Chapters

  • COLLG 1A Overview
  • COLLG 2A European Legislation
  • COLLG 3A The FSA's
    responsibilities under the Act
  • COLLG 4A The FSAs Responsibilities under the OEIC Regulations
  • COLLG 5A The COLL sourcebook

COLLG 1A

Overview

COLLG 1A.1

Introduction

About this guide

Structure of collective investment regulation in the United Kingdom

COLLG 1A.1.2

See Notes

handbook-guidance
(1) There are three broad levels of regulation of collective investment schemes in the United Kingdom. These can be summarised as EU regulation, UK legislation and regulation by the FSA.
(2) EU collective investment scheme product regulation was introduced in 1985 by the Undertakings for Collective Investment in Transferable Securities Directive (UCITS Directive) and has been updated on several occasions by amendments to that Directive, with a revised version in 2009. If a scheme is established and authorised in the United Kingdom and complies with the provisions of the UCITS Directive, it is a UCITS scheme and is capable of being promoted throughout the EEA. However, not all regulated collective investment schemes are UCITS schemes (see COLLG 1A.1.3 G). COLLG 2A (European legislation) provides more detail on the scope and contents of the UCITS Directive.
(3) The main UK legislation is the Act (under which AUTs operate) and the Open-Ended Investment Company Regulations (OEIC Regulations) (under which ICVCs (also known as OEICs) operate). COLLG 3A (The FSA's responsibilities under the Act) provides details on the FSA's responsibilities under the Act; how a firm may go about applying for authorisation of a unit trust scheme or recognition of an overseas scheme; and what notifications are required to the FSA in terms of changes to those schemes. COLLG 4A (The FSA's responsibilities under the OEIC Regulations) provides details on the FSA's responsibilities under the OEIC Regulations; how a firm may go about applying for authorisation of an ICVC; and what notifications are required to the FSA in respect of changes to the ICVC.
(4) The main FSA requirements are set out in the Handbook, in particular in COLL. COLL is a specialist sourcebook of the Handbook and is structured in a way that gives rules and guidance on specific aspects of AUT and ICVC regulation and on recognised schemes. COLLG 5A (The COLL sourcebook) provides details of the structure of COLL.

What are regulated collective investment schemes?

COLLG 1A.1.3

See Notes

handbook-guidance
(1) Regulated collective investment schemes are collective investment schemes which are regulated by the FSA as authorised funds or recognised by the FSA as recognised schemes:
(a) authorised funds must take the form of an AUT (an authorised unit trust scheme) or an ICVC (an investment company with variable capital) (as described in more detail below), must be established in the United Kingdom and must be:
(i) a UCITS scheme; or
(b) recognised schemes must be established outside the United Kingdom and recognised by the FSA under:
(i) section 264 of the Act (Schemes constituted in other EEA States) - these are UCITS; or
(ii) section 270 of the Act (Schemes authorised in designated countries or territories); or
(iii) section 272 of the Act (Individually recognised overseas schemes).
(2) The promotion of regulated collective investment schemes is restricted by the Act. Under section 238 of the Act (Restrictions on promotion), regulated collective investment schemes may be promoted by authorised persons. UCITS schemes, non-UCITS retail schemes and recognised schemes may be promoted to retail investors. Qualified investor schemes may only be promoted to certain prescribed category of investor (see COLLG 5.1.3G(8)).

What is an AUT?

COLLG 1A.1.4

See Notes

handbook-guidance
An AUT (or authorised unit trust scheme) is a unit trust scheme which is authorised by the FSA by making an authorisation order. Under section 237 of the Act (Other definitions), a unit trust scheme is a collective investment scheme under which the property is held on trust for the participants by the trustee. An AUT is constituted by a trust deed, entered into by the manager and trustee. Under section 243(4) of the Act (Authorisation orders) the manager and trustee must be independent of each other.

What is an ICVC?

COLLG 1A.1.5

See Notes

handbook-guidance
(1) An ICVC (or investment company with variable capital) is an open-ended investment company (or OEIC) as defined by section 236 of the Act (Open-ended investment companies) which is incorporated under the OEIC Regulations. Section 262 of the Act (Open-ended investment companies) empowers HM Treasury to make provisions relating to open-ended investment companies, which it has done by way of the OEIC Regulations, including provisions relating to the establishment of ICVCs. The FSA may authorise an ICVC by making an authorisation order under regulation 14 of the OEIC Regulations. Paragraph 1(3) of Schedule 5 to the Act states that an authorised open-ended investment company is an authorised person. So, an ICVC is an authorised person.
(2) An ICVC is constituted by an instrument of incorporation. Regulation 15(4) of the OEIC Regulations requires an ICVC to have at least one director. Where there is only one director, that director must be a body corporate with the permission of acting as the depositary or sole director of an open-ended investment company. COLL refers to this person as an authorised corporate director (ACD). A depositary must take responsibility for the safekeeping of the scheme property. The depositary must be independent of the ICVC and each of its directors.
(3) The directors and the depositary are required to comply with the OEIC Regulations and the rules in COLL and, in accordance with paragraph 6(1) of Schedule 2 to the OEIC Regulations, are also bound by the provisions of the instrument of incorporation.

Authorisation to carry on regulated activities

COLLG 1A.1.6

See Notes

handbook-guidance
(1) No person may carry on a regulated activity by way of business in the United Kingdom, or purport to do so, unless he is an authorised person (or an exempt person). This prohibition is referred to in the Act as the general prohibition. Guidance for persons considering carrying on regulated activities in the United Kingdom can be found in PERG. The FSA website page "How do I get authorised?"(http://www.fsa.gov.uk/doing/how) gives guidance on how to apply to the FSA for a Part IV permission . This authorisation is different to the authorisation of an AUT or an ICVC, as referred to in COLLG 1A.1.4 G and COLLG 1A.1.5 G respectively.
(3) The FSA maintains a public register of persons who have a permission to carry on a regulated activity. The register also contains details of all regulated collective investment schemes and it can be consulted on the FSA's website at www.fsa.gov.uk/fsaregister .

COLLG 2A

European Legislation

COLLG 2A.1

Introduction

Background and scope

COLLG 2A.1.1

See Notes

handbook-guidance
(1) This section summarises the scope and content of the UCITS Directive as amended ("the Directive") as it applies in the United Kingdom. The Directive establishes a degree of harmonisation of EEA States' laws governing:
(a) the activities of management companies;
(b) the UCITS they manage; and
(c) how units of the UCITS they manage are sold to the public.
(2) The main topics governed by the Directive and summarised in this section concern:
(a) the general scope of the Directive;
(b) the obligations of the management company and the depositary;
(c) investment and borrowing powers and limits;
(d) information for investors,
(e) how the management company passport works; and
(f) marketing requirements.
(3) The Directive also covers other topics which are not summarised in this section. These include:
(a) the ability to establish master-feeder UCITS, with the master UCITS and feeder UCITS either in the same or different EEA States; and
(b) a procedure for the merger of UCITS where the UCITS involved are established in different EEA States, or market their units in an EEA State other than the one in which they are established.

General scope of the UCITS Directive

COLLG 2A.1.2

See Notes

handbook-guidance
(1) The Directive applies to any open-ended collective investment undertaking that is established and authorised as a UCITS in an EEA State, regardless of whether it is promoted in any other EEA State. However, the Directive applies only to collective investment undertakings that are promoted to the general public within the EEA, so collective investment undertakings that are restricted in their promotion fall outside the Directive's scope.
(2) Furthermore, the Directive does not cover collective investment schemes that are authorised in an EEA State with different investment and borrowing powers to those covered by the Directive. So, schemes that invest in (for example) real property or commodities are not within the Directive's scope.

Obligations on the management company and depositary

COLLG 2A.1.3

See Notes

handbook-guidance
(1) The Directive assigns certain functions and requirements to a management company and a depositary. As a result, a UK firm which wishes to operate UCITS schemes or act as a depositary must first seek authorisation from the FSA . A UK firm operating a UCITS scheme (a UKmanagement company) is referred to as the authorised fund manager (AFM).
(2) In addition, the Directive imposes certain conduct of business and financial resources requirements on the UCITS management company.
(3) The Directive states that the depositary must be subject to 'public control' and provide 'sufficient financial and professional guarantees'. The depositary is responsible for the safe keeping of a UCITS' assets, and for ensuring that the issue, sale, redemption and cancellation of units and the calculation of the value of units are effected in accordance with the law and constituting document of the UCITS.
(4) Two main principles govern the relationship between the UCITS management company and the depositary of a UCITS. First, no single company may act in both capacities. Second, they must act independently of each other and, apart from management of a UCITS, a UCITS management company cannot engage in any activities other than:
(a) management of other collective investment undertakings;
(c) advising on investments and safeguarding and administering investments, but in either case only where it also has permission to manage investments.

Investment and borrowing powers and limits

COLLG 2A.1.4

See Notes

handbook-guidance
(1) The Directive states the types of assets a UCITS can invest in. These include:
(d) derivatives and forwards; and
(2) The UCITS eligible assets Directive, which came into effect in July 2008, clarifies the definition of terms used in the Directive by setting out criteria for determining which types of transferable securities, approved money-market instruments and derivatives are eligible to be held by a UCITS.
(3) Within this range of investment assets there are some detailed spread and concentration rules in the Directive. The main requirements can be summarised as follows:
(a) no more than 5% may be invested in transferable securities or approved money-market instruments with one issuer - this can be raised to 10% but only in respect of a maximum of 40% of the UCITS value;
(b) no more than 20% may be invested in deposits with one body;
(c) 100% may be invested in other collective investment undertakings provided:
(i) no more than 30% is invested in total in units in collective investment undertakings which are not UCITS and then only in collective investment undertakings that offer equivalent protection to investors;
(ii) the collective investment undertaking being invested into is not permitted to invest more than 10% in other collective investment undertakings; and
(iii) no more than 10% is invested in any one UCITS (which may be raised to 20% at the discretion of the Member State and has been raised to 20% for UKUCITS), except where a feeder UCITS is investing in a master UCITS (see COLL 5.8 (Investment powers and borrowing limits for feeder UCITS));
(d) no more than 20% may be invested in transferable securities and approved money-market instruments issued by one group;
(e) no more than 20% may be invested in any combination of transferable securities, approved money-market instruments, deposits, or OTC derivatives from a single body; and
(f) no more than 5% may be invested in OTC derivative exposure to one counterparty, or 10% where the counterparty is an approved bank.
(4) Where a UCITS has the investment objective of replicating the composition of a qualifying index, it may have an exposure of up to 20% in any issuer or exceptionally up to 35% (but only for one issuer). A qualifying index is one which has a sufficiently diversified composition, is a representative benchmark for that market, and is published in an appropriate manner.
(5) The management company must employ a specific risk management process to monitor the risk of all investment positions. Where derivatives are to be used within a UCITS, the management company must notify details of this risk management process and any significant change to it to its competent authority. The exposure to all derivative transactions must not exceed the current net asset value of the UCITS. The underlying assets representing any derivative position must be taken into account in applying the spread of limits above. This does not apply in the case of any derivative which is on a qualifying index.
(6) A UCITS may borrow up to 10% in value of its assets, provided the borrowing is on a temporary basis.

Information to investors

COLLG 2A.1.5

See Notes

handbook-guidance
(1) The Directive sets out which documents must be made available or offered to investors. The three main documentary requirements are:
(a) the prospectus;
(c) the annual and half-yearly reports and accounts.
(2) The full prospectus requirements are included in Annex A of the Directive and provide detailed information on the main parties involved in operating the UCITS, the investment objectives and policy of the UCITS, and general day-to-day operating matters such as dealing times and income allocation.
(3) In addition to the prospectus, the management company must publish a key investor information document for each UCITS. This is intended to be a standardised document used for selling UCITS throughout the EEA. It must be provided to any prospective investor free of charge so that they can take investment decisions on an informed basis. The required contents for the key investor information document are set out in the KII Regulation, which is directly applicable in each Member State.
(4) Reports and accounts must be prepared on a half-yearly and annual basis and the latest report must be supplied to investors free of charge. They must also be available at the place specified in the prospectus. The required contents for the report and accounts are set out in Schedule B of the Directive.

The management company passport

COLLG 2A.1.6

See Notes

handbook-guidance
(1) Chapter III of the Directive provides the framework for a UCITS management company to provide services in another EEA State by way of a branch or cross border services.
(2) UK firms which are UCITS management companies can operate UCITS established in other EEA states (see SUP 13 (Exercise of passport rights by UK firms) and COLL 12 (Management company and product passports under the UCITS Directive) for more information).
(3) A non-UK management company may operate a UKUCITS by way of branch or cross border services in accordance with the provision of Schedule 3 to the Act and if so it is defined in the Handbook as an EEA UCITS management company.

Marketing requirements

COLLG 2A.1.7

See Notes

handbook-guidance
(1) Chapter XI of the Directive provides the framework for a UCITS to be marketed in another EEA State. A UCITS is required to comply with the marketing and advertising rules in the relevant Host State (Article 91) and is also required to maintain facilities in the Host State (Article 92).
(2) Certain documents must be provided to the Host State regulator in the relevant EEA State at the same time as notification of the proposal to market there. Before a UCITS can begin marketing in a Host State, it must submit a notification letter to the Home State regulator, together with the instrument constituting the scheme, the prospectus, key investor information document and the most recent annual and half-yearly reports. The Home State regulator has ten working days in which to process the notification and transmit it to the Host State regulator. The UCITS may begin accessing the market immediately following transmission of the notification (Article 93).
(3) The relevant information and documents distributed in the Host State are required to be the same as those that the UCITS provides in its Home State. In addition, the key investor information document must be published in an official language of the Host State or another language if approved by the relevant Host State regulator (Article 94). The other documents may either be translated in the same way, or published in a language customary in the sphere of international finance (English is accepted to be such a language).
(4) A UKUCITS may access the market in another EEA State using the procedure set out in Schedule 3 to the Act.
(5) A UCITS from another EEA State may access the market in the United Kingdom in accordance with the procedure set out in section 264 of the Act.

COLLG 3A

The FSA's
responsibilities under the Act

COLLG 3A.1

Introduction

COLLG 3A.1.1

See Notes

handbook-guidance
Part XVII of the Act deals specifically with collective investment schemes. The main features and practical effects of Part XVII, and how the FSA exercises its responsibilities, are described below. References to sections are to the numbered sections of Part XVII.

Promotion of schemes in the United Kingdom (section 238)

COLLG 3A.1.2

See Notes

handbook-guidance
(1) Before a scheme can be promoted to the public in the United Kingdom, it must be authorised or recognised by the FSA as a regulated collective investment scheme (see COLLG 1A.1.3 G).
(2) A regulated collective investment scheme may be promoted to the public by an authorised person.

Application for authorisation as an authorised unit trust (sections 242 and 243)

COLLG 3A.1.3

See Notes

handbook-guidance
(1) The FSA requires an application for authorisation of a unit trust scheme to be made jointly by the manager and trustee, both of which must be:
(a) authorised persons under the Act with the appropriate Part IV permissions ; and
(b) independent of each other (see COLL 6.9.2 G (Independence of depositaries and scheme operators) which provides guidance on independence).
(2) The application must contain details of the manager and trustee, of the scheme itself, and of other persons to whom functions are to be delegated (e.g. the registrar and the investment adviser).
(3) Application forms are available free of charge from the forms page at http://fsahandbook.info/FSA/form_links.jsp.
(4) A fee is payable and must be submitted with the application (see FEES 3 Annex 2 R (Application and notification fees payable in relation to collective investment schemes)).
(5) The following items must be provided with the application:
(a) a copy of the trust deed;
(b) a solicitor's certificate stating that the trust deed complies with the rules made under section 247 (Trust scheme rules);
(c) a copy of the prospectus, with a checklist indicating the location of the information required by COLL to be contained in it;
(d) in the case of an application relating to the authorisation of a UCITS scheme, a copy of the key investor information document; and
(e) if applicable, documents evidencing any guarantee arrangement.
(6) The name of the scheme must not be undesirable or misleading and its purpose must be reasonably capable of being successfully carried into effect. COLL 6.9 (Independence, names and UCITS business restrictions) provides guidance on what the FSA considers undesirable or misleading names.

Determining and refusing applications (sections 244 and 245)

COLLG 3A.1.4

See Notes

handbook-guidance
(1) Under section 244 (Determination of applications), the FSA has:
(a) up to 2 months in the case of a proposed UCITS; or
(b) up to 6 months in the case of any other proposed scheme;
in which to consider a completed application following its receipt and must inform the manager and trustee of its decision within that timescale. In practice, the FSA aims to process 75% of completed applications relating to a UCITS scheme within 6 weeks. If the FSA is satisfied with the application, an authorisation order is issued for the scheme.
(2) If the FSA proposes to refuse an application, it must give a warning notice which will contain the reasons for the refusal. If, having given the warning notice, it decides to refuse the application, a decision notice will be sent and the applicant may refer the matter to the Tribunal.

Revocation of authorisation (section 254)

COLLG 3A.1.5

See Notes

handbook-guidance
(1) The FSA can revoke an authorisation order if:
(a) the requirements of authorisation are no longer satisfied; or
(b) the manager or trustee has contravened any provision of the Act or any rules or regulations made under it, or has given false or misleading information to the FSA ; or
(c) no regulated activity is being carried on in relation to the scheme and the period of that inactivity began at least twelve months earlier; or
(d) it is undesirable for investors or potential investors that the authorised unit trust scheme should continue.
(2) The FSA may refuse to revoke an authorisation order if it considers that:
(a) any matter should be investigated prior to revocation; or
(b) revocation would not be in the interests of investors; or
(c) revocation would be incompatible with the UCITS Directive.
(3) If the FSA proposes to revoke an authorisation order, a separate warning notice will be sent to the manager and trustee. The same procedures as stated for refusal of authorisation, in relation to the warning notice and decision notice, will apply.

Notification of changes to unit trusts (sections 251 and 252A)

COLLG 3A.1.6

See Notes

handbook-guidance
(1) The manager must give written notice to the FSA when:
(a) an alteration to the authorised unit trust scheme is proposed; or
(b) it is proposed that the trustee should retire and be replaced.
(2) Any proposal that involves a change in the trust deed must be accompanied by a solicitor's certificate stating that the change will not affect the compliance of the trust deed with the rules.
(3) The trustee must give written notice to the FSA of a proposal to replace the manager.
(4) The FSA has one month following receipt of notice under section 251 (Alteration of schemes and changes or manager or trustee) to consider whether or not to refuse the proposal. In the case of a notice under section 252A (Proposal to convert a non-feeder UCITS) the period available to the FSA is 15 working days.

Powers of intervention (sections 257 and 281)

COLLG 3A.1.7

See Notes

handbook-guidance
The FSA has powers of intervention if there is a breach of the Act or COLL, or if it is in the interests of unitholders or potential unitholders in a scheme. In respect of an AUT, directions can be made for the manager to suspend the issue and redemption of units or to wind up the scheme.

Scheme particulars (section 248)

COLLG 3A.1.8

See Notes

handbook-guidance
The Act empowers the FSA to require a manager to publish scheme particulars. COLL 4 (Investor relations) which refers to the scheme particulars as a prospectus, sets out details of the required contents, the timing of publication, and how and when the prospectus must be offered to prospective investors.

Recognition of overseas schemes

COLLG 3A.1.9

See Notes

handbook-guidance
Recognition by the FSA enables overseas schemes to be marketed to the public in the United Kingdom.

Recognition of schemes constituted in other EEA states (section 264)

COLLG 3A.1.10

See Notes

handbook-guidance
(1) Section 264 covers schemes constituted in another EEA State that are certified by their Home State regulator as meeting the requirements of the UCITS Directive (EEA UCITS schemes). The scheme becomes recognised as soon as its Home State regulator has transmitted to the FSA the notification of the schemeoperator's intention to access the market in the United Kingdom, together with the documents prescribed in Article 93 of the Directive that the schemeoperator has filed with its Home State regulator.
(2) If there is a change in the information supplied to the FSA in accordance with COLL 9.2 (Section 264 recognised schemes) following initial recognition, the FSA should be notified by the operator before the change is implemented.

Recognition of schemes authorised in designated territories (section 270)

COLLG 3A.1.11

See Notes

handbook-guidance
(1) Section 270 covers schemes that are managed in and authorised under the law of a country or territory outside the United Kingdom that has been designated for this purpose by an order made by HM Treasury ("the Designation Order"). These include Jersey, Guernsey and the Isle of Man. It should be noted that HM Treasury:
(a) retains responsibility for the designation of countries or territories and must be satisfied that their laws and practices relating to the authorisation and regulation of their collective investment schemes provide a level of protection at least equivalent to that provided under the Act;
(b) must be content that adequate arrangements exist for co-operation between regulators in each country or territory and the FSA ; and
(c) may request the FSA provide a report on the regimes of regulation in existing or prospective designated territories.
(2) Notification forms are available, free of charge, at the FSA website and COLL 9.3 (Section 270 and 272 recognised schemes) provides further information on the documents to be supplied to the FSA. The scheme becomes recognised on the FSA's written approval, or automatically after two months from notification.

Recognition of individual overseas schemes (section 272)

COLLG 3A.1.12

See Notes

handbook-guidance
(1) Section 272 covers overseas schemes that are not recognised by virtue of section 264 or section 270. The FSA may make an order declaring the scheme to be recognised if it is satisfied that the scheme will afford adequate protection (i.e. a similar level of protection to that provided under the Act) for investors, and the arrangements for the scheme's constitution and management, and the powers and duties of the operator and of any trustee or depositary, are also "adequate". In deciding what is adequate, the FSA will consider the rules applicable to AUTs or ICVCs.
(2) A section 272 application requires detailed and rigorous analysis of all aspects of the scheme and the level of investor protection provided by the regime under which the scheme operates, so the FSA has 6 months in which to determine a completed application. Details of the information and documents required for a section 272 application can be found in COLL 9.3 (Section 270 and 272 recognised schemes).

Subsequent notification in respect of schemes recognised under section 272 of the Act

COLLG 3A.1.13

See Notes

handbook-guidance
(1) The FSA wishes to be informed of changes in the information supplied by the operator of a section 272 scheme under COLL 9.3.1 D (Information and documents to be supplied for a section 270 notification or section 272 application).
(2) Any revised documents sent under (1) should be certified as true copies of the originals and accompanied, where relevant, by written evidence of the approval of the overseas regulator to the change.

Refusal of approval: schemes recognised under sections 270 and 272 of the Act

COLLG 3A.1.14

See Notes

handbook-guidance
The FSA's power to refuse recognition and the procedures for this are set out in section 271 (Procedure) for schemes recognised under section 270, and section 276 (Procedure when refusing an application) for schemes recognised under section 272.

Revocation of recognition of overseas schemes

COLLG 3A.1.15

See Notes

handbook-guidance
(1) If the operator of a scheme recognised under section 264 gives written notice to the FSA under section 264(6) that it desires the scheme to no longer be recognised, then the scheme ceases to be recognised.
(2) Under section 279 (Revocation of recognition), the FSA may direct that a scheme shall cease to be recognised under section 270, or revoke its recognition under section 272, on similar grounds to those provided for in the revocation of authorised funds under section 254 (Revocation of authorisation order otherwise than by consent).
(3) If the FSA proposes to give a direction under section 279 or to revoke a scheme's recognition, it will give a warning notice. Should the FSA decide to give a direction or revoke recognition, it will issue a decision notice. Thereafter, the matter may be referred to the Tribunal.

Scheme facilities in the United Kingdom (section 283)

COLLG 3A.1.16

See Notes

handbook-guidance
This section enables the FSA to make rules requiring recognised schemes to maintain scheme facilities in the United Kingdom and to provide certain information to be supplied on request. Details are contained in COLL 9.4 (Facilities in the United Kingdom).

COLLG 4A

The FSAs Responsibilities under the OEIC Regulations

COLLG 4A.1

Introduction

COLLG 4A.1.1

See Notes

handbook-guidance
Section 262 (Open-ended investment companies) of the Act provides for HM Treasury to make regulations governing the establishment and regulation of ICVCs. Rather than merely adopting various parts of UK company law, HM Treasury chose a 'stand alone' approach for its OEIC Regulations. The main features and practical effects of those regulations are outlined below.

Applications for authorisation (Regulations 12-17)

COLLG 4A.1.2

See Notes

handbook-guidance
(1) The FSA requires an application for authorisation of an ICVC to be made jointly by the ACD and depositary, both of which must be:
(a) authorised persons under the Act with the appropriate Part IV permissions ; and
(b) independent of each other (see COLL 6.9.2 G (Independence of depositaries and scheme operators) which provides guidance on independence).
(2) The application must contain details of the ACD and depositary, and any other person proposed as a director of the ICVC, of the scheme itself, and of other persons to whom functions are to be delegated (e.g. the registrar and the investment adviser).
(3) Application forms are available free of charge from the forms page at http://fsahandbook.info/FSA/form_links.jsp.
(4) A fee is payable and must be submitted with the application (see FEES 3 Annex 2 R (Application and notification fees payable in relation to collective investment schemes)).
(5) The following items must be provided with the application:
(a) a copy of the proposed ICVC'sinstrument of incorporation;
(b) a solicitor's certificate stating that the instrument of incorporation complies with Schedule 2 to the OEIC Regulations and with COLL;
(c) a copy of the prospectus, with a checklist indicating the location of the information required by COLL to be contained in it;
(d) in the case of an authorisation application relating to a UCITS scheme, a copy of the key investor information document; and
(e) if applicable, documents evidencing any guarantee arrangement.
(6) The name of the ICVC must not be undesirable or misleading and must not be the same as that of an existing company. Regulation 19 includes a list of words and expressions that are prohibited from inclusion within the name of an ICVC and further guidance can be found in COLL 6.9 (Independence, names and UCITS business restrictions). As with an AUT, the aim of the ICVC must be reasonably capable of being achieved.
(7) As with an AUT, the FSA has:
(a) in the case of a proposed UCITS up to 2 months; or
(b) in the case of any other proposed scheme up to 6 months;
to determine a completed application, but aims to process 75% of applications for UCITS schemes within six weeks. If the FSA is satisfied with the application, an authorisation order is issued. The ICVC becomes incorporated when the authorisation order is issued.

Notification of changes to ICVCs (Regulations 21 and 22A)

COLLG 4A.1.3

See Notes

handbook-guidance
(1) The FSA's approval is required before the following changes can take place:
(a) any alteration to the instrument of incorporation;
(b) any significant alteration to the prospectus;
(c) any reconstruction or amalgamation involving the ICVC;
(d) any proposal to wind up the ICVC or a sub-fund of an ICVC otherwise than by the court;
(e) any proposal to replace a director, appoint an additional director, or decrease the number of directors in post; and
(f) any proposal to replace the depositary.
(2) Any notice proposing to change the instrument of incorporation must be accompanied by a solicitor's certificate confirming that the change will not affect compliance of the instrument with Schedule 2 to the OEIC Regulations and COLL as they relate to the contents of the instrument.
(3) The FSA has one month following written notification under Regulation 21 (The Authority's approval for certain changes in respect of a company) to consider whether or not to refuse the proposal. In the case of a notice under Regulation 22A (The Authority's approval for conversion of a feeder UCITS) the period available to the FSA is 15 working days.

Revocation of authorisation (Regulation 23)

COLLG 4A.1.4

See Notes

handbook-guidance
The FSA can revoke or refuse to revoke an authorisation order on similar grounds to those for an AUT. If it proposes to do so, similar procedures for warning notices and decision notices as for AUTs apply (see COLLG 3A.1.5 G (2)).

Power of intervention (Regulation 25)

COLLG 4A.1.5

See Notes

handbook-guidance
The FSA has a power of intervention if it appears there is a breach of the Act or a rule of COLL, or if it is desirable to give a direction to protect the interests of investors in the ICVC. Directions can be given to cease the issue or redemption of units or any class of unit in the ICVC or for the winding up of the ICVC.

Corporate Code

COLLG 4A.1.6

See Notes

handbook-guidance
(1) Certain provisions of the Companies Acts will apply to ICVCs, as they are incorporated bodies (especially, but not exclusively, regarding the holding of meetings).
(2) Regulations 34 to 70 lay down the corporate code for ICVCs. The code contains provisions dealing with the operation of ICVCs and includes a number of general company law provisions, for example personal liability for contracts and deeds and punishment for fraudulent trading. The operation of an ICVC is also governed by COLL.

The FSA's registration function

COLLG 4A.1.7

See Notes

handbook-guidance
In accordance with Part IV of the OEIC Regulations, the FSA is required to maintain a register of ICVCs, allocate to each a registered number, and carry out certain other registration functions.

Sub-funds of umbrella ICVC

COLLG 4A.1.8

See Notes

handbook-guidance
Regulations 11A, 11B and 33C implement a protected cell regime for sub-funds of umbrellaICVCs. As a result a unitholder in a solvent sub-fund of an umbrellaICVC receives protection in respect of liabilities of and claims against: (i) the umbrella company; and (ii) any other sub-fund. COLL provides for:
(1) disclosure requirements in respect of the limited recourse to the assets and liabilities of a particular sub-fund in the instrument constituting the scheme (see COLL 3.2.6 R (Table: contents of the instrument constituting the scheme) paragraph 22A) and the prospectus (see COLL 4.2.5 R (Table: contents of the prospectus) paragraph 2A);
(2) limitations on cross sub-fund investment (see COLL 5.2 (General investment powers and limits for UCITS schemes) for UCITS schemes and COLL 5.6 (Investment powers and borrowing limits for non-UCITS retail schemes) for non-UCITS retail schemes); and
(3) duties on the ACD to take appropriate action in relation to foreign law contracts which after prompt investigation appear to be inconsistent with the principle of limited recourse (see COLL 6.6.5A R (Duties of the ACD of an ICVC: umbrella schemes)).

COLLG 5A

The COLL sourcebook

COLLG 5A.1

Introduction

COLLG 5A.1.1

See Notes

handbook-guidance
(1) COLL is a specialist sourcebook that sits in Block 6 (Specialist Sourcebooks) of the FSA Handbook . It provides the detailed framework within which authorised funds operate and includes requirements relating to recognised schemes.
(2) The material in COLL (excluding chapter 9) forms a major part of the product regulation regime for ICVCs and AUTs, supplementing the material in the OEIC Regulations (for ICVCs) and chapter III of Part XVII of the Act (for AUTs) and giving effect to the relevant parts of the UCITS Directive. This is shown in the diagram at COLLG 5A.1.5 G.
(3) The sourcebook is designed as a two-tier approach, depending on whether the authorised fund is capable of being promoted to the general public (a retail scheme) or is sold to sophisticated investors (a qualified investor scheme).

Definition of terms in COLL

COLLG 5A.1.2

See Notes

handbook-guidance
Some parts of COLL relate only to ICVCs and some parts only to AUTs. However, most of COLL covers both ICVCs and AUTs, so some of the defined terms included relate equally to both ICVCs and AUTs (together defined as "authorised funds"). Other key terms are:
(1) "authorised fund manager", which refers to both the ACD of an ICVC and the manager of an AUT;
(2) "depositary", which when used for an authorised fund refers to both the depositary of an ICVC and the trustee of an AUT; and
(3) "unit", which according to the context can refer to a "share" in an ICVC, a "unit" in an AUT, and the rights or interests of participants in other types of collective investment scheme.

Outline of the content of COLL

COLLG 5A.1.3

See Notes

handbook-guidance

The contents of COLL are outlined below.

  1. (1) COLL 1 (Introduction) sets out which firms COLL applies to and gives an overview of the types of authorised fund.
  2. (2) COLL 2 (Authorised fund applications) sets out the initial application requirements for authorised funds and the rules concerning notifications which need to be made to the FSA in its role as registrar of ICVCs.
  3. (3) COLL 3 (Constitution) includes requirements regarding the contents of the instrument constituting the scheme for authorised funds that are retail schemes and other matters relating to their constitutional features, such as classes of units.
  4. (4) COLL 4 (Investor relations) includes consumer-facing material relating to authorised funds that are retail schemes. So, material on the prospectus, key investor information document, simplified prospectus (for non-UCITS retail schemes or feeder NURS, where the authorised fund manager opts to produce this), and reports and accounts is included in that chapter, together with rules relating to when unitholders must be notified of events and when meetings of unitholders, are required. The chapter also includes the information to be given to unitholders of a feeder UCITS in certain circumstances. (A key investor information document is not required for a non-UCITS retail scheme or feeder NURS. However, an authorised fund manager of such a scheme can choose to produce an equivalent document to the key investor information document, which is referred to as a NURS-KII document, by applying for a modification by consent(see www.fsa.gov.uk/pages/doing/regulated/notify/waiver/consent/cobs_coll.shtml). If an authorised fund manager of such a scheme does not choose to produce a NURS-KII document it must produce a key features document, in accordance with the provisions of COBS 13.3 (Contents of a key features document), or opt to produce a simplified prospectus).
  5. (5) COLL 5 (Investment and borrowing powers) requires authorised funds that are retail schemes, their authorised fund managers and depositaries, to comply with rules on the investment composition of the scheme. It is divided up as follows:
    1. (a) COLL 5.2 to COLL 5.3 implement the UCITS Directive requirements which require quality, spread and counterparty limits to be imposed on the assets of funds within the scope of the Directive (as set out in COLLG 2A.1.4 G);
    2. (b) COLL 5.4 provides rules on stock lending;
    3. (c) COLL 5.5 provides rules on holding cash and near cash, borrowing and lending;
    4. (d) COLL 5.6 provides investment rules for non-UCITS retail schemes;
    5. (e) COLL 5.7 provides a regime for a non-UCITS retail scheme that is to be operated as a fund of alternative investment funds (FAIF). The authorised fund manager of such a fund must carry out certain additional due diligence procedures in relation to the funds in which the FAIF is to invest;
    6. (f) COLL 5.8 sets out investment powers and limits for a UCITS scheme that is to be operated as a feeder UCITS. It also sets out what other provisions in COLL 5 are applicable to a feeder UCITS; and
    7. (g) COLL 5.9 specifies the permitted investments for a UCITS scheme or a non-UCITS retail scheme operating as a money market fund or a short-term money market fund. These restrictions reflect CESR's guidelines on a common definition of European money market funds.
  6. (6) COLL 6 (Operating duties and responsibilities) contains rules on the day-to-day operation of authorised funds that are retail schemes. In particular:
    1. (a) COLL 6.2 sets out rules relating to dealing in units, including the issue and cancellation of units;
    2. (b) COLL 6.3 sets out how authorised funds must be valued and prices of units calculated and published;
    3. (c) COLL 6.4 provides requirements relating to the register of unitholders in an AUT (see the OEIC Regulations for ICVCs) and any plan register;
    4. (d) COLL 6.5 sets out rules relating to the appointment and replacement of the authorised fund manager and depositary;
    5. (e) COLL 6.6 imposes certain powers and duties on the authorised fund manager and the depositary and COLL 6.6A imposes certain powers and duties on the authorised fund managers of UCITS schemes and on a UK UCITS management company of an EEA UCITS scheme;
    6. (f) COLL 6.7 lays down conditions concerning charges and expenses that may be taken when investors buy or sell units, and what payments may be made out of the scheme property;
    7. (g) COLL 6.8 provides rules and guidance on the calculation and distribution of income;
    8. (h) COLL 6.9 gives guidance relating to independence of the depositary and management company, scheme names and the restrictions on the business of the UCITS;
    9. (i) COLL 6.10 sets out the oversight responsibilities of senior personnel in relation to a UCITS scheme;
    10. (j) COLL 6.11 and COLL 6.12 set out more detail about the risk controls and risk management policy that must be employed in relation to a UCITS scheme; and
    11. (k) COLL 6.13 sets out record-keeping requirements in relation to a UCITS scheme.
  7. (7) COLL 7 (Suspension of dealings and termination of authorised funds) includes the requirements for suspension of dealing in the units of authorised funds and how they may be wound up (including termination of sub-funds). COLL 7.7 provides rules in relation to mergers subject to the UCITS Directive.
  8. (8) COLL 8 (Qualified Investor Schemes) provides a framework of rules for a scheme which restricts subscription to certain prescribed categories of investor (principally professional clients and sophisticated investors). For such a scheme, the FSA considers that not all the detailed product rule protections that apply to retail schemes are necessary. This type of scheme, called a qualified investor scheme, satisfies the essential features of an authorised product and so distinguishes itself from an unregulated collective investment scheme, but otherwise is allowed more flexibility in its operation compared to the framework for retail schemes. COLL 2 (Authorised fund applications) contains details of the application procedure for qualified investor schemes.
  9. (9) COLL 9 (Recognised Schemes) applies to collective investment schemes established outside the United Kingdom. It brings together the material relating to the admission to marketing of such schemes in the United Kingdom, supplementing material in chapter V of Part XVIIof the Act (Recognised overseas schemes).
  10. (10) COLL 10 (Fees) is no longer used as the provisions are set out in FEES.
  11. (11) COLL 11 (Master-feeder arrangements under the UCITS Directive) sets out various Directive requirements applicable to feeder UCITS and master UCITS, including the arrangements for co-ordination and information-sharing between the UCITS management companies, depositaries and auditors of each scheme.
  12. (12) COLL 12 (Management company and product passports under the UCITS Directive) provides more information about the rules that are applicable to the use of the UCITS management company passport and the UCITS product passport. It sets out which rules in COLL are applicable to an EEA UCITS management company that wishes to operate a UCITS scheme in the UK through the exercise of passporting rights.
  13. (13) COLL 13 (Operation of a feeder NURS) sets out requirements relating to the operation of a feeder NURS and certain types of qualifying master scheme. Such operational obligations concern, for example, information which is to be obtained and/or provided pre-investment, and the treatment of a charge made to a feeder NURS for acquisition or disposal of units in a qualifying master scheme.

Related Sourcebooks

COLLG 5A.1.4

See Notes

handbook-guidance
(1) There are a number of other parts of the FSA's Handbook that are particularly relevant to those having a responsibility in relation to authorised funds. These include:
(a) PRIN (The Principles for Businesses);
(b) SYSC (Senior Management Arrangements, Systems and Controls);
(c) APER (The Statements of Principle and Code of Practice for Approved Persons);
(d) FEES (the Fees manual), which includes details of the application and periodic fees payable for authorised funds and recognised schemes;
(e) COBS (the Conduct of Business sourcebook);
(f) CASS (the Client Assets sourcebook);
(g) SUP (the Supervision manual);
(h) DEPP (the Decision Procedure and Penalties manual);
(i) DISP (Dispute resolution: complaints); and
(j) COMP (Compensation).
(2) UPRU (the Prudential sourcebook for UCITS firms) sets out the financial resources requirements for an authorised fund manager of a UCITS scheme where that manager is undertaking only scheme management activity. BIPRU (the Prudential sourcebook for Banks, Building Societies and Investment Firms) applies certain requirements to the authorised fund manager of a UCITS scheme where that manager is a UCITS investment firm. Both sourcebooks include certain requirements of the UCITS Directive.
(3) IPRU(INV) (the Interim Prudential sourcebook for Investment Businesses) sets out the financial resources requirements for an authorised fund manager of a qualified investor scheme or a non-UCITS retail scheme, unless the authorised fund manager is a BIPRU investment firm, in which case BIPRU (the Prudential sourcebook for Banks, Building Societies and Investment Firms) sets out the financial resources requirements.
(4) In addition to the listed sourcebooks, Regulatory Guides may also be of relevance. For example EG link 14 (Collective Investment Schemes) sets out the FSA's policies and procedures concerning the use of its enforcement powers in relation to regulated collective investment schemes.

Regulated schemes: explanatory diagram

COLLG 5A.1.5

See Notes

handbook-guidance
This diagram provides a general description of the products covered by COLL and the relevant legislation and sections of COLL.