Content Options

Content Options

View Options


You are viewing the version of the document as on 2024-02-27.

COLL 15.7 Powers and responsibilities of the authorised fund manager and the depositary

Application

COLL 15.7.1 R

1This section applies to:

  1. (1)

    an authorised fund manager of an AUT, ACS or an ICVC;

  2. (2)

    any other director of an ICVC;

  3. (3)

    the depositary of an AUT, ACS or an ICVC; and

  4. (4)

    an ICVC,

    which is a long-term asset fund.

Functions of the authorised fund manager

COLL 15.7.2 R
  1. (1)

    1The authorised fund manager must manage the scheme in accordance with:

    1. (a)

      the instrument constituting the fund;

    2. (b)

      the applicable rules;

    3. (c)

      the most recently published prospectus; and

    4. (d)

      for an ICVC, the OEIC Regulations.

  2. (2)

    1The authorised fund manager must carry out such functions as are necessary to ensure compliance with the rules 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 authorised fund manager of the AUT or ACS to the depositary; or

      5. (v)

        by the depositary (for the account of the AUT or ACS) to the authorised fund 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.

Duties of the authorised fund manager: investment and borrowing powers

COLL 15.7.3 R
  1. (1)

    1An authorised fund manager may give instructions to deal in the scheme property.

  2. (2)

    An authorised fund manager must avoid the scheme property being used or invested contrary to any provision in COLL 15.6 (Investment and borrowing powers).

  3. (3)

    An authorised fund manager must immediately on becoming aware of any breach of COLL 15.6 take action, at its own expense, to rectify that breach.

  4. (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. (5)

    An authorised fund manager must not postpone taking action in accordance with (3) unless the depositary has given its consent.

Duties of the ACD or the authorised contractual scheme manager of a co-ownership scheme: umbrella schemes

COLL 15.7.4 R

1Where reasonable grounds exist for an ACD of an ICVC, or an authorised contractual scheme manager of a co-ownership scheme which is an umbrella, to consider that a foreign law contract entered into by the ICVC or authorised contractual scheme manager on behalf of the co-ownership scheme may have become inconsistent with the principle of limited recourse stated in the instrument constituting the fund of the ICVC or co-ownership scheme (see COLL 15.3.6R(3)(5) and COLL 15.3.6R(3)(6)), the ACD or authorised contractual scheme manager of the co-ownership scheme must:

  1. (1)

    promptly investigate whether there is an inconsistency; and

  2. (2)

    if the inconsistency still appears to exist, take appropriate steps to remedy that inconsistency.

COLL 15.7.5 G

1In deciding what steps are appropriate to remedy the inconsistency, the ACD or authorised contractual scheme manager of the co-ownership scheme should have regard to the best interests of the unitholders. Appropriate steps to remedy the inconsistency may include:

  1. (1)

    where possible, renegotiating the foreign law contract in a way that remedies the inconsistency; or

  2. (2)

    causing the ICVC or the authorised contractual scheme manager on behalf of the co-ownership scheme to exit the foreign law contract.

Duties of the depositary

COLL 15.7.6 R
  1. (1)

    1The depositary is responsible for the safekeeping of all the scheme property.

  2. (2)

    The depositary must:

    1. (a)

      take all steps to ensure that transactions properly entered into for the account of the scheme are completed;

    2. (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;

    3. (c)

      ensure that any resulting benefit of a derivatives or forward transaction is received by itself in respect of the scheme;

    4. (d)

      hold and deal with any income received in respect of the scheme property in accordance with COLL 15.8.18R (Income);

    5. (e)

      take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:

      1. (i)

        the investment objectives, policy and strategy set out in the LTAF’s most recent prospectus;

      2. (ii)

        COLL 15.6 (Investment and borrowing powers);

      3. (iii)

        COLL 15.8.2R (Valuation, pricing and dealing);

      4. (iv)

        COLL 15.8.18 (Income); and

      5. (v)

        any provision of the instrument constituting the fund or the prospectus that relates to the provisions in (ii) to (iv);

    6. (f)

      where applicable, comply with its obligations under COLL 15.2.6R (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets);

    7. (g)

      keep records so as to comply with the rules in this sourcebook and so as to demonstrate such compliance; and

    8. (h)

      be responsible for any other duties as set out in the instrument constituting the fund.

  3. (3)

    If a relevant ICVC ceases to have any directors, the depositary may act in accordance with COLL 6.5.6R (ICVC without a director).

  4. (4)

    This rule applies to the depositary of a long-term asset fund to the extent the provisions are consistent with the requirements of the AIFMD level 2 regulation.

    [Note: Articles 88 to 90 of the AIFMD level 2 regulation make provision relating to custody and safekeeping of scheme property. The AIFMD level 2 regulation applies to the depositary of a long-term asset fund because an LTAF must be managed by a full-scope UK AIFM.]

COLL 15.7.7 R

1The depositary must also:

  1. (1)

    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; and

  2. (2)

    take into its custody or control all documents of title of the scheme property other than in respect of derivatives or forward transactions.

Delegation

COLL 15.7.8 G
  1. (1)

    1The delegation of AIFM management functions by a full-scope UK AIFM is subject to the rules in FUND 3.10 (Delegation) and articles 75 to 82 of the AIFMD level 2 regulation. See also regulation 26 of the AIFMD UK regulation.

  2. (2)

    The authorised fund manager of a long-term asset fund is required to possess the knowledge, skills and experience necessary to understand the activities of the LTAF and, in particular, the risks involved in those activities and the assets which the LTAF holds (or is to hold) in the scheme property. The authorised fund manager cannot rely on a delegation arrangement to satisfy this requirement (see COLL 15.2.4R (Competence and resources of the authorised fund manager)).

COLL 15.7.9 G
  1. (1)

    1This paragraph applies where the authorised fund manager delegates portfolio management of particular assets to a third party under FUND 3.10 (Delegation).

  2. (2)

    Where (1) applies, the authorised fund manager will need to retain adequate risk management systems to identify, measure and monitor the risks relevant to the long-term asset fund’s investment strategy in accordance with the requirements in FUND 3.7 (Risk management) and the applicable requirements of the AIFMD level 2 regulation.

    [Note: See FUND 3.7 (Risk management) and articles 38 to 47 of the AIFMD level 2 regulation.]

Delegation and responsibility for regulatory obligations

COLL 15.7.10 G
  1. (1)

    1The authorised fund manager of an LTAF should note (and will need to comply with) article 75 of the AIFMD level 2 regulation. This provides that when delegating the task of carrying out one or more functions on its behalf, an AIFM must comply with various general principles, including the principle that the delegation structure does not allow for the circumvention of the AIFM’s responsibilities or liability, and that the obligations of the AIFM towards the AIF and its investors are not altered as a result of the delegation.

  2. (2)

    Directors of an ICVC and depositaries should also have regard to SYSC 8 (Outsourcing). SYSC 8.1.6R 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 15.7.11 R
  1. (1)

    1The 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. (2)

    Paragraph (1) is subject to any provision in the instrument constituting the fund and the prospectus imposing a prohibition in relation to any type of transaction.

[Note: See articles 30 to 36 of the AIFMD level 2 regulation.]

Application of the rules on the register of unitholders: AUTs or ACSs

COLL 15.7.-12 R
  1. (1)

    2COLL 15.7.-12BR applies in respect of any scheme which is sold, promoted or otherwise made available to retail clients who are not limited protection LTAF investors.

  2. (2)

    COLL 15.7.12R may be applied to a scheme which is intended only for limited protection LTAF investors.

COLL 15.7.-12A G

2Where COLL 15.7.-12BR is not applied to a scheme which is intended only for limited protection LTAF investors, the authorised fund manager is required to take reasonable care to ensure that ownership of units in that scheme is recorded in the register only for a person who is a limited protection LTAF investor (see COLL 15.1.3R (Long-term asset funds: eligible investors)).

The register of unitholders: AUTs or ACSs (schemes made available to retail clients who are not limited protection LTAF investors)

COLL 15.7.-12B R
  1. (1)
    1. (a)

      2Either:

      1. (i)

        the manager or the trustee (as nominated in the trust deed); or

      2. (ii)

        the authorised contractual scheme manager or the depositary of the ACS (as nominated in the contractual scheme deed),

      must establish and maintain a register of unitholders as a document in accordance with this rule.

    2. (b)

      The manager or trustee or the authorised contractual scheme manager or depositary, in accordance with their duties under (1)(a), 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. (c)

      The register must contain:

      1. (i)

        the name and address of each unitholder (for joint unitholders, no more than four need to be registered);

      2. (ii)

        the number of units of each class held by each unitholder;

      3. (iii)

        the date on which the unitholder was registered for units standing in their name; and

      4. (iv)

        the number of units of each class currently in issue.

    4. (d)

      No notice of any trust (express, implied or constructive) which may be entered in the register is binding on the manager or trustee, or the authorised contractual scheme manager or depositary.

    5. (e)

      The register is conclusive evidence of the persons entitled to the units entered in it.

    6. (f)

      The person responsible for the register in (1)(a) must:

      1. (i)

        take reasonable steps to alter the register on receiving written notice of a change of name or address of any unitholder;

      2. (ii)

        make the register available for inspection free of charge in the United Kingdom by or on behalf of any unitholder (including the manager or authorised contractual scheme manager), during office hours;

      3. (iii)

        supply free of charge to any unitholder, or their authorised representative, a copy of the entries on the register relating to that unitholder on request;

      4. (iv)

        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 or authorised contractual scheme manager becomes entitled to those units (until those units are either cancelled or re-sold and paid for); and

      5. (v)

        carry out any conversion of units allowed for by (4) below after consultation with the manager or trustee or the authorised contractual scheme manager or depositary, as appropriate.

  2. (2)
    1. (a)

      Subject to (2)(c), if no person is entered in the register as the unitholder of a unit, the authorised fund manager of the AUT or ACS must be treated as the unitholder of each such unit which is in issue.

    2. (b)

      Where units are transferred to the authorised fund manager, the units need not be cancelled and the authorised fund manager need not be entered on the register as the new unitholder.

    3. (c)

      In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager, as the agent for the scheme, provided the authorised contractual scheme manager is not entered in the register as the new unitholder.

  3. (3)
    1. (a)

      Every unitholder of an AUT 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 it is permitted by the trust deed or prospectus.

    2. (b)

      Provided:

      1. (i)

        the requirements in COLL 15.8.7R (Transfer of units in an ACS) are satisfied; and

      2. (ii)

        transfers of units are allowed by the contractual scheme deed and prospectus in accordance with the conditions specified by rules,

      every unitholder of an ACS 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 it is permitted by the contractual scheme deed and prospectus.

    3. (c)

      Every instrument of transfer of units of an AUT or ACS 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 authorised fund manager, the transferor must be treated as the unitholder until the name of the transferee has been entered in the register.

    4. (d)

      In the case of an AUT or ACS, every instrument of transfer (stamped as necessary) must be left for registration, with the person responsible for the register, accompanied by:

      1. (i)

        any necessary documents that may be required by legislation; and

      2. (ii)

        any other evidence reasonably required by the person responsible for the register.

    5. (e)

      In the case of an AUT or ACS, the details of an instrument of transfer must be kept for a period of 6 years from the date of its registration.

    6. (f)

      In the case of an AUT or ACS, 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.

  4. (4)

    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.

[Note: See also COLL 15.8.7R (Transfer of units in an ACS) and the related guidance in COLL 15.8.8G in relation to transfers of units in an ACS.]

The register of unitholders: AUTs or ACSs (schemes intended only for limited protection LTAF investors)

COLL 15.7.12 R
  1. (1)

    1The authorised fund manager or the depositary of an AUT or ACS (in accordance with their responsibilities as set out in the instrument constituting the fund) must maintain a register of unitholders as a document in accordance with this rule.

  2. (2)

    The register must contain:

    1. (a)

      the name and address of each unitholder (for joint unitholders no more than four need to be registered);

    2. (b)

      the number of units (including fractions of a unit) of each class held by each unitholder; and

    3. (c)

      the date on which the unitholder was registered in the register for those units.

  3. (3)

    The authorised fund manager or the depositary of an AUT or ACS (as appropriate) must take all reasonable steps and exercise all due diligence to ensure the register is kept complete and up to date.

  4. (4)

    Where relevant, the authorised fund manager must immediately notify the depositary of an AUT or ACS of any information it receives which may affect the accuracy of any entry in the register.

  5. (5)

    In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager as the agent for the scheme provided the authorised contractual scheme manager is not entered in the register as the new unitholder.

Valuation of investments – good market practice

COLL 15.7.13 R

1Subject to any legal requirements which apply to the valuation of investments held or to be held in the scheme property of a long-term asset fund, the authorised fund manager of a long-term asset fund which carries on the valuation function itself must follow good market practice to value the investments held or to be held in the scheme property.

[Note: See FUND 3.9 (Valuation) and articles 67 to 71 of the AIFMD level 2 regulation.]

Due diligence – good market practice

COLL 15.7.14 R

1Subject to any applicable legal requirements, the authorised fund manager of a long-term asset fund must use good market practice to:

  1. (1)

    establish, implement and apply written policies and procedures on due diligence; and

  2. (2)

    implement effective arrangements for ensuring that investment decisions on behalf of the long-term asset fund are carried out in compliance with the objectives, investment strategy and, where applicable, the risk limits of the scheme.

[Note: See articles 18 to 20 of the AIFMD level 2 regulation.]

COLL 15.7.15 G

1The authorised fund manager may use an appropriate code of good market practice for the purposes of conducting due diligence on investments held or to be held in the scheme property.

Application of assessment of value, assessment of investment valuations, due diligence, conflicts of interest and liquidity management and independent director rules

COLL 15.7.16 R

Assessment of value

COLL 15.7.17 R
  1. (1)

    1An authorised fund manager must conduct an assessment at least annually for each scheme it manages of whether the payments out of scheme property set out in the prospectus are justified in the context of the overall value delivered to unitholders.

  2. (2)

    In carrying out the assessment required by (1), the AFM must, separately for each class of units in a scheme, consider at least the matters set out in COLL 6.6.21R (Table: minimum considerations – assessment of value).

COLL 15.7.18 G

1The guidance in COLL 6.6.22G applies to interpreting the requirements of COLL 6.6.21R as applied by COLL 15.7.17R.

COLL 15.7.19 E

1Failure by an AFM to take sufficient steps to address any instance where a scheme’s charges are not justified in the context of the overall value delivered to unitholders may be relied on as tending to establish contravention of COBS 2.1.1R or COBS 2.1.4R as applicable.

Assessment of investment valuations, due diligence, conflicts of interest and liquidity management

COLL 15.7.20 R
  1. (1)

    1An authorised fund manager of a long-term asset fund must conduct an assessment at least annually of how it has managed the LTAF in the best interests of the LTAF, the LTAF’s investors and the integrity of the market (see COBS 2.1.4R (AIFMs’ best interests rules)).

  2. (2)

    In carrying out the assessment required by (1), the authorised fund manager must consider at least the matters set out in COLL 15.7.21R (Table: minimum considerations – valuation of investments, due diligence, conflicts of interest and liquidity management assessment).

Table: minimum considerations – assessment of investment valuations, due diligence, conflicts of interest and liquidity management

COLL 15.7.21 R

1This table belongs to COLL 15.7.20R.

1

Valuation of investments

(1)

Where the authorised fund manager performs the valuation function itself:

(a)

how the methodologies maintained by the authorised fund manager to value the LTAF’s investments represent good market practice;

(b)

where a methodology maintained by the authorised fund manager was changed or modified in relation to the valuation of a particular investment, the rationale for that change;

(c)

the rationale for any material change to the valuation of an investment held in the scheme property during the relevant period; and

(d)

the consistency of valuation of the LTAF’s investments with those of the other AIFs managed by the authorised fund manager

(2)

Where an external valuer has been appointed, the authorised fund manager’s assessment during the relevant period of how:

(a)

the external valuer satisfied FUND 3.9.7R(3) (Performance of the valuation function);

(b)

the authorised fund manager was satisfied that it could demonstrate the matters specified in FUND 3.9.9R (Appointment of an external valuer); and

(c)

the authorised fund manager was satisfied that it could demonstrate the matters specified in FUND 3.10.2R(2)(f) (General delegation requirements).

2

Due diligence

In relation to due diligence carried out on investments, how that due diligence was carried out in accordance with good market practice (see COLL 15.7.14R (Due diligence – good market practice)).

3

Conflicts of interest

In relation to conflicts of interest:

(1)

how any conflicts of interest identified by the authorised fund manager under SYSC 10.1.23R (Additional requirements for an AIFM) and article 30 of the AIFMD level 2 regulation have been avoided, managed, monitored and (where applicable) disclosed under SYSC 10.1.24R (Additional requirements for an AIFM) and articles 31 to 36 of the AIFMD level 2 regulation; and

(2)

how, in relation to each conflict of interest identified, those actions were in the best interests of the LTAF, the LTAF’s investors and the integrity of the market.

4

Liquidity management

In relation to the management of liquidity of the long-term asset fund:

(1)

how the liquidity profile of the LTAF, taking into account borrowing (if any), has been consistent with its redemption policy;

(2)

where monitoring of the liquidity risk of the LTAF, including the results of any stress tests, has identified any liquidity management issues, how these were addressed in the best interests of the LTAF, the LTAF’s investors and the integrity of the market;

(3)

where the authorised fund manager has sold an investment held in the scheme property of the LTAF at a price adjusted to reflect the authorised fund manager’s need to meet redemption requests, how that price was determined to be in the best interests of the LTAF, the LTAF’s investors and the integrity of the market; and

(4)

how decisions to apply or refrain from applying any dilution levy or adjustment to sales and redemptions of units ensured that all investors in the LTAF were treated fairly, including those investors who were dealing in units of the LTAF, and those investors who (as applicable) were already invested or remained invested in the LTAF.

[Note: See FUND 3.6.3R (Liquidity systems and procedures) and articles 46 to 49 of the AIFMD level 2 regulation.]

Independent directors

COLL 15.7.22 R
  1. (1)

    1An authorised fund manager must ensure that at least one quarter of the members of its governing body are independent natural persons. If the AFM’s governing body comprises fewer than eight members, the AFM must instead ensure that at least two of its members are independent natural persons.

  2. (2)

    The authorised fund manager, in appointing an independent member of its governing body, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement.

  3. (3)

    The authorised fund manager must take reasonable steps to ensure that independent members appointed to its governing body have sufficient expertise and experience to be able to make judgements on whether the AFM is managing each scheme in the best interests of unitholders.

  4. (4)
    1. (a)

      Independent members of an AFM’s governing body must be appointed for terms of no longer than five years, with a cumulative maximum duration of ten years.

    2. (b)

      If an independent member is appointed to more than one governing body within an AFM’s group, the cumulative maximum duration of ten years referred to in (a) is calculated by adding the durations of each separate appointment and discounting periods during which appointments overlapped to avoid double counting.

    3. (c)

      In relation to a person who served as an independent director of an AFM’s governing body before 1 October 2019, the five-year term(s) and cumulative maximum duration of ten years run from that date.

  5. (5)

    Independent members are not eligible for reappointment to an AFM’s governing body until five years have elapsed from the end of the ten-year period referred to in (4).

  6. (6)

    The terms of employment on which independent members are appointed must be such as to secure their independence.

COLL 15.7.23 G

1The guidance in COLL 6.6.26G applies to interpreting the requirement for independence in COLL 15.7.22R.

Allocation of responsibility for compliance to an approved person

COLL 15.7.24 R
  1. (1)

    1An AFM must allocate responsibility for ensuring its compliance with COLL 15.7.17R, COLL 15.7.20R, COLL 15.7.22R and COBS 2.1.4R (AIFMs’ best interests rules) to an approved person.

  2. (2)

    Where the chair of the AFM’s governing body is an approved person, the AFM must allocate the responsibility set out in (1) to that person.

    [Note: See SYSC 24 (Senior managers and certification regime: Allocation of prescribed responsibilities).]