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CIS 7.6 Committee, appointments and conflicts of interest

Committees and appointments

CIS 7.6.1R
  1. (1)

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

  2. (2)

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

    1. (a)

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

      1. (i)

        the depositary;

      2. (ii)

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

      3. (iii)

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

    2. (b)

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

    3. (c)

      the mandate permits the ACD to:

      1. (i)

        give further instructions to the person so retained; and

      2. (ii)

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

    4. (d)

      the mandate does not prevent effective supervision of the ACD and it must not prevent the ACD from acting, or the scheme from being managed, in the best interests of the holders.2

  3. (3)

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

    1. (a)

      the ICVC or any director of the ICVC to assist the depositary to perform:

      1. (i)

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

      2. (ii)

        any function of custody or control of the scheme property of the ICVC;

    2. (b)

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

    3. (c)

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

  4. (4)

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

  5. (5)

    Where a depositary retains services under (3):

    1. (a)

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

    2. (b)

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

      1. (i)

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

      2. (ii)

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

      3. (iii)

        that it had taken reasonable care to ensure that the assistance in question was provided by the person retained in a competent manner.2

  6. (6)

    At any time when CIS 7.2.1 R (5)(The directors) applies, the directors have, in respect of the functions conferred on the ACD in accordance with CIS 7.3.1 R (The ACD), the same rights and responsibilities as for an ACD under this rule.2

Appointments and responsibility for regulatory obligations

CIS 7.6.2G
  1. (1)

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

  2. (2)

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

Conflict of interests

CIS 7.6.3R
  1. (1)

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

    1. (a)

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

    2. (b)

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

    3. (c)

      the sale of, or dealing in, property by an affected person, to, or with, the ICVC (or the depositary for the account of the ICVC), unless (3) applies; and for the purpose of this paragraph (c), a sale includes any lease or other transaction under which movable or immovable property is made available by the ICVC;1

    4. (d)

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

      1. (i)

        paragraph (3) applies; or

      2. (ii)

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

    5. (e)

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

    6. (f)

      transactions within CIS 5.4 (Stock lending) or CIS 5A.14 (Stock lending) by an affected person with, or in relation to, the ICVC unless the arm's length requirement in (2) is satisfied.1

  2. (2)

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

  3. (3)

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

  4. (4)

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

    1. (a)

      the property is an approved security or an approved derivative;

    2. (b)

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

    3. (c)

      there is evidence in writing of the effecting of the transaction and of its terms; and

    4. (d)

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

  5. (5)

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

    1. (a)

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

      1. (i)

        independent of any affected person; and

      2. (ii)

        qualified to value property of the relevant kind; and

    2. (b)

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

  6. (6)

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

    1. (a)

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

    2. (b)

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

    3. (c)

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

  7. (7)

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