL 4.5.14R (2)(a).

Publication and availability of annual and half-yearly long report

COLL 4.5.14

handbook-rule
(1) The authorised fund manager must, within four months after the end of each annual accounting period and two months after the end of each half-yearly accounting period respectively, make available and publish the long reports prepared in accordance with COLL 4.5.7R (1) to (3) (Contents of the annual long report) and COLL 4.5.8R (1) to (2) (Contents of the half-yearly long report).
(2) The reports referred to in (1) must:
(a) be supplied free of charge to any person on request;
(b) be available in English, for inspection by the public free of charge during ordinary office hours at a place specified;
(c) for a UCITS scheme, be available for inspection by the public at a place designated by the authorised fund manager in each EEA State other than the United Kingdom in which units in the authorised fund are marketed, in English and in at least one of that other EEA State's official languages; and
(d) be sent to the FSA .

COLL 4.6

Simplified Prospectus provisions

  • 01/11/2007

Application

COLL 4.6.1

handbook-rule
This section applies to an ICVC, an authorised fund manager of an AUT or ICVC and any other director of an ICVC where, in each case, the AUT or ICVC is a simplified prospectus scheme.
  • 01/11/2007

Production and publication of simplified prospectus

COLL 4.6.2

handbook-rule
(1) An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in the table below that relates to this rule.
(2) A simplified prospectus must be incorporated in a written document or in any durable medium.
(3) An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:
(a) includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;
(b) does not omit any key item of information;
(c) wherever possible is written in plain language which avoids technical language and jargon; and
(d) adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.
(4) The simplified prospectus may be attached to the full prospectus as a removable part of it.
  • 01/11/2007

Revision of simplified prospectus

COLL 4.6.3

handbook-rule
An operator of a simplified prospectus scheme must, for each simplified prospectus scheme of which it is the operator, keep its simplified prospectus up-to-date and must revise it immediately on the occurrence of any material change.
  • 01/11/2007

COLL 4.6.4

handbook-guidance
It is the FSA's view that any change to a simplified prospectus scheme that would be likely to influence the average investor in deciding whether to invest in the scheme or realise his investment in it should be regarded as a material change for the purposes of revision of a simplified prospectus. Examples would be changes to the scheme's objectives or investment policy. The FSA would expect a simplified prospectus to be updated at least annually.
  • 01/11/2007

Filing requirements

COLL 4.6.5

handbook-rule
A UCITS management company must for each UCITS scheme it manages file the scheme's initial simplified prospectus, together with each revision to it, with:
(1) the FSA ; and
(2) the competent authority of each EEA state in which its units are to be marketed in the exercise of an EEA right.
  • 01/11/2007

UK firms exercising passporting rights in respect of UCITS scheme

COLL 4.6.6

handbook-rule
(1) A UCITS management company must for each UCITS scheme it manages and in respect of which it is marketing units in another EEA State in the exercise of an EEA right, produce a simplified prospectus for the scheme drawn up in accordance with the requirements contained in this section.
(2) The simplified prospectus must be drawn up in the, or one of the, official languages of the EEA State for which it was prepared or in a language approved by the competent authority of that EEA State.
(3) The simplified prospectus may, without alteration, be used for marketing purposes in the EEA State for which it was prepared and in which the units of the simplified prospectus scheme are to be sold.
  • 01/11/2007

COLL 4.6.7

handbook-guidance
(1) In translating the simplified prospectus from English into the or one or more of the official languages of the EEA State in which the simplified prospectus scheme is to be marketed, or into a language approved by the competent authority of that State, it is permissible under article 28.3 of the UCITS Directive, in the FSA's view, for figures expressed in pounds sterling to be converted into the appropriate local currency such as euros. It is not necessary, for example, for the simplified prospectus of a scheme that is to be marketed across the EEA in the exercise of an EEA right, to refer to each amount in pounds sterling, in euros and additionally in every other local currency of an EEA State in which units of the scheme are to be marketed that has not adopted the euro as its currency.
(2) Operators considering marketing the units of their simplified prospectus schemes in another EEA State in the exercise of an EEA right should have regard to the local marketing legislation of such country.

Contents of the simplified prospectus

COLL 4.6.8

handbook-rule
This table belongs to the rule on production and publication of a simplified prospectus (COLL 4.6.2 R and COLL 4.6.6 R)



Contents of simplified prospectus

Charges and reduction in yield

COLL 4.6.9

handbook-rule
(1) In disclosing the information required by paragraph 14 of COBS 4.6.8 G (Table: Contents of the simplified prospectus), a firm must include an effect of charges table and a reduction in yield figure prepared in accordance with the rules in sections 2 (Effect of charges table) and 3 (Reduction in yield) of COBS 13 Annex 3.
(2) This rule does not apply to a simplified prospectus for units in a simplified prospectus scheme that will be marketed and sold in another EEA State or exclusively to those who are not retail clients.
(3) Note (5) to paragraph (14) of COBS 4.6.8 G, and COBS 4.6.9 R cease to have effect on 30 June 2011, unless remade.

Composite documents for several schemes, sub-funds and classes

COLL 4.6.10

handbook-guidance
In the FSA's view, a firm may, for the purposes of the rules in COBS 14 requiring a firm to provide a key features document or a simplified prospectus, combine the required information on several simplified prospectus schemes, key features scheme or EEAsimplified prospectus schemes or any combination of them into a composite document, provided the document continues to comply with the general requirements such as being clear. Similarly, the information on different sub-funds or classes within a scheme may be combined into a composite document or provided as separate documents. Where the latter approach is adopted, references in this section to "scheme" or "simplified prospectus scheme " should be taken as referring to the relevant sub-fund or class, as applicable.
  • 01/11/2007

Multiclass schemes: use of representative class

COLL 4.6.11

handbook-guidance
In the FSA's view, where a simplified prospectus scheme has more than one class of unit, the simplified prospectus may be prepared on a representative class basis, provided this is made clear and there is no material difference in the classes concerned. The same applies for an umbrella, as regards any sub-fund with more than one class of units.
  • 01/11/2007

COLL 4.6.12

handbook-rule
An authorised fund manager must ensure that its financial promotions which contain an invitation to purchase units in a UCITS scheme indicate that a simplified prospectus and a full prospectus exist, and the places where they may be obtained by the public or how the public may have access to them.
  • 01/11/2007

Use of the "keyfacts" logo within a simplified prospectus

COLL 4.6.13

handbook-rule
A simplified prospectus may include the "keyfacts" logo if:
(1) the "keyfacts" logo is situated in a prominent position at the top of the document; and
(2) The document also contains the following statement in a prominent position:



"The Financial Services Authority is the independent financial services regulator. It requires us, [provider name], to give you this important information to help you to decide whether our [product name] is right for you. You should read this document carefully so that you understand what you are buying, and then keep it safe for future reference".
  • 01/11/2007

COLL 4 Annex 1

Total expense ratio calculation

  • 01/11/2007

handbook-rule
This Annex belongs to the rule on the contents of the simplified prospectus in this chapter.
  • 01/11/2007

COLL 4 Annex 2

Portfolio turnover calculation

  • 01/11/2007

handbook-rule
  • 01/11/2007

Export chapter as

COLL 5

Investment and borrowing powers

COLL 5.1

Introduction

  • 01/12/2004

Application

COLL 5.1.1

handbook-rule
(1) COLL 5.1 to COLL 5.5 apply to the authorised fund manager and the depositary of an authorised fund, and to an ICVC, which is or ever has been a UCITS scheme.
(2) Subject to 2(A), COLL 5.1, COLL 5.4 and COLL 5.6 apply to the authorised fund manager and depositary of an authorised fund, and to an ICVC, which is a non-UCITS retail scheme.
(2A) COLL 5.1, COLL 5.4 and COLL 5.7 apply to the authorised fund manager and the depositary of an authorised fund and to an ICVC which is a non-UCITS retail scheme operating as a fund of alternative investment funds.
(3) Paragraphs (2) and (2A) cease to apply if a non-UCITS retail scheme converts to be authorised as a UCITS scheme.

Purpose

COLL 5.1.2

handbook-guidance
(1) This chapter helps in achieving the regulatory objective of protecting consumers by laying down minimum standards for the investments that may be held by an authorised fund. In particular:
(a) the proportion of transferable securities and derivatives that may be held by an authorised fund is restricted if those transferable securities and derivatives are not listed on an eligible market; the intention of this is to restrict investment in transferable securities or derivatives that cannot be accurately valued and readily disposed of; and
(b) authorised funds are required to comply with a number of investment rules that require the spreading of risk.
(2) Table 5.1.4G gives an overview of the permissible investments and maximum investment limits for UCITS schemes and non-UCITS retail schemes.
  • 01/04/2004

Treatment of obligations

COLL 5.1.3

handbook-rule
(1) Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the transaction or out of the retention would not cause the breach of any limits in this chapter, it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for.
(2) Where a rule in this chapter permits a transaction to be entered into or an investment to be retained only if that transaction, or the retention, or other similar transactions, are covered:
(a) it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and
(b) no element of cover must be used more than once.
  • 01/04/2004

Indicative overview of investment and borrowing powers

COLL 5.1.4

handbook-guidance
This table belongs to COLL 5.1.2G (2).

COLL 5.2

General investment powers and limits for UCITS schemes

  • 01/12/2004

Application

COLL 5.2.1

handbook-rule
This section applies to an ICVC, an ACD, a manager of an AUT, a depositary of an ICVC and a trustee of an AUT, where such ICVC or AUT is a UCITS scheme, in accordance with COLL 5.2.2 R (Table of application).

Table of application

COLL 5.2.2

handbook-rule
This table belongs to COLL 5.2.1 R.

COLL 5.2.2A

handbook-guidance
In addition to the parts of CESR's UCITS eligible assets guidelines specifically referred to in this section, the authorised fund manager of a UCITS scheme should have regard to the other parts of those guidelines when applying the rules in this section. CESR's UCITS eligible assets guidelines are available at http://www.fsa.gov.uk/pages/Library/Other_publications/EU/eu_docs/index.shtml.
  • 23/07/2008

Prudent spread of risk

COLL 5.2.3

handbook-rule
(1) An authorised fund manager must ensure that, taking account of the investment objectives and policy of the UCITS scheme as stated in the most recently published prospectus, the scheme property of the UCITS scheme aims to provide a prudent spread of risk.
(2) The rules in this section relating to spread of investments do not apply until the expiry of a period of six months after the date of which the authorisation order, in respect of the UCITS scheme, takes effect or on which the initial offer commenced, if later, provided that (1) is complied with during such period.
  • 01/04/2004

Investment powers: general

COLL 5.2.4

handbook-rule
The scheme property of each UCITS scheme must be invested only in accordance with the relevant provisions in sections COLL 5.2 to COLL 5.5 that are applicable to that UCITS scheme and up to any maximum limit so stated, but, the instrument constituting the scheme may further restrict:
(1) the kind of property in which the scheme property may be invested;
(2) the proportion of the capital property of the UCITS scheme be invested in assets of any description;
(3) the descriptions of transactions permitted; and
(4) the borrowing powers of the UCITS scheme.
  • 01/04/2004

Valuation

COLL 5.2.5

handbook-rule
(1) In this chapter, the value of the scheme property of a UCITS scheme means the net value determined in accordance with COLL 6.3 (Valuation and pricing), after deducting any outstanding borrowings, whether immediately due to be repaid or not.
(2) When valuing the scheme property for the purposes of this chapter:
(a) the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of COLL 6.3 (Valuation and pricing);
(b) initial outlay is to be regarded as remaining part of the scheme property; and
(c) if the authorised fund manager, having taken reasonable care, determines that the UCITS scheme will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is to be regarded as part of the scheme property.
(3) When valuing the scheme property of a dual-priced authorised fund, the cancellation basis of valuation referred to in COLL 6.3.3 R (2) (Valuation) is to be applied.

Valuation guidance

COLL 5.2.6

handbook-guidance
It should be noted that for the purpose of COLL 5.2.5 R, COLL 6.3 may be affected by specific provisions in this chapter such as, for example, COLL 5.4.6 R (Treatment of collateral).
  • 01/04/2004

UCITS schemes: permitted types of scheme property

COLL 5.2.6A

handbook-rule
The scheme property of a UCITS scheme must, except where otherwise provided in the rules in this chapter, consist solely of any or all of:
(1) transferable securities;
(2) approved money-market instruments;
(3) units in collective investment schemes;
(4) derivatives and forward transactions;
(5) deposits; and
(6) (for an ICVC) movable and immovable property that is necessary for the direct pursuit of the ICVC's business;
in accordance with the rules in this section.
[Note: articles 19(1) (in conjunction with other rules in this section) and (2)(c) of the UCITS Directive]

Transferable securities

COLL 5.2.7

handbook-rule
(1) A transferable security is an investment which is any of the following:
(a) a share;
(b) a debenture;
(ba) an alternative debenture;
(c) a government and public security;
(d) a warrant; or
(e) a certificate representing certain securities.
(2) An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.
(3) In applying (2) to an investment which is issued by a body corporate, and which is a share or a debenture, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.
(4) An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

Investment in transferable securities

COLL 5.2.7A

handbook-rule
(1) A UCITS scheme may invest in a transferable security only to the extent that the transferable security fulfils the following criteria:
(a) the potential loss which the UCITS scheme may incur with respect to holding the transferable security is limited to the amount paid for it;
(b) its liquidity does not compromise the ability of the authorised fund manager to comply with its obligation to redeemunits at the request of any qualifying unitholder (see COLL 6.2.16 R (3) );
(c) reliable valuation is available for it as follows:
(i) in the case of a transferable security admitted to or dealt in on an eligible market, where there are accurate, reliable and regular prices which are either market prices or prices made available by valuation systems independent from issuers;
(ii) in the case of a transferable security not admitted to or dealt in on an eligible market, where there is a valuation on a periodic basis which is derived from information from the issuer of the transferable security or from competent investment research;
(d) appropriate information is available for it as follows:
(i) in the case of a transferable security admitted to or dealt in on an eligible market, where there is regular, accurate and comprehensive information available to the market on the transferable security or, where relevant, on the portfolio of the transferable security;
(ii) in the case of a transferable security not admitted to or dealt in on an eligible market, where there is regular and accurate information available to the authorised fund manager on the transferable security or, where relevant, on the portfolio of the transferable security;
(e) it is negotiable; and
(f) its risks are adequately captured by the risk management process of the authorised fund manager.
(2) Unless there is information available to the authorised fund manager that would lead to a different determination, a transferable security which is admitted to or dealt in on an eligible market shall be presumed:
(a) not to compromise the ability of the authorised fund manager to comply with its obligation to redeemunits at the request of any qualifying unitholder; and
(b) to be negotiable.
[Note: article 2(1) of the UCITS eligible assets Directive]
  • 23/07/2008

COLL 5.2.7B

handbook-guidance
Where the authorised fund manager considers that the liquidity or negotiability of a transferable security might compromise the ability of the authorised fund manager to comply with its obligation to redeemunits at the request of any qualifying unitholder, it should assess the liquidity risk in accordance with CESR's UCITS eligible assets guidelines with respect to article 2(1) of the UCITS eligible assets Directive.
  • 23/07/2008

Closed end funds constituting transferable securities

COLL 5.2.7C

handbook-rule
A unit in a closed end fund shall be taken to be a transferable security for the purposes of investment by a UCITS scheme, provided it fulfils the criteria for transferable securities set out in COLL 5.2.7A R, and either:
(1) where the closed end fund is constituted as an investment company or a unit trust:
(a) it is subject to corporate governance mechanisms applied to companies; and
(b) where another person carries out asset management activity on its behalf, that person is subject to national regulation for the purpose of investor protection; or
(2) where the closed end fund is constituted under the law of contract:
(a) it is subject to corporate governance mechanisms equivalent to those applied to companies; and
(b) it is managed by a person who is subject to national regulation for the purpose of investor protection.
[Note: articles 2(2)(a) and (b) of the UCITS eligible assets Directive]
  • 23/07/2008

COLL 5.2.7D

handbook-guidance
(1) An authorised fund manager should not invest the scheme property of a UCITS scheme in units of a closed end fund for the purpose of circumventing the investment limits set down in this section.
(2) When required to assess whether the corporate governance mechanisms of a closed end fund in contractual form are equivalent to those applied to companies, the authorised fund manager should consider whether the contract on which the closed end fund is based provides its investors with rights to:
(a) vote on the essential decisions of the closed end fund (including appointment and removal of asset management company, amendment to the contract which set up the closed end fund, modification of investment policy, merger, liquidation); and
(b) control the investment policy of the closed end fund through appropriate mechanisms.
(3) The assets of the closed end fund in contractual form should be separate and distinct from those of the asset manager and the closed end fund should be subject to liquidation rules that adequately protect its investors.
[Note: CESR's UCITS eligible assets guidelines with respect to articles 2(2) and 2(2)(b)(ii) of the UCITS eligible assets Directive ]
  • 23/07/2008

Transferable securities linked to other assets

COLL 5.2.7E

handbook-rule
(1) A UCITS scheme may invest in any other investment which shall be taken to be a transferable security for the purposes of investment by a UCITS scheme provided the investment:
(a) fulfils the criteria for transferable securities set out in COLL 5.2.7A R; and
(b) is backed by or linked to the performance of other assets, which may differ from those in which a UCITS scheme can invest.
(2) Where an investment in (1) contains an embedded derivative component (see COLL 5.2.19R (3A)), the requirements of this section with respect to derivatives and forwards will apply to that component.
[Note: articles 2(2)(c) and 2(3) of the UCITS eligible assets Directive]
  • 23/07/2008

Approved money-market instruments

COLL 5.2.7F

handbook-rule
An approved money-market instrument is a money-market instrument which is normally dealt in on the money market, is liquid and has a value which can be accurately determined at any time.
[Note: article 1(9) of the UCITS Directive]

COLL 5.2.7G

handbook-rule
A money-market instrument shall be regarded as normally dealt in on the money market if it:
(1) has a maturity at issuance of up to and including 397 days;
(2) has a residual maturity of up to and including 397 days;
(3) undergoes regular yield adjustments in line with money market conditions at least every 397 days; or
(4) has a risk profile, including credit and interest rate risks, corresponding to that of an instrument which has a maturity as set out in (1) or (2) or is subject to yield adjustments as set out in (3).
[Note: article 3(2) of the UCITS eligible assets Directive]
  • 23/07/2008

COLL 5.2.7H

handbook-rule
(1) A money-market instrument shall be regarded as liquid if it can be sold at limited cost in an adequately short time frame, taking into account the obligation of the authorised fund manager to redeemunits at the request of any qualifying unitholder (see COLL 6.2.16 R (3) ).
(2) A money-market instrument shall be regarded as having a value which can be accurately determined at any time if accurate and reliable valuations systems, which fulfil the following criteria, are available:
(a) enabling the authorised fund manager to calculate a net asset value in accordance with the value at which the instrument held in the portfolio could be exchanged between knowledgeable willing parties in an arm's length transaction; and
(b) based either on market data or on valuation models including systems based on amortised costs.
(3) A money-market instrument that is normally dealt in on the money market and is admitted to or dealt in on an eligible market shall be presumed to be liquid and have a value which can be accurately determined at any time unless there is information available to the authorised fund manager that would lead to a different determination.
[Note: article 4 of the UCITS eligible assets Directive]
  • 23/07/2008

Guidance on assessing liquidity and quality of money-market instruments

COLL 5.2.7I

handbook-guidance
(1) The authorised fund manager should assess the liquidity of a money-market instrument in accordance with CESR's UCITS eligible assets guidelines with respect to article 4(1) of the UCITS eligible assets Directive.
(2) Where an approved money-market instrument forms part of the scheme property of a qualifying money market fund, the authorised fund manager should adequately monitor that the instrument continues to be of high quality, taking into account both its credit risk and its final maturity.
[Note:CESR's UCITS eligible assets guidelines with respect to article 4(2) of the UCITS eligible assets Directive]

Transferable securities and money-market instruments generally to be admitted to or dealt in on an eligible market

COLL 5.2.8

handbook-rule
(1) [deleted]
(2) [deleted]
(3) Transferable securities and approved money-market instruments held within a UCITS scheme must be:
(a) admitted to or dealt in on an eligible market within COLL 5.2.10 R (1)(a) (Eligible markets: requirements); or
(b) dealt in on an eligible market within COLL 5.2.10 R (1)(b); or
(c) admitted to or dealt in on an eligible market within COLL 5.2.10 R (2); or
(d) for an approved money-market instrument not admitted to or dealt in on an eligible market, within COLL 5.2.10AR (1); or
(e) recently issued transferable securities, provided that:
(i) the terms of issue include an undertaking that application will be made to be admitted to an eligible market; and
(ii) such admission is secured within a year of issue.
(4) However, a UCITS scheme may invest no more than 10% of the scheme property in transferable securities and approved money-market instruments other than those referred to in (3).
[Note: article 19(1)(a)-(d) and (h) and 2(a) of the UCITS Directive and article 3(1) of the UCITS eligible assets Directive]

Eligible markets regime: purpose

COLL 5.2.9

handbook-guidance
(1) This section specifies criteria based on those in article 19 of the UCITS Directive, as to the nature of the markets in which the property of a UCITS scheme may be invested.
(2) Where a market ceases to be eligible, investments on that market cease to be approved securities. The 10% restriction in COLL 5.2.8 R (4) applies, and exceeding this limit because a market ceases to be eligible will generally be regarded as a breach beyond the control of the authorised fund manager.

Eligible markets: requirements

COLL 5.2.10

handbook-rule
(1) A market is eligible for the purposes of the rules in this sourcebook if it is:
(a) a regulated market;
(b) a market in an EEA State which is regulated, operates regularly and is open to the public; or
(c) any market within (2).
(2) A market not falling within (1)(a) and (b) is eligible for the purposes of the rules in this sourcebook if:
(a) the authorised fund manager, after consultation with and notification to the depositary (and in the case of an ICVC, any other directors), decides that market is appropriate for investment of, or dealing in, the scheme property;
(b) the market is included in a list in the prospectus; and
(c) the depositary has taken reasonable care to determine that:
(i) adequate custody arrangements can be provided for the investment dealt in on that market; and
(ii) all reasonable steps have been taken by the authorised fund manager in deciding whether that market is eligible.
(3) In (2)(a), a market must not be considered appropriate unless it:
(a) is regulated;
(b) operates regularly;
(c) is recognised as a market or exchange or as a self-regulating organisation by an overseas regulator;
(d) is open to the public;
(e) is adequately liquid; and
(f) has adequate arrangements for unimpeded transmission of income and capital to or to the order of investors.
  • 01/04/2004

Money-market instruments with a regulated issuer

COLL 5.2.10A

handbook-rule
(1) (In addition to instruments admitted to or dealt in on an eligible market) a UCITS scheme may invest in an approved money-market instrument provided it fulfils the following requirements:
(a) the issue or the issuer is regulated for the purpose of protecting investors and savings; and
(b) the instrument is issued or guaranteed in accordance with COLL 5.2.10B R.
[Note: article 19(1)(h), first to third indents of the UCITS Directive]
(2) The issue or the issuer of a money-market instrument, other than one dealt in on an eligible market, shall be regarded as regulated for the purpose of protecting investors and savings if:
(a) the instrument is an approved money-market instrument;
(b) appropriate information is available for the instrument (including information which allows an appropriate assessment of the credit risks related to investment in it), in accordance with COLL 5.2.10C R; and
(c) the instrument is freely transferable.
[Note: article 5(1) of the UCITS eligible assets Directive]

Issuers and guarantors of money-market instruments

COLL 5.2.10B

handbook-rule
(1) A UCITS scheme may invest in an approved money-market instrument if it is:
(a) issued or guaranteed by any one of the following:
(i) a central authority of an EEA State or, if the EEA State is a federal state, one of the members making up the federation;
(ii) a regional or local authority of an EEA State;
(iii) the European Central Bank or a central bank of an EEA State;
(iv) the European Union or the European Investment Bank;
(v) a non-EEA State or, in the case of a federal state, one of the members making up the federation;
(vi) a public international body to which one or more EEA States belong; or
(b) issued by a body, any securities of which are dealt in on an eligible market; or
(c) issued or guaranteed by an establishment which is:
(i) subject to prudential supervision in accordance with criteria defined by EU law; or
(ii) subject to and complies with prudential rules considered by the FSA to be at least as stringent as those laid down by EU law.
(2) An establishment shall be considered to satisfy the requirement in (1)(c)(ii) if it is subject to and complies with prudential rules, and fulfils one or more of the following criteria:
(a) it is located in the European Economic Area;
(b) it is located in an OECD country belonging to the Group of Ten;
(c) it has at least investment grade rating;
(d) on the basis of an in-depth analysis of the issuer, it can be demonstrated that the prudential rules applicable to that issuer are at least as stringent as those laid down by EU law.
[Note: article 6 of the UCITS eligible assets Directive]

Appropriate information for money-market instruments

COLL 5.2.10C

handbook-rule
(1) In the case of an approved money-market instrument within COLL 5.2.10BR (1)(b) or issued by a body of the type referred to in COLL 5.2.10E G; or which is issued by an authority within COLL 5.2.10BR (1)(a)(ii) or a public international body within COLL 5.2.10BR (1)(a)(vi) but is not guaranteed by a central authority within COLL 5.2.10BR (1)(a)(i), the following information must be available:
(a) information on both the issue or the issuance programme, and the legal and financial situation of the issuer prior to the issue of the instrument, verified by appropriately qualified third parties not subject to instructions from the issuer;
(b) updates of that information on a regular basis and whenever a significant event occurs; and
(c) available and reliable statistics on the issue or the issuance programme.
(2) In the case of an approved money-market instrument issued or guaranteed by an establishment within COLL 5.2.10BR (1)(c), the following information must be available:
(a) information on the issue or the issuance programme or on the legal and financial situation of the issuer prior to the issue of the instrument;
(b) updates of that information on a regular basis and whenever a significant event occurs; and
(c) available and reliable statistics on the issue or the issuance programme, or other data enabling an appropriate assessment of the credit risks related to investment in those instruments.
(3) In the case of an approved money-market instrument:
(a) within COLL 5.2.10BR (1)(a)(i), (iv) or (v); or
(b) which is issued by an authority within COLL 5.2.10BR (1)(a)(ii) or a public international body within COLL 5.2.10BR (1)(a)(vi) and is guaranteed by a central authority within COLL 5.2.10BR (1)(a)(i);
information must be available on the issue or the issuance programme, or on the legal and financial situation of the issuer prior to the issue of the instrument.
[Note: articles 5(2), (3) and (4) of the UCITS eligible assets Directive]
  • 23/07/2008

COLL 5.2.10D

handbook-guidance
(1) The appropriately qualified third parties referred to in COLL 5.2.10CR (1)(a) should specialise in the verification of legal or financial documentation and be composed of persons meeting professional standards of integrity.
(2) The regular updates of information referred to in COLL 5.2.10CR (1)(b) and (2)(b) should normally occur on at least an annual basis.
[Note:CESR's UCITS eligible assets guidelines with respect to articles 5(2)(b) and (c) of the UCITS eligible assets Directive]
  • 23/07/2008

Other money-market instruments with a regulated issuer

COLL 5.2.10E

handbook-guidance
(1) In addition to instruments admitted to or dealt in on an eligible market, a UCITS scheme may also with the express consent of the FSA (which takes the form of a waiver under section 148 of the Act as applied by section 250 of the Act or regulation 7 of the OEIC Regulations) invest in an approved money-market instrument provided:
(a) the issue or issuer is itself regulated for the purpose of protecting investors and savings in accordance with COLL 5.2.10AR (2);
(b) investment in that instrument is subject to investor protection equivalent to that provided by instruments which satisfy the requirements of COLL 5.2.10BR (1)(a),(b) or COLL 5.2.10BR (1)(c); and
(c) the issuer is a company whose capital and reserves amount to at least EUR 10 million and which presents and publishes its annual accounts in accordance with Directive 78/660/EEC, is an entity which, within a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.
(2) A securitisation vehicle is a structure, whether in corporate, trust or contractual form, set up for the purpose of securitisation operations.
(3) A banking liquidity line is a banking facility secured by a financial institution which is an establishment subject to prudential supervision in accordance with criteria defined by EU law or an establishment which is subject to and complies with prudential rules considered by the FSA (in accordance with COLL 5.2.10BR (2)) to be at least as stringent as those laid down by EU law.
[Note: article 19(1)(h), fourth indent of the UCITS Directive and article 7 of the UCITS eligible assets Directive]

Spread: general

COLL 5.2.11

handbook-rule
(1) This rule does not apply to government and public securities.
(2) For the purposes of this rule companies included in the same group for the purposes of consolidated accounts as defined in accordance with the Seventh Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts or, in the same group in accordance with international accounting standards, are regarded as a single body.
(3) Not more than 20% in value of the scheme property is to consist of deposits with a single body.
(4) Not more than 5% in value of the scheme property is to consist of transferable securities or approved money-market instruments issued by any single body.
(5) The limit of 5% in (4) is raised to 10% in respect of up to 40% in value of the scheme property. Covered bonds need not be taken into account for the purpose of applying the limit of 40%.
(5A) The limit of 5% in (4) is raised to 25% in value of the scheme property in respect of covered bonds, provided that when a UCITS scheme invests more than 5% in covered bonds issued by a single body, the total value of covered bonds held must not exceed 80% in value of the scheme property.
(6) In applying (4) and (5), certificates representing certain securities are to be treated as equivalent to the underlying security.
(7) The exposure to any one counterparty in an OTC derivative transaction must not exceed 5% in value of the scheme property; this limit being raised to 10% where the counterparty is an approved bank.
(8) Not more than 20% in value of the scheme property is to consist of transferable securities and approved money-market instruments issued by the same group (as referred to in (2)).
(9) Not more than 20% in value of the scheme is to consist of the units of any one collective investment scheme.
(10) In applying the limits in (3),(4),(5), (6) and (7), and subject to (5A), not more than 20% in value of the scheme property is to consist of any combination of two or more of the following:
(a) transferable securities (including covered bonds) or approved money-market instruments issued by; or
(b) deposits made with; or
(c) exposures from OTC derivatives transactions made with a single body.
(11) For the purpose of calculating the limits in (7) and (10), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (12).
(12) The conditions referred to in (11) are that the collateral:
(a) is marked-to-market on a daily basis and exceeds the value of the amount at risk;
(b) is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;
(c) is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and
(d) can be fully enforced by the UCITS scheme at any time.
(13) For the purpose of calculating the limits in (7) and (10), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:
(a) comply with the conditions set out in Section 3 (Contractual netting (Contracts for novation and other netting agreements)) of Annex III to the Banking Consolidation Directive; and
(b) are based on legally binding agreements.
(14) In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house meets each of the following conditions:
(a) it is backed by an appropriate performance guarantee; and
(b) it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.
[Note: article 22 of the UCITS Directive]

Guidance on spread: general

COLL 5.2.11A

handbook-guidance
(1) COLL 5.2.11R (11) to (14) reflect the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities (in this Section referred to as "the Commission Recommendation on the use of financial derivative instruments"). This Recommendation may be accessed via www.europa.eu.int/eur-lex/pri/en/oj/dat/2004/l_199/l_19920040607en00240029.pdf.
(2) The attention of authorised fund managers is specifically drawn to condition (d) in COLL 5.2.11R (12) under which the collateral has to be legally enforceable at any time. It is the FSA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. Depositaries will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under COLL 6.6.4 R (General duties of the depositary).
(3) In applying the spread limit of 20% in value of scheme property which may consist of deposits with a single body, all uninvested cash comprising capital property that the depositary holds should be included in calculating the total sum of the deposits held by it and other companies in its group on behalf of the scheme.

Spread: government and public securities

COLL 5.2.12

handbook-rule
(1) This rule applies to government and public securities ("such securities").
(2) Where no more than 35% in value of the scheme property is invested in such securities issued by any one body, there is no limit on the amount which may be invested in such securities or in any one issue.
(3) An authorised fund may invest more than 35% in value of the scheme property in such securities issued by any one body provided that:
(a) the authorised fund manager has before any such investment is made consulted with the depositary and as a result considers that the issuer of such securities is one which is appropriate in accordance with the investment objectives of the authorised fund;
(b) no more than 30% in value of the scheme property consists of such securities of any one issue;
(c) the scheme property includes such securities issued by that or another issuer, of at least six different issues; and
(d) the disclosures in (4) have been made.
(4) Where it is intended that (3) may apply, the instrument constituting the scheme, and the most recently published prospectus, must prominently state:
(a) the fact that more than 35% of the scheme property is or may be invested in such securities issued by one issuer; and
(b) the names of the individual states, the local authorities or public international bodies issuing such securities in which the authorised fund may invest over 35% of its assets.
(5) In this rule in relation to such securities:
(a) issue, issued and issuer include guarantee, guaranteed and guarantor; and
(b) an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other material terms of the issue.
(6) Notwithstanding COLL 5.2.11R (1) and subject to (2) and (3), in applying the 20% limit in COLL 5.2.11R (10) with respect to a single body, government and public securities issued by that body shall be taken into account.

Investment in collective investment schemes

COLL 5.2.13

handbook-rule
A UCITS scheme must not invest in units in a collective investment scheme ("second scheme") unless the second scheme satisfies all of the following conditions, and provided that no more than 30% of the value of the UCITS scheme is invested in second schemes within (1)(b) to (e):
(1) the second scheme must:
(a) satisfy the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or
(b) be recognised under the provisions of section 270 of the Act (Schemes authorised in designated countries or territories); or
(c) be authorised as a non-UCITS retail scheme (provided the requirements of article 19(1)(e) of the UCITS Directive are met); or
(d) be authorised in another EEA State (provided the requirements of article 19(1)(e) of the UCITS Directive are met); or
(e) be authorised by the competent authority of an OECD member country (other than another EEA State) which has:
(i) signed the IOSCO Multilateral Memorandum of Understanding; and
(ii) approved the scheme's management company, rules and depositary/custody arrangements;
(provided the requirements of article 19(1)(e) of the UCITS Directive are met);
(2) the second scheme must comply, where relevant, with COLL 5.2.15 R (Investment in associated collective investment schemes) and COLL 5.2.16 R (Investment in other group schemes);
(3) the second scheme must have terms which prohibit more than 10% in value of the scheme property consisting of units in collective investment schemes; and
(4) where the second scheme is an umbrella, the provisions in (2) and (3) and COLL 5.2.11 R (Spread: general) apply to each sub-fund as if it were a separate scheme.

Qualifying non-UCITS collective investment schemes

COLL 5.2.14

handbook-guidance
(1) COLL 9.3 gives further detail as to the recognition of a scheme under section 270 of the Act.
(2) Article 19 of the UCITS Directive sets out the general investment limits. So, a non-UCITS retail scheme, or its equivalent EEA scheme which has the power to invest in gold or immovables would not meet the criteria set in COLL 5.2.13R (1)(c) and COLL 5.2.13R (1)(d).
(3) In determining whether a scheme meets the requirements of article 19(1)(e) of the UCITS Directive for the purposes of COLL 5.2.13R (1)(d) or COLL 5.2.13R (1)(e), the authorised fund manager should consider the following factors before deciding that the scheme provides a level of protection for unitholders which is equivalent to that provided to unitholders in a UCITS scheme:
(a) the rules guaranteeing the autonomy of the scheme and management in the exclusive interest of the unitholders;
(b) the existence of an independent depositary/custodian with similar duties and responsibilities in relation to both safekeeping and supervision; where an independent depositary/custodian is not a requirement of local law as regards collective investment schemes, robust governance structures may provide a suitable alternative;
(c) the availability of pricing information and reporting requirements;
(d) redemption facilities and frequency;
(e) restrictions in relation to dealings by related parties;
(f) the extent of asset segregation; and
(g) the local requirements for borrowing, lending and uncovered sales of transferable securities and money market instruments regarding the portfolio of the scheme.
[Note: article 26 of CESR's UCITS eligible assets guidelines with respect to article 19(1)(e) of the UCITS Directive]
(4) The requirement for supervisory equivalence, as described in article 19(1)(e) (first indent) of the UCITS Directive, also applies to schemes (that are not UCITS schemes) established in other EEA States. In considering whether the second scheme satisfies this requirement, the authorised fund manager should have regard to the first section of article 26 of CESR's UCITS eligible assets guidelines.

Investment in associated collective investment schemes

COLL 5.2.15

handbook-rule
A UCITS scheme must not invest in or dispose of units in another collective investment scheme (the second scheme) if the second scheme is managed or operated by (or, for an ICVC, whose ACD is) the authorised fund manager of the investing UCITS scheme or an associate of that authorised fund manager, unless:
(1) the prospectus of the investing UCITS scheme clearly states that the property of that investing scheme may include such units; and
(2) COLL 5.2.16 R (Investment in other group schemes) is complied with.

Investment in other group schemes

COLL 5.2.16

handbook-rule
(1) Where:
(a) an investment or disposal is made under COLL 5.2.15 R; and
(b) there is a charge in respect of such investment or disposal;
the authorised fund manager of the UCITS scheme making the investment or disposal must pay the UCITS scheme the amounts referred to in (2) or (3) within four business days following the date of the agreement to invest or dispose.
(2) When an investment is made, the amount referred to in (1)(a) is either:
(a) any amount by which the consideration paid by the UCITS scheme for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or
(b) if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme.
(3) When a disposal is made, the amount referred to in (1)(a) is any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal.
(4) In this rule:
(a) any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with COLL 6.3.8 (Dilution) or SDRT provision made in accordance with COLL 6.3.7 (SDRT provision) is to be treated as part of the price of the units and not as part of any charge; and
(b) any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

Investment in nil and partly paid securities

COLL 5.2.17

handbook-rule
(1) [deleted]
(2) A transferable security or an approved money-market instrumenton which any sum is unpaid falls within a power of investment only if it is reasonably foreseeable that the amount of any existing and potential call for any sum unpaid could be paid by the UCITS scheme, at the time when payment is required, without contravening the rules in this chapter.

Derivatives: general

COLL 5.2.19

handbook-rule
(1) A transaction in derivatives or a forward transaction must not be effected for a UCITS scheme unless:
(a) the transaction is of a kind specified in COLL 5.2.20 R (Permitted transactions (derivatives and forwards)); and
(b) the transaction is covered, as required by COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions).
(2) Where a UCITS scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in COLL 5.2.11 R (Spread: general) and COLL 5.2.12 R (Spread: government and public securities) save as provided in (4).
(3) Where a transferable security or approved money-market instrument embeds a derivative, this must be taken into account for the purposes of complying with this section.
(3A)
(a) A transferable security or an approved money-market instrument will embed a derivative if it contains a component which fulfils the following criteria:
(i) by virtue of that component some or all of the cash flows that otherwise would be required by the transferable security or approved money-market instrument which functions as host contract can be modified according to a specified interest rate, financial instrument price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, and therefore vary in a way similar to a stand-alone derivative;
(ii) its economic characteristics and risks are not closely related to the economic characteristics and risks of the host contract; and
(iii) it has a significant impact on the risk profile and pricing of the transferable security or approved money-market instrument.
(b) A transferable security or an approved money-market instrument does not embed a derivative where it contains a component which is contractually transferable independently of the transferable security or the approved money-market instrument. That component shall be deemed to be a separate instrument.
[Note: article 10 of the UCITS eligible assets Directive]
(4) Where a scheme invests in an index based derivative, provided the relevant index falls within COLL 5.2.33 R (Relevant indices) the underlying constituents of the index do not have to be taken into account for the purposes of COLL 5.2.11 R and COLL 5.2.12 R.
(5) The relaxation in (4) is subject to the authorised fund manager taking account of COLL 5.2.3 R (Prudent spread of risk).

Guidance on transferable securities and money-market instruments embedding derivatives

COLL 5.2.19A

handbook-guidance
(1) Collateralised debt obligations (CDOs) or asset-backed securities using derivatives, with or without an active management, will generally not be considered as embedding a derivative except if:
(a) they are leveraged, i.e. the CDOs or asset-backed securities are not limited recourse vehicles and the investors' loss can be higher than their initial investment; or
(b) they are not sufficiently diversified.
(2) Where a transferable security or approved money-market instrument embedding a derivative is structured as an alternative to an OTC derivative, the requirements set out in COLL 5.2.23 R with respect to transactions in OTC derivatives will apply. This will be the case for tailor-made hybrid instruments, such as a single tranche CDO structured to meet the specific need of a scheme, which should be considered as embedding a derivative. Such a product offers an alternative to the use of an OTC derivative, for the same purpose of achieving a diversified exposure with a pre-set credit risk level to a portfolio of entities.
(3) The following list of transferable securities and approved money-market instruments, which is illustrative and non-exhaustive, could be assumed to embed a derivative:
(a) credit linked notes;
(b) transferable securities or approved money-market instruments whose performance is linked to the performance of a bond index;
(c) transferable securities or approved money-market instruments whose performance is linked to the performance of a basket of shares, with or without active management;
(d) transferable securities or approved money-market instruments with a fully guaranteed nominal value whose performance is linked to the performance of a basket of shares, with or without active management;
(e) convertible bonds; and
(f) exchangeable bonds.
(4) Schemes cannot use transferable securities or approved money-market instruments which embed a derivative to circumvent the rules in this section.
(5) Transferable securities and approved money-market instruments which embed a derivative are subject to the rules applicable to derivatives as required by this section. It is the authorised fund manager's responsibility to check that these requirements are complied with. The nature, frequency and scope of checks performed will depend on the characteristics of the embedded derivatives and on their impact on the scheme, taking into account its stated investment objective and risk profile.
[Note:CESR's UCITS eligible assets guidelines with respect to article 10 of the UCITS eligible assets Directive]
  • 23/07/2008

Permitted transactions (derivatives and forwards)

COLL 5.2.20

handbook-rule
(1) A transaction in a derivative must:
(a) be in an approved derivative; or
(b) be one which complies with COLL 5.2.23 R (OTC transactions in derivatives).
(2) The underlying of a transaction in a derivative must consist of any one or more of the following to which the scheme is dedicated:
(a) transferable securities permitted under COLL 5.2.8 R (3)(a) to (c) and COLL 5.2.8 R (3)(e);
(b) approved money-market instruments permitted under COLL 5.2.8 R (3)(a) to COLL 5.2.8 R (3)(d);
(c) deposits permitted under COLL 5.2.26 R (Investment in deposits);
(d) derivatives permitted under this rule;
(e) collective investment scheme units permitted under COLL 5.2.13 R (Investment in collective investment schemes);
(f) financial indices which satisfy the criteria set out in COLL 5.2.20A R;
(g) interest rates;
(h) foreign exchange rates; and
(i) currencies.
[Note: article 8(1)(a) of the UCITS eligible assets Directive]
(3) A transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.
(4) A transaction in a derivative must not cause a scheme to diverge from its investment objectives as stated in the instrument constituting the scheme and the most recently published prospectus.
(5) A transaction in a derivative must not be entered into if the intended effect is to create the potential for an uncovered sale of one or more transferable securities, approved money-market instruments, units in collective investment schemes or derivatives provided that a sale is not to be considered as uncovered if the conditions in COLL 5.2.22R (3) (Requirement to cover sales) are satisfied.
(6) Any forward transaction must be made with an eligible institution or an approved bank.
(7) A derivative includes an instrument which fulfils the following criteria:
(a) it allows the transfer of the credit risk of the underlying independently from the other risks associated with that underlying;
(b) it does not result in the delivery or the transfer of assets other than those referred to in COLL 5.2.6A R (UCITS schemes: permitted types of scheme property) including cash;
(c) in the case of an OTC derivative, it complies with the requirements in COLL 5.2.23 R (OTC transactions in derivatives);
(d) its risks are adequately captured by the risk management process of the authorised fund manager, and by its internal control mechanisms in the case of risks of asymmetry of information between the authorised fund manager and the counterparty to the derivative, resulting from potential access of the counterparty to non-public information on persons whose assets are used as the underlying by that derivative.
[Note: article 8(2) of the UCITS eligible assets Directive]
(8) A UCITS scheme may not undertake transactions in derivatives on commodities.

[Note: article 8(5) of the UCITS eligible assets Directive]

Financial indices underlying derivatives

COLL 5.2.20A

handbook-rule
(1) The financial indices referred to in COLL 5.2.20R (2)(f) are those which satisfy the following criteria:
(a) the index is sufficiently diversified;
(b) the index represents an adequate benchmark for the market to which it refers; and
(c) the index is published in an appropriate manner.
(2) A financial index is sufficiently diversified if:
(a) it is composed in such a way that price movements or trading activities regarding one component do not unduly influence the performance of the whole index;
(b) where it is composed of assets in which a UCITS scheme is permitted to invest, its composition is at least diversified in accordance with the requirements with respect to spread and concentration set out in this section; and
(c) where it is composed of assets in which a UCITS scheme cannot invest, it is diversified in a way which is equivalent to the diversification achieved by the requirements with respect to spread and concentration set out in this section.
(3) A financial index represents an adequate benchmark for the market to which it refers if:
(a) it measures the performance of a representative group of underlyings in a relevant and appropriate way;
(b) it is revised or rebalanced periodically to ensure that it continues to reflect the markets to which it refers, following criteria which are publicly available; and
(c) the underlyings are sufficiently liquid, allowing users to replicate it if necessary.
(4) A financial index is published in an appropriate manner if:
(a) its publication process relies on sound procedures to collect prices, and calculate and subsequently publish the index value, including pricing procedures for components where a market price is not available; and
(b) material information on matters such as index calculation, rebalancing methodologies, index changes or any operational difficulties in providing timely or accurate information is provided on a wide and timely basis.
(5) Where the composition of underlyings of a transaction in a derivative does not satisfy the requirements for a financial index, the underlyings for that transaction shall where they satisfy the requirements with respect to other underlyings pursuant to COLL 5.2.20R (2), be regarded as a combination of those underlyings.
[Note: article 9 of the UCITS eligible assets Directive]
  • 23/07/2008

Guidance on financial indices underlying derivatives

COLL 5.2.20B

handbook-guidance
(1) An index based on derivatives on commodities or an index on property may be regarded as a financial index of the type referred to in COLL 5.2.20R (2)(f) provided it satisfies the criteria for financial indices set out in COLL 5.2.20A R.
(2) If the composition of an index is not sufficiently diversified in order to avoid undue concentration, its underlying assets should be combined with the other assets of the UCITS scheme when assessing compliance with the requirements on cover for transactions in derivatives and forward transactions set out in COLL 5.3.3 R and spread set out in COLL 5.2.11 R.
(3)
(a) In order to avoid undue concentration, where derivatives on an index composed of assets in which a UCITS scheme cannot invest are used to track or gain high exposure to the index, the index should be at least diversified in a way which is equivalent to the diversification achieved by the requirements with respect to spread and concentration set out in this section.
(b) If derivatives on that index are used for risk-diversification purposes, provided that the exposure of the UCITS scheme to that index complies with the 5%, 10% and 40% ratios required by COLL 5.2.11R (4) and (5), there is no need to look at the underlying components of that index to ensure that it is sufficiently diversified.
[Note: CESR's UCITS eligible assets guidelines with respect to article 9 of the UCITS eligible assets Directive]
(4) When assessing whether a hedge fund index satisfies the requirements for a financial index set out in this section, firms should consider The Committee of European Securities Regulators' guidelines on the classification of hedge fund indices as financial indices (CESR/07-434). Those guidelines are available at http://www.fsa.gov.uk/pages/Library/Other_publications/EU/eu_docs/index.shtml.

Transactions for the purchase of property

COLL 5.2.21

handbook-rule
A derivative or forward transaction which will or could lead to the delivery of property for the account of the UCITS scheme may be entered into only if:
(1) that property can be held for the account of the UCITS scheme; and
(2) the authorised fund manager having taken reasonable care determines that delivery of the property under the transaction will not occur or will not lead to a breach of the rules in this sourcebook.
  • 01/04/2004

Requirement to cover sales

COLL 5.2.22

handbook-rule
(1) No agreement by or on behalf of a UCITS scheme to dispose of property or rights may be made unless:
(a) the obligation to make the disposal and any other similar obligation could immediately be honoured by the UCITS scheme by delivery of property or the assignment (or, in Scotland, assignation) of rights; and
(b) the property and rights at (a) are owned by the UCITS scheme at the time of the agreement.
(2) Paragraph (1) does not apply to a deposit.
(3) Paragraph (1) does not apply where:
(a) the risks of the underlying financial instrument of a derivative can be appropriately represented by another financial instrument and the underlying financial instrument is highly liquid; or
(b) the authorised fund manager or the depositary has the right to settle the derivative in cash, and cover exists within the scheme property which falls within one of the following asset classes:
(i) cash;
(ii) liquid debt instruments (e.g. government bonds of first credit rating) with appropriate safeguards (in particular, haircuts); or
(iii) other highly liquid assets having regard to their correlation with the underlying of the financial derivative instruments, subject to appropriate safeguards (e.g. haircuts where relevant).
(4) In the asset classes referred to in (3), an asset may be considered as liquid where the instrument can be converted into cash in no more than seven business days at a price closely corresponding to the current valuation of the financial instrument on its own market.

Guidance on requirement to cover sales

COLL 5.2.22A

handbook-guidance
COLL 5.2.22R (3) to (4) reflect the provisions of Article 7 of the Commission Recommendation on the use of financial derivative instruments.

OTC transactions in derivatives

COLL 5.2.23

handbook-rule
A transaction in an OTC derivative under COLL 5.2.20 R (1) (b) must be:
(1) with an approved counterparty; a counterparty to a transaction in derivatives is approved only if the counterparty is:
(a) an eligible institution or an approved bank; or
(b) a person whose permission (including any requirements or limitations), as published in the FSA Register, or whose Home State authorisation, permits it to enter into the transaction as principal off-exchange;
(2) on approved terms; the terms of the transaction in derivatives are approved only if the authorised fund manager:
(a) carries out, at least daily, a reliable and verifiable valuation in respect of that transaction corresponding to its fair value and which does not rely only on market quotations by the counterparty; and
(b) can enter into one or more further transactions to sell, liquidate or close out that transactions at any time, at its fair value;
(3) capable of reliable valuation; a transaction in derivatives is capable of reliable valuation only if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:
(a) on the basis of an up-to-date market value which the authorised fund manager and the depositary have agreed is reliable; or
(b) if the value referred to in (a) is not available, on the basis of a pricing model which the authorised fund manager and the depositary have agreed uses an adequate recognised methodology; and
(4) subject to verifiable valuation; a transaction in derivatives is subject to verifiable valuation only if, throughout the life of the derivative (if the transaction is entered into) verification of the valuation is carried out by:
(a) an appropriate third party which is independent from the counterparty of the derivative, at an adequate frequency and in such a way that the authorised fund manager is able to check it; or
(b) a department within the authorised fund manager which is independent from the department in charge of managing the scheme property and which is adequately equipped for such a purpose.
[Note: articles 8(1)(b), 8(3) and 8(4) of the UCITS eligible assets Directive]

COLL 5.2.23A

handbook-rule
For the purposes of COLL 5.2.23 R (2), "fair value" is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
  • 06/01/2010

COLL 5.2.23B

handbook-rule
In respect of its obligations under COLL 6.6.4 R (1) (a) , the depositary must take reasonable care to ensure that the authorised fund manager has systems and controls that are adequate to ensure compliance with COLL 5.2.23 R (1) to (4).
  • 06/01/2010

Risk management

COLL 5.2.24

handbook-rule
(1) An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk of a scheme's positions and their contribution to the overall risk profile of the scheme.
(2) The following details of the risk management process must be notified by the authorised fund manager to the FSA in advance of the use of the process as required by (1):
(a) the methods for estimating risks in derivative and forward transactions; and
(b) the types of derivatives and forwards to be used within the scheme together with their underlying risks and any relevant quantitative limits.
(3) The authorised fund manager must notify the FSA in advance of any material alteration to the details in (2)(a) or (b).

Risk management process

COLL 5.2.25

handbook-guidance
(1) The risk management process should take account of the investment objectives and policy of the scheme as stated in the most recent prospectus.
(2) The depositary should take reasonable care to review the appropriateness of the risk management process in line with its duties under COLL 6.6.4 R (General duties of the depositary) and COLL 6.6.14 R (Duties of the depositary and authorised fund manager: investment and borrowing powers), as appropriate.
(3) An authorised fund manager is expected to demonstrate more sophistication in its risk management process for a scheme with a complex risk profile than for one with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.
(4) An authorised fund manager should take reasonable care to establish and maintain such systems and controls as are appropriate to its business as required by SYSC 4.1 (General requirements).
(5) The risk management process should enable the analysis required by COLL 5.2.24 R to be undertaken at least daily or at each valuation point whichever is the more frequent.
(6) Firms carrying out the risk management process should note the methodologies set out in Article 3 (Appropriately calibrated standards to measure market risk) of the Commission Recommendation on the use of financial derivative instruments.
(7) In assessing the risk of OTC derivatives, firms should note the methodologies set out in Article 5.3 (Invitation to use the standards laid down in Directive 2000/12/EC as a first reference) of the Commission Recommendation on the use of financial derivative instruments.
(8) An authorised fund manager should undertake the risk assessment with the highest care when the counterparty to the derivative is an associate of the authorised fund manager or the credit issuer.
[Note:CESR's UCITS eligible assets guidelines with respect to article 8(2)(d) of the UCITS eligible assets Directive]

Investment in deposits

COLL 5.2.26

handbook-rule
A UCITS scheme may invest in deposits only if it:
(1) is with an approved bank;
(2) is:
(a) repayable on demand; or
(b) has the right to be withdrawn; and
(3) matures in no more than 12 months.
  • 01/04/2004

Significant influence for ICVCs

COLL 5.2.27

handbook-rule
(1) An ICVC must not acquire transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of that body corporate if:
(a) immediately before the acquisition, the aggregate of any such securities held by the ICVC gives the ICVC power to influence significantly the conduct of business of that body corporate; or
(b) the acquisition gives the ICVC that power.
(2) For the purpose of (1), an ICVC is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held by it, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).
  • 01/04/2004

Significant influence for managers of AUTs

COLL 5.2.28

handbook-rule
(1) A manager must not acquire, or cause to be acquired for an AUT of which it is the manager , transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of the body corporate if:
(a) immediately before the acquisition, the aggregate of any such securities held for that AUT, taken together with any such securities already held for other AUTs of which it is also the manager , gives the manager power significantly to influence the conduct of business of that body corporate; or
(b) the acquisition gives the manager that power.
(2) For the purpose of (1), a manager is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held for all the AUTs of which it is the manager , exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).
  • 01/04/2004

Concentration

COLL 5.2.29

handbook-rule
A UCITS scheme:
(1) must not acquire transferable securities (other than debt securities) which:
(a) do not carry a right to vote on any matter at a general meeting of the body corporate that issued them; and
(b) represent more than 10% of those securities issued by that body corporate;
(2) must not acquire more than 10% of the debt securities issued by any single body;
(3) must not acquire more than 25% of the units in a collective investment scheme;
(4) must not acquire more than 10% of the approved money-market instruments issued by any single body; and
(5) need not comply with the limits in (2), (3) and (4) if, at the time of acquisition, the net amount in issue of the relevant investment cannot be calculated.

UCITS schemes that are umbrellas

COLL 5.2.30

handbook-rule
(1) In relation to a UCITS scheme which is an umbrella, the provisions in COLL 5.2 to COLL 5.5 apply to each sub-fund as they would for an authorised fund, except the following rules which apply at the level of the umbrella only:
(a) COLL 5.2.27 R (Significant influence for ICVCs);
(b) COLL 5.2.28 R (Significant influence for managers of AUTs); and
(c) COLL 5.2.29 R (Concentration).
(2) A sub-fund must not invest in another sub-fund of the same umbrella.

Schemes replicating an index

COLL 5.2.31

handbook-rule
(1) Notwithstanding COLL 5.2.11 R (Spread: general), a UCITS scheme may invest up to 20% in value of the scheme property in shares and debentures which are issued by the same body where the investment policy of that scheme as stated in the most recently published prospectus is to replicate the composition of a relevant index which satisfies the criteria specified in COLL 5.2.33 R (Relevant indices).
(1A) Replication of the composition of a relevant index shall be understood to be a reference to replication of the composition of the underlying assets of that index, including the use of techniques and instruments permitted for the purpose of efficient portfolio management.



[Note: article 12(1) of the UCITS eligible assets Directive]
(2) The limit in (1) can be raised for a particular UCITS scheme up to 35% in value of the scheme property, but only in respect of one body and where justified by exceptional market conditions.

Index replication

COLL 5.2.32

handbook-guidance
(1) Where the 20% limit (see COLL 5.2.31 R (1)) is raised (subject to the maximum of 35% permitted by COLL 5.2.31 R (2)), the authorised fund manager should provide appropriate information in the simplified prospectus, in order to explain the authorised fund manager's assessment of why this increase is justified by exceptional market conditions.



[Note:CESR's UCITS eligible assets guidelines with respect to Article 12(2) of the UCITS eligible assets Directive]
(2) In the case of a UCITS scheme replicating an index under COLL 5.2.31 R (Schemes replicating an index) the scheme property need not consist of the exact composition and weighting of the underlying in the relevant index in cases where the scheme's investment objective is to achieve a result consistent with the replication of an index rather than an exact replication.

Relevant indices

COLL 5.2.33

handbook-rule
(1) The indices referred to in COLL 5.2.31 R are those which satisfy the following criteria:
(a) the composition is sufficiently diversified;
(b) the index represents an adequate benchmark for the market to which it refers; and
(c) the index is published in an appropriate manner.
(2) The composition of an index is sufficiently diversified if its components adhere to the spread and concentration requirements in this section.
(3) An index represents an adequate benchmark if its provider uses a recognised methodology which generally does not result in the exclusion of a major issuer of the market to which it refers.
(4) An index is published in an appropriate manner if:
(a) it is accessible to the public;
(b) the index provider is independent from the index-replicating UCITS scheme; this does not preclude index providers and the UCITS scheme from forming part of the same group, provided that effective arrangements for the management of conflicts of interest are in place.
[Note: articles 12(2),(3) and (4) of the UCITS eligible assets Directive]

COLL 5.3

Derivative exposure

  • 01/12/2004

Application

COLL 5.3.1

handbook-rule
This section applies to an authorised fund manager of a UCITS scheme and to an ICVC which is a UCITS scheme.
  • 01/04/2004

Introduction

COLL 5.3.2

handbook-guidance
(1) A scheme may invest in derivatives and forward transactions as long as the exposure to which the scheme is committed by that transaction itself is suitably covered from within its scheme property. Exposure will include any initial outlay in respect of that transaction.
(2) Cover ensures that a scheme is not exposed to the risk of loss of property, including money, to an extent greater than the net value of the scheme property. Therefore, a scheme is required to hold scheme property sufficient in value or amount to match the exposure arising from a derivative obligation to which the scheme is committed. COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions) sets out detailed requirements for cover of a scheme.
(3) In accordance with COLL 5.1.3 R (2)(b) (Treatment of obligations), cover used in respect of one transaction in derivatives or forward transaction should not be used for cover in respect of another transaction in derivatives or a forward transaction.

Cover for transactions in derivatives and forward transactions

COLL 5.3.3

handbook-rule
(1) A transaction in derivatives or forward transaction may be entered into only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person, is covered globally under (2).
(2) Exposure is covered globally if adequate cover from within the scheme property is available to meet the scheme's total exposure, taking into account the value of the underlying assets, any reasonably foreseeable market movement, counterparty risk, and the time available to liquidate any positions.
(3) Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2).
(4) Property the subject of a transaction under COLL 5.4 (Stock lending) is only available for cover if the authorised fund manager has taken reasonable care to determine that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.
(5) The global exposure relating to derivatives held in a UCITS scheme may not exceed the net value of the scheme property (Article 2(1) of the Commission Recommendation 2004/383/EC).

Guidance on cover

COLL 5.3.4

handbook-guidance
An authorised fund manager should note that the scope of COLL 5.3.3 R is extended in relation to underwriting commitments by COLL 5.5.8 R (4) (General power to accept or underwrite placings).

Borrowing

COLL 5.3.5

handbook-rule
(1) Cash obtained from borrowing, and borrowing which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, is not available for cover under COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions), except if (2) applies.
(2) Where, for the purposes of this section, the ICVC or the trustee for the account of the AUT on the instructions of the manager :
(a) borrows an amount of currency from an eligible institution or an approved bank; and
(b) keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);
then this section applies as if the borrowed currency, and not the deposited currency, were part of the scheme property.

Continuing nature of limits and requirements

COLL 5.3.6

handbook-rule
(1) An authorised fund manager must, (as frequently as necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this section.
(2) Derivatives and rights under forward transactions may be retained in the scheme property only so long as they remain covered globally under COLL 5.3.3 R.

COLL 5.4

Stock lending

  • 01/12/2004

Application

COLL 5.4.1

handbook-rule
This section applies to an ICVC, the depositary of an authorised fund and an authorised fund manager in any case where the authorised fund is a UCITS scheme or a non-UCITS retail scheme.

Permitted stock lending

COLL 5.4.2

handbook-guidance
(1) This section covers techniques relating to transferable securities and approved money-market instruments which are used for the purpose of efficient portfolio management. It permits the generation of additional income for the benefit of the authorised fund, and hence for its investors, by entry into stock lending transactions for the account of the authorised fund.
(2) The specific method of stock lending permitted in this section is in fact not a transaction which is a loan in the normal sense. Rather it is an arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992, under which the lender transfers securities to the borrower otherwise than by way of sale and the borrower is to transfer those securities, or securities of the same type and amount, back to the lender at a later date. In accordance with good market practice, a separate transaction by way of transfer of assets is also involved for the purpose of providing collateral to the "lender" to cover him against the risk that the future transfer back of the securities may not be satisfactorily completed.

Stock lending: general

COLL 5.4.3

handbook-rule
An authorised fund may only enter into a stock lending arrangement or repo contract in accordance with the rules in this section if it reasonably appears to the ICVC or manager to be appropriate to do so with a view to generating additional income for the authorised fund with an acceptable degree of risk.

Stock lending: requirements

COLL 5.4.4

handbook-rule
(1) An ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager , may enter into a repo contract, or a stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:
(a) all the terms of the agreement under which securities are to be reacquired by the depositary for the account of the ICVC or by the trustee, are in a form which is acceptable to the depositary or to the trustee and are in accordance with good market practice;
(b) the counterparty is:
(i) an authorised person; or
(ii) a person authorised by a Home State regulator; or
(iii) a person registered as a broker-dealer with the Securities and Exchange Commission of the United States of America; or
(iv) a bank, or a branch of a bank, supervised and authorised to deal in investments as principal, with respect to OTC derivatives by at least one of the following federal banking supervisory authorities of the United States of America:
(A) the Office of the Comptroller of the Currency;
(B) the Federal Deposit Insurance Corporation;
(C) the Board of Governors of the Federal Reserve System; and
(D) the Office of Thrift Supervision; and
(c) collateral is obtained to secure the obligation of the counterparty under the terms referred to in (a) and the collateral is:
(i) acceptable to the depositary;
(ii) adequate; and
(iii) sufficiently immediate.
(2) The counterparty for the purpose of (1) is the person who is obliged under the agreement referred to in (1)(a) to transfer to the depositary the securities transferred by the depositary under the stock lending arrangement or securities of the same kind.
(3) (1)(c) does not apply to a stock lending transaction made through Euroclear Bank SA/NV's Securities Lending and Borrowing Programme.

Stock lending: treatment of collateral

COLL 5.4.5

handbook-guidance
Where a stock lending arrangement is entered into, the scheme property remains unchanged in terms of value. The securities transferred cease to be part of the scheme property, but there is obtained in return an obligation on the part of the counterparty to transfer back equivalent securities. The depositary will also receive collateral to set against the risk of default in transfer, and that collateral is equally irrelevant to the valuation of the scheme property (because it is transferred against an obligation of equivalent value by way of re-transfer). COLL 5.4.6 R accordingly makes provision for the treatment of the collateral in that context.
  • 01/04/2004

Treatment of collateral

COLL 5.4.6

handbook-rule
(1) Collateral is adequate for the purposes of this section only if it is:
(a) transferred to the depositary or its agent;
(b) at least equal in value, at the time of the transfer to the depositary, to the value of the securities transferred by the depositary; and
(c) in the form of one or more of:
(i) cash; or
(ii) [deleted]
(iii) a certificate of deposit; or
(iv) a letter of credit; or
(v) a readily realisable security; or
(vi) commercial paper with no embedded derivative content; or
(vii) a qualifying money market fund.
(1A) Where the collateral is invested in units in a qualifying money market fund managed or operated by (or, for an ICVC, whose ACD is) the authorised fund manager of the investing scheme or an associate of that authorised fund manager, the conditions in COLL 5.2.16 R (Investment in other group schemes) must be complied with whether or not the investing scheme is a UCITS scheme or a non-UCITS retail scheme.
(2) Collateral is sufficiently immediate for the purposes of this section if:
(a) it is transferred before or at the time of the transfer of the securities by the depositary; or
(b) the depositary takes reasonable care to determine at the time referred to in (a) that it will be transferred at the latest by the close of business on the day of the transfer.
(3) The depositary must ensure that the value of the collateral at all times is at least equal to the value of the securities transferred by the depositary.
(4) The duty in (3) may be regarded as satisfied in respect of collateral the validity of which is about to expire or has expired where the depositary takes reasonable care to determine that sufficient collateral will again be transferred at the latest by the close of business on the day of expiry.
(5) Any agreement for transfer at a future date of securities or of collateral (or of the equivalent of either) under this section may be regarded, for the purposes of valuation under COLL 6.3 (Valuation and pricing) or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the authorised fund.
(6) Collateral transferred to the depositary is part of the scheme property for the purposes of the rules in this sourcebook, except in the following respects:
(a) it does not fall to be included in any valuation for the purposes of COLL 6.3 or this chapter, because it is offset under (5) by an obligation to transfer; and
(b) it does not count as scheme property for any purpose of this chapter other than this section.
(7) Paragraph (5) and (6)(a) do not apply to any valuation of collateral itself for the purposes of this section.

Limitation by value

COLL 5.4.7

handbook-rule
There is no limit on the value of the scheme property which may be the subject of repo contracts or stock lending transactions within this section.

Guidance relating to the use of cash collateral

COLL 5.4.8

handbook-guidance
(1) The use of stock lending or the reinvestment of cash collateral should not result in a change of the scheme's declared investment objectives or add substantial supplementary risks to the scheme's risk profile.
(2) Collateral taking the form of cash may only be invested in:
(a) one of the investments coming within COLL 5.4.6 R (1) (c) (iii) to (vii) (Treatment of collateral); or
(b) deposits, provided they:
(i) are capable of being withdrawn within five business days, or such shorter time as may be dictated by the stock lending agreement; and
(ii) satisfy the requirements of COLL 5.2.26 R (1) (Investment in deposits).
  • 06/10/2007

COLL 5.4.9

handbook-guidance
Where a scheme generates leverage through the reinvestment of collateral, this should be taken into account in the calculation of the scheme's global exposure.
[Note:CESR's UCITS eligible assets guidelines with respect to article 11 of the UCITS eligible assets Directive (part)]
  • 23/07/2008

COLL 5.5

Cash, borrowing, lending and other provisions

  • 01/12/2004

Application

COLL 5.5.1

handbook-rule
This section applies to an ICVC, an ACD, a manager of an AUT, a depositary of an ICVC and a trustee of an AUT, where such ICVC or AUT is a UCITS scheme as set out in COLL 5.5.2 R (Table of application).
  • 01/04/2004

Table of application

COLL 5.5.2

handbook-rule
This table belongs to COLL 5.5.1 R.

Cash and near cash

COLL 5.5.3

handbook-rule
(1) Cash and near cash must not be retained in the scheme property except to the extent that this may reasonably be regarded as necessary in order to enable:
(a) the pursuit of the scheme's investment objectives; or
(b) redemption of units; or
(c) efficient management of the authorised fund in accordance with its investment objectives; or
(d) other purposes which may reasonably be regarded as ancillary to the investment objectives of the authorised fund.
(2) During the period of the initial offer the scheme property may consist of cash and near cash without limitation.
  • 01/04/2004

General power to borrow

COLL 5.5.4

handbook-rule
(1) The ICVC or trustee (on the instructions of the manager ) may, in accordance with this rule and COLL 5.5.5 R (Borrowing limits), borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property.
(2) Paragraph (1) is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the scheme.
(3) The ICVC or trustee may borrow under (1) only from an eligible institution or an approved bank.
(4) The authorised fund manager must ensure that any borrowing is on a temporary basis and that borrowings are not persistent, and for this purpose the authorised fund manager must have regard in particular to:
(a) the duration of any period of borrowing; and
(b) the number of occasions on which resort is had to borrowing in any period.
(5) In addition to complying with (4), the authorised fund manager must ensure that no period of borrowing exceeds three months, whether in respect of any specific sum or at all, without the prior consent of the depositary.
(6) The depositary may only give its consent as required under (5) on such conditions as appear to the depositary appropriate to ensure that the borrowing does not cease to be on a temporary basis only.
(7) This rule does not apply to "back to back" borrowing under COLL 5.3.5 R (2) (Borrowing).
(8) An ICVC must not issue any debenture unless it acknowledges or creates a borrowing that complies with (1) to (6)
  • 01/04/2004

Borrowing limits

COLL 5.5.5

handbook-rule
(1) The authorised fund manager must ensure that the authorised fund's borrowing does not, on any day, exceed 10% of the value of the scheme property.
(2) This rule does not apply to "back to back" borrowing under COLL 5.3.5 R (2)(Borrowing).
(3) In this rule, borrowing includes, as well as borrowing in a conventional manner, any other arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid.
(4) [deleted]

Restrictions on lending of money

COLL 5.5.6

handbook-rule
(1) None of the money in the scheme property of an authorised fund may be lent and, for the purposes of this prohibition, money is lent by an authorised fund if it is paid to a person ("the payee") on the basis that it should be repaid, whether or not by the payee.
(2) Acquiring a debenture is not lending for the purposes of (1); nor is the placing of money on deposit or in a current account.
(3) Paragraph (1) does not prevent an ICVC from providing an officer of the ICVC with funds to meet expenditure to be incurred by him for the purposes of the ICVC (or for the purposes of enabling him properly to perform his duties as an officer of the ICVC) or from doing anything to enable an officer to avoid incurring such expenditure.
  • 01/04/2004

Restrictions on lending of property other than money

COLL 5.5.7

handbook-rule
(1) The scheme property of an authorised fund other than money must not be lent by way of deposit or otherwise.
(2) Transactions permitted by COLL 5.4 (Stock lending) are not to be regarded as lending for the purposes of (1).
(3) The scheme property must not be mortgaged.
(4) Where transactions in derivatives or forward transactions are used for the account of the authorised fund in accordance with any of the rules in this chapter, nothing in this rule prevents the ICVC or the depositary at the request of the ICVC, or the trustee at the request of the manager , from :
(a) lending, depositing, pledging or charging scheme property for margin requirements; or
(b) transferring scheme property under the terms of an agreement in relation to margin requirements, provided that the authorised fund manager reasonably considers that both the agreement and the margin arrangements made under it (including in relation to the level of margin) provide appropriate protection to unitholders.

COLL 5.5.7A

handbook-guidance
An agreement providing appropriate protection to unitholders for the purposes of COLL 5.5.7 R (4)(b) includes one made in accordance with the 1995 International Swaps and Derivatives Association Credit Support Annex (English Law) to the International Swaps and Derivatives Association Master Agreement.
  • 06/01/2010

General power to accept or underwrite placings

COLL 5.5.8

handbook-rule
(1) Any power in this chapter to invest in transferable securities may be used for the purpose of entering into transactions to which this rule applies, subject to compliance with any restriction in the instrument constituting the scheme.
(2) This rule applies to any agreement or understanding which:
(a) is an underwriting or sub-underwriting agreement; or
(b) contemplates that securities will or may be issued or subscribed for or acquired for the account of the authorised fund.
(3) Paragraph (2) does not apply to:
(a) an option; or
(b) a purchase of a transferable security which confers a right to:
(i) subscribe for or acquire a transferable security; or
(ii) convert one transferable security into another.
(4) The exposure of an authorised fund to agreements and understandings within (2) must, on any day, be:
(a) covered under COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions); and
(b) such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of any limit in this chapter.

Guarantees and indemnities

COLL 5.5.9

handbook-rule
(1) An ICVC or a depositary for the account of an authorised fund must not provide any guarantee or indemnity in respect of the obligation of any person.
(2) None of the scheme property of an authorised fund may be used to discharge any obligation arising under a guarantee or indemnity with respect to the obligation of any person.
(3) Paragraphs (1) and (2) do not apply to:
(a) any indemnity or guarantee given for margin requirements where the derivatives or forward transactions are being used in accordance with the rules in this chapter; and
(b) for an ICVC:
(i) an indemnity falling within the provisions of regulation 62(3) of the OEIC Regulations (Exemptions from liability to be void);
(ii) an indemnity (other than any provision in it which is void under regulation 62 of the OEIC Regulations) given to the depositary against any liability incurred by it as a consequence of the safekeeping of any of the scheme property by it or by anyone retained by it to assist it to perform its function of the safekeeping of the scheme property; and
(iii) an indemnity given to a person winding up a scheme if the indemnity is given for the purposes of arrangements by which the whole or part of the property of that scheme becomes the first property of the ICVC and the holders of units in that scheme become the first unitholders in the ICVC; and
(c) for an AUT, an indemnity given to a person winding up a body corporate or other scheme in circumstances where those assets are becoming part of the scheme property by way of a unitisation.
  • 01/04/2004

Guidance on restricting payments

COLL 5.5.10

handbook-guidance
COLL 6.7.15 R (Payment of liabilities on transfer of assets) and COLL 6.4.7 R (Payments out of scheme property) contain provisions restricting payments out of scheme property.
  • 01/04/2004

COLL 5.6

Investment powers and borrowing limits for non - UCITS retail schemes

  • 01/12/2004

Application

COLL 5.6.1

handbook-rule
(1) This section applies to the authorised fund manager and the depositary of a non-UCITS retail scheme and to an ICVC which is a non-UCITS retail scheme.
(2) Where this section contains a reference to a rule in any of COLL 5.1 to COLL 5.5 , these rules and any rules to which they refer or any relevant guidance should be read as if any reference to a UCITS scheme is to a non-UCITS retail scheme.
  • 01/04/2004

Explanation of COLL 5.6

COLL 5.6.2

handbook-guidance
(1) This section contains rules on the types of permitted investments and any relevant limits with which non-UCITS retail schemes must comply. These rules allow for the relaxation of certain investment and borrowing powers from the requirements of the UCITS Directive. Consequently, a scheme authorised as a non-UCITS retail scheme will not qualify for the cross border passporting rights conferred by the UCITS Directive on a UCITS scheme.
(2) Some examples of the different investment and borrowing powers under the rules in this section for non-UCITS retail schemes are the power to:
(a) invest not more than 10% of the value of scheme property in transferable securities or money-market instruments issued by any single body;
(b) invest in up to 20% in aggregate of the value of the scheme property in transferable securities which are not approved securities and unregulated schemes;
(c) invest in a wider range of schemes which do not comply with the requirements of the UCITS Directive;
(d) include gold in the scheme property (up to a limit of 10% of the value of the scheme property);
(e) include immovables in the scheme property; and
(f) borrow on a non-temporary basis without any specific time limit as to repayment of the borrowing.
  • 01/04/2004

Prudent spread of risk

COLL 5.6.3

handbook-rule
(1) An authorised fund manager must ensure that, taking account of the investment objectives and policy of the non-UCITS retail scheme as stated in its most recently published prospectus, the scheme property of the non-UCITS retail scheme aims to provide a prudent spread of risk
(2) Subject to (3) and (4), the rules in this section relating to spread of investments, including immovables, do not apply until 12 months after the later of:
(a) the date when the authorisation order in respect of the non-UCITS retail scheme takes effect; and
(b) the date the initial offer commenced;
provided that (1) is complied with during such period.
(3) Subject to (4), the limits in COLL 5.6.19 R do not apply until 24 months after the later of:
(a) the date when the authorisation order in respect of the non-UCITS retail scheme takes effect; and
(b) the date the initial offer commenced;


provided that (1) is complied with during such period.
(4) The limit in COLL 5.6.19 R (7) relating to immovables which are unoccupied and non-income producing or are in the course of substantial development, redevelopment or refurbishment applies from the later of the date when the authorisation order in respect of the non-UCITS retail scheme takes effect and the date the initial offer period commenced.

Investment powers: general

COLL 5.6.4

handbook-rule
(1) The scheme property of a non-UCITS retail scheme may, subject to the rules in this section, comprise any assets or investments to which it is dedicated.
(2) For an ICVC, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.
(3) The scheme property must be invested only in accordance with the relevant provisions in this section that are applicable to that non-UCITS retail scheme and within any upper limit specified in this section.
(4) The instrument constituting the scheme may restrict the investment powers of a scheme further than the relevant restrictions in this section.
(5) The scheme property may only, except where otherwise provided in the rules in this section, consist of any one or more of:
(a) transferable securities;
(b) money-market instruments;
(c) units in collective investment schemes permitted under COLL 5.6.10 R (Investment in collective investment schemes);
(d) derivatives and forward transactions permitted under COLL 5.6.13 R (Permitted transactions (derivatives and forwards));
(e) deposits permitted under COLL 5.2.26 R (Investment in deposits);
(f) immovables permitted under COLL 5.6.18 R (Investment in property) to COLL 5.6.19 R (Investment limits for immovables); and
(g) gold up to a limit of 10% in value of the scheme property.

Eligibility of transferable securities and money-market instruments for investment by a non-UCITS retail scheme

COLL 5.6.5

handbook-rule
Transferable securities and money-market instruments held within a non-UCITS retail scheme must:
(1)
(a) be admitted to or dealt in on an eligible market within COLL 5.2.10 R (Eligible markets: requirements); or
(b) be recently issued transferable securities which satisfy the requirements for investment by a UCITS scheme set out in COLL 5.2.8 R (3)(e); or
(c) be approved money-market instruments not admitted to or dealt in on an eligible market which satisfy the requirements for investment by a UCITS scheme set out in COLL 5.2.10A R to COLL 5.2.10C R; or
(2) subject to a limit of 20% in value of the scheme property be:
(a) transferable securities which are notwithin (1); or
(b) money-market instruments which are liquid and have a value which can be determined accurately at any time.

COLL 5.6.5A

handbook-rule
Transferable securities held within a non-UCITS retail scheme must also satisfy the criteria in COLL 5.2.7A R, COLL 5.2.7C R and COLL 5.2.7E R for the purposes of investment by a UCITS scheme.
  • 06/01/2010

COLL 5.6.5B

handbook-guidance
COLL 5.2.7A R to COLL 5.2.7E R contain rules and guidance relating to the criteria that need to be satisfied for the purposes of investment in transferable securities.
  • 06/01/2010

Valuation

COLL 5.6.6

handbook-rule
In this section the value of the scheme property means the value of the scheme property determined in accordance with COLL 5.2.5 R (Valuation).
  • 01/04/2004

Spread: general

COLL 5.6.7

handbook-rule
(1) This rule does not apply in respect of government and public securities.
(2) Not more than 20% in value of the scheme property is to consist of deposits with a single body.
(3) Not more than 10% in value of the scheme property is to consist of transferable securities or money-market instruments issued by any single body subject to COLL 5.6.23 R (Schemes replicating an index).
(3A) The limit of 10% in (3) is raised to 25% in value of the scheme property in respect of covered bonds.
(4) In applying (3) certificates representing certain securities are to be treated as equivalent to the underlying security.
(5) The exposure to any one counterparty in an OTC derivative transaction must not exceed 10% in value of the scheme.
(6) Except for a feeder fund or a scheme dedicated to units in a single property authorised investment fund, not more than 35% in value of the scheme is to consist of the units of any one scheme.
(6A) Schemes which (in respect of investment in units in collective investment schemes) are dedicated to units in a single property authorised investment fund must, in addition to the investment in the property authorised investment fund, only hold cash or near cash to maintain sufficient liquidity to enable the scheme to meet its commitments, such as redemptions. Schemes may also use techniques and instruments for the purpose of efficient portfolio management, where appropriate, such as forward foreign exchange transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between relevant currencies.
(7) For the purpose of calculating the limit in (5), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (8).
(8) The conditions referred to in (7) are that the collateral:
(a) is marked-to-market on a daily basis and exceeds the value of the amount at risk;
(b) is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;
(c) is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and
(d) can be fully enforced by the non-UCITS retail scheme at any time.
(9) For the purpose of calculating the limit in (5), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:
(a) comply with the conditions set out in Part 7(Contractual netting (Contracts for novation and other netting agreements)) ofAnnex III to the Banking Consolidation Directive; and
(b) are based on legally binding agreements.
(10) In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house meets each of the following conditions:
(a) it is backed by an appropriate performance guarantee; and
(b) it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.
(11) For the purposes of this rule a single body is:
(a) in relation to transferable securities and money market instruments, the person by whom they are issued; and
(b) in relation to deposits, the person with whom they are placed.

Guidance on spread: general

COLL 5.6.7A

handbook-guidance
(1) COLL 5.6.7 R (7) to (10) replicate the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities, so as to enable non-UCITS retail schemes to benefit from the same flexibility.
(2) The attention of authorised fund managers is specifically drawn to condition (d) in COLL 5.6.7 R (8) under which the collateral has to be legally enforceable at any time. It is the FSA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. The depositary will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under COLL 6.6.4 R (General duties of the depositary).
(3) In applying the spread limit of 20% in value of scheme property which may consist of deposits with a single body, all uninvested cash comprising capital property that the depositary holds should be included in calculating the total sum of the deposits held by it on behalf of the scheme.

Spread: government and public securities

COLL 5.6.8

handbook-rule
(1) This rule applies in respect of government and public securities.
(2) The requirements in COLL 5.2.12 R (Spread: government and public securities) apply to investment in government and public securities by a non-UCITS retail scheme, except for COLL 5.2.12R (4) which will apply to such a scheme only to the extent that it concerns the most recently published prospectus of the scheme.

Investment in nil and partly paid securities

COLL 5.6.9

handbook-rule
A non-UCITS retail scheme must not invest in nil and partly paid securities unless the investment complies with the conditions in COLL 5.2.17 R (Investment in nil and partly paid securities).

Investment in collective investment schemes

COLL 5.6.10

handbook-rule
A non-UCITS retail scheme must not invest in units in a collective investment scheme (second scheme) unless the second scheme meets each of the requirements at (1) to (5):
(1) the second scheme:
(a) satisfies the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or
(b) is a non-UCITS retail scheme; or
(c) is a recognised scheme; or
(d) is constituted outside the United Kingdom and the investment and borrowing powers of which are the same or more restrictive than those of a non-UCITS retail scheme; or
(e) is a scheme not falling within (a) to (d) and in respect of which no more than 20% in value of the scheme property (including any transferable securities which are not approved securities) is invested;
(2) the second scheme operates on the principle of the prudent spread of risk;
(3) the second scheme is prohibited from having more than 15% in value of the property of that scheme consisting of units in collective investment schemes;
(4) the participants in the second scheme must be entitled to have their units redeemed in accordance with the scheme at a price:
(a) related to the net value of the property to which the units relate; and
(b) determined in accordance with the scheme; and
(5) where the second scheme is an umbrella, the provisions in (2) to (4) and COLL 5.6.7 R (Spread: general) apply to each sub-fund as if it were a separate scheme.

Investment in associated collective investment schemes

COLL 5.6.11

handbook-rule
Units in a scheme do not fall within COLL 5.6.10 R if that scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing non-UCITS retail scheme or by an associate of that authorised fund manager, unless:
(1) the prospectus of the investing authorised fund clearly states that the property of that investing fund may include such units; and
(2) the conditions in COLL 5.2.16 R (Investment in other group schemes) are complied with.

Derivatives: general

COLL 5.6.12

handbook-rule
(1) A transaction in derivatives or a forward transaction must not be effected for a non-UCITS retail scheme unless the transaction is:
(a) of a kind specified in COLL 5.6.13 R (Permitted transactions (derivatives and forwards)); and
(b) covered, as required by COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions).
(2) Where a scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in COLL 5.6.7 R (Spread: general) and COLL 5.6.8 R (Spread: government and public securities) except as provided in (4).
(3) Where a transferable security or money-market instrument embeds a derivative, this must be taken into account for the purposes of calculating any limit in this section.
(4) Where a scheme invests in an index-based derivative, provided the relevant index falls within COLL 5.6.23 R (Schemes replicating an index) the underlying constituents of the index do not have to be taken into account for the purposes of COLL 5.6.7 R and COLL 5.6.8 R.
(5) The relaxation in (4) is subject to the authorised fund manager taking account of COLL 5.6.3 R (Prudent spread of risk).

Permitted transactions (derivatives and forwards)

COLL 5.6.13

handbook-rule
(1) A transaction in a derivative must be within COLL 5.2.20 R (1) (Permitted transactions (derivatives and forwards)) and:
(a) the underlying must be within COLL 5.6.4 R (5) (Investment powers: general) or COLL 5.2.20R (2)(f) to (i); and
(b) the exposure to the underlying must not exceed the limits in COLL 5.6.7 R (Spread: general), COLL 5.6.8 R (Spread: government and public securities) and COLL 5.6.5 R (2).
(2) A transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.
(3) A transaction in a derivative must not cause a scheme to diverge from its investment objectives as stated in the instrument constituting the scheme and the most recently published prospectus.
(4) transaction in a derivative must not be effected if the intended effect is to create the potential for an uncovered sale of:
(a) transferable securities;
(b) money-market instruments;
(c) units in collective investment schemes; or
(d) derivatives.
(5) Any forward transaction must be made with an eligible institution or an approved bank.
(6) The authorised fund manager must ensure compliance with COLL 5.3.6 R (Continuing nature of limits and requirements).

Transactions for the purchase or disposal of property

COLL 5.6.14

handbook-rule
The requirements of COLL 5.2.21 R (Transactions for the purchase of property) and COLL 5.2.22 R (Requirement to cover sales) apply to non-UCITS retail schemes in the same manner as to UCITS schemes.
  • 01/04/2004

OTC transactions in derivatives

COLL 5.6.15

handbook-rule
Any transaction in an OTC derivative under COLL 5.6.13 R (Permitted transactions (derivatives and forwards)) must comply with the requirements of COLL 5.2.23 R (OTC transactions in derivatives).
  • 01/04/2004

Risk management

COLL 5.6.16

handbook-rule
An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk associated with a non-UCITS retail scheme's positions and their contribution to the overall risk profile of the scheme.

Risk management process

COLL 5.6.17

handbook-guidance
(1) The risk management process should take account of the investment objectives and policy of the non-UCITS retail scheme as stated in its most recent prospectus.
(2) The depositary should take reasonable care to review the appropriateness of the risk management process in line with its duties under COLL 6.6.4 R (General duties of the depositary) and COLL 6.6.14 R (Duties of the depositary and authorised fund manager: investment and borrowing powers), as appropriate.
(3) An authorised fund manager is expected to demonstrate more sophistication in its risk management process for a non-UCITS retail scheme with a complex risk profile than for one with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.
(4) An authorised fund manager should take reasonable care to establish and maintain such systems and controls as are appropriate to its business as required by SYSC 4.1 (General requirements).
(5) The risk management process should enable the analysis required by COLL 5.6.16 R (Risk management) to be undertaken at least daily or at each valuation point whichever is the more frequent.

Investment in property

COLL 5.6.18

handbook-rule
(1) Any investment in land or a building held within the scheme property of a non-UCITS retail scheme must be an immovable within (2) to (5).
(2) An immovable must:
(a) be situated in a country or territory identified in the prospectus for the purpose of this rule; and
(b) if situated in:
(i) England and Wales or Northern Ireland, be a freehold or leasehold interest; or
(ii) Scotland, be any interest or estate in or over land or heritable right including a long lease; or
(c) if not situated in the jurisdictions referred to in (b)(i) or (ii), be equivalent to any of the interests in (b)(i) or (ii) or, if no such equivalent interest is available in the jurisdiction, be an interest that grants beneficial ownership of the immovable to the scheme and provides as good a title as any of the interests in (b)(i) or (ii).
(3) The authorised fund manager must have taken reasonable care to determine that the title to the immovable is a good marketable title.
(4) The manager or the ICVC must:
(a) have received a report from an appropriate valuer which:
(i) contains a valuation of the immovable (with and without any relevant subsisting mortgage); and
(ii) states that in the appropriate valuer's opinion the immovable would, if acquired by the scheme, be capable of being disposed of reasonably quickly at that valuation; or
(b) have received a report from an appropriate valuer as required by (4)(a)(i) and stating that:
(i) the immovable is adjacent to or in the vicinity of another immovable included in the scheme property or is another legal interest as defined in (2)(b) or (c) in an immovable which is already included in the scheme property; and
(ii) in the opinion of the appropriate valuer, the total value of both immovables would at least equal the sum of the price payable for the immovable and the existing value of the other immovable.
(5) An immovable must:
(a) be bought or be agreed by enforceable contract to be bought within six months after receipt of the report of the appropriate valuer under (4);
(b) not be bought, if it is apparent to the authorised fund manager that the report in (a) could no longer reasonably be relied upon; and
(c) not be bought at more than 105% of the valuation for the relevant immovable in the report in (4).
(6) Any furniture, fittings or other contents of any building may be regarded as part of the relevant immovable.
(7) An appropriate valuer must be a person who:
(a) has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;
(b) is qualified to be a standing independent valuer of a non-UCITS retail scheme or is considered by the scheme's standing independent valuer to hold an equivalent qualification;
(c) is independent of the ICVC, the depositary and each of the directors of the ICVC or of the manager and trustee of the AUT; and
(d) has not engaged himself or any of his associates in relation to the finding of the immovable for the scheme or the finding of the scheme for the immovable.

Investment in overseas property through an intermediate holding vehicle

COLL 5.6.18A

handbook-rule
(1) An overseas immovable may be held by a scheme through an intermediate holding vehicle whose purpose is to enable the holding of immovables by the scheme or a series of such intermediate holding vehicles, provided that the interests of unitholders are adequately protected. Any investment in an intermediate holding vehicle for the purpose of holding an overseas immovable shall be treated for the purposes of this chapter as if it were a direct investment in that immovable.
(2) An intermediate holding vehicle must be wholly owned by the scheme or another intermediate holding vehicle or series of intermediate holding vehicles wholly owned by the scheme, unless and to the extent that local legislation or regulation relating to the intermediate holding vehicle holding the immovable requires a proportion of local ownership.

COLL 5.6.18B

handbook-guidance
(1) The authorised fund manager may transfer capital and income between an intermediate holding vehicle and the scheme by the use of inter-company debt if the purpose of this is for investment in immovables and repatriation of income generated by such investment. In using inter-company debt, the authorised fund manager should ensure the following:
(a) a record of inter-company debt is kept in order to provide an accurate audit trail; and
(b) interest paid out on the debt instruments is equivalent to the net rental income earned from the immovables after deduction of the intermediate holding vehicle's reasonable running costs (including tax).
(2) An intermediate holding vehicle should undertake the purchase, sale and management of immovables on behalf the scheme in accordance with the scheme's investment objectives and policy.
(3) Wherever reasonably practicable, an intermediate holding vehicle should have the same auditor and accounting reference date as the scheme.
(4) The accounts of any intermediate holding vehicle should be consolidated into the annual and interim reports of the scheme.
(5) The authorised fund manager should provide sufficient information to enable the depositary to fulfil its duties under COLL in relation to the immovables held through an intermediate holding vehicle.
  • 14/12/2007

Investment limits for immovables

COLL 5.6.19

handbook-rule
The following limits apply in respect of immovables held as part of scheme property of a scheme:
(1) not more than 15% in value of the scheme property is to consist of any one immovable;
(2) in (1), immovables within COLL 5.6.18 R (4) (b) (Investment in property) must be regarded as one immovable;
(3) the figure of 15% in (1) may be increased to 25% once the immovable has been included in the scheme property in compliance with (1);
(4) the income receivable from any one group in any accounting period must not be attributable to immovables comprising;
(a) more than 25%; or
(b) in the case of a government or public body more than 35%;
of the value of the scheme property;
(5) not more than 20% in value of the scheme property is to consist of immovables that are subject to a mortgage and any mortgage must not secure more than 100% of the value in COLL 5.6.18 R (4) (on the assumption the immovable is not mortgaged);
(6) the aggregate value of:
(a) mortgages secured on immovables under (5);
(b) borrowing of the scheme under COLL 5.6.22 R (5); and
(c) any transferable securities that are not approved securities;
must not at any time exceed 20% of the value of the scheme property;
(7) not more than 50% in value of the scheme property is to consist of immovables which are unoccupied and non-income producing or in the course of substantial development, redevelopment or refurbishment; and
(8) no option may be granted to a third party to buy any immovable comprised in the scheme property unless the value of the relevant immovable does not exceed 20% of the value of the scheme property together with, where appropriate, the value of investments in:
(a) unregulated collective investment schemes; and
(b) any transferable securities which are not approved securities.

Standing independent valuer and valuation

COLL 5.6.20

handbook-rule
(1) The following requirements apply in relation to the appointment of a valuer:
(a) the authorised fund manager must ensure that any immovables in the scheme property are valued by an appropriate valuer (standing independent valuer) appointed by the authorised fund manager; and
(b) the appointment must be made with the approval of the trustee or depositary at the outset and upon any vacancy.
(2) The standing independent valuer in (1) must be:
(a) for an AUT, independent of the manager and trustee; and
(b) for an ICVC, independent of the ICVC, the directors and the depositary.
(3) The following requirements apply in relation to the functions of the standing independent valuer:
(a) the authorised fund manager must ensure that the standing independent valuer values all the immovables held within the scheme property, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection), at least once a year;
(b) for the purposes of (a) any inspection in relation to adjacent properties of a similar nature may be limited to that of only one such representative property;
(c) the authorised fund manager must ensure that the standing independent valuer values the immovables, on the basis of a review of the last full valuation, at least once a month;
(d) if either the authorised fund manager or the depositary becomes aware of any matters that appear likely to:
(i) affect the outcome of a valuation of an immovable; or
(ii) cause the valuer to decide to value under (a) instead of under (c);
it must immediately inform the standing independent valuer of that matter;
(e) the authorised fund manager must use its best endeavours to ensure that any other affected person reports to the standing independent valuer immediately upon that person becoming aware of any matter within (d); and
(f) any valuation by the standing independent valuer must be undertaken in accordance with UKPS 2.3 of the RICS Valuation Standards (The Red Book) (6th edition published January 2008), or in the case of overseas immovables on an appropriate basis, but subject to COLL 6.3 (Valuation and pricing).
(4) In relation to an immovable:
(a) any valuation under COLL 6.3 (Valuation and pricing) has effect, until the next valuation under that rule, for the purposes of the value of immovables; and
(b) an agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the scheme property unless it reasonably appears to the authorised fund manager to be legally enforceable.

COLL 5.6.20A

handbook-guidance
In considering whether a valuation of overseas immovables by the standing independent valuer is made on an appropriate basis for the purpose of COLL 5.6.20 R (3) (f), the authorised fund manager should consider whether that valuation was made in accordance with internationally accepted valuation principles, procedures and definitions as set out in the International Valuation Standards published by the International Valuation Standards Committee.
  • 06/10/2008

Stock lending

COLL 5.6.21

handbook-rule
A non-UCITS retail scheme may undertake stock lending in accordance with COLL 5.4 (Stock lending).
  • 01/04/2004

Cash, borrowing, lending and other provisions

COLL 5.6.22

handbook-rule
The following rules in Chapter 5 apply to a non-UCITS retail scheme:
(1) COLL 5.2.7 R (Transferable securities);
(2) COLL 5.5.1 R(Application) and COLL 5.5.2 R (Table of application);
(3) COLL 5.5.3 R (Cash and near cash);
(4) COLL 5.5.4 R (1), COLL 5.5.4 R (2), COLL 5.5.4 R (3) and COLL 5.5.4R (8) (General power to borrow);
(5) COLL 5.5.5 R (1) and COLL 5.5.5 R (2) (Borrowing limits);
(6) COLL 5.5.6 R (Restrictions on lending of money) ;
(7) COLL 5.5.7 R (1) , (2) and (4) (Restrictions on lending of property other than money);
(8) COLL 5.5.8 R (General power to accept or underwrite placings); and
(9) COLL 5.5.9 R (Guarantees and indemnities).

Schemes replicating an index

COLL 5.6.23

handbook-rule
(1) A non-UCITS retail scheme may invest up to 20% in value of the scheme property in shares and debentures which are issued by the same body where the aim of the investment policy of that scheme as stated in its most recently published prospectus is to replicate the performance or composition of an index within (2).
(2) The index must:
(a) have a sufficiently diversified composition;
(b) be a representative benchmark for the market to which it refers; and
(c) be published in an appropriate manner.
(3) The limit in (1) may be raised for a particular scheme up to 35% in value of the scheme property, but only in respect of one body and where justified by exceptional market conditions.
  • 01/04/2004

COLL 5.6.23A

handbook-guidance
(1) Replication of the composition of an index shall be understood to be a reference to replication of the composition of the underlying assets of that index, including the use of techniques and instruments for the purpose of efficient portfolio management.
(2) The composition of an index is sufficiently diversified if its components adhere to the spread requirements in this section.
(3) An index is a representative benchmark if its provider uses a recognised methodology which generally does not result in the exclusion of a major issuer of the market to which it refers.
(4) An index is published in an appropriate manner if:
(a) it is accessible to the public;
(b) the index provider is independent from the index-replicating scheme; this does not preclude index providers and the scheme from forming part of the same group, provided that effective arrangements for the management of conflicts of interest are in place.
  • 23/07/2008

Non-UCITS retail schemes that are umbrellas

COLL 5.6.24

handbook-rule
(1) In relation to a scheme which is an umbrella, the provisions in this section apply to each sub-fund as they would for a non-UCITS retail scheme.
(2) A sub-fund must not invest in another sub-fund of the same umbrella.

COLL 5.7

Investment powers and borrowing limits for NURS operating as FAIFs

  • 06/03/2010

Application

COLL 5.7.1

handbook-rule
(1) This section applies to the authorised fund manager and the depositary of a non-UCITS retail scheme operating as a FAIF and to an ICVC which is a non-UCITS retail scheme operating as a FAIF.
(2) Where this section refers to:
(a) a rule or guidance in COLL 5.1 to COLL 5.6, these rules and guidance, and any rules and guidance to which they refer, must be read as if a reference to a UCITS scheme or non-UCITS retail scheme were a reference to a non-UCITS retail scheme operating as a FAIF;
(b) a second scheme, and the second scheme is a feeder scheme which (in respect of investment in units in collective investment schemes) is dedicated to units in a single collective investment scheme, the reference in this section to the second scheme must be read as if it were a reference to any scheme into which the feeder scheme's master scheme invests; and
(c) a second scheme, and the second scheme is a master scheme to which (in respect of investment in units in collective investment schemes) the relevant non-UCITS retail scheme operating as a FAIF is dedicated, the reference in this section to the second scheme must be read as if it were a reference to any scheme into which that master scheme invests.
  • 06/03/2010

Purpose

COLL 5.7.2

handbook-guidance
(1) This section contains rules on the types of permitted investments and any relevant limits with which non-UCITS retail schemes operating as FAIFs must comply. These rules allow for the relaxation of certain investment and borrowing powers from the requirements for non-UCITS retail schemes under COLL 5.6 .
(2) Some examples of the different investment and borrowing powers under the rules in this section for non-UCITS retail schemes operating as FAIFs are the power to:
(a) invest up to 100% of the value of the scheme property in schemes captured by COLL 5.7.7 R; and
(b) invest in a single master scheme.
(3) In order to ensure adequate unitholder protection, the authorised fund manager is required to implement certain due diligence procedures in respect of investment in second schemes.

Applicable rules in COLL 5.6

COLL 5.7.3

handbook-rule
The following rules and guidance in COLL 5.6 (Investment powers and borrowing limits for non-UCITS retail schemes) apply to the authorised fund manager and the depositary of a non-UCITS retail scheme operating as a FAIF and to an ICVC which is a non-UCITS retail scheme operating as a FAIF:
(1) COLL 5.6.3 R;
(2) COLL 5.6.5 R to 5.6.6 R;
(3) COLL 5.6.8 R to 5.6.9 R; and
(4) COLL 5.6.11 R to 5.6.24 R.
  • 06/03/2010

Investment powers: general

COLL 5.7.4

handbook-rule
(1) The scheme property of a non-UCITS retail scheme operating as a FAIF may, subject to the rules in this section, comprise any assets or investments to which it is dedicated.
(2) For an ICVC, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.
(3) The scheme property must be invested only in accordance with the relevant provisions in this section that are applicable to that non-UCITS retail scheme operating as a FAIF and within any upper limit specified in this section.
(4) The instrument constituting the scheme may restrict the investment powers of a scheme further than the relevant restrictions in this section.
(5) The scheme property may only, except where otherwise provided in the rules in this section, consist of any one or more of:
(a) transferable securities;
(b) money market instruments;
(c) units in collective investment schemes permitted under COLL 5.7.7 R (Investment in collective investment schemes);
(d) derivatives and forward transactions permitted under COLL 5.6.13 R (Permitted transactions (derivatives and forwards));
(e) deposits permitted under COLL 5.2.26 R (Investment in deposits);
(f) immovables permitted under COLL 5.6.18 R (Investment in property) to COLL 5.6.19 R (Investment limits for immovables); and
(g) gold up to a limit of 10% in value of the scheme property.
  • 06/03/2010

Spread: general

COLL 5.7.5

handbook-rule
(1) This rule does not apply in respect of government and public securities.
(2) Not more than 20% in value of the scheme property is to consist of deposits with a single body.
(3) Not more than 10% in value of the scheme property is to consist of transferable securities or approved money-market instruments issued by any single body subject to COLL 5.6.23 R (Schemes replicating an index).
(4) The limit of 10% in (3) is raised to 25% in value of the scheme property in respect of covered bonds.
(5) In applying (3) certificates representing certain securities are to be treated as equivalent to the underlying security.
(6) The exposure to any one counterparty in an OTC derivative transaction must not exceed 10% in value of the scheme.
(7) Except for a feeder scheme which (in respect of investment in units in collective investment schemes) is dedicated to the units of a master scheme, not more than 35% in value of the scheme is to consist of the units of any one scheme.
(8) For the purpose of calculating the limit in (6), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (9).
(9) The conditions referred to in (8) are that the collateral:
(a) is marked-to-market on a daily basis and exceeds the value of the amount at risk;
(b) is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;
(c) is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and
(d) can be fully enforced by the non-UCITS retail scheme operating as a FAIF at any time.
(10) For the purpose of calculating the limit in (6), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:
(a) comply with the conditions set out in Part 7(Contractual netting (Contracts for novation and other netting agreements)) ofAnnex III to the Banking Consolidation Directive; and
(b) are based on legally binding agreements.
(11) In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house meets each of the following conditions:
(a) it is backed by an appropriate performance guarantee; and
(b) it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.
(12) For the purposes of this rule a single body is:
(a) in relation to transferable securities and money market instruments, the person by whom they are issued; and
(b) in relation to deposits, the person with whom they are placed.
  • 06/03/2010

Guidance on spread: general

COLL 5.7.6

handbook-guidance
(1) COLL 5.7.5R (8) to (11) replicate the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities, so as to enable non-UCITS retail schemes to benefit from the same flexibility.
(2) The attention of authorised fund managers is specifically drawn to condition (d) in COLL 5.7.5R (9) under which the collateral has to be legally enforceable at any time. It is the FSA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. The depositary will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under COLL 6.6.4 R (General duties of the depositary).
(3) In applying the spread limit of 20% in value of scheme property which may consist of deposits with a single body, all uninvested cash comprising capital property that the depositary holds should be included in calculating the total sum of the deposits held by it on behalf of the scheme.
  • 06/03/2010

Investment in collective investment schemes

COLL 5.7.7

handbook-rule
A non-UCITS retail scheme operating as a FAIF must not invest in units in a collective investment scheme (second scheme) unless the second scheme is a scheme which satisfies the criteria in COLL 5.6.10 R (1) (a) to (d) or meets each of the requirements at (1) to (4):
(1) the second scheme operates on the principle of the prudent spread of risk;
(2) the second scheme is prohibited from investing more than 15% in value of the property of that scheme in units in collective investment schemes or, if there is no such prohibition, the non-UCITS retail scheme's authorised fund manager is satisfied, on reasonable grounds and after making all reasonable enquiries, that no such investment will be made;
(3) the participants in the second scheme must be entitled to have their units redeemed in accordance with the scheme at a price:
(a) related to the net value of the property to which the units relate; and
(b) determined in accordance with the scheme; and
(4) where the second scheme is an umbrella, the provisions in (1) to (3) and COLL 5.7.5 R (Spread: general) apply to each sub-fund as if it were a separate scheme.
  • 06/03/2010

COLL 5.7.8

handbook-rule
Feeder schemes which (in respect of investment in units in collective investment schemes) are dedicated to units in a single collective investment scheme must, in addition to the investment in the master scheme, only hold cash or near cash to maintain sufficient liquidity to enable the scheme to meet its commitments, such as redemptions. Feeder schemes may also use techniques and instruments for the purpose of efficient portfolio management, where appropriate, such as forward foreign exchange transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between relevant currencies.
  • 06/03/2010

Due diligence requirements

COLL 5.7.9

handbook-rule
(1) A non-UCITS retail scheme operating as a FAIF must not invest in units in schemes in COLL 5.7.7R (1) to (3) ('second schemes') unless the authorised fund manager has carried out appropriate due diligence on each of the second schemes and:
(a) is satisfied, on reasonable grounds and after making all reasonable enquiries, that each of the second schemes complies with relevant legal and regulatory requirements;
(b) has taken reasonable care to determine that:
(i) the property of each of the second schemes is held in safekeeping by a third party, which is subject to prudential regulation and independent of the investment manager of the second scheme;
(ii) the calculation of the net asset value of each of the second schemes and the maintenance of their accounting records is segregated from the investment management function; and
(iii) each of the second schemes is regularly audited by an independent auditor in accordance with international standards on auditing.
(2) The authorised fund manager of a non-UCITS retail scheme operating as a FAIF invested in one or more second schemes must carry out appropriate due diligence as detailed in (1) on those schemes on an ongoing basis.
  • 06/03/2010

COLL 5.7.10

handbook-rule
The authorised fund manager of a non-UCITS retail scheme operating as a FAIF which is a feeder scheme must ensure that:
(1) its master scheme; and
(2) where its master scheme is itself a feeder scheme, any scheme into which that master scheme invests;
operates on a basis that is consistent with the rules in this section notwithstanding any due diligence previously carried out which suggested that those schemes would so operate.
  • 06/03/2010

COLL 5.7.11

handbook-guidance
An authorised fund manager carrying out due diligence for the purpose of the rules in this section should make enquiries or otherwise obtain information needed to enable him properly to consider:
(1) whether the experience, expertise, qualifications and professional standing of the second scheme's investment manager is adequate for the type and complexity of the second scheme;
(2) the adequacy of the regulatory, legal and accounting regimes applicable to the second scheme and its investment manager;
(3) whether the second scheme, its investment manager and administrator have complied with their legal and regulatory obligations, including but not limited to an evaluation of the investment manager's written policies with respect to such compliance;
(4) the extent to which the second scheme's investment manager adheres to guidance and codes which amount to good practice in the industry;
(5) the adequacy of the second scheme's systems, controls, governance, accounting, administration, business continuity, disaster recovery, safekeeping, custody and trading and execution arrangements;
(6) the extent to which the property of the second scheme may be rehypothecated and the potential impact of such rehypothecation on the non-UCITS retail scheme operating as a FAIF;
(7) the adequacy of the second scheme's risk management process, in particular:
(a) the methodology by which risk is measured and its practical adequacy in the light of the limitations inherent in risk measures (such as value at risk), including where appropriate, reference to market risk, credit risk (including counterparty credit risk), liquidity risk, operational risk and outsourcing risk;
(b) the extent to which the second scheme's investment manager carries out stress testing and backtesting, to determine how potential changes in market conditions could impact on the value of the second scheme's portfolio;
(c) the reporting, escalation and review processes within the second scheme's governance structure;
(d) the manner in which risks arising from services provided by third parties are managed, including where those third parties provide prime brokerage, administration, auditing, valuation, risk monitoring, business continuity and disaster recovery services; and
(e) the management of key person risk;
(8) the adequacy of the second scheme's investment strategy and trading philosophy;
(9) the implications of currency convertibility (if any);
(10) whether the second scheme produces a valuation that is sufficiently accurate for the authorised fund manager to be reasonably satisfied that the price of the FAIF'sunits can be calculated in accordance with COLL 6.3 (Valuation and pricing), including but not limited to an assessment of:
(a) the roles and responsibilities of each of the parties involved in the second scheme's valuation process and the extent to which these are defined;
(b) the extent to which the valuation process is segregated or is functionally separate from the second scheme's investment manager where the second scheme is not subject to completely independent valuation by a third party;
(c) the methods used by the second scheme for the valuation of each part of its property including those assets which are difficult to value or which are not subject to independent market pricing;
(d) the extent to which the investment manager of the second scheme does not rely on prices from external sources, and its written policies relating to this;
(e) the manner in which the investment manager of the second scheme selects and monitors the adequacy of its pricing sources;
(f) the extent to which the investment manager of the second scheme operates a valuation policy that is consistent and fair to both subscribing and redeeming investors from the second scheme;
(11) the level of liquidity, redemption policy and dealing arrangements offered by the second scheme and whether they are sufficient for the investing scheme to be able to meet its obligations in respect of redemptions; wherever appropriate the authorised fund manager may need to consider how many second schemes the investing scheme should invest in to ensure that that scheme can meet its redemption obligations; and
(12) any relevant conflicts of interest that may arise out of the relationships of the second scheme's investment manager with other relevant parties and in particular detract from the integrity of the second scheme's decision-making process, including:
(a) relationships with brokers or service providers;
(b) conflicts that may be generated by fee structures;
(c) use of dealing commission to purchase goods or services;
(d) conflicts that may arise from the second scheme's investment manager managing that scheme alongside other business; and
(e) the conflicts of interest that may arise (if any) between the second scheme's investment manager and any person instructed to carry out due diligence on the authorised fund manager's behalf.
  • 06/03/2010

Export chapter as

COLL 6

Operating duties and responsibilities

COLL 6.1

Introduction and Application

  • 01/12/2004

Application

COLL 6.1.1

handbook-rule
This chapter applies to:
(1) an authorised fund manager of an AUT or an ICVC;
(2) any other director of an ICVC;
(3) a depositary of an AUT or an ICVC; and
(4) an ICVC,
where such AUT or ICVC is a UCITS scheme or a non-UCITS retail scheme.
  • 01/04/2004

Purpose

COLL 6.1.2

handbook-guidance
This chapter helps in achieving the regulatory objective of protecting consumers. It provides the operating framework within which the authorised fund must be operated on a day-to-day basis to ensure that clients are treated fairly when they become, remain or as they cease to be unitholders.
  • 01/04/2004

Explanation of this chapter

COLL 6.1.3

handbook-guidance
(1) The authorised fund manager operates the scheme on a day-to-day basis. Its operation is determined by the rules in this chapter, which require appropriate powers in the instrument constituting the scheme or refer to the need to state the relevant operating procedures in the prospectus of the scheme.
(2) The authorised fund manager does not necessarily have to carry out all the activities it is responsible for and may delegate functions to other persons. The rules in this chapter set out the parameters of such delegation.
(3) The depositary's duty is, generally speaking, to ensure the safe custody of scheme property and to oversee certain functions of the authorised fund manager (most notably the pricing and dealing function and investment powers). The oversight responsibilities for a trustee of an AUT are similar to, but not the same as, the oversight responsibilities of the depositary of an ICVC. These differences result from the different legal structure of the authorised funds and the trustee's obligations under trust law.

COLL 6.2

Dealing

  • 01/12/2004

Application

COLL 6.2.1

handbook-rule
This section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.
  • 01/04/2004

Purpose

COLL 6.2.2

handbook-guidance
(1) This section helps in achieving the regulatory objective of securing an appropriate degree of protection for consumers. In accordance with Principle 6, this section is also concerned with ensuring the authorised fund manager pays due regard to its clients' interests and treats them fairly.
(2) An authorised fund manager is responsible for arranging for the issue and the cancellation of units for the authorised fund, and is permitted to sell and redeemunits for its own account. The rules in this section are intended to ensure that the authorised fund manager treats the authorised fund fairly when arranging for the issue or cancellation of units, and treats clients fairly when they purchase or sellunits.
(3) This section also sets out common standards for how the amounts in relation to unit transactions are to be paid. These arrangements include the initial offer of units, the exchange of units for scheme property and issues and cancellations of units by an ICVC, or by the trustee of an AUT, carried out directly with the unitholder.
(4) This section also sets out rules and guidance relating to the authorised fund manager's controls over the issue and cancellation of units including any box holdings.
(5) The requirements in this section are to be applied separately to each sub-fund of a scheme which is an umbrella, and, if appropriate, the currency of a sub-fund may be used instead of the base currency of the umbrella.
  • 01/04/2004

Initial offers

COLL 6.2.3

handbook-rule
(1) During the initial offer period, units may only be issued at the initial price.
(2) The length of any initial offer should not be unreasonable when considered alongside the characteristics of the authorised fund.
(3) The authorised fund manager must, as soon as practicable after receiving the initial price from the purchaser and no later than the fourth business day following the end of the initial offer, pay the depositary in respect of any unit it has agreed to sell during the period of the initial offer:
(a) in the case of a single-priced authorised fund, the initial price of that unit; or
(b) in the case of a dual-priced authorised fund, the initial price of that unit less, where relevant, an amount not exceeding the amount of any preliminary charge stated in the prospectus.
(4) The period of the initial offer comes to an end if the authorised fund manager reasonably believes the price that would reflect the current value of the scheme property would vary by more than 2% from the initial price.

Initial offer: guidance

COLL 6.2.4

handbook-guidance
(1) Details of any initial offer period must be provided in the relevant prospectus as described in COLL 4.2.5R (17)(h) (Table: contents of the prospectus).
(2) It may be appropriate that the initial offer for a scheme operating limited issue or limited redemption arrangements, or intending to invest in illiquid assets, is longer than one for a scheme which does not have these features.
  • 01/04/2004

Issue and cancellation of units by an ICVC

COLL 6.2.5

handbook-rule
(1) Units in an ICVC are issued or cancelled by the ACD making a record of the issue or cancellation and of the number of the units of each class concerned, and cannot be issued or cancelled in any other manner, unless COLL 3.2.6R (11) (Table: contents of the instrument constituting the scheme) applies.
(2) The time of the issue or cancellation under (1) is the time when the record is made.
  • 01/04/2004

Issue and cancellation of units in an AUT

COLL 6.2.6

handbook-rule
(1) The trustee must issue or cancel units in an AUT when instructed by the manager.
(2) Any instructions given by the manager must state, for each class of unit to be issued or cancelled, the number to be issued or cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).
(3) If the trustee is of the opinion that it is not in the interests of unitholders that any units should be issued or cancellation or that to do so would not be in accordance with the trust deed or prospectus, it must notify the manager of that fact and it is then relieved of the obligation to issue or cancel those units.
  • 01/04/2004

Issue and cancellation of units in multiple classes

COLL 6.2.6A

handbook-rule
If an authorised fund has two or more classes of unit in issue, the authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:
(1) the depositary gives its prior agreement; and
(2) the relevant classes:
(a) have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or
(b) differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property.
  • 06/03/2007

Issue and cancellation of units through an authorised fund manager

COLL 6.2.7

handbook-rule
(1) The authorised fund manager may require, on agreement with the depositary, or may permit, on the request of the investor, direct issues and cancellations of units by an ICVC or by the trustee of an AUT.
(2) If (1) applies:
(a) the instrument constituting the scheme must provide for this; and
(b) the prospectus must provide details of the procedure to be followed which must be consistent with the rules in this section.
  • 01/04/2004

Controls over the issue and cancellation of units

COLL 6.2.8

handbook-rule
(1) An authorised fund manager must ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to unitholders for that class.
(2) An authorised fund manager must not:
(a) for an AUT, when giving instructions to the trustee for the issue or cancellation of units; or
(b) for an ICVC, when arranging for the issue or cancellation of units;
do, or omit to do, anything that would, or might, confer on itself or an associate a benefit or advantage at the expense of a unitholder or a potential unitholder.
(3) For the purpose of (1), the authorised fund manager may take into account instructions to redeemunits at the following valuation point received before any time agreed with the depositary for such purpose.

Controls over the issue and cancellation of units - guidance

COLL 6.2.9

handbook-guidance
(1) As the authorised fund manager normally controls the issue, cancellation, sale and redemption of an authorised fund's units, it occupies a position that could, without appropriate systems and controls, involve a conflict of interest between itself and its clients.
(2) SYSC 3.1.1 R (Systems and controls) requires that a firm take reasonable care to establish and maintain such systems and controls as are appropriate to its business and Principle 8 requires a firm to manage conflicts of interest between itself and a customer fairly.
(3) To manage the conflict of interest that arises, when an authorised fund manager gives an instruction to issue or cancel units, the price of the units should be calculated at the valuation point before or after the instruction has been given, in accordance with (4).
(4) An authorised fund manager should agree a period of time with the depositary during which it will give instructions to issue or cancel units. Where the authorised fund manager operates a box with the principal aim of making a profit, this period will be short (for example, two hours); otherwise a longer period (for example, up to the next valuation point but in all cases within 24 hours) may be acceptable, provided the principles in (2) are followed.
(5) The last valuation point should be used for the pricing of units where instructions are given before the expiry of the period of time agreed in (4); otherwise the next valuation point should be used.
(6) Where an in specie issue or cancellation occurs it should be undertaken using the next valuation point's price.

Modification to number of units issued or cancelled

COLL 6.2.10

handbook-rule
(1) Any instruction for the issue or cancellation of units under COLL 6.2.5 R (Issue and cancellation of units by an ICVC) or COLL 6.2.6 R (Issue and cancellation of units in an AUT) may be modified but only if the depositary agrees and has taken reasonable care to determine that:
(a) the modification corrects an error in the instruction; and
(b) the error is an isolated one.
(2) Any error in (1) must be corrected within the payment period applicable under COLL 6.2.13 R (Payment for units issued) or COLL 6.2.14 R (Payment for cancelled units).
  • 01/04/2004

Compensation for box management errors

COLL 6.2.11

handbook-rule
(1) Where the authorised fund manager has not complied with COLL 6.2.8 R (1) (Controls over the issue and cancellation of units), it must correct the error as soon as possible and must reimburse the authorised fund any costs it may have incurred in correcting the position.
(2) The authorised fund manager need not reimburse the authorised fund when:
(a) the amount under (1) is not, in the depositary's opinion, material to the authorised fund;
(b) the authorised fund manager can demonstrate that it has effective controls in place over box management, including all of the areas that affect the figures which are included in the box management calculations; and
(c) the requirements of COLL 6.2.10 R (Modification to number of units issued or cancelled) are complied with.
  • 01/04/2004

Box management errors guidance

COLL 6.2.12

handbook-guidance
Explanatory table: This table belongs to COLL 6.2.2 G (4) (Purpose).

Payment for units issued

COLL 6.2.13

handbook-rule
(1) The authorised fund manager must, by the close of business on the fourth business day following the issue of any units, arrange for payment to the trustee or the ICVC of:
(a) in the case of a single-priced authorised fund, the price of the units and any payments required under COLL 6.3.7 R (SDRT provision) and COLL 6.3.8 R (Dilution); or
(b) in the case of a dual-priced authorised fund, the issue price of the units and any payment required under COLL 6.3.7 R.
(2) The authorised fund manager must make the payment referred to in (1) in cash or cleared funds unless COLL 6.2.15 R (In specie issue and cancellation) applies.
(3) Where the authorised fund manager has not complied with (1), it must reimburse the authorised fund for any lost interest unless the amount involved is not, in the depositary's opinion, material to the authorised fund.

Payment for cancelled units

COLL 6.2.14

handbook-rule
(1) On cancelling units the authorised fund manager must, before the expiry of the fourth business day following the cancellation of the units or, if later, as soon as practicable after delivery to the trustee or the ICVC of such evidence of title to the units as it may reasonably require, require the depositary to pay:
(a) in the case of a single-priced authorised fund, the price of the units (less any deduction required under COLL 6.3.7 R and COLL 6.3.8 R; or
(b) in the case of a dual-priced authorised fund, the cancellation price of the units (less any deduction required under COLL 6.3.7 R);
to the authorised fund manager or, where relevant, the unitholder or, for a relevant pension scheme, in accordance with the relevant provisions of the trust deed.
(2) If the authorised fund manager has not ensured that the scheme property includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any restriction in COLL 5 (Investment and borrowing powers)) within the period in (1), that period is extended, for any relevant currency, until the shortage is rectified.
(3) If (2) applies, the authorised fund manager must take reasonable steps to rectify the currency shortage as quickly as possible.
(4) This rule does not apply where COLL 6.2.15 R is in operation.
(5) Nothing in this section requires an ICVC, a depositary or an authorised fund manager to part with money or to transfer scheme property for a cancellation or redemption of units where any money due on the earlier issue or sale of those units has not been received.

In specie issue and cancellation

COLL 6.2.15

handbook-rule
The depositary may take into or pay out of scheme property assets other than cash as payment for the issue or cancellation of units but only if:
(1) it has taken reasonable care to ensure that the property concerned would not be likely to result in any material prejudice to the interests of unitholders; and
(2) the instrument constituting the scheme so provides.

Sale and redemption

COLL 6.2.16

handbook-rule
(1) In accordance with COLL 4.2.5R (17) (Table: contents of the prospectus), the authorised fund manager must describe the arrangements for the sale and redemption of units in the prospectus.
(2) The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units in the authorised fund, in accordance with the conditions in the instrument constituting the scheme and the prospectus unless:
(a) it has reasonable grounds to refuse such sale; or
(b) the issue of units is prevented under COLL 6.2.18 R (Limited issue).
(3) Subject to COLL 6.2.19 R (Limited redemption) and COLL 6.2.21 R (Deferred redemption), the authorised fund manager must, at all times during the dealing day, on request of any qualifying unitholder, effect the redemption of units in accordance with the conditions in the instrument constituting the scheme and the prospectus unless it has reasonable grounds to refuse such redemption.
(4) On agreeing to a redemption of units in (3), the authorised fund manager must pay the unitholder the appropriate proceeds of redemption within the period specified in (5) unless the authorised fund manager has reasonable grounds for withholding all or any part of the proceeds.
(5) Except where (5A) applies the period in (4) expires at the close of business on the fourth business day following the later of:
(a) the valuation point at which the price for the redemption was determined; or
(b) the time when the authorised fund manager has all the duly executed instruments and authorisations to effect (or enable the authorised fund manager to effect) the transfer of title to the units.
(5A) Where a non-UCITS retail scheme operating as a FAIF operates limited redemption arrangements, the period in (4) expires no later than the expiry of a period of 185 days from the date of receipt and acceptance of the instruction to redeem.
(6) Except where (7) applies, and subject to COLL 6.2.21 R (Deferred redemption), the authorised fund manager must sell or redeem units at a price determined no later than the end of the business day immediately following the receipt and acceptance of an instruction to do so, or at the next valuation point for the purposes of dealing in units if later (or, for a sale or redemption at an historic price, at the price determined at the last valuation point).
(7) Where the authorised fund operates limited redemption arrangements, the authorised fund manager must sell or redeem units at a price determined no later than the expiry of a period of 185 days from the date of the receipt and acceptance of the instruction to sell or redeem.
(8) [deleted]
(9) [deleted]
(10) Paragraphs (4), (5) and COLL 6.3.5AR (2) (Sale and redemption prices for single-priced authorised funds) do not apply where the authorised fund manager is buying units as principal on an investment exchange (for an AUT in accordance with a power in the trust deed) and settlement will be made in accordance with the rules of that exchange.

Sale and redemption: guidance

COLL 6.2.17

handbook-guidance
(1) The prospectus of an authorised fund that does not operate on the basis of historic prices may allow the authorised fund manager to identify a point in time in advance of a valuation point (a cut-off point) after which it will not accept instructions to sell or redeem units at that valuation point. In order to protect customers' interests, the cut-off point should be no earlier than the close of business on the business day before the valuation point it relates to. If there is more than one valuation point in a day the cut-off should not be before any previous valuation point.
(2) Where the authorised fund operates limited redemption arrangements, the cut-off point may reflect the expected length of time required to undertake transactions in the underlying investments provided the 185 day limit in COLL 6.2.16 R (7) (Sale and redemption) is complied with.
(3) Where (1) applies, different cut-off points may be used to differentiate between the methods of submitting instructions to sell or redeem to the authorised fund manager but not to differentiate between unitholders or potential unitholders.

Limited issue

COLL 6.2.18

handbook-rule
(1) If an authorised fund limits the issue of any class of unit, the prospectus of an authorised fund must provide for the circumstances and conditions when units will be issued.
(2) Where (1) applies, the authorised fund manager may not provide for the further issue of units unless, at the time of the issue, it is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the scheme's investment objective or materially prejudicing existing unitholders.
(3) Within a scheme, unit classes may operate different arrangements for the issue of units provided there is no prejudice to the interests of any unitholder.

Limited redemption

COLL 6.2.19

handbook-rule
(1) The instrument constituting the scheme and the prospectus of a non-UCITS retail scheme operating as a FAIF, or that invests substantially in immovables or whose investment objective is to provide a specified level of return, may provide for limited redemption arrangements appropriate to its aims and objectives.
(2) Where (1) applies, the scheme must provide for sales and redemptions at least once in every six months.
(3) Within a scheme, unit classes may operate different arrangements for sales and redemptions of units provided there is no prejudice to the interests of any unitholder.
(4) The scheme may provide for sales of units of any class to be executed at a greater frequency than redemptions of units of the same class.

Limited redemption: guidance

COLL 6.2.20

handbook-guidance
The conditions for limited redemption arrangements in COLL 6.2.19 R should be considered, for AUTs as well as for ICVCs, in conjunction with PERG 9 (Meaning of an open-ended investment company) and PERG 9.8 (The investment condition: the 'expectation test' (section 236(3)(a) of the Act)).

Deferred redemption

COLL 6.2.21

handbook-rule
(1) Subject to (1A) and (3) the instrument constituting the scheme and the prospectus of an authorised fund which has at least one valuation point on each business day, may permit deferral of redemptions at a valuation point to the next valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.
(1A) Subject to (3) the instrument constituting the scheme and the prospectus of a non-UCITS retail scheme operating as a FAIF may permit deferral of redemptions at a valuation point to a following valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.
(2) Any deferral of redemptions under (1) or (1A) must be undertaken in accordance with the procedures explained in the prospectus which must ensure:
(a) the consistent treatment of all unitholders who have sought to redeem units at any valuation point at which redemptions are deferred; and
(b) that all deals relating to an earlier valuation point are completed before those relating to a later valuation point are considered.
(3) Any deferral under (1A) is subject to the limitations on payments to unitholders in COLL 6.2.16 R (5A).

Deferred redemption: guidance

COLL 6.2.22

handbook-guidance
In times of high levels of redemption, deferred redemption will enable the authorised fund manager to protect the interests of continuing unitholders by allowing it to match the sale of scheme property to the level of redemptions. This should reduce the impact of dilution on the scheme.
  • 01/04/2004

Property Authorised Investment Funds

COLL 6.2.23

handbook-rule
(1) The authorised fund manager of a property authorised investment fund must take reasonable steps to ensure that no body corporate holds more than 10% of the net asset value of that fund (the "maximum allowable").
(2) Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, he must:
(a) notify the body corporate of that event;
(b) not pay any income distribution to the body corporate; and
(c) redeem or cancel the body corporate's holding down to the maximum allowable within a reasonable time-frame.
(3) For the purpose of (2)(c), a reasonable time-frame means the time-frame which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.
  • 06/06/2008

COLL 6.2.24

handbook-guidance
Reasonable steps to monitor the maximum allowable include:
(1) regularly reviewing the register; and
(2) taking reasonable steps to ensure that unitholders are kept informed of the requirement that no body corporate may hold more than 10% of the net asset value of a property authorised investment fund.
  • 06/06/2008

COLL 6.3

Valuation and pricing

  • 01/12/2004

Application

COLL 6.3.1

handbook-rule
This section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.

Purpose

COLL 6.3.2

handbook-guidance
(1) In accordance with Principle 6, this section is intended to ensure that the authorised fund manager pays due regard to its clients' interests and treats them fairly.
(2) An authorised fund manager is responsible for valuing the scheme property of the authorised fund it manages and for calculating the price of units in the authorised fund. This section protects clients by:
(a) setting out rules and guidance to ensure the prices of units in both a single-priced authorised fund and a dual-priced authorised fund are calculated fairly and regularly;
(b) allowing for the authorised fund manager to mitigate the effects of any dilution (reduction) in the value of the scheme property caused by:
(i) payment of stamp duty reserve tax (SDRT) in relation to certain unit transactions; and
(ii) buying and selling underlying investments as a result of the issue or cancellation of units;
(c) making appropriate provision to ensure clients are treated fairly where units are being dealt in at a known ( historic ) price; and
(d) ensuring that prices are made public in an appropriate manner.
(3) The requirements in this section are to be applied separately to each sub-fund of a scheme which is an umbrella, and, if appropriate, the currency of a sub-fund may be used instead of the base currency of the umbrella. Consequently different methods of pricing units may be applied by an authorised fund manager to different sub-funds of an umbrella.
(4) The authorised fund manager must follow the same method of pricing for each class of units in an authorised fund, or in a sub-fund of an umbrella.

Valuation

COLL 6.3.3

handbook-rule
(1) To determine the price of units the authorised fund manager must carry out a fair and accurate valuation of all the scheme property in accordance with the instrument constituting the scheme and the prospectus.
(2) For a dual-priced authorised fund, each valuation of the scheme property must consist of two parts, carried out on an issue basis and a cancellation basis respectively.

Valuation points

COLL 6.3.4

handbook-rule
(1) An authorised fund must not have fewer than two regular valuation points in any month and if there are only two valuation points in any month, the regular valuation points must be at least two weeks apart.
(2) The prospectus of a scheme must contain information about its regular valuation points for the purposes of dealing in units in accordance with COLL 4.2.5R (16) (Table: contents of the prospectus).
(3) Where a scheme operates limited redemption arrangements, (1) does not apply and the valuation points must be stated in the prospectus but must not be set more than six months apart.
(4) Where a scheme operates limited redemption arrangements, it must be valued and prices published in the manner set out in COLL 6.3.11 R (Publication of prices) at least once in every month.
(5) In (4), a valuation point for the purpose of publishing prices only, does not make it a valuation point for the purpose of (2) unless it is disclosed as such in the prospectus.
(6) Higher volatility funds must have at least one valuation point every business day except where the scheme is a non-UCITS retail scheme operating as a FAIF.
(6A) Qualifying money market funds must have at least one valuation point every business day at which the valuation is carried out on an amortised cost basis.
(7) No valuation points are required during the period of any initial offer.
(8) The authorised fund manager may determine to have an additional valuation point for an authorised fund as a result of market movement under COLL 6.3.9 (Forward and historic pricing) or otherwise, in which case it must inform the depositary.

Price of a unit

COLL 6.3.5

handbook-rule
(1) An authorised fund manager must ensure that theprice of a unit of any class is calculated:
(a) by reference to the net value of the scheme property; and
(b) in accordance with the provisions of both the instrument constituting the scheme and the prospectus.
(2) Any unit price calculated in accordance with (1) must be expressed in a form that is accurate to at least four significant figures.
(3) For each class of units in a single-priced authorised fund, a single price must be calculated at which units are to be issued and cancelled.

Sale and redemption prices for single-priced authorised funds

COLL 6.3.5A

handbook-rule
The authorised fund manager of a single-priced authorised fund must not:
(1) sell a unit for more than the price of a unit of the relevant class at the relevant valuation point, to which may be added any preliminary charge permitted and any payments required under COLL 6.3.7 R and COLL 6.3.8 R; or
(2) redeem a unit for less than the price of a unit of the relevant class at the relevant valuation point, less any redemption charge permitted and any deductions under COLL 6.3.7 R and COLL 6.3.8 R.
  • 06/10/2006

Sale and redemption price parameters for dual-priced authorised funds

COLL 6.3.5B

handbook-rule
(1) The authorised fund manager of a dual-priced authorised fund must not:
(a) sell a unit for more than the maximum sale price of a unit of the relevant class at the relevant valuation point, to which may be added any payment required under COLL 6.3.7 R; or
(b) redeem a unit for less than the cancellation price of a unit of the relevant class at the relevant valuation point, less any redemption charge permitted and any deduction under COLL 6.3.7 R.
(2) The maximum sale price of units under (1)(a) is the total of:
(a) the issue price; and
(b) the current preliminary charge.
(3) The sale price of units under (1)(a) must not be less than the relevant redemption price under (1)(b).
(4) The redemption price under (1)(b) must not exceed the relevant issue price of the relevant units.
(5) Subject to COLL 6.7.9 R (Charges for the exchange of units in an umbrella), in the case of an umbrella:
(a) the maximum price at which units in one sub-fund that is a dual-priced authorised fund may be acquired in exchange for units in another sub-fund must not exceed the relevant maximum sale price (less any preliminary charge) of the new units; and
(b) the minimum price at which the old units in a sub-fund that is a dual-priced authorised fund may be taken in exchange must not be less than the equivalent cancellation price.
  • 06/10/2006

COLL 6.3.5C

handbook-guidance
The prospectus may make provision for large deals to be carried out at a higher sale price or a lower redemption price than those published, provided they do not exceed the relevant maximum and minimum parameters.
  • 06/10/2006

Valuation and pricing guidance

COLL 6.3.6

handbook-guidance
Table: This table belongs to COLL 6.3.2 G (2) (a) and COLL 6.3.3 R (Valuation).

SDRT Provision

COLL 6.3.7

handbook-rule
(1) The authorised fund manager may, in accordance with the prospectus, require the payment of an SDRT provision for the issue or sale of units or any class of units or the deduction of an SDRT provision for the redemption or cancellation of units or any class of units.
(2) Any such payment or deduction becomes due at the same time as payment or transfer of property becomes due for the issue, sale, redemption or cancellation.
(3) Any payment referred to in (1) must be paid to the depositary to become part of scheme property as soon as practicable after receipt.
(4) As soon as practicable after each valuation point, the authorised fund manager must notify the depositary of the transactions, or types of transactions for which an SDRT provision is applied and the amounts or rates of those SDRT provisions.
  • 01/04/2004

Dilution

COLL 6.3.8

handbook-rule
(1) When arranging to sell, redeem. issue or cancel units, or when units are issued or cancelled under COLL 6.2.7 R (1) (Issues and cancellations through an authorised fund manager), an authorised fund manager is permitted to:
(a) require the payment of a dilution levy; or
(b) make a dilution adjustment; or
(c) neither require a dilution levy nor make a dilution adjustment;
in accordance with its statements in the prospectus required by COLL 4.2.5R (18) (Table: contents of the prospectus).
(2) An authorised fund manager operating either a dilution levy or a dilution adjustment, must operate that measure in a fair manner to reduce dilution and solely for that purpose.
(3) A dilution levy becomes due at the same time as payment or transfer of property becomes due for the issue, sale, redemption or cancellation and any such payment in respect of a dilution levy must be paid to the depositary to become part of scheme property as soon as practicable after receipt.
(4) A dilution adjustment may be made as part of the calculation of the unit price for the purpose of reducing dilution in the scheme or to recover any amount which it had already paid or reasonably expects to pay in the future in relation to the issue or cancellation of units.
(5) Where the authorised fund manager decides to make or not to make a dilution adjustment, it must not do so for the purpose of creating a profit or avoiding a loss for the account of an affected person.
(6) As soon as practicable after a valuation point, the authorised fund manager must provide the depositary with the amount or rate of any dilution adjustment made to the price or any dilution levy applied.
  • 01/04/2004

Forward and historic pricing

COLL 6.3.9

handbook-rule
(1) For the sale and redemption of units, the authorised fund manager must, in accordance with the prospectus of an authorised fund, operate on the basis of forward price only or historic prices.
(2) If forward prices only are to be used, all deals must be at a forward price.
(3) Forward prices for the sale and redemption of units must be used:
(a) for a higher volatility fund;
(b) where the regular valuation points are more than one business day apart;
(c) if the request to deal reaches the authorised fund manager through the post or by any similar form of non-interactive communication;
(d) for an issue or cancellation under COLL 6.2.7 (Issue and cancellation of units through an authorised fund manager);
(e) if the applicant for the sale or redemption so requests; or
(f) where the authorised fund manager has reason to believe at any time that the price that would reflect the current value of the scheme property would vary by more than 2% from the last calculated price, unless the authorised fund manager has decided to carry out an additional valuation.
(4) If an authorised fund manager operates historic prices, the prospectus must detail the circumstances under which deals in the authorised fund, individually or otherwise, will nevertheless be carried out on a forward price basis or when the authorised fund will elect to move to forward prices or declare an additional valuation point.
(5) Where the authorised fund elects to move to forward prices temporarily in accordance with (4), such election will only apply until the next valuation point.
(6) All sub-funds of a scheme which is an umbrella must adopt the same pricing basis, but this does not apply merely because of a requirement to price on a forward price basis temporarily under this rule.

Historic pricing: guidance

COLL 6.3.10

handbook-guidance
The authorised fund manager should advise the depositary of the date and time of any decision to use forward prices.
  • 01/04/2004

Publication of prices

COLL 6.3.11

handbook-rule
Where the authorised fund manager is prepared to deal in units, or is willing to issue or cancel units, under COLL 6.2.7, it must make the dealing prices public in an appropriate manner.

Manner of price publication

COLL 6.3.12

handbook-guidance
(1) In determining the appropriate manner of making prices public, the authorised fund manager should ensure that:
(a) a unitholder or potential unitholder can obtain the prices at a reasonable cost;
(b) prices are available at reasonable times;
(c) publication is consistent with the manner and frequency at which the units are dealt in;
(d) the manner of publication is disclosed in the prospectus; and
(e) prices are published in a consistent manner.
(2) Examples of what might be deemed appropriate include:
(a) publication in a national newspaper;
(b) supply through an advertised local rate or freephone telephone number;
(c) publication on the internet;
(d) inclusion in a database of prices which is publicly available; or
(e) communication to all existing unitholders.
(3) The authorised fund manager should make previous prices available to any unitholder or potential unitholder.

Maintaining the value of a qualifying money market fund

COLL 6.3.13

handbook-rule
The authorised fund manager of a qualifying money market fund must:
(1) carry out a valuation of the scheme property on a mark to market basis at least once every week and at the same valuation point used to value the scheme property on an amortised cost basis; and
(2) ensure that the value of the scheme property when valued on a mark to market basis does not differ by more than 0.5% from the value of the scheme property when valued on an amortised cost basis.

COLL 6.3.14

handbook-guidance
The authorised fund manager should advise the depositary when the mark to market value of a qualifying money market fundvaries from its amortised cost value by 0.1%, 0.2% and 0.3% respectively. The authorised fund manager of a qualifying money market fund should agree procedures with the depositary designed to stabilise the value of the scheme in these events.

COLL 6.4

Title and registers

  • 01/12/2004

Application

COLL 6.4.1

handbook-rule
(1) This section applies to a manager and a trustee of an AUT.
(2) COLL 6.4.9 (Plan registers) also applies to the ACD, any other director and the depositary of an ICVC.
  • 01/04/2004

Purpose

COLL 6.4.2

handbook-guidance
The aim of this section is to protect consumers, by setting out the requirements for a register of unitholders for an AUT and for a plan register for an authorised fund, so a proper record of ownership of units is maintained, whether held directly or indirectly through a group plan.
  • 01/04/2004

Explanation of this section

COLL 6.4.3

handbook-guidance
  1. (1) This section deals with matters relating to the register of unitholders of units in an AUT including its establishment and contents. The manager or trustee may be responsible for the register. In any event, the person responsible for the register must be stated in the trust deed and this section details what his duties are. The provisions relating to documents evidencing title to units, including the issue of bearer certificates are dependent on the provisions in the trust deed and their operation should be set out in the prospectus.
  2. (2) For an ICVC, requirements as to the register of holders and transfer of units are contained in Schedule 3 of the OEIC Regulations (Register of shareholders).
  3. (3) COLL 6.4.9 makes provision to ensure that if the cost of the plan register is borne by the scheme, plan investors have the same rights in respect of notice and disclosure as unitholders on the main register.
  • 01/04/2004

Register: general requirements and contents

COLL 6.4.4

handbook-rule
(1) Either the manager or the trustee (as nominated in the trust deed) must establish and maintain a register of unitholders as a document in accordance with this section.
(2) The manager or trustee in accordance with their duties under (1) must exercise all due diligence and take all reasonable steps to ensure the information contained on the register is at all times complete and up to date.
(3) The register must contain:
(a) the name and address of each unitholder (for joint unitholders, no more than four need to be registered) other than units represented by bearer certificates;
(b) the number of units of each class held by each unitholder (other than units represented by bearer certificates);
(c) the date on which the unitholder was registered for units standing in his name (other than units represented by bearer certificates); and
(d) the number of units of each class currently in issue, including bearer certificates and the number of units of those bearer certificates.
(4) No notice of any trust, express, implied or constructive which may be entered in the register is binding on the manager or trustee, but this does not affect their obligations under COLL 6.4.9 R (1) (Plan registers).
(5) The register is conclusive evidence of the persons entitled to the units entered in it.
(6) The person responsible for the register in (1) must:
(a) take reasonable steps to alter the register on receiving written notice of a change of name or address of any unitholder;
(b) in relation to a change of name in (a) where a certificate has been issued, either endorse the existing certificate or issue a new one;
(c) make the register available for inspection free of charge in the United Kingdom by or on behalf of any unitholder (including the manager), during office hours, but it may be closed for periods not exceeding 30 business days in any one year;
(d) supply free of charge to any unitholder or his authorised representative a copy of the entries on the register relating to that unitholder on request;
(e) where a unitholder defaults on paying for the issue or sale of units, make an alteration or deletion in the register to compensate for the default after which the manager becomes entitled to those units (until those units are either cancelled or re-sold and paid for); and
(f) carry out any conversion of units allowed for by COLL 6.4.8 R (Conversion of units) after consultation with the manager or trustee, as appropriate.
  • 01/04/2004

The manager as unitholder

COLL 6.4.5

handbook-rule
(1) If no person is entered in the register as the unitholder of a unit, the manager must be treated as the unitholder of each such unit which is in issue (other than a unit which is represented by a bearer certificate).
(2) Where units are transferred to the manager , they need not be cancelled and the manager need not be entered on the register as the new unitholder.
  • 01/04/2004

Transfer of units by act of parties

COLL 6.4.6

handbook-rule
(1) Every unitholder is entitled to transfer units held on the register by an instrument of transfer in any form that the person responsible for the register may approve, but that person is under no duty to accept a transfer unless:
(a) it is permitted by the trust deed or prospectus; and
(b) the transfer is excluded by Schedule 19 of the Finance Act 1999 from a charge to stamp duty reserve tax, or there has been paid to the trustee, for the account of the AUT, an amount agreed between the trustee and the manager not exceeding the amount that would be derived by applying the rate of stamp duty reserve tax to the market value of the units being transferred.
(2) Every instrument of transfer of units must be signed by, or on behalf of, the unitholder transferring the units (or, for a body corporate, sealed by that body corporate or signed by one of its officers (or in Scotland, two of its officers)) authorised to sign it and, unless the transferee is the manager, the transferor must be treated as the unitholder until the name of the transferee has been entered in the register.
(3) Every instrument of transfer (stamped as necessary) must be left for registration, with the person responsible for the register, accompanied by:
(a) any necessary documents that may be required by legislation; and
(b) any other evidence reasonably required by the person responsible for the register.
(4) The details of instruments of transfer must be kept for a period of six years from the date of its registration.
(5) On registration of an instrument of transfer, a record of the transferor and the transferee and the date of transfer must be made on the register.
  • 01/04/2004

Certificates (including bearer certificates)

COLL 6.4.7

handbook-rule
(1) Following the sale of units or as a result of COLL 6.4.6 R (Transfer of units by act of parties) a document recording title to those units may be issued in such a form as the trust deed permits.
(2) The person responsible for the register must issue any document in (1) or provide relevant information in a timely manner where the procedures for redeeming units require the unitholder to surrender that document.
(3) Bearer certificates may only be issued if they are permitted by the instrument constituting the scheme.
  • 01/04/2004

Conversion of units

COLL 6.4.8

handbook-rule
Where there is more than one class of units offered for issue or sale, the unitholder has a right to convert from one to the other, provided that doing so would not contravene any provision in the prospectus.
  • 01/04/2004

Plan registers

COLL 6.4.9

handbook-rule
(1) The ACD and any other directors of an ICVC or the person responsible for the register of an AUT may arrange for a plan register to be established and maintained.
(2) Where payments are made out of scheme property to establish and maintain a plan register, plan investors must be treated as unitholders for the purposes of COLL 4.3 to COLL 4.5 and COLL 6.4.4 R (Register: general requirements and contents).
  • 01/04/2004

COLL 6.5

Appointment and replacement of the authorised fund manager and the depositary

  • 01/12/2004

Application

COLL 6.5.1

handbook-rule
This section applies in accordance with COLL 6.5.2 R (Table of application).
  • 01/04/2004

COLL 6.5.2

handbook-rule
Table of application

This table belongs to COLL 6.5.1 R.
  • 01/04/2004

Appointment of an ACD

COLL 6.5.3

handbook-rule
(1) The directors (or director) of an ICVC must take all practicable steps to ensure the ICVC has at all times as its ACD a person who is qualified to act as ACD.
(2) If the ICVC ceases to have any director, the depositary must exercise its powers, under the OEIC Regulations, to appoint a person to be an ACD of the ICVC.
(3) For an ICVC that holds annual general meetings under the OEIC Regulations, the appointment of an ACD (other than the first ACD), under (1) or (2), must terminate at the close of the next annual general meeting 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 unitholders before the close of that annual general meeting or expiration of that 12 month period (as the case may be).
(4) An ACD must not voluntarily terminate its appointment as ACD unless the termination is effective at the same time as the commencement of the appointment of a successor ACD.
(5)
(a) In the event of:
(i) any person becoming or ceasing to be a director;
(ii) the appointment of an ACD being terminated;
(iii) a new ACD being appointed; or
(iv) a corporate director (including the ACD) becoming aware of any change of its controller;
the FSA must immediately be notified in accordance with (b).
(b) In the case of:
(i) (a)(i), by the ACD;
(ii) (a)(ii), by the ACD whose appointment is being terminated;
(iii) (a)(iii), by the new ACD; and
(iv) (a)(iv), by the corporate director concerned.

Termination of appointment of an ACD

COLL 6.5.4

handbook-rule
(1) The appointment of an ACD terminates immediately upon it ceasing to be a director.
(2) The appointment of an 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 of the ICVC, is given to the ACD.
(3) If there is no director other than the ACD, the appointment of the 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 calling of a meeting to consider a resolution for winding up the ACD;
(b) an application being made to dissolve the ACD or to strike it off the Register of Companies;
(c) the presentation of a petition for the winding up of the ACD;
(d) the making of, or any proposals for the making of, a composition or arrangement with any one or more of the ACD's creditors;
(e) the appointment of a receiver to the ACD (whether an administrative receiver or a receiver appointed over particular property);
(f) anything equivalent to (a) to (e) above occurring in respect of the ACD in a jurisdiction outside the United Kingdom.
(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) The depositary must (unless the termination takes effect at the same time as the appointment of a successor ACD) ensure that the unitholders are informed of the termination of the appointment of an ACD.
(6) The depositary is entitled to be reimbursed out of the scheme property for its out of pocket expenses in complying with (5).
  • 01/04/2004

Other directors

COLL 6.5.5

handbook-rule
(1) Any directors of an ICVC other than the ACD must exercise reasonable care to ensure that the ACD undertakes the responsibilities allocated under COLL 6.6.3 R (1) (Functions of the authorised fund manager) in a competent manner and the ACD must give those directors the information and explanations they consider necessary for this purpose.
(2) A director of an ICVC must not appoint an alternate director.
(3) When there is no person acting as ACD, the directors of an ICVC have the functions of an ACD under COLL 6.6.3 R (1) , but this does not affect the powers of the directors under COLL 6.6.15 R (Committees and delegation).
(4) When (3) applies, the directors must retain the services of one or more authorised persons to assist them in performing the functions referred to in COLL 6.6.3 R (1) and COLL 6.6.3 R (2) .
  • 01/04/2004

ICVC without a director

COLL 6.5.6

handbook-rule
If the ICVC ceases to have any directors, the depositary may:
(1) retain the services of an authorised person to carry out the functions referred to in COLL 6.6.3 R (3) (a) and COLL 6.6.3 R (1) (b) ; or
(2) manage the scheme property itself on behalf of the ICVC until a director is appointed or the winding up of the ICVC is commenced provided it is not prohibited from doing so by any law or rule.
  • 01/04/2004

Replacement of a manager

COLL 6.5.7

handbook-rule
(1) The manager of an AUT is subject to removal by written notice by the trustee upon any of the following events:
(a) the calling of a meeting to consider a resolution for winding up the manager ;
(b) an application being made to dissolve the manager or to strike it off the Register of Companies;
(c) the presentation of a petition for the winding up of the manager ;
(d) the making of, or any proposals for the making of, a composition or arrangement with any one or more of the manager's creditors;
(e) the appointment of a receiver to the manager (whether an administrative receiver or a receiver appointed over particular property);
(f) anything equivalent to (a) to (e) above occurring in respect of the manager in a jurisdiction outside the United Kingdom;
(g) the trustee forming the reasonable opinion, and stating in writing, that a change of manager is desirable in the interest of unitholders;
(h) a resolution of unitholders being passed to remove the manager ; or
(i) the unitholders of three quarters in value of all of the units then in issue(excluding units held or treated as held by the manager or by any associate of the manager ) making 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 of the AUT 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 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 (1) to propose a change in the name of the AUT

Retirement of a manager of an AUT

COLL 6.5.8

handbook-rule
(1) The manager of an AUT 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 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 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 the manager of the AUT.
(2) Upon retirement, the retiring manager:
(a) subject to (3), is released from all further obligations under the rules in this sourcebook and under the trust deed; and
(b) may retain any consideration paid to it in connection with the change without having to account for it to any unitholder.
(3) Sub-paragraph (2)(a) does not affect the rights of the trustee or any other person in respect of any act or omission on the part of the retiring manager before his retirement.
  • 01/04/2004

Consequences of removal or retirement of a manager of an AUT

COLL 6.5.9

handbook-rule
(1) Upon the removal or retirement of the manager , the removed or retiring manager:
(a) is entitled to be recorded in the register for those units continued to be held or treated as held by it; and
(b) may require the trustee to issue to it a certificate for those units (if not previously issued).
(2) (Paragraph (1) is subject to any restriction in the prospectus relating to the permitted categories of unitholders.
  • 01/04/2004

Retirement of the depositary

COLL 6.5.10

handbook-rule
  1. (1) The depositary of an authorised fund may not retire voluntarily except upon the appointment of a new depositary.
  2. (2) The depositary of an authorised fund 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.
  3. (3) When the depositary of an authorised fund wishes to retire or ceases to be an authorised person, the authorised fund manager may, subject to section 251 of the Act (Alteration of schemes and changes of manager or trustee) or regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company) appoint another person eligible to be the depositary in its place.
  • 01/04/2004

COLL 6.6

Powers and duties of the scheme, the authorised fund manager, and the depositary

  • 01/12/2004

Application

COLL 6.6.1

handbook-rule
This section applies in accordance with COLL 6.6.2 R (Table of application).
  • 01/04/2004

Table of application

COLL 6.6.2

handbook-rule
This table belongs to COLL 6.6.1 R.

Functions of the authorised fund manager

COLL 6.6.3

handbook-rule
  1. (1) The authorised fund manager must manage the scheme in accordance with:
    1. (a) the instrument constituting the scheme;
    2. (b) the rules in this sourcebook;
    3. (c) the most recently published prospectus; and
    4. (d) for an ICVC, the OEIC Regulations.
  2. (2) The authorised fund manager must take such steps as necessary to ensure compliance with the rules in this sourcebook that impose obligations upon the ICVC.
  3. (3) The authorised fund manager must:
    1. (a) make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy of the scheme;
    2. (b) instruct the depositary in writing how rights attaching to the ownership of the scheme property are to be exercised, but not where COLL 6.6.13 R (2) (Exercise of rights in respect of the scheme property) applies; and
    3. (c) take action immediately to rectify any breach of COLL 6.3 and, where the breach relates to the incorrect pricing of units or to the late payment in respect of the issue of units, the rectification must, (unless the depositary otherwise directs under (4)), extend to the reimbursement or payment, or arranging the reimbursement or payment, of money:
      1. (i) by the authorised fund manager to unitholders and former unitholders;
      2. (ii) by the ACD to the ICVC;
      3. (iii) by the ICVC to the ACD;
      4. (iv) by the manager to the trustee; or
      5. (v) by the trustee (for the account of the AUT) to the manager.
  4. (4) Rectification under (3)(c) need not, unless the depositary so directs, extend to any such reimbursement or payment where it appears to the depositary such breach, is of minimal significance.
  • 01/04/2004

General duties of the depositary

COLL 6.6.4

handbook-rule
(1) The depositary of an authorised fund must take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:
(a) COLL 5 (Investment and borrowing powers);
(b) COLL 6.2 (Dealing);
(c) COLL 6.3 (Valuation and pricing);
(d) COLL 6.8 (Income: accounting, allocation and distribution); and
(e) any provision of the instrument constituting the scheme or prospectus that relates to the provisions referred to in (a) to (d).
(2) The depositary must, in so far as not required under (1)(c), take reasonable care to ensure on a continuing basis that:
(a) the authorised fund manager is adopting appropriate procedures to ensure that the price of a unit is calculated for each valuation point in accordance with COLL 6.3 ; and
(b) the authorised fund manager has maintained sufficient records to show compliance with COLL 6.3 .
(3) The depositary, when acting in its capacity as depositary, must act solely in the interests of the unitholders.
(4) The depositary:
(a) must also take reasonable care to ensure that;
(i) the authorised fund manager considers whether or not to exercise the power provided by COLL 6.3.7 R (SDRT provision) or COLL 6.3.8 R (Dilution) (as the case may be) and, if applicable, the rate or amount of any SDRT provision, dilution levy or dilution adjustment that is imposed;
(ii) the authorised fund manager has in relation to (i), taken account of all factors that are material and relevant to the authorised fund manager's decision; and
(iii) when the authorised fund manager considers whether or not to exercise the power under COLL 6.3.8 R, the authorised fund manager has acted in accordance with the restrictions imposed by that rule; and
(b) has no duty in respect of the authorised fund manager's exercise of the discretion referred to in (a).

Duties of the authorised fund manager and the depositary under the general law

COLL 6.6.5

handbook-rule
(1) The duties and powers of the authorised fund manager, the directors of an ICVC and the depositary under the rules in this sourcebook and under the instrument constituting the scheme are in addition to the powers and duties under the general law.
(2) Paragraph (1) applies only in so far as the relevant general law is not qualified by the rules in this sourcebook or the instrument constituting the scheme or the OEIC Regulations.
  • 01/04/2004

Maintenance of records

COLL 6.6.6

handbook-rule
(1) The authorised fund manager must make and retain for six years such records as enable:
(a) the scheme and the authorised fund manager to comply with the rules in this sourcebook and the OEIC Regulations; and
(b) it to demonstrate at any time that such compliance has been achieved.
(2) The authorised fund manager must make and retain for six years a daily record of the units in the scheme held, acquired or disposed of by the authorised fund manager, including the classes of such units, and of the balance of any acquisitions and disposals.
(3) Where relevant, an authorised fund manager must make and retain for a period of six years 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.
(4) The authorised fund manager must on the request of the depositary immediately supply it with such information concerning the management and administration of the authorised fund as the depositary may reasonably require.
  • 01/04/2004

Maintenance of capital: notification

COLL 6.6.7

handbook-rule
The ACD must immediately notify the FSA in writing if the ICVC's capital falls below the minimum or exceeds the maximum stated in the instrument of incorporation.
  • 01/04/2004

Auditor: AUTs

COLL 6.6.8

handbook-rule
(1) The manager of an AUT must, upon any vacancy for the position of auditor for an AUT, with the approval of the trustee, appoint as auditor for the AUT a 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 of an AUT may, with the approval of the trustee , at any time, remove the auditor of an AUT; this power exists notwithstanding anything in any agreement between the persons concerned.
  • 01/04/2004

Returns: AUTs

COLL 6.6.9

handbook-rule
The manager of an AUT must prepare and supply to the trustee the returns required to be submitted by the trustee to HM Revenue and Customs.

Dealings in scheme property

COLL 6.6.10

handbook-rule
(1) The authorised fund manager may give instructions to deal in the property of the scheme.
(2) The authorised fund manager must obtain the consent of the depositary for the acquisition or disposal of immovable property.
(3) Where the depositary is of the opinion that a deal in property is not within the rules in this sourcebook and the instrument constituting the scheme , the depositary may require the authorised fund manager 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.
(4) Where the depositary is of the opinion that:
(a) an acquisition of property 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 authorised fund manager must, if the depositary so requests, either cancel the transaction or make a corresponding disposal.
  • 01/04/2004

Duty to inform the FSA

COLL 6.6.11

handbook-guidance
(General notification requirements) contains rules and guidance on matters that should be notified to the FSA . Such matters include, but are not limited to, any circumstance that the depositary becomes aware of whilst undertaking its functions or duties in COLL 6.6.4 R (1) (General duties of the depositary) that the FSA would reasonably view as significant.

Control by the depositary over the scheme property

COLL 6.6.12

handbook-rule
(1) The depositary of an authorised fund is responsible for the safekeeping of all of the scheme property (other than tangible movable property) entrusted to it and must:
(a) take all steps and complete all documents needed to ensure completion of transactions properly entered into for the account of the scheme;
(b) ensure 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 COLL 6.6.15 R (1) (Committees and delegation);
(c) take into its custody or under its control documents of title to the scheme property other than for transactions in derivatives or forward transactions; and
(d) ensure that any transaction in derivatives or a forward transaction is entered into so as to ensure that any resulting benefit is received by the depositary.
(2) The depositary is responsible for the collection of income due to be paid for the account of the authorised fund.
(3) The depositary must keep for six years 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.
  • 01/04/2004

Exercise of rights in respect of the scheme property

COLL 6.6.13

handbook-rule
(1) The depositary must take all necessary steps to ensure that instructions given to it by the authorised fund manager for the exercise of rights attaching to the ownership of scheme property are carried out.
(2) Where the scheme property of an authorised fund contains units in any other scheme managed or otherwise operated by the manager of the AUT or, as the case may be, by any director of the ICVC or by any associate of either, the depositary must exercise any voting rights associated with those units in accordance with what he reasonably believes to be the interests of the unitholders in the authorised fund.
  • 01/04/2004

Duties of the depositary and the authorised fund manager: investment and borrowing powers

COLL 6.6.14

handbook-rule
(1) The authorised fund manager must avoid the scheme property being used or invested contrary to COLL 5, or any provision in the instrument constituting the scheme or the prospectus as referred to in COLL 5.2.4 R (Investment powers:general) and COLL 5.6.4 R (Investment powers: general), except to the extent permitted by (3)(b).
(2) The authorised fund manager must, immediately upon becoming aware of any breach of a provision listed in (1), take action, at its own expense, to rectify that breach, unless the breach occurred as the result of any of the circumstances within (3).
(3) The authorised fund manager must restore compliance with COLL 5 as soon as reasonably practicable having regard to the interests of the unitholders and, in any event, within the period specified in (5) or, when applicable, (6) where:
(a) the scheme property is:
(i) used or invested contrary to COLL 5 (other than a provision excusing a failure to comply on a temporary basis); and
(ii) the contravention is beyond the control of both the authorised fund manager and the depositary; or
(b) there is 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 scheme if:
(i) the subsequent transaction, but for this rule would constitute a breach of COLL 5; and
(ii) at the time of the acquisition of the original investment, it was reasonable for the authorised fund manager, to expect that a breach would not be caused by the subsequent transaction; and
in this rule the 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 authorised fund manager.
(4) Immediately upon the depositary becoming aware of any breach of any provision listed in (1), it must ensure that the authorised fund manager complies with (2).
(5) The maximum period for restoration of compliance under (3) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (6):
(a) for six months; or
(b) where the transaction in question was a transaction in derivatives or a forward transaction under COLL 5.2.20 R (Permitted transactions (derivatives and forwards)) or COLL 5.6.13R (Permitted transactions (derivatives and forwards)), until the close of business five business days later; or
(c) where the transaction relates to an immovable, for two years.
(6) The period specified at (5)(b) is extended where:
(a) the transaction involved a delivery of a commodity, from five to twenty business days;
(b) the reason for the contravention in (3)(a) is the inability of the authorised fund 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 authorised fund manager, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

Committees and delegation

COLL 6.6.15

handbook-rule
(1) The directors of an ICVC may delegate to any one or more of their number any of the directors' powers or duties but remain responsible for the acts or omissions of any such directors.
(2) The authorised fund manager of a scheme and the directors of an ICVC have the power to retain the services of anyone to assist in the performance of their respective functions, provided that:
(a) a mandate in relation to managing investments of the scheme property is not given to:
(i) the depositary; or
(ii) any other person whose interests may conflict with those of the authorised fund manager or the unitholders; or
(iii) an authorised person operating from an establishment in the United Kingdom unless such person has a Part IV permission to manage investments; or
(iv) any other person operating from an establishment in a country other than the United Kingdom unless such person:
(A) is authorised or registered in such country for the purpose of asset management; and
(B) is subject to prudential supervision in such country;
and in addition if that person is not an EEA firm, co-operation is ensured between the FSA and the overseas regulator of that person;
(b) the authorised fund manager ensures that at all times it can monitor effectively the relevant activities of any person so retained;
(c) the mandate permits the authorised fund manager to:
(i) give further relevant instructions to the person so retained; and
(ii) withdraw the mandate with immediate effect when this is in the interests of the unitholders; and
(d) the mandate does not prevent effective supervision of the authorised fund manager and it must not prevent the authorised fund manager from acting, or the scheme from being managed in the best interests of the unitholders.
(3) Subject to the provisions of the OEIC Regulations and to (1), where services are retained under (2), the responsibility which the authorised fund manager had in respect of such services prior to that retention of services will remain unaffected.
(4) The depositary of a scheme may delegate any function to any person save:
(a) the ICVC or any director of the ICVC or the authorised fund manager of a scheme, to assist the depositary to perform:
(i) any function of oversight in respect of the scheme, its directors or the authorised fund manager as the case may be; or
(ii) any function of custody or control of the scheme property;
(b) an associate of the ICVC or of any of the directors of the ICVC or of the authorised fund manager of the scheme (as the case may be) to assist the depositary to perform any function in (a)(i); or
(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 scheme 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.
(5) Where a depositary retains services under (4):
(a) if it retains the services of a director of the ICVC, or an associate of such a director or its own associate, or the authorised fund manager of a scheme or that authorised fund manager's associate, then its liability for those services shall remain unaffected; and
(b) in any other case, it will not be held responsible by virtue of the rules in COLL for any act or omission of the person so retained if it can show that:
(i) it was reasonable for it to obtain assistance to perform the function in question;
(ii) the person retained was and remained competent to provide assistance in the performance of the function in question; and
(iii) it had taken reasonable care to ensure that the assistance in question was provided by the person retained in a competent manner.
(6) Where COLL 6.5.5 R (4) (Other directors) applies, the directors have, in respect of the functions of the ACD under COLL 6.6.3 R (Functions of the authorised fund manager), the same rights and responsibilities as for an ACD under this rule.

Delegation: guidance

COLL 6.6.16

handbook-guidance
(1) Directors of an ICVC, authorised fund managers and depositaries should also have regard to SYSC 8 (Outsourcing). SYSC 8.1.6 R states that a firm remains fully responsible for discharging all of its obligations under the regulatory system if it outsources crucial or important operational functions or any relevant services and activities.
(2) SUP 15.8.6 R (Delegation by UCITS management companies) requires an authorised fund manager of a UCITS scheme to inform the FSA where one of its duties is delegated to another person.
(3) For the purpose of, COLL 6.6.15 R (2) (a) (iv) adequate co-operation will be ensured where the FSA has entered into a co-operation agreement of the kind referred to in article 50(4) of the UCITS Directive with the relevant overseas regulator.

Conflicts of interest

COLL 6.6.17

handbook-rule
(1) The authorised fund manager, any other director of an ICVC and the depositary must take reasonable care to ensure that a transaction within (a) to (f) is not carried out on behalf of the scheme:
(a) putting cash on deposit with an affected person unless that person is an eligible institution or an approved bank and the arm's length requirement in (2) is satisfied;
(b) lending money by an affected person to, or for the account of, the scheme, unless the affected person is an eligible institution or an approved bank, and the arm's length requirement in (2) is satisfied;
(c) the dealing in property by an affected person, to, or with, the scheme (or the depositary for the account of the scheme), unless (3) applies;
(d) the vesting of property (other than cash) by an affected person in the scheme or the depositary for the account of the scheme against the issue of units in the scheme, unless:
(i) (3) applies; or
(ii) the purpose of the vesting is that the whole or part of the property of a body corporate or a collective investment scheme becomes the first property of the scheme and the unitholders of shares or units in the body corporate or collective investment scheme become the first unitholders in the scheme;
(e) the acquisition of scheme property by an affected person from the scheme (or the depositary acting for the account of the scheme), unless COLL 6.2.15 R (In specie issue and cancellation) applies, or unless (3) applies; and
(f) transactions within COLL 5.4 (Stock lending) by an affected person with, or in relation to, the scheme unless the arm's length requirement in (2) is satisfied.
(2) Any transaction in (1)(a),(b) or (f) must be at least as favourable to the scheme as any comparable arrangement 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 the transaction meets the requirements of (4) (best execution on-exchange), (5) (independent valuation) or (6) (arm's length transaction).
(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;
(c) there is evidence in writing of the effecting of the transaction and of its terms; and
(d) the authorised fund manager has taken all reasonable steps to ensure that the transaction is effected on the terms which are the best available for the scheme.
(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 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 unitholders.
(6) There is an arm's length transaction for the purposes of (3) if:
(a) paragraph (4)(a) is not satisfied;
(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).
  • 01/04/2004

Conflicts of interest: guidance

COLL 6.6.18

handbook-guidance
(1) The effect of COBS TP 2.12R is that COB 7.1 (Conflict of interest and material interest) (as it was in force on 31 October 2007) continues to apply for scheme management activity and contains rules on the fair treatment of customers where a firm has a conflict of interest in relation to a transaction. COLL 6.6.17 R (1) provides rules for specific circumstances where COB 7.1 would not be appropriate for an authorised fund.
(2) Regulation 44 of the OEIC Regulations (Invalidity of certain transactions involving directors) is relevant to the application of COLL 6.6.17 R.

COLL 6.7

Payments

  • 01/12/2004

Application

COLL 6.7.1

handbook-rule
This section applies in accordance with COLL 6.7.2 R (Table of application).
  • 01/04/2004

Table of application

COLL 6.7.2

handbook-rule
Table of Application. This table belongs to COLL 6.7.1 R.
  • 01/04/2004

Purpose

COLL 6.7.3

handbook-guidance
(1) This section assists in securing the regulatory objective of protecting consumers through requirements which govern the payments out of scheme property and charges imposed on investors when buying or selling units.
(2) The requirements clarify the nature of permitted charges and payments and ensure the disclosure for unitholders of any increases in charges and payments to the authorised fund manager.
(3) The prospectus should make adequate provision for payments from an authorised fund. This section:
(a) prohibits, or stipulates the conditions on which, the payments out of the scheme property can be made;
(b) requires certain payments to be conditional on disclosure in the prospectus; and
(c) governs the allocation of payments between capital and income.
  • 01/04/2004

Payments out of scheme property

COLL 6.7.4

handbook-rule
(1) The only payments which may be recovered from the scheme property of an authorised fund are those in respect of:
(a) remunerating the parties operating the authorised fund;
(b) the administration of the authorised fund; or
(c) the investment or safekeeping of the scheme property.
(2) No payment under this rule can be made from scheme property if it is unfair to (or materially prejudices the interests of) any class of unitholders or potential unitholders.
(3) Paragraphs (1) and (2) do not apply to any payments in relation to any taxation payable by the authorised fund.
(4) Paragraphs (1) and (2) do not permit payments to third parties for the safekeeping or administration of units on behalf of unitholders rather than on behalf of the authorised fund.

Payments out of scheme property: guidance

COLL 6.7.5

handbook-guidance
(1) Details of permissible types of payments out of scheme property are to be set out in full in the prospectus in accordance with COLL 4.2.5R (13) and COLL 4.2.5R (14) (Table: contents of the prospectus).
(2) An authorised fund manager should consider whether a payment to an affected person is unfair because of its amount or because it confers a disproportionate benefit on the affected person.
(3) COLL 6.7.4 R (2) (Payments out of scheme property) does not invalidate a payment that gives rise to a difference between the rights of separate classes of unit that relates solely to the payments that may be taken out of scheme property.
(4) Payments to third parties as referred to in COLL 6.7.4 R (4) include payment to providers of fund supermarket services and other similar platform services.

Performance fees

COLL 6.7.6

handbook-guidance
(1) For the authorised fund manager's periodic charge or for payments out of scheme property to the investment adviser, the prospectus may permit a payment based on a comparison of one or more aspects of the scheme property or price in comparison with fluctuations in the value or price of property of any description or index or other factor designated for the purpose (a "performance fee").
(2) Any performance fee should be specified in the appropriate manner in the prospectus and should be consistent with COLL 6.7.4 R. In determining whether the performance fee is consistent the authorised fund manager should have regard to factors such as:
(a) it should be calculated and paid after consideration of all other payments;
(b) where it is made on the basis of performance of the authorised fund against any index or any other factor, that benchmark must be reasonable given the investment objectives of the authorised fund and must be consistently applied;
(c) it may be based on performance above a defined positive rate of return (the "hurdle rate"), which may be fixed or variable;
(d) where (b) or (c) applies, the benchmark or hurdle rate may be carried forward to future accrual periods;
(e) the period over which it accrues and the frequency with which it crystallises should be reasonable; and
(f) except where allowed by COLL 6.7.4 R (1), there are to be no arrangements to adjust the price or value of sale or repurchase transactions in respect of performance fees accrued or paid if the transactions occur within the accrual period of the charge.
(3) In accordance with COLL 4.2.5R (13) (Table: contents of prospectus) the prospectus should contain the maximum amount or percentage of scheme property that the performance fee might represent in an annual accounting period. This disclosure should be given in plain language together with examples of the operation of the performance fee.
  • 01/04/2004

Charges on buying and selling units

COLL 6.7.7

handbook-rule
(1) No person other than the authorised fund manager may impose charges on unitholders or potential unitholders when they buy or sell units.
(2) An authorised fund manager must not make any charge or levy in connection with:
(a) the issue or sale of units except where a preliminary charge is made in accordance with the prospectus of the scheme which must be either a fixed amount or calculated as a percentage of the price of a unit; or
(b) the redemption or cancellation of units, except a redemption charge made in accordance with the prospectus current at the time the relevant units were purchased by the unitholder.
(3) This rule is subject to COLL 6.3.7 R (SDRT provision) and COLL 6.3.8 R (Dilution).

Charges on buying and selling units: guidance

COLL 6.7.8

handbook-guidance
(1) To introduce a new charge for the sale or redemption of units, or any new category of remuneration for its services or increase the rate stated in the prospectus, the authorised fund manager will need to comply with COLL 4.2.5 R (Table: contents of prospectus) and COLL 4.3 (Approvals and notifications).
(2) A redemption charge may be expressed in terms of amount or percentage. It may also be expressed as diminishing over the time during which the unitholder has held the units or be calculated on the basis of the unit price performance of the units. However any redemption charge should not be such that it could be reasonably regarded as restricting any right of redemption.
(3) The prospectus should contain a statement as to the determination of the order in which units which have been acquired at different times by a unitholder are to be taken to be redeemed or cancelled for the purpose of the imposition of the redemption charge.
  • 01/04/2004

Charges for the exchange of units in an umbrella

COLL 6.7.9

handbook-rule
For a scheme which is an umbrella, an authorised fund manager must not make a charge on an exchange of units in one sub-fund for units in another sub-fund unless the amount of the charge is not more than the amount stated in the current prospectus.
  • 01/04/2004

Allocation of payments to income or capital

COLL 6.7.10

handbook-rule
(1) The authorised fund manager must determine whether a payment is to be made from the income property or capital property of an authorised fund, and in doing so the authorised fund manager must:
(a) pay due regard to whether the nature of the cost is income related or capital related and the objective of the scheme; and
(b) agree the treatment of any payment with the depositary.
(2) Where, for any class of unitsfor any annual accounting period, the amount of the income property is less than the income distributed, the shortfall must, as from the end of that period, be charged to the capital account and must not subsequently be transferred to the income account.

Allocation of payments to income or capital: guidance

COLL 6.7.11

handbook-guidance
(1) Any payment as a result of effecting transactions for the authorised fund should be made from the capital property of the scheme.
(2) Other than the payments in (1), all other payments should be made from income property in the first instance but may be transferred to the capital account in accordance with COLL 6.7.10 R (1) (Allocation of payments to income or capital).
(3) For payments transferred to the capital property of the scheme in accordance with (2), the prospectus should disclose the matters in COLL 4.2.5R (14).
(4) If the authorised fund manager wishes to make a change in relation to the allocation of payments, the procedures in COLL 4.3 (Approvals and notifications) will be relevant.
  • 01/04/2004

Prohibition on promotional payments

COLL 6.7.12

handbook-rule
(1) No payment may be made from scheme property to any person, other than a payment to the authorised fund manager permitted by the rules in COLL, for the acquisition or promotion of the sale of units in an authorised fund.
(2) Paragraph (1) does not apply to the costs an authorised fund incurs preparing and printing the simplified prospectus, key features document or key features illustration, provided the prospectus states, in accordance with COLL 4.2.5 R (13) and (14) (Table: contents of the prospectus), that these costs are properly payable to the authorised fund manager from scheme property.

Prohibition on promotional payments: guidance

COLL 6.7.13

handbook-guidance
Examples of payments which are not permitted by COLL 6.7.12 R include:
(1) commission payable to intermediaries (such payments should normally be borne by the authorised fund manager);
(2) payments or costs in relation to the preparation or dissemination of financial promotions (other than costs allowed under COLL 6.7.12 R (2)).
(3) [deleted]

Movable or immovable property

COLL 6.7.14

handbook-rule
An ICVC must not incur any expense for the use by it of any movable or immovable property except to the extent that such property is necessary for the direct pursuit of its business or held in accordance with its investment objectives.
  • 01/04/2004

Payment of liabilities on transfer of assets

COLL 6.7.15

handbook-rule
(1) Where the property of an authorised fund is transferred to a second authorised fund (or to the depositary for the account of the authorised fund) in consideration of the issue of units in the second authorised fund to unitholders in the first scheme, (2) applies.
(2) The ICVC, its depositary or the trustee of the AUT as the successor in title to the property transferred, may pay out of the scheme property any liability arising after the transfer which, had it arisen before the transfer, could properly have been paid out of the property transferred, but only if:
(a) there is nothing in the instrument constituting the scheme of the authorised fund expressly forbidding the payment; and
(b) the authorised fund manager is of the opinion that proper provision was made for meeting such liabilities as were known or could reasonably have been anticipated at the time of the transfer.
  • 01/04/2004

Exemptions from liability to account for profits

COLL 6.7.16

handbook-guidance
An affected person is not liable to account to another affected person or to the unitholders of any scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:
(1) dealings in the units of a scheme; or
(2) any transaction in scheme property; or
(3) the supply of services to the scheme;
where disclosure of the non-accountability has been made in the prospectus of the scheme.
  • 01/04/2004

Allocation of scheme property

COLL 6.7.17

handbook-rule
For a scheme which is an umbrella, any assets to be received into, or any payments out of, the scheme property which are not attributable to one sub-fund only, must be allocated by the authorised fund manager between the sub-funds in a manner which is fair to the unitholders of the umbrella generally.
  • 01/04/2004

COLL 6.8

Income: accounting, allocation and distribution

  • 01/12/2004

Application

COLL 6.8.1

handbook-rule
(1) This section applies to an authorised fund manager.
(2) COLL 6.8.4 R (1) (Unclaimed, de minimis and joint unitholder distributions) also applies to the depositary of an authorised fund.
(3) Except in the case of COLL 6.8.2 R (1) (Accounting periods) and COLL 6.8.3 R (1) (Income allocation and distribution), COLL 6.8 applies as if each sub-fund were a separate authorised fund.
  • 01/04/2004

Accounting periods

COLL 6.8.2

handbook-rule
(1) An authorised fund must have:
(a) an annual accounting period;
(b) a half-yearly accounting period; and
(c) an accounting reference date.
(2) A half-yearly accounting period begins when an annual accounting periodbeginsand ends on:
(a) the day which is six months before the last day of that annual accounting period; or
(b) some other reasonable date as set out in the prospectus of the scheme.
(3) The first annual accounting period of a scheme must begin:
(a) on the first day of any period of initial offer; or
(b) in any other case, on the date of the relevant authorisation order;
and in either case must end on the next accounting reference date, except where (4) applies.
(4) When the accounting reference date of a scheme falls less than six months after the beginning of the first annual accounting period, that period may be extended until the subsequent accounting reference date.
(5) Each annual accounting period of a scheme subsequent to the first period must begin immediately after the end of the previous period and must end on the next accounting reference date, except where (6) or (6A)applies.
(5A) Each annual accounting period or half-yearly accounting period must end either at the end of the day determined under this rule or, if the authorised fund manager so decides, at the last valuation point on that day.
(6) Following a revision to the prospectus of the scheme that includes a change to the accounting reference date, the annual accounting period may be shortened, or extended by up to six months, so as to end on the new accounting reference date.
(6A) If the authorised fund manager notifies the depositary that a particular annual accounting period or half-yearly accounting period is to end on a specified day, which is not more than seven days after, and not more than seven days before, the day on which the period would otherwise end under this rule, that notice is to have effect provided it is given before the day on which the period would otherwise end.
(7) The authorised fund manager must consult the depositary and the scheme's auditor before shortening or extending an accounting period in accordance with (4) or (6).

COLL 6.8.2A

handbook-guidance
When the annual accounting period of a scheme is extended under COLL 6.8.2 R (4) or (6), resulting in a longer than usual period before the publication of reports to unitholders, the authorised fund manager should make summary information about the investment activities of the scheme available to unitholders during that period, in accordance with Principles 6 (Customers' interests) and 7 (Communications with clients).
  • 06/08/2006

Income allocation and distribution

COLL 6.8.3

handbook-rule
(1) An authorised fund must have an annual income allocation date, which must be within four months of the end of the relevant annual accounting period.
(2) An authorised fund may have interim income allocation dates and one or more interim accounting periods for each of those dates and, if it does, the interim income allocation date must be within four months of the end of the relevant interim accounting period(s).
(3) An authorised fund must have a distribution account to which the amount of income allocated to classes of units that distribute income is transferred as at the end of the relevant accounting period.
(3A) The amount available for income allocations must be calculated by:
(a) taking the net revenue after taxation determined in accordance with the IMA SORP;
(b) making any transfers, to the extent permitted by the prospectus, between the income account and the capital account in order that the amount available for income allocations is calculated as if the revenue from debt securities had been determined disregarding the effect of:
(i) the change in the Retail Prices Index during the period, provided that the policy is to invest predominantly in index-linked securities and the transfer relates only to amounts in respect of index-linked gilt-edged securities; or
(ii) amortisation, provided that the amount available for income allocations is not less than if such transfers had not been made;
(c) making any other transfers between the income account and the capital account that are required in relation to:
(i) stock dividends;
(ii) income equalisation included in income allocations from other collective investment schemes;
(iii) the allocation of payments in accordance with COLL 6.7.10 R (Allocation of payments to income or capital);
(iv) taxation; and
(v) the aggregate amount of income property included in units issued and units cancelled during the period.
(4) If income is allocated during an accounting period:
(a) with effect from the end of the relevant annual or interim accounting period, the amount of income allocated to classes of units that accumulate income becomes part of the capital property and requires an adjustment to the proportion of the value of the scheme property to which they relate if other classes of units are in issue during the period;
(b) the adjustment in (a) must ensure the price of units remains unchanged despite the transfer of income; and
(c) the amount of any interim allocation may not be more than the amount which, in the opinion of the authorised fund manager, would be available for allocation if the interim accounting period and all previous interim accounting periods in the same annual accounting period, taken together, were an annual accounting period.

Allocation of income to different classes of unit

COLL 6.8.3A

handbook-guidance
In the case of sub-funds with more than one class of units in issue, the proportionate interests of each class of units in the amount available for income allocations should be determined in accordance with the instrument constituting the scheme.
  • 06/03/2010

Unclaimed, de minimis and joint unitholder distributions

COLL 6.8.4

handbook-rule
(1) Any distribution remaining unclaimed after a period of six years, or such longer time specified by the prospectus, must become part of the capital property.
(2) The authorised fund manager and the depositary may agree a de minimis amount in respect of which a distribution of income is not required, and how any such amounts are to be treated.
(3) Distributions made to the first named joint unitholder on the register will be as effective a discharge to the trustee and manager, as if the first named joint unitholder had been a sole unitholder.
  • 01/04/2004

Guidance: contents of the prospectus

COLL 6.8.5

handbook-guidance
COLL 4.2.5 R (Table: contents of prospectus) requires the details of COLL 6.8.2 R, COLL 6.8.3 R (1) and COLL 6.8.3 R (2) and COLL 6.8.4 R (1) and COLL 6.8.4 R (2) to be contained in the prospectus as well as when, and how, the distribution will be paid (e.g. by cheque or BACS) and also how any unclaimed distributions are to be processed.
  • 01/04/2004

COLL 6.9

Independence, names and UCITS business restrictions

  • 01/12/2004

Application

COLL 6.9.1

handbook-rule
This section applies to an authorised fund manager , a depositary , an ICVC and any other directors of an ICVC.

Independence of depositaries and scheme operators

COLL 6.9.2

handbook-guidance
(1) Regulation 15(8)(f) of the OEIC Regulations (Requirements for authorisation) requires independence between the depositary, the ICVC and the ICVC's directors, as does section 243(4) of the Act (Authorisation orders) for the trustee and manager of an AUT. COLL 6.9.3 G to COLL 6.9.5 G give FSA's view of the meaning of independence of these relationships. An ICVC, its directors and depositary or a manager and a trustee of an AUT are referred to as "relevant parties" in this guidance.
(2) There are at least three possible kinds of links between the relevant parties:
(a) directors in common;
(b) cross-shareholdings; and
(c) contractual commitments.
(3) If any of these links exist between the relevant parties, the FSA will have regard to COLL 6.9.3 G to COLL 6.9.5 G in determining whether there is independence.
  • 01/04/2004

Independence: influence by directors

COLL 6.9.3

handbook-guidance
(1) Independence is likely to be lost if, by means of executive power, either relevant party could control the action of the other.
(2) The board of one relevant party should not be able to exercise effective control of the board of another relevant party. Arrangements which might indicate this situation include quorum provisions and reservations of decision-making capacity of certain directors.
(3) For an AUT, the FSA would interpret the concept of directors in common to include any directors of associates of one relevant party who are simultaneously directors of the other relevant party.
(4) For an ICVC, independence would not be met if:
(a) a director of the ICVC or any associate of the director is a director, an employee, or both of the depositary; or
(b) a director of an ICVC:
(i) has a direct or indirect shareholding for investment purposes of more than 0.5% of the votes at a general meeting or a meeting of holders of the class of share concerned of the depositary of that ICVC; or
(ii) has any other relationship with the depositary which might reasonably be expected to give rise to a potential conflict of interest.
  • 01/04/2004

Independence: influence by shareholding

COLL 6.9.4

handbook-guidance
Independence is likely to be lost if either of the relevant parties could control the actions of the other by means of shareholders' votes. The FSA considers this would happen if any shareholding by one relevant party and their respective associates in the other exceeds 15% of the voting share capital, either in a single share class or several share classes. The FSA would be willing, however, to look at cross-shareholdings exceeding 15% on a case-by-case basis to consider if there were exceptional grounds for concluding that independence was safeguarded by other means.
  • 01/04/2004

Independence: contractual commitments

COLL 6.9.5

handbook-guidance
The FSA would encourage relevant parties to consult it in advance about its view on the consequences of any intended contractual commitment or relationship which could affect independence, whether directly or indirectly.
  • 01/04/2004

Undesirable or misleading names

COLL 6.9.6

handbook-guidance
(1) Regulation 15(9) of the OEIC Regulations and section 243(8) of the Act require that an authorised fund's name must not be undesirable or misleading. This section contains guidance on some specific matters the FSA will consider in determining whether the name of an authorised fund is undesirable or misleading. It is in addition to the requirements of regulation 19 of the OEIC Regulations (Prohibition on certain names).
(2) The FSA will take into account whether the name of the scheme:
(a) is substantially similar to the name of another authorised fund;
(b) implies that the authorised fund has merits which are not, or might not be, justified;
(c) implies that the authorised fund manager has particular qualities, which may not be justified;
(d) is inconsistent with the authorised fund's investment objectives or policy;
(e) implies that the authorised fund is not an authorised fund (for example, describing the authorised fund as a "plan" or "account" are unlikely to be acceptable); and
(f) might mislead investors into thinking that persons other than the authorised fund manager are responsible for the authorised fund.
(3) The FSA is unlikely to approve a name of an authorised fund that includes the word "guaranteed" unless:
(a) the guarantee is given by:
(i) an authorised person;
(ii) a person authorised by a Home State regulator; or
(iii) a person subject to prudential supervision in accordance with criteria defined by EU law or prudential rules at least as stringent as those laid down by EU law;
other than the authorised fund manager or the depositary.
(b) the authorised fund manager can demonstrate that the guarantor has the authority and resources to honour the terms of the guarantee;
(c) the guarantee covers all unitholders within the authorised fund and is legally enforceable by each unitholder who is intended to benefit from it or by a person acting on that unitholder's behalf;
(d) the guarantee relates to the total amount paid for a unit which includes any charge or other costs of buying or selling units in the authorised fund;
(e) the guarantee provides for payment at a specified date or dates and is unconditional although reasonable commercial exclusions such as force majeure may be included; and
(f) where the guarantee applies to different classes of unit, it is identical in its application to all classes except for the differences attributable to income already received or charges already suffered by the different classes of unit.
(4) The name of an authorised fund may indicate a guaranteed capital return or income return or both but only if the total amount paid for a unit is guaranteed in accordance with (3).
(5) The FSA is unlikely to approve a name of an authorised fund that includes words implying a degree of capital security (such as "capital protected" or anything with a similar meaning) unless the degree of capital security is apparent from the name and clearly stated in the prospectus, and:
(a) the principles in (3) are satisfied except that, for the purposes of (3)(d), the guarantee may relate to an amount not materially less than the total amount paid for a unit; or
(b) the investment objective and investment policy for the authorised fund are such as to show a clear intention to provide a material degree of security in respect of the total amount paid for a unit.
(6) When determining whether (5) is complied with, the FSA will take into account whether the degree of capital security implied by the name fairly reflects the nature of the arrangements for providing that security. This assessment will take place on a case-by-case basis.

Undesirable or misleading names: umbrellas

COLL 6.9.7

handbook-rule
The authorised fund manager must ensure that the name of a sub-fund or of a class of unit is not undesirable or misleading.
  • 01/04/2004

Undesirable or misleading names: umbrellas - guidance

COLL 6.9.8

handbook-guidance
When deciding whether COLL 6.9.7R is complied with, the FSA will take into account COLL 6.9.6G. COLL 6.9.7R applies generally and not just to the names that include the words "guaranteed" or "capital protected".
  • 01/04/2004

Restrictions of business for UCITS management companies

COLL 6.9.9

handbook-rule
A UCITS management company must not engage in any activities other than:
(1) acting as:
(a) an authorised fund manager of an authorised fund; or
(b) an operator of any other collective investment scheme for which the firm is subject to prudential supervision;
(2) activities for the purposes of or in connection with those in (1);
(3) collective portfolio management, including without limitation:
(a) investment management;
(b) administration:
(i) legal and fund management accounting services;
(ii) customer enquiries;
(iii) valuation and pricing (including tax returns);
(iv) regulatory compliance monitoring;
(v) maintenance of unitholder register;
(vi) distribution of income;
(vii) unit issues and redemptions;
(viii) contract settlements (including certificate dispatch); and
(ix) record keeping; and
(c) marketing;
(4) managing investments where the relevant portfolio includes one or more financial instruments ;
(5) advising on investments where:
(a) the firm has a permission for the activity in (4); and
(b) each of the instruments are financial instruments ; and
(6) safeguarding and administration of collective investment scheme units where the firm has a permission for the activity in (4).

Connected activities: guidance

COLL 6.9.10

handbook-guidance
(1) Examples of the connected activities referred to in COLL 6.9.9 R (2) include management of group plans, as long as they are dedicated to investments in unit trust schemes and OEICs for which the firm acts as an authorised fund manager.
(2) The restrictions of business imposed by COLL 6.9.9R reflect the position under Article 5 of the UCITS Directive. In accordance with recital (7) of the amending UCITS Management Directive (2001/107/EC) the activities referred to at COLL 6.9.9R (3) (a) to COLL 6.9.9R (3) (c) may be performed on behalf of EEA UCITS management companies.

Notification to the FSA in its role as registrar of ICVCs

COLL 6.9.11

handbook-rule
An ICVC must notify the FSA within 14 days of the occurrence of any of the following:
(1) any amendment to the instrument of incorporation;
(2) any change in the address of the head office of the ICVC;
(3) any change of director;
(4) any change of depositary;
(5) in respect of any director or depositary, any change in the information mentioned in regulation 12(1)(b) or (c) of the OEIC Regulations (Applications for authorisation);
(6) any change of the auditor of the ICVC;
(7) any order in respect of the ICVC made by virtue of regulation 70 of the OEIC Regulations (Mergers and divisions).
  • 01/04/2004

Export chapter as

COLL 7

Suspension of dealings and termination of authorised funds

COLL 7.1

Introduction

  • 01/12/2004

Application

COLL 7.1.1

handbook-rule
This chapter applies to an ICVC, an ACD, any other director of a ICVC, a depositary of an ICVC, a manager of an AUT and a trustee of an AUT, where such AUT or ICVC is a UCITS scheme or a non-UCITS retail scheme in accordance with COLL 7.1.2 R (Table of application).

Table of application

COLL 7.1.2

handbook-rule
This table belongs to COLL 7.1.1 R.

Purpose

COLL 7.1.3

handbook-guidance
(1) This chapter helps to achieve the regulatory objective of protecting investors by ensuring they do not buy or redeem units at a price that cannot be calculated accurately. For instance, due to unforeseen circumstances, it may be impossible to value, or to dispose of and obtain payment for, all or some of the scheme property of an authorised fund or sub-fund. COLL 7.2.1 R (Requirement) sets out the circumstances in which an authorised fund manager must or may suspend dealings in units and the manner in which a suspension takes effect.
(2) This chapter also helps with the regulatory objective of protecting consumers, by providing a cost effective and fair means of winding up authorised funds and terminating sub-funds of ICVCs and AUTs. EG 14 (Collective investment schemes) deals with the FSA's powers to revoke the authorisation of authorised funds otherwise than by consent.

COLL 7.2

Suspension and restart of dealings

  • 01/12/2004

Requirement

COLL 7.2.1

handbook-rule
(1) The authorised fund manager may, with the prior agreement of the depositary, and must without delay, if the depositary so requires, temporarily suspend the issue, cancellation, sale and redemption of units in an authorised fund (referred to in this chapter as "dealings in units"), where due to exceptional circumstances it is in the interest of all the unitholders in the authorised fund.
(1A) The authorised fund manager and the depositary must ensure that the suspension is only allowed to continue for as long as it is justified having regard to the interests of the unitholders.
(2) On suspension, the authorised fund manager, or the depositary if it has required the authorised fund manager to suspend dealings in units, must:
(a) immediately inform the FSA, stating the reason for its action; and
(b) as soon as practicable give written confirmation of the suspension and the reasons for it to:
(i) the FSA; and
(ii) the Home State regulator in each EEA State in which the authorised fund manager holds itself out as willing to sell or redeem units of the authorised fund concerned.
(2A) The authorised fund manager must ensure that a notification of the suspension is made to unitholders of the authorised fund as soon as practicable after suspension commences.
(2B) In making the notification set out in (2A), the authorised fund manager must ensure that it:
(a) draws unitholders' particular attention to the exceptional circumstance which resulted in the suspension;
(b) is clear, fair and not misleading; and
(c) informs unitholders how to obtain the information detailed in (2C).
(2C) The authorised fund manager must ensure that it publishes (on its website or by other general means) sufficient details to keep unitholders appropriately informed about the suspension including, if known, its likely duration.
(3) During a suspension:
(a) none of the obligations in COLL 6.2 (Dealing) apply; and
(b) the authorised fund manager must comply with as much of COLL 6.3 (Valuation and pricing) as is practicable in the light of the suspension.
(4) The suspension of dealings in units must cease as soon as practicable after the exceptional circumstances referred to in (1) have ceased.
(4A) The authorised fund manager and the depositary must formally review the suspension at least every 28 days and inform the FSA of the results of this review and any change to the information provided in (2).
(5) The authorised fund manager must inform the FSA of the proposed restart of dealings in units and immediately after the restart must confirm this by giving notice to the FSA and the authorities mentioned in (2)(b)(ii).
(6) The authorised fund manager may agree, during the suspension, to deal in units in which case all deals accepted during, and outstanding prior to, the suspension will be undertaken at a price calculated at the first valuation point after restart of dealing in units, subject to (8).
(7) This rule applies to a sub-fund as it applies to an authorised fund, and:
(a) references to the units of the class or classes relate to that sub-fund and to the scheme property attributable to the sub-fund; and
(b) this rule can only apply to one or more classes of units without being applied to other classes, if it is in the interest of all the unitholders.
(8) If an authorised fund operates limited redemption arrangements, and the event in (1) has affected a valuation point, the authorised fund manager must declare an additional valuation point as soon as possible after the restart of dealings in units.

Guidance

COLL 7.2.2

handbook-guidance
  1. (1) Suspension should be allowed only in exceptional cases where circumstances so require and suspension is justified having regard to the interests of the unitholders. Difficulties in realising scheme assets or temporary shortfalls in liquidity may not on their own be sufficient justification for suspension. In such circumstances the authorised fund manager and depositary would need to be confident that suspension could be demonstrated genuinely to be in the best interests of the unitholders. Before an authorised fund manager and depositary determines that it is the best interests of unitholders to suspend dealing, it should ensure that any alternative courses of action have been discounted.
  2. (2) The authorised fund manager will need to ensure that any suspension, while maintaining unitholders' interests, is temporary, of minimal duration and is consistent with the provisions of the prospectus and the instrument constituting the scheme.
  3. (3) During a suspension, the authorised fund manager should inform any person who requests a sale or redemption of units that all dealings in units have been suspended and that that person has the option to withdraw the request during the period of suspension or have the request executed at the first opportunity after the suspension ends.
  • 06/01/2009

COLL 7.3

Winding up a solvent ICVC and terminating a sub-fund of an ICVC

Explanation of COLL 7.3

COLL 7.3.1

handbook-guidance
(1) The winding up of an ICVC may be carried out under this section instead of by the court provided the ICVC is solvent and the steps required under regulation 21 the OEIC Regulations (The Authority's approval for certain changes in respect of a company) are fulfilled. This section lays down the procedures to be followed and the obligations of the ACD and any other directors of the ICVC.
(2) The termination of a sub-fund under this section will be subject to the conditions set out in regulation 21 of the OEIC Regulations. Termination can only commence once the proposed alterations to the ICVC's instrument of incorporation and prospectus have been notified to the FSA and permitted to take effect. On termination, the assets of the sub-fund will normally be realised, and the unitholders in the sub-fund will receive their respective share of the proceeds net of liabilities and the expenses of the termination.
(3) A sub-fund or ICVC may also be terminated or wound up in connection with a scheme of arrangement. Unitholders will become entitled to receive units in another regulated collective investment scheme in exchange for their units.

Special meanings for termination of a sub-fund of an ICVC

COLL 7.3.2

handbook-rule
In this section, where a sub-fund of an ICVC is being terminated, references to:
(1) units, are references to units of the class or classes related to the sub-fund to be terminated;
(2) a resolution, or extraordinary resolution, are references to such a resolution passed at a meeting of unitholders of units of the class or classes referred to in (1);
(3) scheme property, are references to the scheme property allocated or attributable to the sub-fund to be terminated; and
(4) liabilities, are references to liabilities of the ICVC allocated or attributable to the sub-fund to be terminated.
  • 01/04/2004

Guidance on winding up or termination

COLL 7.3.3

handbook-guidance
This table belongs to COLL 7.3.3 G

When an ICVC is to be wound up or a sub-fund terminated

COLL 7.3.4

handbook-rule
(1) An ICVC must not be wound up except under this section or as an unregistered company under Part V of the Insolvency Act 1986.
(2) An ICVC must not be wound up under this section if there is a vacancy in the position of ACD.
(3) An ICVC must not be wound up or a sub-fund terminated under this section:
(a) unless and until effect may be given, under regulation 21 of the OEIC Regulations, to proposals to wind up the affairs of the ICVC or to proposals to make the alterations to the ICVC's instrument of incorporation and prospectus that will be required if a sub-fund is terminated; and
(b) unless a statement has been prepared and sent or delivered to the FSA under COLL 7.3.5 R (Solvency statement) and received by the FSA prior to satisfaction of the condition in (a).
(4) Subject to (3) and the subsequent provisions of this section, the appropriate steps to wind up an ICVC or terminate a sub-fund under this section must be taken:
(a) if an extraordinary resolution to that effect is passed; or
(b) when the period (if any) fixed for the duration of the ICVC or the sub-fund by the instrument of incorporation expires or any event occurs, for which the instrument of incorporation provides that the ICVC or the sub-fund is to be wound up; or
(c) on the date stated in any agreement by the FSA in response to a request from the directors for the winding up of the ICVC or a request for the termination of the sub-fund.

Solvency statement

COLL 7.3.5

handbook-rule
(1) Before notice is given to the FSA under regulation 21 of the OEIC Regulations of the proposals referred to in COLL 7.3.4 R (3), the directors must make a full enquiry into the ICVC's affairs to determine whether the ICVC will be able to meet all its liabilities.
(2) The ACD must then, based on the results of this enquiry, prepare a statement either:
(a) confirming that the ICVC will be able to meet all its liabilities within twelve months of the date of the statement; or
(b) stating that such confirmation cannot be given.
(3) This solvency statement must:
(a) relate to the ICVC's affairs at a date no more than 28 days before the date on which notice is given to the FSA ;
(b) if there is more than one director, be approved by the board of directors and signed on their behalf by the ACD; and
(c) if it contains the confirmation under (2)(a), be signed by at least one other director or, if there is no director other than the ACD, be signed by the ACD.
(4) A statement which contains the confirmation under (2)(a) must annex a statement signed by the auditor appointed under Schedule 5 to the OEIC Regulations (Auditors) to the effect that, in his opinion, the enquiry required by (1) has been properly made and is fairly reflected by the confirmation.
(5) The solvency statement must be sent or delivered to the FSA and the depositary no later than 21 days after notice is given to the FSA in accordance with regulation 21 of the OEIC Regulations.

Consequences of commencement of winding up or termination

COLL 7.3.6

handbook-rule
(1) Winding up or termination must commence once the conditions referred to in COLL 7.3.4 R (3) are both satisfied or, if later, once the events in COLL 7.3.4 R (4) have occurred.
(2) Once winding up or termination has commenced:
(a) COLL 6.2 (Dealing), COLL 6.3 (Valuation and pricing) and COLL 5 (Investment and borrowing powers) cease to apply to the ICVC or to the units and scheme property in the case of a sub-fund;
(b) the ICVC must cease to issue and cancel units ;
(c) the ACD must cease to sell or redeem units or to arrange for the issue or cancellation of units;
(d) no transfer of a unit may be registered and no other change to the register of unitholders may be made without the sanction of the directors;
(e) where winding up an ICVC, the ICVC must cease to carry on its business, except for its beneficial winding up; and
(f) the corporate status and corporate powers of the ICVC and (subject to the preceding provisions of this rule) the powers of the directors continue until the ICVC is dissolved.
(3) The ACD must as soon as practicable after winding up or termination has commenced:
(a) if the ACD has not previously notified unitholders of the proposal to wind up the ICVC or terminate the sub-fund, give written notice of the commencement of the winding up or termination to the unitholders; and
(b) if winding up an ICVC that has its head office situated in Northern Ireland, publish notice of the commencement of the winding up in the Belfast Gazette.

Manner of winding up or termination

COLL 7.3.7

handbook-rule
(1) Paragraphs (2) to (9) of this rule apply to winding up an ICVC and termination of a sub-fund, paragraph (10) only applies to the winding up of an ICVC and paragraphs (11) to (15) only apply to the termination of a sub-fund of an ICVC.
(2) The ACD must, as soon as practicable after winding up or termination has commenced, cause the scheme property to be realised and the liabilities of the ICVC or the sub-fund to be met out of the proceeds.
(3) The ACD must instruct the depositary how such proceeds (until utilised to meet liabilities or make distributions to unitholders) must be held and those instructions must be prepared with a view to the prudent protection of creditors and unitholders against loss.
(4) Where sufficient liquid funds are available after making adequate provision for the expenses of the winding up or termination and the discharge of the ICVC's or the sub-fund's remaining liabilities, the ACD may arrange for the depositary to make one or more interim distributions to the unitholders proportionately to the right of their respective units to participate in scheme property at the commencement of the winding up or termination.
(5) On or before the date on which the final account is sent to unitholders in accordance with COLL 7.3.8 R (Final account and termination account), the ACD must arrange for the depositary to make a final distribution to the unitholders, in the same proportions as provided by (4), of the balance remaining (net of a provision for any further expenses of the ICVC or sub-fund).
(6) Paragraphs (2) to (5) are subject to the terms of any scheme of arrangement sanctioned by an extraordinary resolution passed on or before the commencement of the winding up or termination.
(7) Where the ICVC and one or more unitholders (other than the ACD) agree, the requirement in (2) to realise the scheme property does not apply to that part of the scheme property which is proportionate to the right to participate in scheme property of that or those unitholders
(8) In the case of (7), the ACD must cause the ICVC to distribute that part of the scheme property in specie to that or those unitholders in proportion to their respective rights to participate, this distribution being effected after making adjustments and retaining such provision as appears to the ACD appropriate to ensure that those unitholders bear the proportion of the liabilities and the expenses of the distribution attributable to their units.
(9) The depositary must notify the FSA once the winding up of the ICVC or the termination of a sub-fund (including compliance with COLL 7.3.8 R is complete and at the same time the ACD or the depositary must request the FSA to revoke the relevant authorisation order.
(10) Where any sum of money stands to the account of the ICVC at the date of its dissolution, the ACD must arrange for the depositary to pay or lodge that sum within one month after that date in accordance with regulation 33(4) or (5) of the OEIC Regulations (Dissolution in other circumstances).
(11) Where any sums (including unclaimed distributions) remain standing to the account of the scheme property following tender of payment (whether to a creditor or a unitholder), the ACD must instruct the depositary to retain the sums ('tendered sums') in an account ('unclaimed payments account') separate from any other part of the scheme property.
(12) The depositary must, if instructed by the ACD, make a payment out of the unclaimed payments account for the purpose of settling a claim for a tendered sum.
(13) Any costs and reasonable expenses of the ACD for investigating a claim and any costs and expenses incurred by the depositary in making a payment out of the unclaimed payments account may be reimbursed from the payment.
(14) The person entitled to any tendered sum is not entitled to any interest in respect of the unclaimed payments account and any interest arising in respect of the unclaimed payments account must be allocated between the continuing sub-funds of the ICVC in a manner which is fair to the unitholders of the ICVC generally.
(15) Amounts standing to the credit of an unclaimed payments account must be excluded from the value of the scheme property and must not be subject to any distribution under this rule, but upon a dissolution of the ICVC under regulation 33 of the OEIC Regulations, the depositary must cease to hold those amounts as part of that account and they will become subject to the provisions of (10).

Final account and termination account

COLL 7.3.8

handbook-rule
(1) Once the ICVC's affairs are fully wound up or termination of the sub-fund has been completed (including distribution or provision for distribution in accordance with COLL 7.3.7 R (5), the ACD must prepare an account of the winding up or termination showing:
(a) how it has been conducted; and
(b) how the scheme property has been disposed of.
(2) The account in (1) must be, if there is:
(a) more than one director, approved by the board of directors and be signed on their behalf by the ACD and at least one other director; or
(b) no director other than the ACD, signed by the ACD.
(3) Once signed, this account is the "final account" for the purposes of the winding up of an ICVC and the "termination account" for the purposes of the termination of a sub-fund.
(4) The final account must state the date on which the ICVC's affairs were fully wound up and the date stated must be regarded as the final day of the accounting period of the ICVC then running ('final accounting period').
(5) The ACD must ensure that the ICVC's auditor makes a report in respect of the final account or termination account, which states the auditor's opinion whether the final account or termination account has been properly prepared for the purpose of (1).
(6) Within two months of the date of the completion of the winding up of the ICVC or termination of the sub-fund, the ACD must send a copy of the final account or termination account and the auditor's report on it to the FSA and to each person who was a unitholder (or the first named of joint unitholders) immediately before its end.

Duty to ascertain liabilities

COLL 7.3.9

handbook-rule
(1) The ACD must use all reasonable endeavours to ensure that all the liabilities of the ICVC are discharged before the completion of the winding up or termination.
(2) The duty in (1) relates to all liabilities of which the ACD:
(a) is, or becomes, aware before the completion of the winding up or termination; or
(b) would have become aware before the completion of the winding up or termination had it used all reasonable endeavours to ascertain the liabilities.
(3) If the ACD rejects any claim against the ICVC in whole or part or against the ICVC in respect of a liability in whole or part, the ACD must immediately send to the claimant written notice of its reasons for doing so.

Reports and accounts

COLL 7.3.10

handbook-rule
(1) The ACD need not (as would be required under COLL 4.5.13 R (Provision of short report)) send to each unitholder a copy of any short report relating to an annual accounting period or half-yearly accounting period which began after commencement of winding up or termination, if the directors of the ICVC, after consulting the FSA, have reasonably determined that this is not required in the interest of unitholders.
(2) Where (1) applies, a copy of the short or long report must be supplied free of charge to any unitholder upon request.

Liabilities of the ACD

COLL 7.3.11

handbook-rule
(1) Except to the extent that the ACD can show that it has complied with COLL 7.3.9 R (Duty to ascertain liabilities), the ACD:
(a) is personally liable to meet any liability of an ICVC, of which it is the ACD, wound up under this section (whether or not the ICVC has been dissolved); and
(b) must keep the ICVC indemnified against any liability allocated or attributable to a sub-fund that has been terminated under these rules


that was not discharged before the completion of the winding up or termination.
(2) Where winding up an ICVC, if the proceeds of the realisation of the assets attributable, or allocated to a particular sub-fund of an umbrella ICVC are insufficient to meet the liabilities attributable or allocated to that sub-fund, the ACD must pay to the ICVC, for the account of that sub-fund the amount of the deficit, unless and to the extent that the ACD can show that the deficit did not arise as a result of any failure by the ACD to comply with the rules in COLL.
(3) The liabilities of the ACD under this rule create a debt (in England and Wales in the nature of a specialty) accruing due from it on the completion of the winding up or termination and payable upon the demand of the creditor in question (including the ICVC in the circumstances described in (2)).
(4) The obligations of the ACD under this rule do not affect any other obligation of the ACD under these rules or the general law.

Additional provisions applicable to umbrella companies

COLL 7.3.12

handbook-rule
(1) Liabilities of an ICVC which is an umbrella attributable, or allocated, to a particular sub-fund must be met first out of the scheme property attributable or allocated to such sub-fund.
(2) If the liabilities to be met out of a particular sub-fund of an umbrella ICVC are greater than the proceeds of the realisation of the scheme property attributable or allocated to that sub-fund, the deficit must be met out of the scheme property attributable or allocated to the solvent sub-funds of that umbrella ICVC in which the proceeds of realisation exceed liabilities and divided between those sub-funds in a manner that is fair to the unitholders in those solvent sub-funds.
(3) Paragraph (2) applies in respect of any deficit arising as a result of additional liabilities accruing to a sub-fund through the operation of (2).
(4) In calculating the amount of liabilities for the purpose of (2), account must be taken of any payments received or to be received from the ACD under COLL 7.3.11 R (Liabilities of the ACD).
  • 01/04/2004

Miscellaneous

COLL 7.3.13

handbook-rule
(1) If:
(a) during the course, or as a result, of the enquiry referred to in COLL 7.3.5 R (1) (Solvency statement), the directors become of the opinion that it will not be possible to provide the confirmation referred to in (2)(a) of that rule; or
(b) after winding up or termination has commenced, the ACD becomes of the opinion that the ICVC will be unable to meet all its liabilities within twelve months of the date of the statement provided under (a) of COLL 7.3.5 R (2);
the directors must immediately present a petition or cause the ICVC to present a petition for the winding up of the ICVC as an unregistered ICVC under Part V of the Insolvency Act 1986.
(2) If, after the commencement of a winding up under this chapter and before notice of completion of the winding up has been sent to the FSA, there is a vacancy in the position of ACD, the directors of the ICVC must immediately present or cause the ICVC to present or, if there are no directors, the depositary must immediately present, a petition for the winding up of the ICVC as an unregistered ICVC under Part V of the Insolvency Act 1986.

COLL 7.4

Winding up an AUT and terminating a sub-fund of an AUT

  • 01/12/2004

Explanation of COLL 7.4

COLL 7.4.1

handbook-guidance
(1) This section deals with the circumstances and manner in which an AUT is to be wound up or a sub-fund of an AUT is to be terminated. Under section 256 of the Act (Requests for revocation of authorisation order), the manager or trustee of an AUT may request the FSA to revoke the authorisation order in respect of that AUT. Section 257 of the Act (Directions) gives the FSA the power to make certain directions.
(2) The termination of a sub-fund under this section will be subject to section 251 of the Act (Alteration of schemes and changes of manager or trustee). Termination can only commence once the proposed alterations to the trust deed and prospectus have been notified to the FSA in writing and permitted to take effect. On termination, the assets of the sub-fund will normally be realised, and the unitholders in the sub-fund will receive their respective share of the proceeds net of liabilities and the expenses of the termination.
(3) An AUT or a sub-fund of an AUT may also be wound up or terminated in connection with a scheme of arrangement. Unitholders will become entitled to receive units in another regulated collective investment scheme in exchange for their units.

Special meanings for termination of a sub-fund of an AUT

COLL 7.4.2

handbook-rule
In this section, where a sub-fund of an AUT is being terminated, references to:
(1) units, are references to units of the class or classes related to the sub-fund to be terminated;
(2) a resolution or extraordinary resolution, are references to such a resolution passed at a meeting of unitholders of units of the class or classes referred to in (1);
(3) scheme property, are references to the scheme property allocated or attributable to the sub-fund to be terminated; and
(4) liabilities, are references to liabilities of the AUT allocated or attributable to the sub-fund to be terminated.
  • 01/04/2004

When an AUT is to be wound up or a sub-fund terminated

COLL 7.4.3

handbook-rule
(1) Upon the happening of any of the events or dates referred to in paragraph (2) and not otherwise:
(a) COLL 6.2 (Dealing), COLL 6.3 (Valuation and pricing) and COLL 5 (Investment and borrowing powers) cease to apply to the AUT;
(b) the trustee must cease to issue and cancel units ;
(c) the manager must cease to sell and redeem units;
(d) the manager must cease to arrange the issue or cancellation of units under COLL 6.2.7 R (Issue and cancellation of units through an authorised fund manager); and
(e) the trustee must proceed to wind up the AUT or terminate the sub-fund in accordance with COLL 7.4.4 R.
(2) The events referred to in (1) are:
(a) the authorisation order of the AUT is revoked;
(b) alterations to the AUT's trust deed and prospectus that will be required if the sub-fund is terminated taking effect in accordance with section 251 of the Act;
(c) the passing of an extraordinary resolution winding up the AUT or terminating the sub-fund, provided FSA's prior consent to the resolution has been obtained by the manager or trustee;
(d) in response to a request to the FSA by the manager or the trustee for the revocation of the authorisation order, the FSA has agreed, subject to there being no material change in any relevant factor, that, on the conclusion of the winding up of the AUT, the FSA will agree to that request;
(e) the expiration of any period specified in the trust deed as the period at the end of which the AUT is to be wound up or the sub-fund is to terminate;
(f) the effective date of a duly approved scheme of arrangement, which is to result in the AUT or sub-fund that is subject to the scheme of arrangement being left with no property; or
(g) the date on which a relevant pension scheme is notified in writing by the Occupational Pensions Schemes Regulatory Authority that the scheme is no longer registered under the Welfare and Pensions Reform Act 1999 as a stakeholder pension scheme.
(3) This rule is without prejudice to COLL 7.2.1 R(Requirement) and to any order or direction made under section 257 or 258 of the Act.

Manner of winding up or termination

COLL 7.4.4

handbook-rule
(1) Where COLL 7.4.3 R (2) (f) applies, the trustee must wind up the AUT or terminate the sub-fund in accordance with the approved scheme of arrangement.
(2) In any other case falling within COLL 7.4.3 R:
(a) once the AUT falls to be wound up or sub-fund terminated, the trustee must realise the scheme property;
(b) after paying out or retaining adequate provision for all liabilities payable and for the costs of the winding up or termination, the trustee must distribute the proceeds of that realisation to the unitholders and the manager proportionately to their respective interests in the AUT or sub-fund as at the date, or the date of the relevant event referred to in COLL 7.4.3 R; and
(c) any unclaimed net proceeds or other cash (including unclaimed distribution payments) held by the trustee after one year from the date on which they became payable must be paid by the trustee into court (or, in Scotland, as the court may direct), subject to the trustee having a right to retain any expenses properly incurred by him relating to that payment.
(3) For an AUT which is a relevant pension scheme, payments must not be made to unitholders in the AUT, the realisation proceeds having to be paid by the trustee in accordance with the trust deed.
(4) Where the trustee and one or more unitholders agree, the requirement in (2) to realise the scheme property does not apply to that part of the property proportionate to the entitlement of that or those unitholders.
(5) The trustee may distribute the part of the scheme property referred to in (4) in the form of property, after making adjustments or retaining provisions as appears appropriate to the trustee for ensuring that, that or those unitholders bear a proportional share of the liabilities and costs.
(6) On completion of the winding up in respect of the events referred to in COLL 7.4.3 R (2)(c), COLL 7.4.3 R (2)(d) or COLL 7.4.3 R (2)(e) , the trustee must notify the FSA in writing and at the same time the manager or trustee must request the FSA to revoke the relevant authorisation order.

Accounting and reports during winding up or termination

COLL 7.4.5

handbook-rule
(1) For any annual or half-yearly accounting period which began after commencement of the winding up or termination, the trustee (after consulting the manager (if appropriate) and the FSA) may direct that COLL 4.5.13 R (Provision of short report) may be dispensed with, provided that it has taken reasonable care to determine that the report is not required in the interests of the unitholders.
(2) Where (1) applies, a copy of the short and long report must be supplied free of charge to any unitholder upon request.
(3) The period in question in (2) must be reported on together with the following period in the next report prepared for the purposes of this rule.
(4) At the conclusion of the winding up or termination, the accounting period then running is regarded as the final annual accounting period.
(5) Within two months after the end of the final annual accounting period or the termination of the sub-fund, the annual reports of the manager and trustee must be published and sent to the FSA and to each person who was a unitholder or the first named of joint unitholders immediately before its end.

COLL 7.5

Schemes or sub-funds that are not commercially viable

  • 01/12/2004

Explanation of this section

COLL 7.5.1

handbook-guidance
(1) The FSA expects that the majority of requests it will receive for the winding up of an authorised fund (under regulation 21(1) of the OEIC Regulations or under section 256 of the Act) or termination of a sub-fund will be from authorised fund managers and depositaries who consider that the AUT, ICVC or sub-fund in question is no longer commercially viable.
(2) It is in consumers' interests to minimise, as far as possible, the period between which the FSA receives such requests and responds to them. To assist the FSA in arriving at a quick decision, based on all the relevant factors, it would be helpful for the FSA to receive the information listed at COLL 7.5.2 G. Further information, however, may be requested by the FSA after receipt of the information, depending on the individual circumstances of the case.
  • 01/04/2004

Information to be provided to the FSA

COLL 7.5.2

handbook-guidance
The information referred to in COLL 7.5.1 G is listed below:
(1) the name of the authorised fund or sub-fund;
(2) the size of the authorised fund or sub-fund;
(3) the number of unitholders;
(4) whether dealing in units has been suspended;
(5) why the request is being made;
(6) what consideration has been given to the authorised fund or sub-fund entering into a scheme of arrangement with another regulated collective investment scheme and the reasons why a scheme of arrangement is not feasible;
(7)
(a) whether unitholders have been informed of the intention to seek termination, winding up or revocation; and
(b) if not, when they will be informed;
(8) details of any proposed preferential switching rights offered or to be offered to unitholders;
(9) details of any proposed rebate of charges to be made to unitholders who recently purchased units;
(10) where the costs of winding up or termination will fall;
(11) the depositary's:
(a) statement whether having taken reasonable care it is certain that a scheme of arrangement is not feasible and explaining what steps have been considered that would result in the authorised fund or sub-fund not needing to wind up or terminate (for example, appointing a replacement authorised fund manager); and
(b) confirmation that it will not or does not expect to qualify a report made in accordance with COLL 4.5.11 R (Report of the depositary);
(12) the preferred date for the FSA's determination to revoke authorisation or the date for the commencement of the winding up or termination; and
(13) any additional information or material considered to be relevant to the FSA's decision under sections 251 and 256 of the Act or regulation 21 of the OEIC Regulations (as appropriate).
  • 01/04/2004

COLL 7.6

Schemes of arrangement

  • 01/12/2004

Schemes of arrangement: explanation

COLL 7.6.1

handbook-guidance
(1) A proposal that an authorised fund should be involved in a scheme of arrangement is subject to written notice to and approval by the FSA under section 251 of the Act (Alteration of schemes and changes of manager or trustee) or regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company). Effect cannot be given to such a change except in accordance with that section or regulation.
(2) The issue of units in exchange for assets as part of an approved scheme of arrangement is subject to:
(a) COLL 6.2.5 R and COLL 6.2.6 R (Issue and cancellation of units);
(b) COLL 6.2.15 R (In specie issue and redemption); and
(c) COLL 7.6.2 R(Scheme of arrangement: requirements).

Schemes of arrangement: requirements

COLL 7.6.2

handbook-rule
(1) If a scheme of arrangement is entered into in relation to an authorised fund ("transferor fund") or a sub-fund of a scheme which is an umbrella ("transferor sub-fund"), an authorised fund manager must ensure that the unitholders of the transferor fund or sub-fund do not become unitholders of units in a collective investment scheme other than a regulated collective investment scheme.
(2) For a UCITS scheme or a sub-fund of a UCITS scheme, (1) applies as if the reference to a regulated collective investment scheme also excludes any recognised scheme other than a scheme recognised under section 264 of the Act (Schemes constituted in other EEA States).
(3) Where, for the purpose of a scheme of arrangement, it is proposed that scheme property of an authorised fund should become the property of another regulated collective investment scheme or sub-fund of a regulated collective investment scheme, the proposal must not be implemented without the sanction of an extraordinary resolution of the unitholders in the authorised fund, unless (4) applies.
(4) Where, for the purposes of a scheme of arrangement, it is proposed that scheme property attributable to a sub-fund of an umbrella should become the property of another regulated collective investment scheme or of another sub-fund of a regulated collective investment scheme (whether or not of that umbrella), the proposal must not be implemented without the sanction of:
(a) an extraordinary resolution of the unitholders in the sub-fund of that umbrella; and
(b) (unless implementation of the scheme of arrangement is not likely to result in any material prejudice to the interests of the unitholders in any other sub-fund of that umbrella) an extraordinary resolution of the unitholders of units in that umbrella.
(5) If it is proposed that an authorised fund or sub-fund of an umbrella should receive property (other than its first property) as a result of a scheme of arrangement (or an arrangement equivalent to a scheme of arrangement) which is entered into by some other collective investment scheme or sub-fund, or by a body corporate, the proposal must not be implemented without the sanction of an extraordinary resolution of the unitholders in the authorised fund or (as the case may be) of the class or classes of units related to the sub-fund unless (6) applies.
(6) This paragraph (6) applies if the directors of the ICVC or the manager and trustee of the AUT agree that the receipt of the property concerned for the account of the ICVC or AUT :
(a) is not likely to result in any material prejudice to the interests of the unitholders of the authorised fund;
(b) is consistent with the objectives of the authorised fund or sub-fund; and
(c) could be effected without any breach of a rule in COLL 5(Investment and borrowing powers).
  • 01/04/2004

Export chapter as

COLL 8

Qualified investor schemes

COLL 8.1

Introduction

  • 01/12/2004

COLL 8.1.1

handbook-rule
(1) This chapter applies to:
(a) an authorised fund manager of an AUT or an ICVC;
(b) any other director of an ICVC;
(c) a depositary of an AUT or an ICVC; and
(d) an ICVC,
which is a qualified investor scheme.
(2) Where this chapter refers to rules in any other chapter of this sourcebook, those rules and any relevant guidance should be applied as if they referred to qualified investor schemes.
  • 01/04/2004

Purpose

COLL 8.1.2

handbook-guidance
(1) This chapter assists in achieving the regulatory objective of protecting consumers by providing an appropriate degree of protection in respect of authorised funds that are only intended for investors that are, in general, prepared to accept a higher degree of risk in their investments or have a higher degree of experience and expertise than investors in retail schemes.
(2) This section ceases to apply where a qualified investor scheme has converted to be authorised as a UCITS scheme or a non-UCITS retail scheme.
  • 01/04/2004

Qualified investor schemes: eligible investors

COLL 8.1.3

handbook-rule
(1) The authorised fund manager of a qualified investor scheme must take reasonable care to ensure that ownership of units in that scheme is only recorded in the register for a person that falls into one or more of the categories set out in COLL 8 Annex 1(Qualified Investor Scheme: eligible investors).
(2) The authorised fund manager will be regarded as complying with (1) to the extent that it can show that it was reasonable for it to rely on relevant information provided by another person.

Qualified investor schemes - explanation

COLL 8.1.4

handbook-guidance
(1) Qualified investor schemes are authorised funds which may only be sold to sophisticated investors. Therefore, the authorised fund manager must take reasonable care to ensure that subscription in relation to the units of this type of scheme should only be in relation to the client types set out in COLL 8 Annex 1R.
(2) Accordingly, qualified investor schemes have a more relaxed set of rules governing their operation and in particular their investment powers than for retail schemes. A qualified investor scheme is essentially a mixed asset type of scheme where different types of permitted asset may be included as part of the scheme property, depending on the investment objectives and policy of that scheme and within any restrictions in the rules.

Application and notification procedures

COLL 8.1.5

handbook-guidance
Details of the application procedures in respect of qualified investor schemes are contained in COLL 2.1 (Authorised fund applications). COLLG provides details on how notifications may be made to the FSA .
  • 01/04/2004

COLL 8.2

Constitution

  • 01/12/2004

Application

COLL 8.2.1

handbook-rule
This section applies to an authorised fund manager in respect of a qualified investor scheme.
  • 01/04/2004

Classes of unit

COLL 8.2.2

handbook-rule
A qualified investor scheme may issue such classes of unit as are set out in the instrument constituting the scheme, provided the rights of any class are not unfairly prejudicial as against the interests of the unitholders of any other class of units in that scheme.
  • 01/04/2004

Names of schemes, sub-funds, and classes of units

COLL 8.2.3

handbook-rule
The authorised fund manager must ensure that the name of the scheme, a sub-fund or a class of unit is not undesirable or misleading.

Undesirable and misleading names

COLL 8.2.4

handbook-guidance
COLL 6.9.6 G (Undesirable or misleading names) contains guidance as to names which may be undesirable or misleading.
  • 01/04/2004

Instrument constituting the scheme

COLL 8.2.5

handbook-rule
The statements and provisions required by COLL 8.2.6 R must be included in the instrument constituting the scheme of a qualified investor scheme.
  • 01/04/2004

Table: contents of the instrument constituting the scheme

COLL 8.2.6

handbook-rule
This table belongs to COLL 8.2.5 R

Limited issue

COLL 8.2.7

handbook-rule
Units whose issue may be limited can only be issued if permitted by the instrument constituting the scheme, under the conditions set out in the prospectus and provided that this will not materially prejudice any existing unitholders in the scheme.
  • 01/04/2004

COLL 8.3

Investor relations

  • 01/12/2004

Application

COLL 8.3.1

handbook-rule
  • 01/04/2004

Drawing up and availability of prospectus

COLL 8.3.2

handbook-rule
(1) An authorised fund manager must ensure that a prospectus of a qualified investor scheme is drawn up which contains the information, specified in COLL 8.3.4 R (Table: contents of qualified investor scheme prospectus), and the authorised fund manager must:
(a) revise the prospectus immediately upon the occurrence of any materially significant change in the information required to be stated within it;
(b) include the date of any revision in a prominent manner in the revised prospectus;
(c) send a copy of the original and any revised prospectus to the FSA; and
(d) review the prospectus periodically and revise it to take account of any significant change or new matter.
(2) The prospectus must not contain any provision which is unfairly prejudicial to the interests of unitholders generally or to the unitholders of any class of units.
(3) An ICVC or the manager of an AUT must offer a copy of the scheme's most recent prospectus free of charge to any person eligible to invest in a qualified investor scheme prior to the purchase of any units.

False or misleading prospectus

COLL 8.3.3

handbook-rule
The authorised fund manager must ensure that the prospectus does not contain any untrue or misleading statement or omit any matter required by the rules in this sourcebook to be included in it.
  • 01/04/2004

Table: contents of qualified investor scheme prospectus

COLL 8.3.4

handbook-rule
This table belongs to COLL 8.3.2 R.

Report and accounts

COLL 8.3.5

handbook-rule
(1) The authorised fund manager must prepare a report in respect of each annual accounting period and half-yearly accounting period.
(2) [deleted]
(2A) Where the first annual accounting period of a scheme is less than 12 months, a half-yearly report need not be prepared.
(3) The authorised fund manager must within a reasonable time after the end of each relevant accounting period, publish the annual report and half-yearly report and provide a copy free of charge on request to any unitholder.
(4) [deleted]
(5) The authorised fund manager must provide free of charge on the request of any person eligible to invest in the scheme a copy of the latest annual or half-yearly report before the conclusion of any sale to such person.
(6) The authorised fund manager must provide a copy of each annual and half-yearly report to the FSA .
(7) For a scheme which is an umbrella, any annual report provided under (3) or (5) may be a report prepared under COLL 8.3.5AR (3), but the authorised fund manager must nevertheless provide free of charge the report prepared under COLL 8.3.5AR (2) if a unitholder or any other person eligible to invest in the scheme requests it.

Contents of the annual report

COLL 8.3.5A

handbook-rule
(1) An annual report, other than for a scheme which is an umbrella, must contain:
(a) the accounts for the annual accounting period prepared in accordance with the requirements of the IMA SORP;
(b) the report of the authorised fund manager in accordance with COLL 8.3.5C R (Authorised fund manager's report);
(c) the report of the depositary in accordance with COLL 8.3.5D R (Report of the depositary); and
(d) the report of the auditor in accordance with COLL 4.5.12 R (Report of the auditor).
(2) An annual report on a scheme which is an umbrella must be prepared for the umbrella as a whole and must contain:
(a) for each sub-fund, the accounts required by (1)(a) and the report of the authorised fund manager in accordance with COLL 8.3.5C R;
(b) an aggregation of the accounts required by (a);
(c) the report of the depositary in accordance with COLL 8.3.5D R; and
(d) the report of the auditor in accordance with COLL 4.5.12 R.
(3) The authorised fund manager of a scheme which is an umbrella may, in addition to complying with (2), prepare a further annual report for any one or more individual sub-funds of the umbrella, in which case it must contain:
(a) for the sub-fund, the accounts required by (1)(a) and the report of the authorised fund manager in accordance with COLL 8.3.5C R;
(b) the report of the depositary in accordance with COLL 8.3.5D R; and
(c) the report of the auditor in accordance with COLL 4.5.12 R.
(4) The directors of an ICVC or the manager of an AUT must ensure that the accounts referred to in (1)(a), (2)(a) and (3)(a) give a true and fair view of the net revenueand the net capitalgains orlosses on the scheme property of the authorised fund or sub-fund for the relevant annual accounting period, and of the financial position of the authorised fund or sub-fund as at the end of that period.

Contents of the half-yearly report

COLL 8.3.5B

handbook-rule
(1) A half-yearly report on an authorised fund or sub-fund must contain:
(a) the accounts for the half-yearly accounting period which must be prepared in accordance with the requirements of the IMA SORP; and
(b) the report of the authorised fund manager in accordance with COLL 8.3.5C R.
(2) For a scheme which is an umbrella, the authorised fund manager may choose whether the half-yearly report is prepared for the umbrella as a whole, or for each individual sub-fund, or both.

Authorised fund manager's report

COLL 8.3.5C

handbook-rule
The report of the authorised fund manager must include:
(1) a review of the investment activities during the period to which the report relates;
(2) particulars of any fundamental or significant change to the authorised fund made since the date of the last report; and
(3) any other information which would enable unitholders to make an informed judgement on the development of the activities of the authorised fund during the period and the results of those activities as at the end of the period.
  • 06/04/2006

Report of the depositary

COLL 8.3.5D

handbook-rule
(1) The depositary must make an annual report to unitholders which must be included in the annual report.
(2) The depositary's report must contain:
(a) a description, which may be in summary form, of the duties of the depositary under COLL 8.5.4 R (Duties of the depositary) and in respect of the safekeeping of the scheme property; and
(b) a statement whether in any material respect:
(i) the issue, sale, redemption and cancellation and calculation of the price of the units and the application of the authorised fund'srevenue, have not been carried out in accordance with the rules in this sourcebook and, where applicable, the OEIC Regulations and the instrument constituting the scheme; and
(ii) the investment and borrowing powers and restrictions applicable to the authorised fund have been exceeded.

Signing of annual and half-yearly reports

COLL 8.3.5E

handbook-rule
The annual reports in COLL 8.3.5AR (1) and (2) and the half-yearly reports in COLL 8.3.5BR (1) must:
(1) in the case of an ICVC, if there is:
(a) more than one director, be approved by the board of directors and signed on their behalf by the ACD and at least one other director; or
(b) no director other than the ACD, be signed by the ACD;
(2) in the case of an AUT, if the authorised fund manager has:
(a) more than one director, be signed by at least two directors of the authorised fund manager; or
(b) only one director, be signed by the director of the authorised fund manager.
  • 06/03/2010

Alterations to the scheme and notices to unitholders

COLL 8.3.6

handbook-rule
(1) Any proposed change which would be reasonably considered to be a fundamental change to the scheme requires the prior sanction of an ordinary resolution of the unitholders.
(2) Any proposed change to the scheme which is not within (1) but which would be reasonably considered to be significant, requires the giving of reasonable notice to unitholders to become effective.
(3) Alterations affecting only a particular sub-fund or class of units may be approved in accordance with (1) or (2) for the particular sub-fund or class of units, with the consent of, or, as the case may be, notice to, the relevant unitholders.
(4) This rule and COLL 8.3.8 R (Meetings) will apply (unless the context requires otherwise) to alterations concerning unitholders of a particular sub-fund or class of units rather than the scheme or sub-fund as a whole.
  • 01/04/2004

Alterations to the scheme and notices to unitholders: guidance

COLL 8.3.7

handbook-guidance
Although account should be taken of the guidance on fundamental changes (COLL 4.3.5 G (Guidance on fundamental changes)) and significant changes (COLL 4.3.7 G (Guidance on significant changes)) the impact of any change to the scheme should be assessed individually based on the nature of the scheme and its investor profile.
  • 01/04/2004

Meetings

COLL 8.3.8

handbook-rule
(1) Details of the procedures for the convening and conducting of meetings and resolutions must be set out in the instrument constituting the scheme and be reasonable and fair as between all relevant parties.
(2) The authorised fund manager must record and keep minutes for six years of all proceedings to which COLL 8.3.6 R (Alterations to the scheme and notices to unitholders) and this rule are relevant.
(3) The provisions in COLL 4.4.12 R (Notices to unitholders), COLL 4.4.13 R (Other notices) and COLL 4.4.14 G (References to writing and electronic documents) apply in relation to qualified investor schemes.
  • 01/04/2004

COLL 8.4

Investment and borrowing powers

  • 01/12/2004

Application

COLL 8.4.1

handbook-rule
This section applies to an ICVC which is a qualified investor scheme and an authorised fund manager and a depositary of a qualified investor scheme.
  • 01/04/2004

COLL 8.4.1A

handbook-rule
(1) Where this section refers to a second scheme, and the second scheme is a feeder scheme, which (in respect of investment in units in collective investment schemes) is dedicated to units in a single collective investment scheme, the reference in this section to the second scheme must be read as if it were a reference to any scheme into which the feeder scheme's master scheme invests.
(2) Where this section refers to a second scheme, and the second scheme is a master scheme to which (in respect of investment in units in collective investment schemes) the relevant qualified investor scheme is dedicated, the reference in this section to the second scheme must be read as if it were a reference to any scheme into which that master scheme invests.
  • 06/03/2010

Spread of risk

COLL 8.4.2

handbook-rule
An authorised fund manager must take reasonable steps to ensure that the scheme property of a qualified investor scheme provides a spread of risk, taking into account the investment objectives and policy of the scheme as stated in the most recently published prospectus, and in particular, any investment objective as regards return to the unitholders (whether through capital appreciation or income or both).
  • 01/04/2004

Investment powers: general

COLL 8.4.3

handbook-rule
(1) The scheme property of a qualified investor scheme may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated.
(2) The instrument constituting the scheme and the prospectus may further restrict:
(a) the kinds of assets in which the scheme property may be invested;
(b) the types of transactions permitted and any relevant limits; and
(c) the borrowing powers of the scheme.
  • 01/04/2004

Qualified investor schemes: general

COLL 8.4.4

handbook-rule
The scheme property of a qualified investor scheme must, except where otherwise provided by the rules in this chapter, consist only of one or more of the following to which it is dedicated:
(1) any specified investment:
(a) within articles 74 to 86 of the Regulated Activities Order; and
(b) within article 89 (Rights to or interests in investments) of the Regulated Activities Order where the right or interest relates to a specified investment within (a);
(2) an interest in an immovable under COLL 8.4.11 R (Investment in property);
(3) precious metals; or
(4) a commodity contract traded on an RIE or a recognised overseas investment exchange.

Investment in collective investment schemes

COLL 8.4.5

handbook-rule
(1) A qualified investor scheme may invest in units in a scheme (a 'second scheme') only if the second scheme is:
(a) a regulated collective investment scheme; or
(b) a scheme not within (a) where the authorised fund manager has taken reasonable care to determine that:
(i) it is the subject of an independent annual audit conducted in accordance with international standards on auditing;
(ii) the calculation of the net asset value of each of the second schemes and the maintenance of their accounting records is segregated from the investment management function;
(iii) (unless it is a master scheme to whose units the relevant qualified investor scheme is dedicated) it is prohibited from investing more than 15% of its value in units of schemes or, if there is no such prohibition, the qualified investor scheme's authorised fund manager is satisfied, on reasonable grounds and after making all reasonable enquiries, that no such investment will be made; and
(iv) it operates in accordance with the principle of risk spreading as described in COLL 8.4.2 R.
(2) A qualified investor scheme must not invest more than 20% in value of the scheme property in units in second schemes which are unregulated schemes or qualified investor schemes unless the authorised fund manager has carried out appropriate due diligence on each of the second schemes and has taken reasonable care to determine that, after making all reasonable enquiries and on reasonable grounds, the second scheme complies with relevant legal and regulatory requirements.
(3) The authorised fund manager of a qualified investor scheme with more than 20% in value of the scheme property invested in one or more second schemes which are unregulated schemes or qualified investor schemes must carry out appropriate due diligence on those schemes on an ongoing basis.

Investment in a collective investment scheme that is an umbrella

COLL 8.4.5A

handbook-rule
Where the second scheme in COLL 8.4.5 R is an umbrella, the provisions apply to each sub-fund as if it were a separate scheme.
  • 06/04/2006

COLL 8.4.5B

handbook-guidance
(1) The guidance at COLL 5.7.11 G applies to an authorised fund manager of a qualified investor scheme carrying out due diligence for the purpose of COLL 8.4.5 R, as if that guidance related to COLL 8.4.5 R.
(2) Where COLL 5.7.11G (10) refers to COLL 6.3 (Valuation and pricing), that reference should be read as if it were a reference to COLL 8.5.9 R (Valuation, pricing and dealing).
(3) In addition to the guidance at COLL 5.7.11 G the authorised fund manager should, as part of its due diligence process, consider whether the property of each of the second schemes is held in safekeeping by a third party, which is subject to prudential regulation and independent of the investment manager of the second scheme and, if not, what controls over the property of the second scheme are in place to protect investors.
  • 06/03/2010

Delivery of property under a transaction in derivatives or a commodities contract

COLL 8.4.6

handbook-rule
(1) An authorised fund manager must take reasonable care to determine the following when entering into any transaction in derivatives or any commodity contract which may result in any asset becoming part of the scheme property:
(a) if it is an asset in which the scheme property could be invested, that the transaction:
(i) can be readily closed out; or
(ii) would at the expected time of delivery relate to an asset which could be included in the scheme property under the rules in this chapter; or
(b) in any other case that the transaction can be readily closed out.
(2) An authorised fund manager may acquire an asset within (1) if its determination has proved incorrect and if it determines that acquisition is in the interests of the unitholders, provided it has the consent of the depositary.
(3) Any asset within (1) acquired in accordance with (2) may form part of the scheme property despite any other rule in this chapter until the position can be rectified.
  • 01/04/2004

Cover for transactions in derivatives and forward transactions

COLL 8.4.7

handbook-rule
(1) A transaction in derivatives or a forward transaction may be entered into only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person, is covered globally under (2).
(2) Exposure is globally covered if adequate cover from within the scheme property is available to meet the scheme's total exposure taking into account any reasonably foreseeable market movement.
(3) The total exposure relating to derivatives held in a qualified investor scheme may not exceed the net value of the scheme property.
(4) No element of cover may be used more than once.
  • 01/04/2004

Valuation of an OTC derivative

COLL 8.4.7A

handbook-rule
A transaction in an OTC derivative must be capable of valuation which it will only be if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:
(1) on the basis of the pricing model; or
(2) on some other reliable basis reflecting an up-to-date market value;
which has been agreed between the authorised fund manager and the depositary.
  • 06/04/2006

Continuing nature of limits and requirements

COLL 8.4.8

handbook-rule
(1) An authorised fund manager must, as frequently as necessary to ensure compliance with COLL 8.4.7 R (2) and COLL 8.4.7 R (4), re-calculate the amount of cover required in respect of derivatives and forwards positions in existence under this chapter.
(2) Derivatives and forwards positions may be retained in the scheme property only so long as they remain covered globally under COLL 8.4.7 R.
(3) An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk of a scheme's derivatives positions and their contribution to the overall risk profile of the scheme.
  • 01/04/2004

Permitted stock lending

COLL 8.4.9

handbook-rule
(1) The ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager, may enter into a repo contract or a stock lending arrangement within section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C).
(2) The depositary must ensure that the value of any collateral, for the stock lending arrangement is at all times at least equal to the value of the securities transferred by the depositary.
(3) In the case of the expiry of validity of any collateral, the duty in (2) is satisfied if the depositary or the authorised fund manager, as appropriate, takes reasonable care to determine that sufficient collateral will be transferred by close of business on the day of expiry.

General power to borrow

COLL 8.4.10

handbook-rule
(1) The ICVC or trustee (on the instructions of the manager) may borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property.
(2) The authorised fund manager must ensure that the authorised fund's borrowing does not, on any day, exceed 100 % of the net value of the scheme property and must take reasonable care to ensure that arrangements are in place that will enable borrowings to be closed out to ensure such compliance.
(3) In this rule "borrowing" also includes any arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid.
(4) Where the limit in (2) is breached, the authorised fund manager must take action in accordance with the principles set out in COLL 8.5.3 R (3) to COLL 8.5.3 R (5) (Duties of the authorised fund manager: investment and borrowing powers) to deal with that breach.
  • 01/04/2004

Investment in property

COLL 8.4.11

handbook-rule
(1) Any investment in land or a building held within the scheme property of a qualified investor scheme must be in an immovable within (2).
(2) For an immovable :
(a) it must be situated in a country or territory identified in the prospectus;
(b) the authorised fund manager must have taken reasonable care to determine that the title to the interest in the immovable is a good marketable title; and
(c) the manager or the ICVC must have received a report from the appropriate valuer that:
(i) contains a valuation of the interest in the immovable (with and without any relevant existing mortgage); and
(ii) states that in the appropriate valuer's opinion the interest in the immovable would if acquired by the scheme, be capable of being disposed of reasonably expeditiously at that valuation;
(d) unless (c) is satisfied, the manager or the ICVC must have received a report from an appropriate valuer valuing the interest in the immovable and stating that:
(i) the immovable is adjacent to or in the vicinity of another immovable included in the scheme property; and
(ii) in the opinion of the appropriate valuer, the total value of the interests in both immovables would at least equal the sum of the price payable for the interest in the immovable and the existing value of the interest in the other immovable; and
(e) it must not be bought:
(i) if it becomes apparent to the authorised fund manager that the report in either (c) or (d) could no longer reasonably be relied upon; or
(ii) at a price more than 105% of the valuation relevant to the interest for that immovable in the report in either (c) or (d).
(3) Any contents of any building may be regarded as part of the relevant immovable.
(4) An appropriate valuer must be a person who:
(a) has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;
(b) is qualified to be a standing independent valuer of an authorised fund or is considered by the scheme's standing independent valuer to hold an equivalent qualification;
(c) is independent of the ICVC, the depositary and each of the directors of the ICVC or of the manager and trustee of the AUT; and
(d) has not engaged himself or any of his associates in relation to the finding of the immovable for the scheme or the finding of the scheme for the immovable.
  • 01/04/2004

Investment in overseas property through an intermediate holding vehicle

COLL 8.4.11A

handbook-rule
(1) An overseas immovable may be held by a scheme through an intermediate holding vehicle whose purpose is to enable the holding of immovables by the scheme or a series of such intermediate holding vehicles, provided that the interests of unitholders are adequately protected. Any investment in an intermediate holding vehicle for the purpose of holding an overseas immovable shall be treated for the purposes of this section as if it were a direct investment in that immovable.
(2) An intermediate holding vehicle must be wholly owned by the scheme or another intermediate holding vehicle or series of intermediate holding vehicles wholly owned by the scheme, unless and to the extent that local legislation or regulation relating to the intermediate holding vehicle holding the immovable requires a proportion of local ownership.

COLL 8.4.11B

handbook-guidance
(1) The authorised fund manager may transfer capital and income between an intermediate holding vehicle and the scheme by the use of inter-company debt if the purpose of this is for investment in immovables and repatriation of income generated by such investment. In using inter-company debt, the authorised fund manager should ensure the following:
(a) a record of inter-company debt is kept in order to provide an accurate audit trail; and
(b) interest paid out on the debt instruments is equivalent to the net rental income earned from the immovables after deduction of the intermediate holding vehicle's reasonable running costs (including tax).
(2) An intermediate holding vehicle should undertake the purchase, sale and management of immovables on behalf the scheme in accordance with the scheme's investment objectives and policy.
(3) Wherever reasonably practicable, an intermediate holding vehicle should have the same auditor and accounting reference date as the scheme.
(4) The accounts of any intermediate holding vehicle should be consolidated into the annual and interim reports of the scheme.
(5) The authorised fund manager should provide sufficient information to enable the depositary to fulfil its duties under COLL in relation to the immovables held through an intermediate holding vehicle.
  • 14/12/2007

Investment limits for immovables

COLL 8.4.12

handbook-rule
The following limits apply in respect of immovables held as part of the scheme property:
(1) the amount secured by mortgages over any immovable must not exceed 100% of the latest valuation by an appropriate valuer under COLL 8.4.11 R (2)(c) or COLL 8.4.11 R (2)(d) or COLL 8.4.13 R, as appropriate;
(2) no option may be granted to a person to buy or obtain an interest in any immovable comprised in the scheme property if this might unduly prejudice the ability to provide redemption; and
(3) the total of all premiums paid for options to purchase immovables must not exceed 10% of the scheme value in any 12 month period, calculated at the date of the granting of the option.
  • 01/04/2004

Standing independent valuer and valuation

COLL 8.4.13

handbook-rule
(1) In relation to the appointment of a valuer the authorised fund manager must:
(a) at the outset appoint the standing independent valuer with the approval of the depositary and likewise upon any vacancy; and
(b) ensure that any immovables in the scheme property are valued by an appropriate valuer (standing independent valuer) appointed by the authorised fund manager.
(2) The following apply in relation to the functions of the standing independent valuer:
(a) the authorised fund manager must ensure that the standing independent valuer appointed under (1), procures the valuation of all the immovables held within the scheme property, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection) at least once a year;
(b) for the purposes of (a), any inspection in relation to adjacent properties of a similar nature and value may be limited to that of only one such representative property;
(c) the authorised fund manager must ensure that the standing independent valuer values the immovables, on the basis of a review of the last full valuation, at least once a month;
(d) if either the authorised fund manager or the depositary becomes aware of any matter which appears likely to:
(i) affect the outcome of a valuation of an immovable; or
(ii) cause the valuer to decide to value under (a), instead of under (c),
it must immediately inform the standing independent valuer of that matter;
(e) the authorised fund manager must use its best endeavours to ensure that any other affected person reports to the standing independent valuer immediately upon that person becoming aware of any matter within (d); and
(f) any valuation by the standing independent valuer must be undertaken in accordance with UKPS 2.3 of the RICS Valuation Standards (The Red Book) (6th edition published January 2008), or in the case of overseas immovables on an appropriate basis,but is subject to any provisions of the instrument constituting the scheme.
(3) In relation to immovables:
(a) any valuation under this rule has effect, until the next valuation under this rule, for the purposes of the value of immovables; and
(b) an agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the scheme property unless it reasonably appears to the authorised fund manager to be legally enforceable.

COLL 8.4.14

handbook-guidance
In considering whether a valuation of overseas immovables by the standing independent valuer is made on an appropriate basis for the purpose of COLL 8.4.13R (2)(f), the authorised fund manager should consider whether that valuation was made in accordance with internationally accepted valuation principles, procedures and definitions as set out in the International Valuation Standards published by the International Valuation Standards Committee.
  • 06/10/2008

COLL 8.5

Powers and responsibilities

  • 01/12/2004

Application

COLL 8.5.1

handbook-rule
This section applies to an ICVC which is a qualified investor scheme and the authorised fund manager any other directors of an ICVC and the depositary of a qualified investor scheme.
  • 01/04/2004

Functions of the authorised fund manager

COLL 8.5.2

handbook-rule
  1. (1) The authorised fund manager must manage the scheme in accordance with:
    1. (a) the instrument constituting the scheme;
    2. (b) the rules in this sourcebook;
    3. (c) the most recently published prospectus; and
    4. (d) for an ICVC, the OEIC Regulations.
  2. (2) The authorised fund manager must carry out such functions as are necessary to ensure compliance with the rules in this sourcebook that impose obligations on the authorised fund manager or ICVC, as appropriate.
  3. (3) The authorised fund manager must:
    1. (a) make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy of the scheme;
    2. (b) instruct the depositary how rights attaching to the ownership of scheme property are to be exercised;
    3. (c) take action immediately to rectify any breach of the pricing methodology set out in the prospectus, which must (unless the authorised fund manager determines on reasonable grounds that the breach is of minimal significance) extend to payment of money:
      1. (i) by the authorised fund manager to unitholders and former unitholders;
      2. (ii) by the ACD to the ICVC;
      3. (iii) by the ICVC to the ACD;
      4. (iv) by the manager to the trustee; or
      5. (v) by the trustee (for the account of the AUT) to the manager;
    4. (d) ensure where relevant that the ICVC complies with the relevant obligations imposed by, and when appropriate, exercises the relevant powers provided under, the OEIC Regulations;
    5. (e) maintain such records as are necessary to enable the authorised fund manager or the ICVC, as appropriate, to comply with and demonstrate compliance with the rules in this sourcebook and also in the case of an ICVC, the OEIC Regulations; and
    6. (f) maintain for a period of six years a daily record of the units held, acquired or disposed of by the authorised fund manager including the classes of such units, and of the balance of any acquisitions and disposals.
  • 01/04/2004

Duties of the authorised fund manager: investment and borrowing powers

COLL 8.5.3

handbook-rule
(1) An authorised fund manager may give instructions to deal in the scheme property.
(2) An authorised fund manager must avoid the scheme property being used or invested contrary to any provision in COLL 8.4 (Investment and borrowing powers).
(3) An authorised fund manager must immediately on becoming aware of any breach of COLL 8.4 take action, at its own expense, to rectify that breach.
(4) An authorised fund manager must take the action in (3) immediately, except in circumstances where doing so would not be in the best interests of unitholders, in which case the action must be taken as soon as such circumstances cease to apply.
(5) An authorised fund manager must not postpone taking action in accordance with (3) unless the depositary has given its consent.
  • 01/04/2004

Duties of the depositary

COLL 8.5.4

handbook-rule
(1) The depositary is responsible for the safekeeping of all the scheme property.
(2) The depositary must:
(a) take all steps to ensure that transactions properly entered into for the account of the scheme are completed;
(b) take all steps to ensure that instructions properly given by the authorised fund manager in respect of the exercise of rights related to scheme property are carried out;
(c) ensure that any scheme property in registered form is as soon as reasonably practicable registered in its name or that of its nominee or delegate, as appropriate;
(d) take into its custody or control all documents of title of the scheme property other than in respect of derivatives or forward transactions;
(e) ensure that any resulting benefit of a derivatives or forward transaction is received by itself in respect of the scheme;
(f) hold and deal with any income received in respect of the scheme property in accordance with COLL 8.5.15 R (Income);
(g) take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:
(i) COLL 8.4 (Investment and borrowing powers);
(ii) COLL 8.5.9 R (Valuation, pricing and dealing); and
(iii) COLL 8.5.15 R (Income);
(h) keep records so as to comply with the rules in this sourcebook and so as to demonstrate such compliance; and
(i) be responsible for any other duties as set out in the instrument constituting the scheme.
(3) If a relevant ICVC ceases to have any directors, the depositary may act in accordance with COLL 6.5.6 R(ICVC without a director).
  • 01/04/2004

Delegation

COLL 8.5.5

handbook-rule
(1) The authorised fund manager (or in addition any other director in the case of an ICVC) may delegate any function to any person.
(2) The depositary has the power to delegate any function to anyone, including in the case of an ICVC a director, to assist the depositary to perform its functions, save that it must not retain the services of the authorised fund manager or, in the case of an ICVC, any other director to perform any part of its functions of safe custody of the scheme property.
(3) Subject to any provisions of the OEIC Regulations, the delegator in (1) and (2) will not be responsible under the rules in COLL for any act or omission of the delegate provided that the delegator can show:
(a) that it was reasonable for the delegator to obtain assistance to perform the function in question;
(b) that the delegate was and remained competent to provide that assistance; and
(c) that the delegator took reasonable care to ensure that the assistance was provided in a competent manner.
  • 01/04/2004

Delegation and responsibility for regulatory obligations

COLL 8.5.6

handbook-guidance
Directors of an ICVC, authorised fund managers and depositaries should also have regard to SYSC 8 (Outsourcing). SYSC 8.1.6 R states that a firm remains fully responsible for discharging all of its obligations under the regulatory system if it outsources crucial or important operational functions or any relevant services and activities.

Conflicts of interest

COLL 8.5.7

handbook-rule
(1) The authorised fund manager and the depositary must ensure that any transaction in respect of the scheme property undertaken with an affected person is on terms at least as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm's length with an independent third party.
(2) Paragraph (1) is subject to any provision in the instrument constituting the scheme and the prospectus imposing a prohibition in relation to any type of transaction.
  • 01/04/2004

The register of unitholders: AUTs

COLL 8.5.8

handbook-rule
(1) The manager or the trustee (in accordance with their responsibilities as set out in the instrument constituting the scheme ) must maintain a register of unitholders as a document in accordance with this rule.
(2) The register must contain:
(a) the name and address of each unitholder (for joint unitholders no more than four need to be registered);
(b) the number of units (including fractions of a unit) of each class held by each unitholder; and
(c) the date on which the unitholder was registered in the register for the units standing in his name.
(3) The manager or the trustee (as appropriate) must take all reasonable steps and exercise all due diligence to ensure the register is kept complete and up to date.
(4) Where relevant, the manager must immediately notify the trustee of any information he receives which may affect the accuracy of any entry in the register.
  • 01/04/2004

Valuation, pricing and dealing

COLL 8.5.9

handbook-rule
(1) The value of the scheme property is the net value of the scheme property after deducting any outstanding borrowings (including any capital outstanding on a mortgage of an immovable).
(2) Any part of the scheme property which is not an investment (save an immovable) must be valued at fair value.
(3) For the purposes of (2), any charges that were paid, or would be payable, on acquiring or disposing of the asset must be excluded from the value of that asset.
(4) The value of the scheme property of an authorised fund must, save as otherwise provided in this section, be determined in accordance with the provisions of the instrument constituting the scheme and the prospectus, as appropriate.
(5) The scheme must have a valuation point on each dealing day.
(6) The authorised fund manager must prepare a valuation in accordance with (4) for each relevant type of unit at each relevant valuation point.
(7) The price of a unit must be calculated on the basis of the valuation in (6) in a manner that is fair and reasonable as between unitholders.
(8) [deleted]
(9) The authorised fund manager must publish in an appropriate manner the price of any type of unit based on the valuation carried out in accordance with (6).
(10) The authorised fund manager must also provide on request to any unitholder at any time an estimated price for any type of unit in the scheme.
(11) The period of any initial offer and how it should end must be set out in the prospectus and must not be of unreasonable length.

Issues and cancellations of units

COLL 8.5.10

handbook-rule
(1) The authorised fund manager must:
(a) ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to unitholders of that class; and
(b) not do, or omit anything that would, or might confer on itself a benefit or advantage at the expense of a unitholder or potential unitholder.
(2) For the purposes of (1) the authorised fund manager may take into account sales and redemptions after the valuation point, provided it has systems and controls to ensure compliance with (1).
(3) The authorised fund manager must arrange for the issue and cancellation of units and pay money or assets to or from the depositary for the account of the scheme as required by the prospectus.
(4) The authorised fund manager must keep a record of issues and cancellations made under this rule.
(5) The authorised fund manager may arrange for the ICVC, or instruct the trustee to issue or cancel units where the authorised fund manager would otherwise be obliged to sell or redeem the units in the manner set out in the prospectus.
(6) Where the authorised fund manager has not complied with (1), it must correct the error as soon as possible and must reimburse the scheme any costs it may have incurred in correcting the position, subject to any reasonable minimum level for such reimbursement as set out in the prospectus.
  • 01/04/2004

Issue and cancellation of units in multiple classes

COLL 8.5.10A

handbook-rule
If a qualified investor scheme has two or more classes of unit in issue, the authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:
(1) the depositary gives its prior agreement; and
(2) the relevant classes:
(a) have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or
(b) differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property.
  • 06/03/2007

Sale and redemption

COLL 8.5.11

handbook-rule
(1) The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units to any eligible investor (within any conditions in the instrument constituting the scheme and the prospectus which must be fair and reasonable as between all unitholders and potential unitholders) for whom the authorised fund manager does not have reasonable grounds to refuse such sale.
(2) The authorised fund manager must, at all times during the dealing day, effect a redemption on the request of any eligible unitholder (within any conditions in the instrument constituting the scheme and the prospectus) of units owned by that unitholder, unless the authorised fund manager has reasonable grounds to refuse such redemption.
(3) On agreeing to a redemption of units within (2), the authorised fund manager must pay the full proceeds of the redemption to the unitholder within any reasonable period specified in the instrument constituting the scheme or the prospectus, unless it has reasonable grounds for withholding payment.
(4) Payment of proceeds on redemption must be made by the authorised fund manager in any manner provided for in the prospectus which must be fair and reasonable as between redeeming unitholders and continuing unitholders.
  • 01/04/2004

Limited redemption periods

COLL 8.5.12

handbook-guidance
The maximum period between dealing days for a qualified investor scheme will depend on the reasonable expectations of the target investor group and the particular investment objectives and policy of the scheme. For instance, for a scheme aiming to invest in large property developments, the expectation would be that it is reasonable to have a much longer period between dealing days for liquidity reasons than for a scheme investing predominantly in listed securities.
  • 01/04/2004

Property Authorised Investment Funds

COLL 8.5.12A

handbook-rule
(1) The authorised fund manager of a property authorised investment fund must take reasonable steps to ensure that no body corporate holds more than 10% of the net asset value of that fund (the "maximum allowable").
(2) Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, he must:
(a) notify the body corporate of that event;
(b) not pay any income distribution to the body corporate; and
(c) redeem or cancel the body corporate's holding down to the maximum allowable within a reasonable time-frame.
(3) For the purpose of (2)(c), a reasonable time-frame means the time-frame which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.
  • 06/06/2008

COLL 8.5.12B

handbook-guidance
Reasonable steps to monitor the maximum allowable include:
(1) regularly reviewing the register; and
(2) taking reasonable steps to ensure that unitholders are kept informed of the requirement that no body corporate may hold more than 10% of the net asset value of a property authorised investment fund.
  • 06/06/2008

Payments

COLL 8.5.13

handbook-rule
(1) An ICVC must not incur any expense in respect of the use of any movable or immovable property unless the scheme is dedicated to such investment or such property is necessary for the direct pursuit of its business.
(2) Payments out of the scheme property may be made from capital property rather than from income, provided the basis for this is set out in the prospectus.
  • 01/04/2004

Exemption from liability to account for profits

COLL 8.5.14

handbook-guidance
An affected person is not liable to account to another affected person or to the unitholders of the scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:
(1) dealings in the units of a scheme; or
(2) any transaction in scheme property; or
(3) the supply of services to the scheme;
where disclosure of the non-accountability has been made in the prospectus of the scheme.
  • 01/04/2004

Income

COLL 8.5.15

handbook-rule
(1) A qualified investor scheme must have:
(a) an annual accounting period;
(b) a half-yearly accounting period; and
(c) an accounting reference date;
the details of which must be set out in the prospectus.
(1A) COLL 6.8.2 R (2) to COLL 6.8.2 R (7) (Accounting periods) also apply to the half-yearly accounting period and annual accounting period of a qualified investor scheme.
(2) A qualified investor scheme must have an annual income allocation date, which must be within four months of the accounting reference date.
(3) A qualified investor scheme may have an interim income allocation date and interim accounting periods and if it does, the interim income allocation date must be within a reasonable period of the end of the relevant interim accounting period as set out in the prospectus.
(3A) COLL 6.8.3 R (3) (Income allocation and distribution) to COLL 6.8.3A G (Allocation of income to difference classes of unit) also apply to a qualified investor scheme.
(4) [deleted]
(5) [deleted]
(a) [deleted]
(b) [deleted]
(c) [deleted]

COLL 8.6

Termination, suspension, and schemes of arrangement

  • 01/12/2004

Application

COLL 8.6.1

handbook-rule
This section applies to:
(1) an authorised fund manager, the directors, and the depositary of a qualified investor scheme; and
(2) an ICVC which is a qualified investor scheme.
  • 01/04/2004

Termination

COLL 8.6.2

handbook-rule
For a qualified investor scheme the provisions in COLL 7.3 to COLL 7.5 will apply as appropriate as if COLL 7 applied to qualified investor schemes.
  • 01/04/2004

Suspension

COLL 8.6.3

handbook-rule
(1) The authorised fund manager may, with the prior agreement of the depositary, and must without delay, if the depositary so requires, within any parameters which are fair and reasonable in respect of all the unitholders in the scheme and which are set out in the prospectus, temporarilysuspend dealings in units of the scheme, a sub-fund or a class.
(2) Any suspension within (1) must only be where the authorised fund manager has determined on reasonable grounds that there is good and sufficient reason in the interests of unitholders or potential unitholders and the authorised fund manager must have regard to the interests of all the unitholders in the scheme in reaching such an opinion.
(3) At the commencement of suspension under (1), the authorised fund manager must immediately inform the FSA of the suspension and the reasons for it.
(3A) The authorised fund manager must ensure that a notification of the suspension is made to unitholders of the authorised fund as soon as practicable after suspension commences.
(3B) The authorised fund manager and the depositary must ensure that the suspension only continues for as long as it is justified having regard to the interests of the unitholders.
(4) The suspension of dealings in units must cease, as soon as (2) no longer applies.
(4A) The authorised fund manager and the depositary must formally review the suspension at least every 28 days and inform the FSA of the results of this review and any change to the information provided in (3).
(5) The authorised fund manager must inform the FSA immediately of the resumption of dealings.

Schemes of arrangement

COLL 8.6.5

handbook-rule
In relation to an ICVC or an AUT which is a qualified investor scheme, the provisions in COLL 7.6 (Schemes of arrangement) will apply as appropriate to the authorised fund manager, any other directors of the ICVC and the depositary as if COLL 7.6 applied to a qualified investor scheme and did not exclude unitholders becoming unitholders in another qualified investor scheme.
  • 01/04/2004

COLL 8 Annex 1

Qualified Investor Schemes: eligible investors

handbook-rule
This Annex belongs to COLL 8.1.3R
For the purposes of the on qualified investor schemes: eligible investors (COLL 8.1.3R) a must only record ownership of in the register of a in accordance with the following table:rulefirmunitsqualified investor scheme

Export chapter as

COLL 9

Recognised schemes

COLL 9.1

Application and general information

  • 01/12/2004

Application

COLL 9.1.1

handbook-rule
This chapter applies to operators of recognised schemes and to operators of schemes making a notification in respect of them under Chapter V of Part XVII of the Act (Recognised overseas schemes).
  • 01/04/2004

Purpose

COLL 9.1.2

handbook-guidance
This chapter enables potential operators of recognised schemes to know what information and documents the FSA wish to receive to enable it to consider whether to recognise the scheme under the Act for marketing in the United Kingdom.
  • 01/04/2004

General information

COLL 9.1.3

handbook-guidance
Further information about notifications for recognition is contained in COLLG.
  • 01/04/2004

COLL 9.2

Section 264 recognised schemes

  • 01/12/2004

Information and documents to be supplied with a section 264 notification

COLL 9.2.1

handbook-guidance
(1) If the operator of a collective investment scheme constituted in a EEA State gives notice to the FSA under section 264 of the Act, it should include the information described in paragraphs (2) to (4) below (see the Financial Services and Markets Act 2000 (Collective Investment Schemes Constituted in Other EEA States) Regulations 2001 (SI 2001/2383), as amended).
(2) The documents must be in English, or accompanied by a translation in English.
(3) The documents should be certified by the operator to be true copies of the original.
(4) The FSA will need the following information and documentation in connection with the notification:
(a) the name of the scheme;
(b) the legal form of the scheme;
(c) the name and address of the operator;
(d) the address of the place in the United Kingdom for the service on the operator of notices or other documents;
(e) the name and address of any supervisory authority or authorities to which the operator is subject in the EEA State in which it is established;
(f) whether the operator intends to market the scheme in the United Kingdom in a manner which will involve it carrying on a regulated activity in the United Kingdom;
(g) the name and address of the depositary;
(h) the address in the United Kingdom where the scheme facilities (see COLL 9.4) will be maintained;
(i) details of the arrangements for the marketing of units in the United Kingdom, namely:
(i) the proposed commencement date;
(ii) whether the units will be sold by or through any employed sales force, authorised persons, or unsolicited calls;
(j) the attestation or certificate from the authorities of the EEA State in which the scheme is authorised which demonstrates that the scheme complies with the UCITS Directive;
(k) a copy of the instrument constituting the scheme;
(l) a copy of the prospectus and the simplified prospectus of the scheme; and
(m) a copy of the latest annual report and any subsequent half-yearly report.

COLL 9.3

Section 270 and 272 recognised schemes

  • 01/12/2004

Information and documents to be supplied for a section 270 notification or section 272 application Information and documents to be supplied for a section 272 application

COLL 9.3.1

handbook-directions
(1) If the operator of a scheme gives notice to the FSA under section 270 of the Act (Schemes authorised in designated countries or territories) or makes an application under section 272 of the Act (Individually recognised overseas schemes), the notice or application must include the information in paragraph (4).
(2) The documents must be in English or accompanied by a translation in English.
(3) The documents must be certified by the operator to be true copies of the originals.
(4) The operator of the scheme must provide the following information and documents with the notification or application:
(a) the name of the scheme;
(b) the legal form of the scheme;
(c) the name and address of the operator;
(d) the address of the place in the United Kingdom for service on the operator of notices or other documents;
(e) whether the operator intends to market the scheme in the United Kingdom in a manner which will involve it carrying on a regulated activity in the United Kingdom;
(f) the name and address of any person to whom the property subject to the scheme is entrusted for safekeeping;
(g) the address of the place in the United Kingdom where scheme facilities (see COLL 9.4) will be maintained;
(h) details of the arrangements for the marketing of units in the United Kingdom, namely:
(i) the proposed commencement date;
(ii) whether the units will be sold by or through any employed sales force, authorised persons, or unsolicited calls;
(i) a copy of the instrument constituting the scheme;
(j) a copy of the prospectus or any similar document giving details of the scheme;
(k) a copy of the latest annual report and any subsequent half-yearly report;
(l) a copy of any other document affecting the rights of participants in the scheme; and
(m) for notifications under section 270 only, a copy of the authorisation document issued by the authority in the designated territory confirming that the scheme is of a class covered by the designation order.
  • 01/04/2004

Additional information required in the prospectus for an application under section 272

COLL 9.3.2

handbook-rule
An operator of a scheme recognised under section 272 of the Act must ensure the prospectus:
(1) contains a statement that "Complaints about the operation of the scheme may be made to the FSA ."; and
(2) states whether or not investors in the scheme would be covered by the compensation scheme, and if so, it must state how they are covered and who they would need to contact for further information.
  • 01/04/2004

Preparation and maintenance of prospectus

COLL 9.3.3

handbook-rule
(1) An operator of a scheme which is a recognised scheme by virtue of section 270 or 272 of the Act must comply, subject to paragraph (2) below, with the requirements set out in COLL 4.2 (Pre-sale notifications).
(2) Where a scheme recognised under section 270 of the Act is managed and authorised in Guernsey, Jersey, or the Isle of Man, the prospectus need not comply with the requirements of COLL 4.2.5 R (Table: contents of prospectus), providing it contains corresponding matter required under the law in its home territory.
  • 01/04/2004

COLL 9.4

Facilities in the United Kingdom

  • 01/12/2004

General

COLL 9.4.1

handbook-rule
(1) The operator of a recognised scheme under section 264, section 270 or section 272 of the Act must maintain facilities in the United Kingdom in order to satisfy the requirements of COLL 9.4.2 R to COLL 9.4.6 R.
(2) In this section, a facility is a place of business that complies with COLL 9.4.6 R (Place of facilities).
  • 01/04/2004

Documents

COLL 9.4.2

handbook-rule
(1) The operator of a recognised scheme must maintain facilities in the United Kingdom for any person, for inspection (free of charge) and for the obtaining (free of charge, in the case of the documents at (c) and (d), and otherwise at no more than a reasonable charge) of copies in English of:
(a) the instrument constituting the scheme;
(b) any instrument amending the instrument constituting the scheme;
(c) the latest prospectus (which must include the address where the facilities are maintained and details of those facilities);
(d) for a section 264 recognised scheme, the simplified prospectus; and
(e) the latest annual and half-yearly reports.
(2) In relation to notices and documents sent by operators and depositaries to and from the United Kingdom, COLL 4.4.12 R (Notice to unitholders) and COLL 4.4.13 R (Other notices) apply.

Price and redemption

COLL 9.4.3

handbook-rule
(1) The operator must maintain facilities in the United Kingdom for any person where:
(a) information in English can be obtained about prices of units in the scheme; and
(b) a participant may redeem or arrange for redemption of units in the scheme and obtain payment.
(2) An operator is treated as complying with paragraph (1) if it ensures participants may sell their units on an investment exchange at a price not significantly different from net asset value; and if so, must inform participants of the investment exchange.
  • 01/04/2004

Bearer certificates and characteristics of units in the scheme

COLL 9.4.4

handbook-rule
(1) The operator must maintain facilities in the United Kingdom at which the unitholder of a bearer certificate may obtain free of charge:
(a) payment of dividends; and
(b) details or copies of any notices which have been given or sent to participants in the scheme.
(2) The operator must state:
(a) the nature of the right represented by the units in the scheme; and
(b) whether persons other than unitholders can vote at meetings of unitholders and, if so, who those persons are.
  • 01/04/2004

Complaints

COLL 9.4.5

handbook-rule
The operator must maintain facilities in the United Kingdom, at which any person who has a complaint to make about the operation of the scheme can submit his complaint for transmission to the operator.
  • 01/04/2004

Place of facilities

COLL 9.4.6

handbook-rule
(1) The address of the facilities maintained by the operator in accordance with this section and the details of the facilities so maintained must be stated in the prospectus of the scheme.
(2) The address of the facilities referred to in (1) must be the address of the operator's principal place of business in the United Kingdom, or, if there is no such address, the alternative address in paragraph (3).
(3) The alternative address is such convenient address as the operator determines, except that, in the case of a scheme recognised under section 272 of the Act where the operator is not an authorised person, the alternative address is to be the principal place of business in the United Kingdom of the authorised person who is the representative of the operator.
  • 01/04/2004

Export chapter as

COLL 10

Fees

COLL 10.1

The provisions in relation to fees for collective investments schemes are set out in FEES 1,2, 3 and 4

COLL 10.2

The provisions in relation to fees for collective investments schemes are set out in FEES 1,2, 3 and 4

COLL 10.3

The provisions in relation to fees for collective investments schemes are set out in FEES 1,2, 3 and 4

Export chapter as

Transitional Provisions and Schedules

COLL TP 1

Transitional Provisions

COLL TP 1.1

COLL Sch 1

Record keeping requirements

  • 01/12/2004

COLL Sch 1.1

handbook-guidance
1 Record keeping requirements

COLL Sch 2

Notification requirements

  • 01/12/2004

COLL Sch 2.1

handbook-guidance
  • 01/12/2004

COLL Sch 2.2

handbook-guidance
1 Notification requirements

COLL Sch 3

Fees and other required payments

  • 01/12/2004

COLL Sch 3.1

handbook-guidance
The provisions relating to fees for collective investment schemes are set out in FEES 1, 2, 3 and 4

COLL Sch 3.2

handbook-guidance
The provisions relating to fees for collective investment schemes are set out in FEES 1, 2, 3 and 4

COLL Sch 4

Powers exercised

  • 01/12/2004

COLL Sch 4.1

handbook-guidance

COLL Sch 4.2

handbook-guidance
  • 01/12/2004

COLL Sch 4.3

handbook-guidance
  • 01/12/2004

COLL Sch 5

Rights of action for damages

  • 01/12/2004

COLL Sch 5.1

handbook-guidance
  • 01/12/2004

COLL Sch 5.2

handbook-guidance
  • 01/12/2004

COLL Sch 6

Rules that can be waived

  • 01/12/2004

COLL Sch 6.1

handbook-guidance
  • 01/12/2004

COLL Sch 6.2

handbook-guidance
  • 01/12/2004

Export chapter as

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