Content Options:

Content Options

View Options:


You are viewing the version of the document as on 2023-11-07.

COLL 15.1 Introduction

Application

COLL 15.1.1 R
  1. (1)

    1This chapter applies to:

    1. (a)

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

    2. (b)

      any other director of an ICVC;

    3. (c)

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

    4. (d)

      an ICVC,

      which is a long-term asset fund.

  2. (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 long-term asset funds.

Purpose

COLL 15.1.2 G
  1. (1)

    1This chapter assists in achieving the statutory objective of securing an appropriate degree of protection for consumers 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 a UCITS scheme or a non-UCITS retail scheme.

  2. (2)

    A long-term asset fund is essentially a 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. The FCA expects the investment strategy of an LTAF to be to invest at least 50% of the scheme property of an LTAF in assets that are illiquid and need to be held over the longer term.

  3. (3)

    In comparison to qualified investor schemes, long-term asset funds have greater flexibility in their investment powers. Therefore, to assist the FCA in achieving the statutory objective of securing an appropriate degree of protection for consumers, this chapter balances this additional flexibility by placing other requirements on the authorised fund managers and depositaries of LTAFs.

  4. (4)

    This chapter ceases to apply where a long-term asset fund has converted to be authorised as a UCITS scheme, a non-UCITS retail scheme or a qualified investor scheme.

Long-term asset funds: eligible investors

COLL 15.1.3 R
  1. (1)

    1Subject to (3), the authorised fund manager of a long-term asset fund must take reasonable care to ensure that ownership of units in that scheme is recorded in the register only for a person to whom such units may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

    2
  2. (2)

    In addition to (1), the authorised contractual scheme manager of a long-term asset fund which is an ACS must take reasonable care to ensure that ownership of units in that scheme is only recorded in the register for a person that meets the criteria set out in COLL 15 Annex 1R (ACS Long-term asset funds: eligible investors).

  3. (3)

    The authorised fund manager will be regarded as complying with (1) and (2) to the extent that it can show that it was reasonable for it to rely on relevant information provided by another person.

  4. (4)

    3Where:

    1. (a)

      the scheme is intended only for limited protection LTAF investors or the scheme has a limited protection LTAF class; and

    2. (b)

      COLL 15.5.-10BR to COLL 15.5.-10EG, COLL 15.5.-12BR, COLL 15.7.-12BR, and COLL 15.8.15EG to COLL 15.8.15PR have not been applied in relation to the scheme or the limited protection LTAF class,

    the authorised fund manager must also take reasonable care to ensure that ownership of units in the scheme or class is recorded in the register only for a person who is a limited protection LTAF investor.

Long-term asset funds - explanation

COLL 15.1.4 G
  1. (1)

    1Long-term asset funds are authorised funds which are subject to a restriction on promotion. They are3 intended only for professional clients and for retail clients who are sophisticated investors,3certified high net worth investors, and those retail clients to whom long-term asset funds may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

    2
  2. (2)

    The authorised contractual scheme manager of a long-term asset fund which is an ACS must take reasonable care to ensure that it accepts subscription to units in the LTAF only from a person to whom such units may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3 and who also meets the criteria in COLL 15 Annex 1R.

    2
  3. (3)
    1. (a)

      3Some of the rules in COLL 15 relating to:

      1. (i)

        alterations to schemes, notices to unitholders and change events for feeder LTAFs (see COLL 15.5.-10BR to COLL 15.5.-10DR);

      2. (ii)

        unitholder meetings (see COLL 15.5.-12BR);

      3. (iii)

        the register (see COLL 15.7.-12BR); and

      4. (iv)

        payments (COLL 15.8.15CR to COLL 15.8.15PR),

      apply where the scheme or (where applicable) a particular class of unit is made available to retail clients who are not limited protection LTAF investors (an LTAF retail class).

    2. (b)

      These rules may also be applied to a scheme or class that is intended only for limited protection LTAF investors. Where the rules are not applied in relation to such a scheme or a class, the authorised fund manager is required under COLL 15.1.3R(4) to take reasonable care to ensure that ownership of units in the scheme or class is recorded in the register only for a person who is a limited protection LTAF investor.

Application and notification procedures

COLL 15.1.5 G

1Details of the application procedures in respect of long-term asset funds are contained in COLL 2.1 (Authorised fund applications). Further information is available on the FCA website at www.fca.org.uk/firms/authorised-recognised-funds/apply-fund-authorisation.

COLL 15.2 Eligibility to act as the authorised fund manager

Application

COLL 15.2.1 R

1This section applies to:

  1. (1)

    the 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.

Authorised fund manager to be a full-scope UK AIFM

COLL 15.2.2 R
COLL 15.2.3 G
  1. (1)

    1To ensure an appropriate degree of consumer protection, only a full-scope UK AIFM is able to act as the authorised fund manager for an LTAF.

  2. (2)

    Full-scope UK AIFMs that manage authorised AIFs are subject to the requirements of both COLL and FUND, and must also comply with any other applicable provisions of the UK AIFM regime, including the AIFMD level 2 regulation and the AIFMD UK regulation. Small authorised UK AIFMs are subject to a more limited set of rules and requirements.

Competence and resources of the authorised fund manager

COLL 15.2.4 R
  1. (1)

    1The authorised fund manager of a long-term asset fund must, having regard to the investment objectives, policy and strategy of the LTAF:

    1. (a)

      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; and

    2. (b)

      employ sufficient personnel with the skills, knowledge and expertise necessary for discharging the responsibilities allocated to them.

  2. (2)

    The authorised fund manager may not rely on a delegation or outsourcing arrangement to satisfy (1).

COLL 15.2.5 R

1The authorised fund manager of a long-term asset fund must at all times be able to demonstrate to the FCA that it complies with COLL 15.2.4R.

[Note: Article 22 of the AIFMD level 2 regulation.]

Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets

COLL 15.2.6 R
  1. (1)

    1The authorised fund manager of a long-term asset fund must appoint an external valuer to perform the valuation function for the LTAF, but this is subject to (2) and (5).

  2. (2)

    The authorised fund manager need not appoint an external valuer under (1) if:

    1. (a)

      the authorised fund manager possesses the knowledge, skills and experience necessary to be able to carry out a proper and independent valuation of the assets and types of assets which the long-term asset fund holds or is to hold (see FUND 3.9.4R); and

    2. (b)

      the depositary of the long-term asset fund, having made an assessment of the matters in (a), has determined that the authorised fund manager has the resources and procedures for carrying out a valuation of those assets in accordance with the applicable law, the instrument constituting the fund and FUND 3.9 (Valuation).

  3. (3)

    1The depositary must:

    1. (a)

      review its determination under (2)(b):

      1. (i)

        regularly, and in any event at least annually; and

      2. (ii)

        whenever the depositary becomes aware of any circumstances which could affect the determination;

    2. (b)

      for a period of six years, keep a written record of its determination under (2)(b) and any review under (3)(a), and the reasons for the assessment; and

    3. (c)

      provide the FCA with a copy of the written record on request.

  4. (4)

    Where the authorised fund manager performs the valuation function itself in accordance with (2), the authorised fund manager may appoint, as applicable:

    1. (a)

      for the purpose of valuing immovables in accordance with COLL 15.6.18R (Investment in property), an appropriate valuer;

    2. (b)

      for the purpose of valuing immovables in accordance with COLL 15.6.22R (Standing independent valuer and valuation), a standing independent valuer;

    3. (c)

      for the purpose of valuing an asset other than an immovable or property, a delegate appointed in accordance with FUND 3.10 (Delegation) and the relevant provisions of section 8 (Delegation of AIFM functions) of Chapter III of the AIFMD level 2 regulation.

  5. (5)

    The authorised fund manager need not appoint an external valuer under (1) if:

    1. (a)

      the scheme property of the long-term asset fund is constituted solely of units or shares in other collective investment schemes or AIFs; and

    2. (b)

      an external valuer performs the valuation function of each such collective investment scheme or AIF.

[Note: FUND 3.9 (Valuation), FUND 3.10 (Delegation), FUND 3.11.25R (Depositary functions: oversight), article 19(5) of AIFMD, and articles 67 to 74 (Valuation) and article 94(4) (Duties regarding the valuation of shares/units) of the AIFMD level 2 regulation.]

COLL 15.2.7 G

1Where an authorised fund manager appoints an external valuer under COLL 15.2.6R(1) certain additional requirements apply. For example, FUND 3.9.7R(3) (Performance of the valuation function) sets certain conditions relating to the independence of the external valuer, and the authorised fund manager will also need to be able to demonstrate the matters set out in FUND 3.9.9R (Appointment of external valuer). The AIFMD level 2 regulation contains further requirements that apply to the authorised fund manager where an external valuer is used. Certain requirements also apply to the external valuer and the depositary of an LTAF with an external valuer.

[Note: Articles 67 to 74 and article 94(4) of the AIFMD level 2 regulation.]

COLL 15.2.8 R

1The governing body of the authorised fund manager of a long-term asset fund must:

  1. (1)

    possess the collective knowledge, skills and experience to be able to understand the authorised fund manager’s activities, in particular, the main risks involved in those activities and the assets in which the long-term asset fund is invested;

  2. (2)

    have members that commit sufficient time to properly perform their functions in the authorised fund manager; and

  3. (3)

    have members that act with honesty, integrity and independence of mind.

[Note: Article 21 of the AIFMD level 2 regulation.]

COLL 15.2.9 G
  1. (1)

    1In order to establish whether an authorised fund manager of a long-term asset fund conducts its activities honestly, fairly and with due skills, the FCA is required to assess various matters, including those set out in articles 21 and 22 of the AIFMD level 2 regulation. In addition, under COLL 15.2.4R, the authorised fund manager must 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 without relying on delegation arrangements to satisfy the requirement.

  2. (2)

    The authorised fund manager of a long-term asset fund is subject to various other requirements relating to its governance arrangements; its organisational structure; the skills, knowledge, expertise and competence of those it employs; and its obligation to act honestly, fairly and with due skill, care and diligence. See for example the rules in SYSC 4 (General organisational requirements), SYSC 5 (Employees, agents and other relevant persons) and COBS 2.1 (Acting honestly, fairly and professionally).

  3. (3)

    The authorised fund manager of a long-term asset fund should also note the organisational requirements set out in the AIFMD level 2 regulation; for example, article 57 (General requirements).

COLL 15.3 Constitution

Application

COLL 15.3.1 R

1This section applies to an authorised fund manager of a long-term asset fund.

Classes of unit

COLL 15.3.2 R

1A long-term asset fund may issue such classes of unit as are set out in the instrument constituting the fund, 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.

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

COLL 15.3.3 R
  1. (1)

    1The authorised fund manager must ensure that the name of the scheme, a sub-fund or a class of unit is not undesirable or misleading.

  2. (2)

    The authorised fund manager of a long-term asset fund must include the term ‘long-term asset fund’ or ‘LTAF’ in the name of the scheme and in relation to any sub-fund which is also a long-term asset fund.

Undesirable and misleading names

COLL 15.3.4 G
  1. (1)

    1COLL 6.9.6G (Undesirable and misleading names) contains guidance as to names which may be undesirable or misleading.

  2. (2)

    The term ‘Long-Term Asset Fund’ or ‘LTAF’ is reserved for a long-term asset fund whose authorised fund manager operates, or proposes to operate, it in accordance with the rules in this chapter.

  3. (3)

    Only AIFs that are authorised in accordance with the LTIF Regulation may use the designation ‘LTIF’ or ‘long-term investment fund’.

Instrument constituting the fund

COLL 15.3.5 R
  1. (1)

    The statements and provisions required by COLL 15.3.6R must be included in the instrument constituting the fund of a long-term asset fund.

  2. (2)

    The instrument constituting the fund must not contain any provision that conflicts with any applicable rule.

Table: contents of the instrument constituting the fund

COLL 15.3.6 R

This table belongs to COLL 15.3.5R.

1

Description of the authorised fund

Information detailing:

(1)

the name of the authorised fund;

(2)

that the authorised fund is a long-term asset fund;

(3)

in the case of an ICVC, whether the head office of the company is situated in England and Wales, Wales, Scotland or Northern Ireland.

2

Property Authorised Investment Funds

For a property authorised investment fund, a statement that:

(1)

it is a property authorised investment fund;

(2)

no body corporate may seek to obtain or intentionally maintain a holding of more than 10% of the net asset value of the scheme; and

(3)

in the event that the authorised fund manager reasonably considers that a body corporate holds more than 10% of the net asset value of the scheme, the authorised fund manager is entitled to delay any redemption or cancellation of units in accordance with 8 if the authorised fund manager reasonably considers such action to be:

(a)

necessary in order to enable an orderly reduction of the holding to below 10%; and

(b)

in the interests of the unitholders as a whole.

3

Constitution

The following statements:

(1)

the scheme property of the scheme is entrusted to a depositary for safekeeping (subject to any exception permitted by the rules);

(2)

if relevant, the duration of the scheme is limited and, if so, for how long;

(3)

charges and expenses of the scheme may be taken out of scheme property;

(4)

for an ICVC:

(a)

what the maximum and minimum sizes of the scheme’s capital are; and

(b)

the unitholders are not liable for the debts of the company;

(5)

for an ICVC which is an umbrella, a statement that the assets of a sub-fund belong exclusively to that sub-fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the umbrella, or any other sub-fund, and shall not be available for any such purpose;

(6)

for a co-ownership scheme which is an umbrella, the property subject to a sub-fund is beneficially owned by the participants in that sub-fund as tenants in common (or, in Scotland, is the common property of the participants in that sub-fund) and must not be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund;

(7)

for a limited partnership scheme, that the scheme prohibits pooling as is mentioned in section 235(3)(a) of the Act in relation to separate parts of the scheme property, with the effect that the scheme cannot be an umbrella;

(8)

for an AUT:

(a)

the trust deed:

(i)

is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland;

(ii)

is binding on each unitholder as if that person had been a party to it, and that the unitholder is bound by its provisions; and

(iii)

authorises and requires the trustee and the manager to do the things required or permitted of them by its terms;

(b)

subject to the provisions of the trust deed and all the rules made under section 247 of the Act (Trust scheme rules):

(i)

the scheme property (other than sums held to the credit of the distribution account) is held by the trustee on trust for the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of individual shares in the scheme property represented by the units held by each unitholder; and

(ii)

the sums standing to the credit of any distribution account are held by the trustee on trust to distribute or apply them in accordance with COLL 15.8.18R (Income);

(c)

a unitholder is not liable to make any further payment after having paid the price of the units held, and that no further liability can be imposed on the unitholder in respect of those units; and

(d)

payments to the trustee by way of remuneration are authorised to be paid (in whole or in part) out of the scheme property; and

(9)

for an ACS:

(a)

the contractual scheme deed:

(i)

is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland;

(ii)

is binding on each unitholder as if that person had been a party to it, and that the unitholder is bound by its provisions;

(iii)

authorises and requires the depositary and the authorised contractual scheme manager to do the things required or permitted of them by its terms; and

(iv)

states that units may not be issued to a person other than a person:

(A)

who is a:

(i)

professional ACS investor; or

(ii)

large ACS investor; or

(iii)

person who already holds units in the scheme; and

(B)

to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3;

2

(v)

states that the authorised contractual scheme manager of an ACS must redeemunits as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in (iv)(A) and (B);

(vi)

states that for a co-ownership scheme:

(A)

the scheme property is beneficially owned by the participants as tenants in common (or, in Scotland, is the common property of the participants);

(B)

the arrangements constituting the scheme are intended to constitute a co-ownership scheme as defined in section 235A(2) of the Act; and

(C)

the operator and depositary are required to wind up the scheme if directed to do so by the FCA in exercise of its power under section 261X (Directions) of the Act;

(vii)

states:

(A)

whether the transfer of units in the ACS scheme or, for a co-ownership scheme which is an umbrella (sub-funds of which pursue differing policies in relation to transfer of units), in each particular sub-fund, is either:

(i)

prohibited; or

(ii)

allowed;

(B)

where a transfer of units is allowed by the scheme or, where appropriate the sub-fund, in accordance with (A)(ii), units may only be transferred in accordance with the conditions specified by FCA rules, including that units may not be transferred to a person other than a person:

(i)

who is a:

(1)

professional ACS investor; or

(2)

large ACS investor; or

(3)

person who already holds units in the scheme; and

(ii)

to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3; and

2

(viii)3

states that for a limited partnership scheme, the scheme is not dissolved on any person ceasing to be a limited partner or nominated partner provided that there remains at least one limited partner;

(b)

subject to the provisions of the contractual scheme deed and all the rules made under section 261I of the Act (Contractual scheme rules) and for the time being in force:

(i)

the scheme property (other than sums standing to the credit of the distribution account) is held by, or to the order of, the depositary for and on behalf of the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of individual shares in the scheme property represented by the units held by each unitholder; and

(ii)

the sums standing to the credit of any distribution account are held by the depositary to distribute or apply them in accordance with COLL 15.8.18R (Income); and

(c)

a unitholder in a co-ownership scheme is not liable to make any further payment after having paid the price of the units held, and that no further liability can be imposed on the unitholder in respect of those units;

(d)

a unitholder in a limited partnership scheme is not liable for the debts or obligations of the limited partnership scheme beyond the amount of the scheme property which is available to the authorised contractual scheme manager to meet such debts or obligations, provided that the unitholder does not take part in the management of the partnership business;

(e)

the exercise of rights conferred on limited partners by FCA rules does not constitute taking part in the management of the partnership business;

(f)

the limited partners, other than the nominated partner, are to be the participants in the scheme; and

(g)

the operator of a co-ownership scheme is authorised to:

(i)

acquire, manage and dispose of the scheme property; and

(ii)

enter into contracts which are binding on unitholders for the purposes of, or in connection with, the acquisition, management or disposal of scheme property.

4

Investment objectives

A statement of the object of the scheme, in particular the types of investments and assets in which it and each sub-fund (where applicable) may invest and that the object of the scheme is to invest in property of that kind with the aim of spreading investment risk.

5

Units in the scheme

A statement of:

(1)

the classes of units which the scheme may issue, indicating, for a scheme which is an umbrella, which class or classes may be issued in respect of each sub-fund; and

(2)

the rights attaching to units of each class (including any provisions for the expression in two denominations of such rights).

6

Limitation on issue of and redemption of units

(1)

Details as to:

(a)

the provisions relating to any restrictions on the right to redeem units in any class; and

(b)

the circumstances in which the issue of the units of any particular class may be limited.

(2)

A statement setting out the dealing frequency for sales and redemptions of units in the scheme, and the applicable notice period for redemptions.

3(3)

Where COLL 15.1.3R(4) (Long-term asset funds: eligible investors) applies, a statement that the authorised fund manager must take reasonable care to ensure that ownership of units in the scheme or a relevant class is recorded in the register only for a person who is a limited protection LTAF investor.

7

Income and distribution

Details of the person responsible for the calculation, transfer, allocation and distribution of income for any class of unit in issue during the accounting period.

8

Redemption or cancellation of units on breach of law or rules

A statement that where any holding of units by a unitholder is (or is reasonably considered by the authorised fund manager to be) an infringement of any law, governmental regulation or rule, those units must be redeemed or cancelled.

9

Base currency

A statement of the base currency of the scheme.

10

Meetings

Details of the procedures for the convening of meetings and the procedures relating to resolutions, voting and the voting rights for unitholders.

11

Powers and duties of the authorised fund manager and depositary

Where relevant, details of any function to be undertaken by the authorised fund manager and depositary which the rules in COLL require to be stated in the instrument constituting the fund.

12

Termination and suspension

Details of:

(1)

the grounds under which the authorised fund manager may initiate a suspension of the scheme and any associated procedures; and

(2)

the methodology for determining the rights of unitholders to participate in the scheme property on winding up.

13

Investment in overseas property through an intermediate holding vehicle

If investment in an overseas immovable is to be made through an intermediate holding vehicle or a series of intermediate holding vehicles, a statement that the purpose of that intermediate holding vehicle or series of intermediate holding vehicles will be to enable the holding of overseas immovables by the scheme.

14

Other relevant matters

Details of those matters which enable the scheme, authorised fund manager or depositary to obtain any privilege or power conferred by the rules in COLL which is not otherwise provided for in the instrument constituting the fund.

Limited issue

COLL 15.3.7 R

1 Units whose issue may be limited can only be issued if permitted by the instrument constituting the fund, under the conditions set out in the prospectus and provided that this will not materially prejudice any existing unitholders in the scheme.

COLL 15.4 Prospectus and other pre-sale notifications

Application

COLL 15.4.1 R

1This section applies to:

  1. (1)

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

  2. (2)

    an ICVC,

    which is a long-term asset fund.

Drawing up and availability of a prospectus

COLL 15.4.2 R
  1. (1)

    1An authorised fund manager must ensure that a prospectus of a long-term asset fund is drawn up which contains:

    1. (a)

      the information specified in COLL 15.4.5R (Table: contents of long-term asset fund prospectus);

    2. (b)

      the information for investors required by FUND 3.2.2R and FUND 3.2.3R (Prior disclosure of information to investors); and

    3. (c)

      the information for investors required by FUND 3.2.5R and FUND 3.2.6R (Periodic disclosure), unless the up-to-date information has been published in the scheme’s most recent annual report or half-yearly report.

  2. (2)

    An authorised fund manager must:

    1. (a)

      revise the prospectus immediately upon the occurrence of any materially significant change in the information required to be stated within it;

    2. (b)

      include the date of any revision in a prominent manner in the revised prospectus;

    3. (c)

      send a copy of the original and any revised prospectus to the FCA; and

    4. (d)

      review the prospectus periodically and revise it to take account of any significant change or new matter.

  3. (3)

    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.

  4. (4)

    The authorised fund manager must ensure that the prospectus does not contain any provision that conflicts with any applicable rule.

  5. (5)

    An ICVC or the authorised fund manager of an AUT or ACS must offer a copy of the scheme’s most recent prospectus free of charge to any person eligible to invest in a long-term asset fund, prior to the purchase of any units.

COLL 15.4.3 G
  1. (1)

    1The information specified in COLL 15.4.5R (Table: contents of long-term asset fund prospectus) includes the provisions specified in FUND 3.2.2R(1) to 3.2.2R(12) and 3.2.2R(16), as well as certain additional pieces of information. A ‘Note’ indicates whether the information is derived from FUND 3.2.2R.

  2. (2)

    The authorised fund manager of an LTAF will also need to comply with FUND 3.2.2R by providing investors with the information specified in FUND 3.2.2R(13) to 3.2.2R(15) and 3.2.2R(17).

False or misleading prospectus

COLL 15.4.4 R

1The 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.

Table: contents of a long-term asset fund prospectus

COLL 15.4.5 R

This table belongs to COLL 15.4.2R.

1

Document status

A statement that this document is the prospectus of the authorised fund valid as at a particular date which shall be the date of the document.

2

Description of the authorised fund

Information detailing:

(1)

the name of the authorised fund;

(2)

its FCA product reference number (PRN);

(3)

that the authorised fund is either an ICVC, ACS or an AUT;

(4)

that the scheme is a long-term asset fund;

(5)

where relevant, that the shareholders in an ICVC are not liable for the debts of the authorised fund;

(6)

where relevant, the address of the ICVC’s head office and the address in the United Kingdom for service on the ICVC of documents required or authorised to be served on it;

(7)

the effective date of the authorisation order made by the FCA and, if the duration of the authorised fund is not unlimited, when it will or may terminate;

(8)

the base currency for the authorised fund;

(9)

where relevant, the maximum and minimum sizes of the ICVC’s capital;

(10)

for an ACS that is a limited partnership scheme, the address of the proposed principal place of business of the limited partnership scheme; and

(11)

a description of the other main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, the applicable law and the existence or absence of any legal instruments providing for the recognition and enforcement of judgments.

[Note: FUND 3.2.2R(3).]

3

Investment objectives, policy and strategy

The following particulars, which must be set out fairly, clearly and in plain language:

(1)

Information to enable a unitholder to ascertain:

(a)

the investment objectives of the authorised fund;

(b)

the authorised fund’s investment policy for achieving those investment objectives, including:

(i)

the general nature of the portfolio and any intended specialisation;

(ii)

the policy for providing a prudent spread of risk in the scheme property; and

(iii)

the policy in relation to the exercise of powers to borrow cash and use leverage, including:

(A)

the purposes for which cash borrowing and leverage may be used;

(B)

the nature of the cash borrowing, including whether it is short- or long-term, temporary or otherwise;

(C)

the types and sources of leverage permitted and the associated risks;

(D)

any restrictions on the use of leverage and any collateral and asset reuse arrangements;

(E)

the maximum level of leverage which the authorised fund manager is entitled to employ on behalf of the LTAF;

(F)

an explanation of how and why that is compatible with the objectives of the LTAF;

(c)

whether there are any restrictions in the assets which may be held in the scheme property; and

(d)

the extent (if any) to which that investment policy does not envisage remaining fully invested at all times.

(2)

A description of the investment strategy of the long-term asset fund which must comply with COLL 15.6.6R (Long-term asset funds: investment strategy).

[Note: FUND 3.2.2R(1)(a), FUND 3.2.2R(1)(f) and FUND 3.2.2R(1)(g) to 3.2.2R(1)(j).]

4

Feeder LTAFs

If the LTAF is a feeder LTAF:

(1)

the name and (where applicable) the FCA product reference number (PRN) of the qualifying master LTAF;

(2)

the country or territory where the qualifying master LTAF is established; and

(3)

the following details of the qualifying master LTAF:

(a)

its investment objective, policy and strategy, including its risk profile;

(b)

the minimum and (if relevant) maximum investment that the feeder LTAF may make in it;

(c)

how copies of its prospectus may be obtained;

(d)

how the unitholders of the feeder LTAF may obtain further information about it; and

(e)

a description of all remuneration or reimbursement of costs payable by the feeder LTAF by virtue of its investment in units of the qualifying master LTAF, as well as the aggregate charges of the two schemes.

[Note: FUND 3.2.2R(1)(b).]

5

Fund of funds

If the LTAF is a fund of funds, information on where the underlying funds are established.

[Note: FUND 3.2.2R(1)(c).]

6

Assets in which the LTAF may invest

A description of the types of assets in which the LTAF may invest, including, where relevant:

(1)

for investment in immovables:

(a)

the countries or territories in which the authorised fund may invest in immovables;

(b)

the authorised fund manager’s policy in relation to insuring any immovables which form part of the scheme property; and

(c)

the policy of the authorised fund manager in relation to the granting of options over immovables in the scheme property and the purchase of options on immovables.

(2)

if intended, whether the scheme property may consist of units in collective investment schemes (“second schemes”) which are managed by or operated by the authorised fund manager or by one of its associates and a statement as to:

(a)

the basis of the maximum amount of the charges in respect of transactions in a second scheme; and

(b)

the extent to which any such charges will be reimbursed to the scheme;

(3)

if intended, whether the scheme may enter into stock lending arrangements and repo contracts and, if so, what procedures will operate and what collateral will be required.

[Note: FUND 3.2.2R(1)(d).]

7

Investment techniques and associated risks

At least the following information, which must be set out fairly, clearly and in plain language, about the investment techniques that the authorised fund manager may employ and all associated risks, including:

(1)

having regard to the investment strategy of the long-term asset fund and the type of assets in which the scheme may invest, an explanation of the risks associated with the scheme investing in those assets and how those risks might crystallise;

(2)

any other risks for unitholders investing in the long-term asset fund;

(3)

a description of the tools and arrangements the authorised fund manager would propose using, including those required by rules, to mitigate the risks referred to in (1) and (2); and

(4)

an explanation of the circumstances in which those tools and arrangements would typically be deployed and the likely consequences for investors.

[Note: FUND 3.2.2R(1)(e).]

8

Procedures to change of strategy or policy

A description of the procedures by which the authorised fund manager of the LTAF may change its investment objective and policy or its investment strategy, or both.

[Note: FUND 3.2.2R(2).]

9

Classes of units

Information as to:

(1)

the names of the classes of units in issue or available for issue and the rights attached to them in so far as they vary from the rights attached to other classes;

(2)

how unitholders may exercise their voting rights and what these are; and

(3)

the circumstances where a mandatory redemption, cancellation or conversion of units from one class to another may be required.

[Note: FUND 3.2.2R(3), (8), (9), (11) and (12).]

10

Identity and duties of the authorised fund manager, depositary, auditor and other service providers, and investors’ rights

(1)

The following particulars of the authorised fund manager:

(a)

its name and the nature of its corporate form;

(b)

the country or territory of its incorporation;

(c)

the date of its incorporation and if the duration of its corporate status is limited, when that status will or may cease;

(d)

if it is a subsidiary, the name of its ultimate holding company and the country or territory in which that holding company is incorporated;

(e)

the address of its registered office, its head office, and, if different, the address of its principal place of business in the United Kingdom;

(f)

the amount of its issued share capital and how much of it is paid up;

(g)

for an ICVC, a summary of the material provisions of the contract between the ICVC and the authorised fund manager which may be relevant to unitholders including provisions (if any) relating to termination, compensation on termination and indemnity;

(h)

the names of the directors of the authorised fund manager; and

(i)

a description of the duties of the authorised fund manager.

(2)

Where the LTAF is an ICVC, other than for the ACD:

(a)

the names and positions in the ICVC of the directors; and

(b)

the manner, amount and calculation of the remuneration of the directors.

(3)

The following particulars of the depositary

(a)

its name and the nature of its corporate form;

(b)

the country or territory of its incorporation;

(c)

the address of its registered office and the address of its head office if that is different from the address of its registered office;

(d)

if neither its registered office nor its head office is in the United Kingdom, the address of its principal place of business in the United Kingdom; and

(e)

a description of the duties of the depositary.

(4)

If an investment adviser or any other person is retained to provide services in connection with the business of the authorised fund:

(a)

the name of the person;

(b)

whether or not the person is authorised by the FCA; and

(c)

a description of the duties of the person.

(5)

The name of the auditor of the authorised fund and a description of the duties of the auditor.

[Note: FUND 3.2.2R(4).]

11

Professional liability

A description of how the authorised fund manager complies with the requirements referred to in IPRU-INV 11.3.11G (Professional negligence) relating to professional liability risk.

[Note: FUND 3.2.2R(5).]

12

Delegation arrangements

To the extent not covered by (10), a description of:

(1)

any AIFM management function delegated by the authorised fund manager;

(2)

any safe-keeping function delegated by the depositary;

(3)

the identity of each delegate appointed under FUND 3.10 (Delegation); and

(4)

any conflicts of interest that may arise from such delegation.

[Note: FUND 3.2.2R(6).]

13

Valuation of scheme property and due diligence

(1)

A statement setting out whether the valuation function is performed by an external valuer or the authorised fund manager and:

(a)

where an external valuer is used to perform the valuation function, an explanation of how that person meets the requirements set out in FUND 3.9.7R(3) (Performance of the valuation function) and the relevant requirements in articles 67 to 74 of the AIFMD level 2 regulation, and how the authorised fund manager is able to demonstrate the matters specified in FUND 3.9.9R (Appointment of an external valuer) and FUND 3.10.2R(2)(f) (General delegation requirements); or

(b)

where the authorised fund manager performs the valuation function itself, details of the depositary’s determination of the matters referred to in COLL 15.2.6R(2) (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets).

2

A description of the valuation procedure and of the pricing methodology for valuing assets, including the methods used in valuing hard-to-value assets, in line with FUND 3.9 (Valuation), and details as to:

(a)

how frequently and at what times of the day the scheme property will be regularly valued to determine the price at which units in the scheme may be purchased from or redeemed by the authorised fund manager and a description of any circumstance where the scheme property may be specially valued;

(b)

in relation to each purpose for which the scheme property must be valued and each category of asset held in the scheme property, the basis on which it will be valued, identifying any codes of good practice used by the external valuer (where relevant) or the authorised fund manager; and

(c)

how the price of units of each class will be determined, including a statement that a forward price basis is to be applied.

(3)

Details as to:

(a)

the authorised fund manager’s policies and procedures in relation to the selection and ongoing monitoring of investments (see article 18(2) of the AIFMD level 2 regulation);

(b)

the arrangements for ensuring that investment decisions on behalf of the long-term asset fund are carried out in compliance with the objectives and the investment strategy of the scheme (see article 18(3) of the AIFMD level 2 regulation);

(c)

how the authorised fund manager will carry out due diligence in line with good market practice.

[Note: FUND 3.2.2R(7).]

[Note 2: Articles 67 to 71 of the AIFMD level 2 regulation contain detailed requirements relating to the valuation of assets by full-scope UK AIFMs. Articles 18 and 19 of the AIFMD level 2 regulation also contain detailed requirements relating to the due diligence obligations of full-scope UK AIFMs.]

14

Fees, charges and expenses

A description of all fees, charges and expenses, including:

(1)

the maximum amounts directly or indirectly borne by investors;

(2)

the payments that may be made out of the scheme property to any person whether by way of remuneration for services, reimbursement of expense, or charge or other payment and for each category of remuneration, expense, charge or payment the following should be specified:

(a)

(i)

the person to whom the remuneration, charge, expense or payment is payable or made;

(ii)

what that payment is for;

(iii)

the current rates or amounts of such remuneration, charge, expense or payment;

(iv)

how the remuneration, charge, expense or payment will be calculated;

(v)

when it will be paid; and

(vi)

where a performance fee is taken, whether by the authorised fund manager or any other person providing services to the authorised fund manager or the long-term asset fund in relation to the operation of the scheme, examples of how the performance fee works in plain English and the maximum it can amount to;

(b)

if notice has been given to unitholders of the authorised fund manager’s intention to:

(i)

introduce a new category of remuneration for its services;

(ii)

increase the basis of any current charge; or

(iii)

change the basis of the treatment of a payment from the capital property set out in COLL 15.8.15JR (Allocation of payments to income or capital) and COLL 15.8.15QR(2) (Payments: limited protection LTAF classes) (as applicable)3,

particulars of that introduction or increase and when it will take place; and

(c)

if, in accordance with COLL 15.8.15JR (Allocation of payments to income or capital) and COLL 15.8.15QR(2) (Payments: limited protection LTAF classes) (as applicable)3, all or part of the remuneration or expense are to be treated as a capital charge:

(i)

that fact; and

(ii)

the basis of the charge which may be so treated; and

(3)

if the authorised fund manager makes any charges on sale or redemption of units, details of the charging structure and how notice will be provided to unitholders of any increase.

[Note: FUND 3.2.2R(9).]

[Note 2: Annex VI of the onshored Commission Delegated Regulation (EU) 2017/653 laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents, sets out detailed requirements in relation to the costs to be disclosed in a key information document.]

15

Fair treatment of investors and investor rights

(1)

A description of how the authorised fund manager ensures a fair treatment of investors.

(2)

Whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of:

(a)

that preferential treatment;

(b)

the type of investors who obtain such preferential treatment; and

(c)

where relevant, their legal or economic links with the LTAF or the authorised fund manager.

(3)

A description of the rights of investors.

[Note: FUND 3.2.2R(4), FUND 3.2.2R(10) and FUND 3.2.2R(11).]

16

Dealing

The procedure and conditions for the issue, sale, redemption and cancellation of units or shares including details of the following, in fair, clear and plain language, using worked examples to explain how these procedures might apply to unitholders in practice:

(1)

the dealing days and times in the dealing day on which the authorised fund manager will receive and determine requests for the sale and redemption of units, including any cut-off point for receiving redemption requests before the authorised fund manager makes the next redemption determination (see COLL 15.8.12R(2)(a) (Dealing: redemption of units));

(2)

the procedures for effecting the issue and cancellation of units;

(3)

the procedures for effecting the sale and redemption of units and the settlement of transactions;

(4)

the steps required to be taken by a unitholder in redeeming units in the long-term asset fund (see COLL 15.8.12R (Dealing: redemption of units)), using worked examples to explain how these arrangements may affect unitholders in the scheme, including:

(a)

the notice period, and the normal period that unitholders will need to wait from the authorised fund manager accepting a unitholder’s instruction to redeemunits in the LTAF to payment of the appropriate proceeds of redemption to the unitholder;

(if applicable) the circumstances and periods where:(b)

(i)

the execution of a redemption request may be deferred;

(ii)

payment may be deferred; or

(iii)

a limit on the amount that can be redeemed may be applied, and

if so, the effect on the unitholder of such a deferral or limit (see COLL 15.8.12R(6) (Dealing: redemption of units));

(c)

that the notice period may be extended when the scheme is suspended in accordance with COLL 15.10.3R (Suspension); and

(d)

that once the authorised fund manager has accepted a unitholder’s request to redeem units in the LTAF it is irrevocable and they will not be able to withdraw that request;

(5)

a description of the LTAF’s liquidity risk management, including how an investor’s ability to redeem units in the LTAF may be affected in exceptional circumstances, and the circumstances in which the redemption of units may be suspended;

(6)

the days and times in the day on which recalculation of the price will commence;

(7)

details of the minimum number or value of each type of unit in the authorised fund which:

(a)

any one person may hold; and

(b)

may be the subject of any one transaction of sale or redemption;

(8)

the circumstances in which the authorised fund manager may arrange for, and the procedure for, a redemption of units in specie;

(9)

the circumstances in which the further issue of units in any particular class may be limited and the procedures relating to this;

(10)

the circumstances in which direct issue or cancellation of units by the ICVC or the depositary of an AUT or ACS (as appropriate) may occur and the relevant procedures for such issues and cancellations;

3(10A)

(where COLL 15.1.3R(4) (Long-term asset funds: eligible investors) applies) a statement that the authorised fund manager must take reasonable care to ensure that ownership of units in the scheme or a relevant class is recorded in the register only for a person who is a limited protection LTAF investor;

(11)

whether a unitholder may effect transfer of title to units on the authority of an electronic communication and if so the conditions that must be satisfied in order to effect a transfer;

(12)

if the authorised fund manager deals as principal in units of the scheme and holds them for that purpose, a statement of its policy for doing so and, where applicable:

(a)

a description of when the authorised fund manager may retain any profits it earns and absorb any losses it incurs for these activities; and

(b)

a statement of non-accountability as referred to in COLL 15.8.17G; and

(13)

any other features relating to dealing in units in the scheme which unitholders would reasonably expect to be aware of, including (but not limited to):

(a)

any minimum periods for which unitholders must hold units in any class of the scheme;

(b)

any limits or caps on the number or value of units in any class that a unitholder may redeem, whether on one occasion or over a period of time;

(c)

whether the scheme may use side-pockets, and if so the procedures for their use,

using worked examples to explain the effects or consequences that these features may have on unitholders in the scheme.

[Note: FUND 3.2.2R(8).]

17

Issue of units in ACSs: eligible investors

(1)

A statement that units may not be issued to a person other than to a person:

(a)

who is a:

(i)

professional ACS investor; or

(ii)

large ACS investor; or

(iii)

person who already holds units in the scheme; and

(b)

to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

2

(2)

A statement that the authorised contractual scheme manager of an ACS must redeem units as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in (1).

[Note: FUND 3.2.2R(12).]

18

Transfer of units in ACSs

(1)

A statement whether the transfer of units in the ACS scheme is either:

(a)

prohibited; or

(b)

allowed;

by the instrument constituting the fund and prospectus.

(2)

A statement that where transfer of units is allowed by the instrument constituting the fund and prospectus in accordance with (1)(b), units may only be transferred in accordance with the conditions specified by FCA rules, including that units may not be transferred to a person other than a person:

(a)

who is a:

(i)

professional ACS investor; or

(ii)

large ACS investor; or

(iii)

person who already holds units in the scheme; and

(b)

to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

2

(3)

For a co-ownership scheme which is an umbrella, a statement in accordance with (1)(a) or (1)(b) and, where appropriate, a statement in accordance with (2), must also be made for the sub-funds. Where individual sub-funds have differing policies in relation to transfer of units, separate statements are required.

[Note: FUND 3.2.2R(12).]

19

Prime brokerage firms

(1)

The identity of any prime brokerage firm.

(2)

A description of any material arrangements of the LTAF with its prime brokerage firm and the way any conflicts of interest are managed.

(3)

The provision in the contract with the depositary on the possibility of transfer and reuse of the scheme property of the LTAF.

(4)

Information about any transfer of liability to the prime brokerage firm that may exist.

[Note: FUND 3.2.2R(16).]

20

Distributions and accounting dates

Relevant details of accounting and distribution dates and a description of the procedures:

(1)

for determining and applying income (including how any distributable income is paid); and

(2)

relating to unclaimed distributions.

21

The register of unitholders

Details of the address in the United Kingdom where the register of unitholders is kept and can be inspected by unitholders.

22

Property Authorised Investment Funds

For a property authorised investment fund, a statement that:

(1)

it is a property authorised investment fund;

(2)

no body corporate may seek to obtain or intentionally maintain a holding of more than 10% of the net asset value of the scheme; and

(3)

in the event that the authorised fund manager reasonably considers that a body corporate holds more than 10% of the net asset value of the scheme, the authorised fund manager is entitled to delay any redemption or cancellation of units if the authorised fund manager reasonably considers such action to be:

(a)

necessary in order to enable an orderly reduction of the holding to below 10%; and

(b)

in the interests of the unitholders as a whole.

23

General information

Details as to:

(1)

when annual and half-yearly reports will be published; and

(2)

the address at which copies of the instrument constituting the fund, any amending instrument and the most recent annual reports may be inspected and from which copies may be obtained.

24

Winding up of the LTAF

Information detailing the circumstances in which the authorised fund may be wound up under the rules in COLL and a summary of the procedure for, and the rights of unitholders under, such a winding up.

25

Information on the umbrella

In the case of a scheme which is an umbrella, the following information:

(1)

that a unitholder may exchange units in one sub-fund for units in another sub-fund and that such an exchange is treated as a redemption and sale;

(2)

what charges may be made on exchanging units in one sub-fund for units in other sub-funds;

(3)

the policy for allocating between sub-funds any assets of, or costs, charges and expenses payable out of, the scheme property which are not attributable to any particular sub-fund;

(4)

in respect of each sub-fund, the currency in which the scheme property allocated to it will be valued and the price of units calculated and payments made, if this currency is not the base currency of the umbrella;

(5)

the circumstances in which a sub-fund may be terminated under the rules in COLL and a summary of the procedures for, and the rights of unitholders under, such a termination;

(6)

for an ICVC or a co-ownership scheme, that:

(a)

for an ICVC, its sub-funds are segregated portfolios of assets and, accordingly, the assets of a sub-fund belong exclusively to that sub-fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the umbrella, or any other sub-fund, and shall not be available for any such purpose;

(b)

for a co-ownership scheme, the property subject to a sub-fund is beneficially owned by the participants in that sub-fund as tenants in common (or, in Scotland, is the common property of the participants in that sub-fund) and must not be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund; and

(c)

for an ICVC or a co-ownership scheme, while the provisions of the OEIC Regulations, and section 261P (Segregated liability in relation to umbrella co-ownership schemes) of the Act in the case of co-ownership schemes, provide for segregated liability between sub-funds, the concept of segregated liability is relatively new. Accordingly, where claims are brought by local creditors in foreign courts or under foreign law contracts, it is not yet known how those foreign courts will react to regulations 11A and 11B of the OEIC Regulations or, as the case may be, section 261P of the Act; and

(7)

the FCA product reference number (PRN) of each sub-fund.

26

Application of the prospectus contents to an umbrella

For a scheme which is an umbrella, information required must be stated:

(1)

in relation to each sub-fund where the information for any sub-fund differs from that for any other; and

(2)

for the umbrella as a whole, but only where the information is relevant to the umbrella as a whole.

27

Investment in overseas property through an intermediate holding vehicle

If investment in an overseas immovable is to be made through an intermediate holding vehicle or a series of intermediate holding vehicles, a statement:

(1)

disclosing the existence of that intermediate holding vehicle or series of intermediate holding vehicles; and

(2)

confirming that the purpose of that intermediate holding vehicle or series of intermediate holding vehicles is to enable the holding of overseas immovables by the scheme.

28

Information on authorised contractual schemes

A statement that:

(1)

a unitholder in a co-ownership scheme is not liable to make any further payment after having paid the price of the units held and that no further liability can be imposed on the unitholder in respect of those units;

(2)

a unitholder in a limited partnership scheme is not liable for the debts or obligations of the limited partnership scheme beyond the amount of the scheme property which is available to the authorised contractual scheme manager to meet such debts or obligations, provided that the unitholder does not take part in the management of the partnership business;

(3)

the exercise of rights conferred on limited partners by FCA rules does not constitute taking part in the management of the partnership business; and

(4)

the scheme property of a co-ownership scheme is beneficially owned by the participants as tenants in common (or, in Scotland, is the common property of the participants).

29

Additional information

Any other material information which is within the knowledge of the directors of an ICVC or the authorised fund manager of an AUT or ACS, or which the directors or authorised fund manager would have obtained by the making of reasonable enquiries which investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed judgement about the merits of investing in the authorised fund and the extent and characteristics of the risks accepted by participating.

Additional information to be made available on securities financing transactions and total return swaps

COLL 15.4.6 G
  1. (1)

    1The Securities Financing Transactions Regulation sets out the additional information which an authorised fund manager of a long-term asset fund must make available to investors before they invest.

  2. (2)

    COLL 4.2.5BUK and COLL 4.2.5CUK copy out the relevant provisions of that regulation.

  3. (3)

    An authorised fund manager of a long-term asset fund should publish the information in the prospectus.

  4. (4)

    An authorised fund manager of a long-term asset fund that does not use securities financing transactions or total return swaps is not required to include the information in COLL 4.2.5CUK in the prospectus or other pre-sale documents.

Preparation of key information document in accordance with the PRIIPs regulation

COLL 15.4.7 G
  1. (1)

    1The PRIIPs Regulation requires the manufacturer of a PRIIP to draw up a key information document in accordance with the PRIIPs Regulation before that PRIIP is made available to retail investors (as defined in the PRIIPs Regulation).

  2. (2)

    The requirements of the PRIIPs Regulation form part of UK law by virtue of the EUWA.

  3. (3)

    As a result, when a long-term asset fund is made available to retail clients, the authorised fund manager in the United Kingdom must comply with the PRIIPs Regulation and will need to prepare a key information document in accordance with the PRIIPs Regulation, in addition to the prospectus.

COLL 15.5 Annual report and investor relations

Application

COLL 15.5.1 R

1This section applies to:

  1. (1)

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

  2. (2)

    an ICVC,

    which is a long-term asset fund.

Report and accounts

COLL 15.5.2 R
  1. (1)

    1The authorised fund manager must prepare a report in respect of each annual accounting period, half-yearly accounting period and quarterly reporting period.

  2. (2)

    Where the first annual accounting period of a scheme is less than 12 months, a half-yearly report need not be prepared.

  3. (3)

    The authorised fund manager must:

    1. (a)

      publish the annual report not more than four months after the end of each relevant annual accounting period;

    2. (b)

      publish the half-yearly report not more than two months after the end of each relevant half-yearly accounting period; and

    3. (c)

      publish the quarterly report not more than 20 business days after the end of each relevant quarterly reporting period,

      and in each case provide a copy free of charge on request to any unitholder.

  4. (4)

    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:

    1. (a)

      annual report and (if more recent) half-yearly report; and

    2. (b)

      quarterly report,

      before the conclusion of any sale to such a person.

  5. (5)

    The authorised fund manager must provide a copy of each annual, half-yearly and quarterly report to the FCA.

  6. (6)

    For a scheme which is an umbrella, any annual report provided under (3) or (4) may be a report prepared under COLL 15.5.3R(3), but the authorised fund manager must nevertheless provide free of charge the report prepared under COLL 15.5.3R(2) if a unitholder or any other person eligible to invest in the scheme requests it.

Contents of the annual report

COLL 15.5.3 R
  1. (1)

    1An annual report, other than for a scheme which is an umbrella, must contain:

    1. (a)

      the accounts for the annual accounting period prepared in accordance with the requirements of the IMA SORP;

    2. (b)

      the report of the authorised fund manager in accordance with COLL 15.5.6R (Authorised fund manager’s report);

    3. (c)

      comparative information in accordance with COLL 4.5.10R (1A) and (2A) (Comparative information);

    4. (d)

      the report of the depositary in accordance with COLL 15.5.7R (Report of the depositary); 2

    5. (e)

      the report of the auditor in accordance with COLL 4.5.12R (Report of the auditor); and2

    6. (f)

      its public TCFD product report or an adequately contextualised and prominent cross-reference and hyperlink to where the report’s location on the firm’s website, in accordance with ESG 2.3.1R.2

  2. (2)

    An annual report on a scheme which is an umbrella must be prepared for the umbrella as a whole and must contain:

    1. (a)

      for each sub-fund:

      1. (i)

        the accounts required by (1)(a);

      2. (ii)

        the report of the authorised fund manager in accordance with COLL 15.5.6R; 2

      3. (iii)

        comparative information in accordance with COLL 4.5.10R(1A) and (2A); and2

      4. (iv)

        its public TCFD product report or an adequately contextualised and prominent cross-reference and hyperlink to the report’s location on firm’s website, in accordance with ESG 2.3.1R;2

    2. (b)

      the report of the depositary in accordance with COLL 15.5.7R; and

    3. (c)

      the report of the auditor in accordance with COLL 4.5.12R.

  3. (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:

    1. (a)

      for the sub-fund:

      1. (i)

        the accounts required by (1)(a);

      2. (ii)

        the report of the authorised fund manager in accordance with COLL 15.5.6R; and

      3. (iii)

        comparative information in accordance with COLL 4.5.10R(1A) and (2A);

    2. (b)

      the report of the depositary in accordance with COLL 15.5.7R; and

    3. (c)

      the report of the auditor in accordance with COLL 4.5.12R.

  4. (4)

    The directors of an ICVC or the authorised fund manager of an AUT or ACS must ensure that the accounts referred to in (1)(a), (2)(a) and (3)(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 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.

  5. (5)

    An annual report of a long-term asset fund must also contain a statement setting out a description of the assessment of value required by COLL 15.7.17R including:

    1. (a)

      a separate discussion and conclusion for the matters covered in each paragraph of COLL 6.6.21R, and for each other matter that formed part of the assessment, covering the considerations taken into account in the assessment, a summary of its findings and the steps undertaken as part of or as a consequence of the assessment;

    2. (b)

      an explanation for any case in which benefits from economies of scale that were identified in the assessment have not been passed on to unitholders;

    3. (c)

      an explanation for any case in which unitholders hold units in a class for which the payments out of scheme property in relation to that class as set out in the prospectus (in this rule, “charges”) are higher than those applying to other classes of the same scheme with substantially similar rights;

    4. (d)

      the conclusion of the authorised fund manager’s assessment of whether the charges are justified in the context of the overall value delivered to the unitholders in the scheme; and

    5. (e)

      if the assessment has identified that the charges are not justified in the context of the overall value delivered to the unitholders, a clear explanation of what action has been or will be taken to address the situation.

  6. (6)

    An annual report of a long-term asset fund must also contain a statement setting out a description of the assessment required by COLL 15.7.20R (Assessment of investment valuations, due diligence, conflicts of interest and liquidity management), including:

    1. (a)

      a separate discussion and conclusion for each of the matters specified in COLL 15.7.21R (Table: minimum considerations – assessment of investment valuations, due diligence, conflicts of interest and liquidity management) and for each other matter that formed part of the assessment;

    2. (b)

      a summary of the assessment’s findings and the steps undertaken as part of or as a consequence of the assessment; and

    3. (c)

      the conclusion of the authorised fund manager’s assessment of how it managed the LTAF in the best interests of the scheme, its investors and the integrity of the market.

Information to be included in annual reports on securities financing transactions and total return swaps

COLL 15.5.4 G
  1. (1)

    1The Securities Financing Transactions Regulation sets out the additional information which an authorised fund manager who is a full-scope UK AIFM of a long-term asset fund must include in the scheme’s annual report.

  2. (2)

    COLL 4.5.8ABUK and COLL 4.5.8ACUK copy out the relevant provisions of that regulation.

  3. (3)

    An authorised fund manager of a long-term asset fund that has not used securities financing transactions or total return swaps during the relevant annual accounting period is not required to include the information in COLL 4.5.8ACUK in its reports.

Contents of the half-yearly report

COLL 15.5.5 R
  1. (1)

    1A half-yearly report on an authorised fund or sub-fund must contain:

    1. (a)

      the accounts for the half-yearly accounting period which must be prepared in accordance with the requirements of the IMA SORP; 2

    2. (b)

      the report of the authorised fund manager in accordance with COLL 15.5.6R; and2

    3. (c)

      its public TCFD product report or an adequately contextualised and prominent cross-reference and hyperlink to the report’s location on the firm’s website, in accordance with ESG 2.3.1R, where the half-yearly report most closely follows the reporting deadline of 30 June, under ESG 2.1.1R(1).2

  2. (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 15.5.6 R

1The report of the authorised fund manager must include:

  1. (1)

    a review of the investment activities during the period to which the report relates;

  2. (2)

    a portfolio statement prepared in accordance with the requirements of the IMA SORP;

  3. (3)

    in the case of an umbrella which has more than one sub-fund, particulars in the form of a table showing, as at the end of the period to which the report relates:

    1. (a)

      for each sub-fund, the number of units in that sub-fund that were held by a second sub-fund of that umbrella; and

    2. (b)

      the value of each such holding;

      or, alternatively, a statement that there were no such holdings as at the end of that period;

  4. (4)

    particulars of any fundamental or significant change to the authorised fund made since the date of the last report;

  5. (5)

    in relation to each scheme or sub-fund which is a long-term asset fund:

    1. (a)

      the amount of any remuneration, charge, payment or expense paid out of the scheme property during the period to which the report relates;

    2. (b)

      the person to whom that amount was paid;

    3. (c)

      what that remuneration, charge, payment or expense was for; and

    4. (d)

      how the remuneration, charge, payment or expense was calculated; and

  6. (6)

    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.

Report of the depositary

COLL 15.5.7 R
  1. (1)

    1The depositary must make an annual report to unitholders which must be included in the annual report.

  2. (2)

    The depositary’s report must contain:

    1. (a)

      a description, which may be in summary form, of the duties of the depositary under COLL 15.7.6R and COLL 15.7.7R (Duties of the depositary) and in respect of the safekeeping of the scheme property;

    2. (b)

      in relation to its oversight and monitoring obligations:

      1. (i)

        a description of the reasonable steps the depositary has taken to ensure that the LTAF has been managed in accordance with each of the matters specified in COLL 15.7.6R(2)(e) (Duties of the depositary); and

      2. (ii)

        where an external valuer has not been appointed, a statement setting out the depositary’s determination of the matters in COLL 15.2.6R(2)(a) (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets); and

    3. (c)

      a statement as to whether in any material respect:

      1. (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 fund; and

      2. (ii)

        the investment and borrowing powers and restrictions applicable to the authorised fund have been exceeded.

Signing of the annual and half-yearly reports

COLL 15.5.8 R

1The annual reports in COLL 15.5.3R(1) and (2) and the half-yearly reports in COLL 15.5.5R(1) must:

  1. (1)

    in the case of an ICVC, if there is:

    1. (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

    2. (b)

      no director other than the ACD, be signed by the ACD;

  2. (2)

    in the case of an AUT or ACS, if the authorised fund manager has:

    1. (a)

      more than one director, be signed by at least two directors of the authorised fund manager; or

    2. (b)

      only one director, be signed by the director of the authorised fund manager.

Quarterly reports

COLL 15.5.9 R
  1. (1)

    1A quarterly report must contain details of any transactions executed by, or for or on behalf of, the long-term asset fund in the relevant quarterly reporting period which have resulted in assets being held in the LTAF’sscheme property, including:

    1. (a)

      the date of each transaction;

    2. (b)

      details of the asset and type of asset which was the subject of the transaction; and

    3. (c)

      an explanation of how the transaction is consistent with the LTAF’s investment objectives, investment policy and investment strategy.

  2. (2)

    A quarterly reporting period for a long-term asset fund must be determined in accordance with (a) to (c).

    1. (a)

      Each quarterly reporting period must be three months long.

    2. (b)

      There must be four consecutive quarterly reporting periods in each annual accounting period.

    3. (c)

      The first quarterly reporting period in each annual accounting period must begin when the annual accounting period begins.

Application of the rules on alterations to the scheme and notice to unitholders

COLL 15.5.-10 R
  1. (1)

    3COLL 15.5.-10BR to COLL 15.5.-10EG apply in relation to an alteration or change where the scheme has an LTAF retail class and:

    1. (a)

      the proposed alteration or change affects only unitholders in an LTAF retail class; or

    2. (b)

      the proposed alteration or change affects unitholders in an LTAF retail class and unitholders in a limited protection LTAF class.

  2. (2)

    COLL 15.5.10R to COLL 15.5.11G may be applied in relation to an alteration or change where:

    1. (a)
      1. (i)

        the scheme has an LTAF retail class; and

      2. (ii)

        the proposed alteration or change relates only to a limited protection LTAF class; or

    2. (b)

      the scheme has no LTAF retail class.

COLL 15.5.-10A G

3Where COLL 15.5.-10BR to COLL 15.5.-10EG are not applied to a scheme or class 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 or class is recorded in the register only for a person who is a limited protection LTAF investor (see COLL 15.1.3R(4) (Long-term asset funds: eligible investors)).

Alterations to the scheme and notices to unitholders: rules for schemes or classes made available to retail clients who are not limited protection LTAF investors

COLL 15.5.-10B R
  1. (1)
    1. (a)

      3The 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 (1)(b), is a fundamental change.

    2. (b)

      A fundamental change is a change or event which:

      1. (i)

        changes the purposes or nature of the scheme;

      2. (ii)

        may materially prejudice a unitholder;

      3. (iii)

        alters the risk profile of the scheme; or

      4. (iv)

        introduces any new type of payment out of the scheme property.

  2. (2)
    1. (a)

      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)(b), constitutes a significant change.

    2. (b)

      A significant change is a change or event which is not fundamental in accordance with (1) but which:

      1. (i)

        affects a unitholder’s ability to exercise their rights in relation to their investment;

      2. (ii)

        would reasonably be expected to cause the unitholder to reconsider their participation in the scheme;

      3. (iii)

        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

      4. (iv)

        materially increases other types of payment out of scheme property.

  3. (3)
    1. (a)

      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. (b)

      A notifiable change is a change or event, other than a fundamental change under (1) or a significant change under (2), which a unitholder must be made aware of unless the authorised fund manager concludes that the change is insignificant.

  4. (4)

    Alterations affecting only a particular sub-fund or class of units may be approved in accordance with (1), (2) or (3) for the particular sub-fund or class of units, with the consent of, or, as the case may be, notice to, the relevant unitholders.

Alterations to the scheme and notices to unitholders: guidance for schemes or classes made available to retail clients who are not limited protection LTAF investors

COLL 15.5.-10C G
  1. (1)

    3Subject to (2), the guidance in COLL 4.3.5G (Guidance on fundamental changes) applies to COLL 15.5.-10BR(1) as if:

    1. (a)

      in COLL 4.3.5G(2), the references to COLL 4.3.4R(2)(a) to COLL 4.3.4R(2)(c) were references to COLL 15.5.-10BR(1)(b)(i) to (iii)4; and

    2. (b)

      in COLL 4.3.5G(2)(a), the reference to COLL 7.6.2R was a reference to that rule as applied by COLL 15.10.4R (Schemes of arrangement).

  2. (2)

    COLL 4.3.5G(2)(f) (the introduction of limited redemption arrangements) does not apply to COLL 15.5.-10BR(1).

  3. (3)

    The guidance in COLL 4.3.7G (Guidance on significant changes) applies to COLL 15.5.-10BR(2) as if the references to COLL 4.3.6R were references to COLL 15.5.-10BR(2).

  4. (4)

    The guidance in COLL 4.3.9G4 (Guidance on notifiable changes) applies to COLL 15.5.-10BR(3) as if the reference to COLL 4.3.8R was a reference to COLL 15.5.-10BR(3).

Change events relating to feeder LTAFs: schemes made available to retail clients who are not limited protection LTAF investors

COLL 15.5.-10D R
  1. (1)

    3Where the authorised fund manager of a feeder LTAF is notified of any change in respect of its qualifying master LTAF which has the effect of a change to the feeder LTAF, the authorised fund manager must:

    1. (a)

      classify it as a fundamental change, significant change or a notifiable change to the feeder LTAF in accordance with COLL 15.5.-10BR; and

    2. (b)
      1. (i)

        for a fundamental change, obtain approval from the unitholders by way of an extraordinary resolution;

      2. (ii)

        for a significant change, give written notice to unitholders of that change; or

      3. (iii)

        for a notifiable change, comply with COLL 15.5.-10BR(3).

  2. (2)

    The actions required by (1)(b)(i) and (1)(b)(ii) must be carried out as soon as reasonably practicable after the authorised fund manager of the feeder LTAF has been informed of the relevant change to the qualifying master LTAF.

COLL 15.5.-10E G
  1. (1)

    3The authorised fund manager of the feeder LTAF should assess the change to the qualifying master LTAF in terms of its impact on the feeder LTAF. For example, a change to the investment objective and policy of the qualifying master LTAF that alters its risk profile would constitute a fundamental change for the feeder LTAF.

  2. (2)

    In order for the feeder LTAF to continue investing in the qualifying master LTAF, the authorised fund manager of the feeder LTAF should obtain the approval of unitholders by way of an extraordinary resolution, or else make a proposal to invest in a different qualifying master LTAF. This should be done in accordance with COLL 15.9 (Operational requirements for feeder LTAFs).

  3. (3)

    Not all changes affecting the qualifying master LTAF will have the same significance for the feeder LTAF and its unitholders. For example, a change to how the prices of the units in the qualifying master LTAF are published might not be a significant change for the feeder LTAF if the prices of its own units continue to be published in the same way.

  4. (4)

    Where the authorised fund manager of the feeder LTAF receives insufficient notice of the intended change to the qualifying master LTAF to be able to seek the prior approval of unitholders to any fundamental change or to inform them at least 60 days in advance of any significant change, it should nevertheless use reasonable endeavours to inform them of the change as soon as possible so that they can make an informed judgement about the merits of continuing to invest in the feeder LTAF.

Alterations to the scheme and notices to unitholders: rules for schemes or classes intended only for limited protection LTAF investors

COLL 15.5.10 R
  1. (1)

    1Any proposed change which would be reasonably considered to be a fundamental change to the scheme requires the prior sanction of an extraordinary resolution of the unitholders.

  2. (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. (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. (4)

    This rule and COLL 15.5.12R (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.

Alterations to the scheme and notices to unitholders: guidance for schemes or classes intended only for limited protection LTAF investors

COLL 15.5.11 G

1Although account should be taken of the guidance on fundamental changes (COLL 4.3.5G (Guidance on fundamental changes)) and significant changes (COLL 4.3.7G (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.

Application of rules on meetings of unitholders and service of notices

COLL 15.5.-12 R
  1. (1)

    3COLL 15.5.-12BR applies in relation to a meeting of unitholders where the scheme has an LTAF retail class and either:

    1. (a)

      the meeting is only for unitholders with units in an LTAF retail class; or

    2. (b)

      the meeting is for unitholders with units in an LTAF retail class and a limited protection LTAF class.

  2. (2)

    COLL 15.5.12R may be applied in relation to a meeting of unitholders where:

    1. (a)
      1. (i)

        the scheme has an LTAF retail class; and

      2. (ii)

        the meeting is only for unitholders in a limited protection LTAF class; or

    2. (b)

      the scheme has no LTAF retail class.

COLL 15.5.-12A G

3Where COLL 15.5.-12BR is not applied to a scheme or class 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 or class is recorded in the register only for a person who is a limited protection LTAF investor (see COLL 15.1.3R(4) (Long-term asset funds: eligible investors)).

Meetings of unitholders and service of notices: schemes or classes made available to retail clients who are not limited protection LTAF investors

COLL 15.5.-12B R
  1. (1)

    3The provisions of COLL 4.4 (Meetings of unitholders and service of notices) apply to an authorised fund manager, any other director of an ICVC and a depositary of a long-term asset fund.

  2. (2)

    The authorised fund manager must record and keep minutes for 6 years of all proceedings to which COLL 15.5.-10BR (Alterations to the scheme and notices to unitholders: schemes with unitholders who are not limited protection LTAF investors) and this rule are relevant.

Meetings of unitholders and service of notices: rules for schemes or classes intended only for limited protection LTAF investors

COLL 15.5.12 R
  1. (1)

    1Details of the procedures for the convening and conducting of meetings and resolutions must be set out in the instrument constituting the fund and be reasonable and fair as between all relevant parties.

  2. (2)

    The authorised fund manager must record and keep minutes for six years of all proceedings to which COLL 15.5.10R (Alterations to the scheme and notices to unitholders) and this rule are relevant.

  3. (3)

    The provisions in COLL 4.4.12R (Notices to unitholders), COLL 4.4.13R (Other notices) and COLL 4.4.14G (References to writing and electronic documents) apply in relation to long-term asset funds.

COLL 15.6 Investment and borrowing powers

Application

COLL 15.6.1 R

1This section applies to:

  1. (1)

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

  2. (2)

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

  3. (3)

    an ICVC,

    which is a long-term asset fund.

COLL 15.6.2 R
  1. (1)

    1Where 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 the feeder scheme’s master scheme.

  2. (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 long-term asset fund 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.

Prudent spread of risk

COLL 15.6.3 R

1An authorised fund manager must ensure that, taking account of the investment objectives, policy and strategy of the long-term asset fund as stated in its most recently published prospectus, the scheme property of the long-term asset fund aims to provide a prudent spread of risk.

COLL 15.6.4 G

1For the purpose of COLL 15.6.3R, an authorised fund manager should consider the risks to which the LTAF is exposed, including:

  1. (1)

    whether the assets or investments held in the scheme property provide a sufficient diversification of exposure including, for example, in respect of the underlying assets or investments held by any holding company or other collective investment scheme;

  2. (2)

    the spread of any other risks arising from the assets or investments held in the scheme property of the LTAF such as market risks, credit risks, liquidity risks and counterparty risks.

    [Note: Article 44 of the AIFMD level 2 regulation.]

Investment powers: general

COLL 15.6.5 R
  1. (1)

    1The scheme property of a long-term asset fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated.

  2. (2)

    The instrument constituting the fund and the prospectus may further restrict:

    1. (a)

      the kinds of assets in which the scheme property may be invested;

    2. (b)

      the types of transactions permitted and any relevant limits; and

    3. (c)

      the borrowing powers of the scheme.

Long-term asset funds: investment strategy

COLL 15.6.6 R

1The investment strategy of a long-term asset fund must be to invest mainly in long-term illiquid assets.

COLL 15.6.7 G

1The FCA expects the investment strategy of a long-term asset fund to be to invest at least 50% of the value of the scheme property in unlisted securities and other long-term assets such as interests in immovables or other collective investment schemes investing in such securities or long-term assets. However, a long-term asset fund could have a strategy of investing mainly in a mix of unlisted assets and listed but illiquid assets.

Long-term asset funds: general

COLL 15.6.8 R

1The scheme property of a long-term asset fund 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. (1)

    any specified investment:

    1. (a)

      within articles 74 to 86 of the Regulated Activities Order;

    2. (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. (2)

    (to the extent not within (a)), an interest in a loan, provided that the loan was not originated to:

    1. (a)

      a natural person;

    2. (b)

      the authorised fund manager of the long-term asset fund;

    3. (c)

      the depositary of the long-term asset fund;

    4. (d)

      an affiliated company of the person in (b) or (c); or

    5. (e)

      a person who intends to use, or uses, the credit for the purpose of investing in a derivative, cryptoasset derivative, an unregulated transferable cryptoasset, precious metals or a commodity contract within (5);

  3. (3)

    an interest in an immovable under COLL 15.6.18R (Investment in property);

  4. (4)

    precious metals; or

  5. (5)

    a commodity contract traded on an RIE or a recognised overseas investment exchange.

    [Note: Full-scope UK AIFMs are subject to specific requirements relating to conflicts of interest (see articles 30 to 36 in the AIFMD level 2 regulation and SYSC 10.1.23R to SYSC 10.1.26R (Additional requirements for an AIFM)).]

    [Note 2: In relation to (2), a borrower who receives money by way of deposit from a person who is not a bank may (if the borrower is acting by way of business) be carrying on the regulated activity of accepting deposits, but an exclusion in the Regulated Activities Order may be available. See also article 2 of the Business Order.]

Investment in collective investment schemes

COLL 15.6.9 R
  1. (1)

    1Subject to (2), a long-term asset fund may invest in units in a scheme (a ‘second scheme’) only if the second scheme is:

    1. (a)

      a regulated collective investment scheme; or

    2. (b)

      a scheme not within (a) where the authorised fund manager has taken reasonable care to determine that:

      1. (i)

        it is the subject of an independent annual audit conducted in accordance with international standards on auditing;

      2. (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

      3. (iii)

        it (and any master scheme to whose units it is dedicated) is prohibited from investing in the long-term asset fund, or, if there is no such prohibition, the authorised fund manager is satisfied, on reasonable grounds and after making all reasonable enquiries, that no such investment will be made by either the second scheme or any fund in which the second scheme invests.

  2. (2)

    A long-term asset fund must not invest more than 20% in value of the scheme property in units in second schemes which are unregulated schemes, qualified investor schemes or long-term asset funds 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. (3)

    The authorised fund manager of a long-term asset fund with more than 20% in value of the scheme property invested in one or more second schemes which are unregulated schemes, qualified investor schemes or long-term asset funds must carry out appropriate due diligence on those schemes on an ongoing basis.

COLL 15.6.10 G
  1. (1)

    1The authorised fund manager of a long-term asset fund carrying out due diligence for the purpose of COLL 15.6.9R should use reasonable efforts to make enquiries and obtain the information needed to be able to consider the matters specified in COLL 5.7.11G(1) to (12), as if that guidance related to COLL 15.6.9R.

  2. (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 15.8.2R (Valuation, pricing and dealing).

  3. (3)

    In addition to the guidance at COLL 5.7.11G 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.

  4. (4)

    Further specific requirements relating to due diligence apply to the authorised fund manager of a long-term asset fund under the rules in this chapter and in articles 18 to 20 of the AIFMD level 2 regulation.

Investment in a collective investment scheme that is an umbrella

COLL 15.6.11 R

1Where the second scheme in COLL 15.6.9R is an umbrella, the provisions apply to each sub-fund as if it were a separate scheme.

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

COLL 15.6.12 R
  1. (1)

    1An 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:

    1. (a)

      if it is an asset in which the scheme property could be invested, that the transaction:

      1. (i)

        can be readily closed out; or

      2. (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

    2. (b)

      in any other case, that the transaction can be readily closed out.

  2. (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. (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.

Cover for transactions in derivatives and forward transactions

COLL 15.6.13 R
  1. (1)

    1A 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. (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. (3)

    The total exposure relating to derivatives held in a long-term asset fund may not exceed the net value of the scheme property.

  4. (4)

    No element of cover may be used more than once.

Valuation of an OTC derivative

COLL 15.6.14 R

1A 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. (1)

    on the basis of the pricing model; or

  2. (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.

Continuing nature of limits and requirements

COLL 15.6.15 R
  1. (1)

    1An authorised fund manager must, as frequently as necessary to ensure compliance with COLL 15.6.13R(2) and COLL 15.6.13R(4), re-calculate the amount of cover required in respect of derivatives and forward transactions in existence under this chapter.

  2. (2)

    Derivatives and forward transactions may be retained in the scheme property only so long as they remain covered globally under COLL 15.6.13R.

  3. (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.

Permitted stock lending

COLL 15.6.16 R
  1. (1)

    1The ICVC, or the depositary at the request of the ICVC, or the depositary of an AUT or ACS at the request of the authorised fund 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. (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. (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 15.6.17 R
  1. (1)

    1The ICVC or depositary of an AUT or ACS (on the instructions of the authorised fund 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. (2)

    The authorised fund manager must ensure that the authorised fund’s borrowing does not, on any day, exceed 30% 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. (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. (4)

    Where the limit in (2) is breached, the authorised fund manager must take action in accordance with the principles set out in COLL 15.7.3R(3) to COLL 15.7.3R(5) (Duties of the authorised fund manager: investment and borrowing powers) to deal with that breach.

Investment in property

COLL 15.6.18 R
  1. (1)

    1Any investment in land or a building held within the scheme property of a long-term asset fund must be in an immovable within (2).

  2. (2)

    For an immovable:

    1. (a)

      it must be situated in a country or territory identified in the prospectus;

    2. (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

    3. (c)

      the authorised fund manager of an AUT or ACS or the ICVC must have received a report from an appropriate valuer that:

      1. (i)

        contains a valuation of the interest in the immovable (with and without any relevant existing mortgage); and

      2. (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 quickly2 at that valuation2;

    4. (d)

      unless (c) is satisfied, the authorised fund manager of an AUT or ACS or the ICVC must have received a report from an appropriate valuer valuing the interest in the immovable and stating that:

      1. (i)

        the immovable is adjacent to or in the vicinity of another immovable included in the scheme property; and

      2. (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

    5. (e)

      it must not be bought:

      1. (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

      2. (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. (3)

    Any contents of any building may be regarded as part of the relevant immovable.

  4. (4)

    An appropriate valuer must be a person who:

    1. (a)

      has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

    2. (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;

    3. (c)

      is independent of the ICVC, the depositary and each of the directors of the ICVC or of the authorised fund manager and depositary of the AUT or ACS; and

    4. (d)

      has not been engaged, and whose associates have not been engaged, 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 15.6.19 R
  1. (1)

    1An 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. (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 15.6.20 G
  1. (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:

    1. (a)

      a record of inter-company debt is kept in order to provide an accurate audit trail; and

    2. (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. (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. (3)

    Wherever reasonably practicable, an intermediate holding vehicle should have the same auditor and accounting reference date as the scheme.

  4. (4)

    The accounts of any intermediate holding vehicle should be consolidated into the annual and interim reports of the scheme.

  5. (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.

Investment limits for immovables

COLL 15.6.21 R

1The following limits apply in respect of immovables held as part of the scheme property:

  1. (1)

    the amount secured by mortgages over any immovable must not exceed 100% of the latest valuation by an appropriate valuer under COLL 15.6.18R(2)(c) or COLL 15.6.18R(2)(d) or COLL 15.6.22R, as appropriate;

  2. (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. (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.

Standing independent valuer and valuation

COLL 15.6.22 R
  1. (1)

    1 In relation to the appointment of a valuer the authorised fund manager must:

    1. (a)

      at the outset appoint the standing independent valuer with the approval of the depositary and likewise upon any vacancy; and

    2. (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. (2)

    1The following apply in relation to the functions of the standing independent valuer:

    1. (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;

    2. (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;

    3. (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;

    4. (d)

      if either the authorised fund manager or the depositary becomes aware of any matter which appears likely to:

      1. (i)

        affect the outcome of a valuation of an immovable; or

      2. (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;

    5. (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

    6. (f)

      any valuation by the standing independent valuer must be undertaken in accordance with UKVPS 3 and 2.3 of UKVPGA 2 of the RICS Valuation – Global Standards 2017 UK national supplement 2018 (the RICS Red Book) or, in the case of overseas immovables, on an appropriate basis but subject to any provisions of the instrument constituting the fund.

  3. (3)

    In relation to immovables:

    1. (a)

      any valuation under this rule has effect, until the next valuation under this rule, for the purposes of the value of immovables; and

    2. (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 15.6.23 G

1In considering whether a valuation of overseas immovables by the standing independent valuer is made on an appropriate basis for the purpose of COLL 15.6.22R(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 Council.

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).]

COLL 15.8 Valuation, pricing, dealing and income

Application

COLL 15.8.1 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.

Valuation, pricing and dealing

COLL 15.8.2 R
  1. (1)

    1The 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. (2)

    Any part of the scheme property which is not an investment (save an immovable) must be valued at fair value.

  3. (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. (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 fund and the prospectus, as appropriate.

  5. (5)

    The scheme must have a valuation point on each dealing day and there must be at least one valuation point every month.

  6. (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. (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. (8)

    In respect of each valuation point under (5), 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).

  9. (9)

    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.

  10. (10)

    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.

Profits from dealing as principal

COLL 15.8.3 R
  1. (1)

    1Where an authorised fund manager:

    1. (a)

      accepts instructions to sell and redeem units as principal; and

    2. (b)

      is able to execute a sale instruction by selling units it has redeemed at the same valuation point, without placing its own capital at risk,

      subject to (2), the AFM must not retain for its own account, or the account of any of its associates, the difference between the price at which a unit was redeemed (before deduction of any redemption charge) and the price at which the same unit was sold (after deduction of any preliminary charge). Any such difference must be allocated in a way that is fair to unitholders.

  2. (2)

    In calculating the profit arising under (1), the AFM may offset any loss it incurs at the same valuation point, calculated in accordance with (3), when dealing as principal in relation to:

    1. (a)

      a unit issued at that valuation point to fulfil a sale instruction that cannot be matched against any redeemed unit or any other unit of that class held by the manager as principal; and

    2. (b)

      a unit redeemed and cancelled at that valuation point.

  3. (3)

    The amount of the loss referred to in (2) is:

    1. (a)

      for units issued in accordance with (2)(a), the difference between the issue price of a unit and the sale price of that unit, less any preliminary charge;

    2. (b)

      for units cancelled in accordance with (2)(b), the difference between the cancellation price of a unit and the redemption price of that unit, before any redemption charge is applied.

  4. (4)

    Where any loss arising under (2) is greater than any profit arising under (1), that loss cannot be offset against any profit arising at a subsequent valuation point.

  5. (5)

    This rule applies to the redemption and sale of units of different classes at the same valuation point, if those classes are treated as one for the purpose of COLL 15.8.6R (Issue and cancellation of units in multiple classes).

COLL 15.8.4 G
  1. (1)

    1The authorised fund manager may commit its own capital to hold units for dealing as principal and may seek to profit from gains in the value of the units it holds, when it issues or redeems units at one valuation point then sells or cancels them at a later valuation point. However, it should not profit from situations in which it is not exposed to an equal risk of loss if the units fall in value, or from the ability to match simultaneous sales and redemptions at different prices at no risk to its own capital.

  2. (2)

    The AFM may allocate any amount arising under COLL 15.8.3R(1) (Profits from dealing as principal) in the interests of investors by paying it into scheme property for the benefit of all unitholders. Alternatively, the AFM may redistribute it individually among the transacting investors.

  3. (3)

    Where the AFM intends to allocate a payment to scheme property, it should determine if the amount (when added to any other amounts of the same kind relating to that class of units) would, if taken into account in the scheme’s valuation, affect the accuracy of the unitprices to four significant figures. If so, and subject to (4) below, the amount should be accrued in each subsequent valuation of the scheme until the payment is transferred. Such payments into scheme property should be made regularly and no less frequently than payments for the AFM’s management charge are transferred out of scheme property.

  4. (4)

    The calculation to be performed under COLL 15.8.3R (Profits from dealing as principal) should be carried out in relation to each valuation point of the scheme on a timely basis. Where it is not practical to do this before unit prices are calculated and published, the AFM should ensure that the accrual represents a reasonable estimate of the total payment it intends to make to scheme property.

Issue and cancellation of units

COLL 15.8.5 R
  1. (1)

    1The authorised fund manager must:

    1. (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

    2. (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. (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. (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. (4)

    The authorised fund manager must keep a record of issues and cancellations made under this rule.

  5. (5)

    The authorised fund manager may arrange for the ICVC, or instruct the depositary of the AUT or ACS, to issue or cancelunits where the authorised fund manager would otherwise be obliged to sell or redeem the units in the manner set out in the prospectus.

  6. (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.

Issue and cancellation of units in multiple classes

COLL 15.8.6 R

1If a long-term asset 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. (1)

    the depositary gives its prior agreement; and

  2. (2)

    the relevant classes:

    1. (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

    2. (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.

Transfer of units in an ACS

COLL 15.8.7 R
  1. (1)

    1Where transfer of units in an ACS is allowed by its contractual scheme deed and prospectus in accordance with the conditions specified by FCA rules, the authorised contractual scheme manager of the ACS must take reasonable care to ensure that units are only transferred if the conditions specified by the FCA under (2) are met.

  2. (2)

    The FCA specifies that for the purposes of (1), and for the purposes of COLL 15.3.6R(3)(9)(a)(vii)(B) (Table: contents of the instrument constituting the fund) and COLL 15.4.5R(18)(2) (Table: contents of long-term asset fund prospectus), units in the ACS may only be transferred to a person:

    1. (a)

      who is a:

      1. (i)

        professional ACS investor; or

      2. (ii)

        large ACS investor; or

      3. (iii)

        person who already holds units in the scheme; and

    2. (b)

      to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

      2
COLL 15.8.8 G

1The FCA recognises that some transfers of units arise by operation of law (such as upon death or bankruptcy of the unitholder, or otherwise) and are accordingly outside the control of the authorised contractual scheme manager. The authorised contractual scheme manager is expected to comply with its responsibilities under COLL 15.8.10R (Redemption of ACS units in an LTAF by an authorised contractual scheme manager) in those cases by redeeming those units.

Responsibilities of the authorised contractual scheme manager in relation to ACS units

COLL 15.8.9 R
  1. (1)

    1The authorised contractual scheme manager of an authorised contractual scheme which is a long-term asset fund must take reasonable care to ensure that rights or interests in units in the scheme are not acquired by any person from or through an intermediate unitholder in a long-term asset fund, unless:

    1. (a)

      that person is a:

      1. (i)

        professional ACS investor; or

      2. (ii)

        large ACS investor; or

      3. (iii)

        person who already holds units in the scheme; and

    2. (b)

      units in a long-term asset fund may be promoted to that person without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

      2
  2. (2)

    The authorised contractual scheme 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.

Redemption of ACS units in an LTAF by an authorised contractual scheme manager

COLL 15.8.10 R

1The authorised contractual scheme manager of a long-term asset fund which is an ACS must redeemunits in the scheme as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in COLL 15 Annex 1R(1) and (2) (ACS Long-Term Asset Funds: eligible investors).

Dealing: sale of units

COLL 15.8.11 R

1The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units to any eligible investor (subject to any conditions in the instrument constituting the fund 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.

Dealing: redemption of units

COLL 15.8.12 R
  1. (1)

    1In this rule, a ‘redemption determination’ is a determination by the authorised fund manager of the long-term asset fund to:

    1. (a)

      accept a request by a unitholder to redeem units in the scheme;

    2. (b)

      refuse a redemption request (see paragraph (2)(c)); or

    3. (c)

      make such other determination in relation to the redemption request as may be provided for in the instrument constituting the fund and the prospectus (see paragraph (6) below, and COLL 15.8.13G(6) and (7)).

  2. (2)

    The redemption arrangements for a long-term asset fund must ensure the following:

    1. (a)

      A unitholder must be able to submit a request to redeem units before the next date on which the authorised fund manager makes a redemption determination, subject to any cut-off point which may be specified in the prospectus for this purpose.

    2. (b)

      The authorised fund manager must not make redemption determinations more frequently than the dealing frequency of the scheme and, in any event, not more than once a month.

    3. (c)

      The authorised fund manager must accept a unitholder’s request to redeemunits in the scheme in accordance with any conditions in the instrument constituting the fund and the prospectus unless the authorised fund manager has reasonable grounds to refuse the redemption request.

    4. (d)

      The authorised fund manager must inform the unitholder of the outcome of the redemption determination.

    5. (e)

      If the authorised fund manager accepts the unitholder’s request to redeem units in the scheme:

      1. (i)

        the redemption request is deemed to be irrevocable;

      2. (ii)

        the authorised fund manager must undertake to effect the redemption at the applicable time, in accordance with any conditions in the instrument constituting the fund and the prospectus; and

      3. (iii)

        the authorised fund manager must confirm to the unitholder:

        1. (A)

          that the redemption request has been accepted and cannot be revoked; and

        2. (B)

          having regard to the period specified for the purposes of (f), the dates on which it is expected that the redemption will be effected and the appropriate proceeds paid.

    6. (f)

      The authorised fund manager must determine the price for the units being redeemed pursuant to the unitholder’s redemption request at the first valuation point following the end of the notice period specified in the instrument constituting the fund and the prospectus (the ‘notice period’).

    7. (g)

      The notice period must be at least 90 days after the day on which the request to redeem units in the scheme was accepted.

    8. (h)

      The authorised fund manager must redeem the units at the price determined in accordance with (f) and pay the unitholder the appropriate proceeds of redemption in accordance with paragraphs (4) and (5).

  3. (3)

    Subject to COBS 2.1.4R (AIFMs’ best interests rule) and COLL 15.3.2R (Classes of unit), where the long-term asset fund has more than one class of unit, the arrangements for the redemption of units may differ between classes provided the arrangements for all classes of unit ensure the matters specified in (2).

  4. (4)

    After having effected a redemption request, the authorised fund manager must pay the full proceeds of the redemption to the unitholder within any reasonable period specified in the prospectus, unless it has reasonable grounds for withholding payment.

  5. (5)

    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.

  6. (6)

    If the instrument constituting the fund and the prospectus of a long-term asset fund permit the authorised fund manager to defer or limit a requested redemption, those arrangements must not result in:

    1. (a)

      the authorised fund manager making redemption determinations more frequently than once a month (see paragraph (2)(b)); or

    2. (b)

      the notice period being shorter than 90 days (see paragraph (2)(g)).

Sale and redemption of units: guidance

COLL 15.8.13 G
  1. (1)

    1The authorised fund manager of a long-term asset fund is required to ensure that the investment strategy, liquidity profile and redemption policy for the scheme are consistent (see FUND 3.6.2R (Alignment of investment strategy, liquidity profile and redemption policy)).

  2. (2)

    Given the type of investments that a long-term asset fund is likely to hold in its scheme property, the FCA considers that a long-term asset fund will need to operate particular arrangements for the redemption of units.

  3. (3)

    The authorised fund manager of a long-term asset fund must not make redemption determinations more frequently than once a month (see COLL 15.8.12R(2)(b)), which is the maximum frequency for determining such requests and effecting redemptions. The rules also require a long-term asset fund to have a notice period of at least 90 days (see COLL 15.8.12R(2)(g)). This is the minimum notice period for a long-term asset fund.

  4. (4)

    However, the frequency of the days on which redemption determinations are made and the particular notice period which is appropriate for a long-term asset fund will depend on the reasonable expectations of the target investor group and the particular investment objectives, investment policy and investment strategy of the scheme.

  5. (5)

    The authorised fund manager must also comply with the AIFMD level 2 regulation, which contains detailed requirements about liquidity management taking into account the long-term asset fund’s investment strategy, liquidity profile and redemption policy. See, for example, articles 46 to 49 of the AIFMD level 2 regulation.

  6. (6)

    Other determinations which an authorised fund manager may make, if provided for in the instrument constituting the fund and the prospectus (see COLL 15.8.12R(1)(c)), could include a deferral of execution of a redemption request or payment, or a limit on the value or number of units which can be redeemed at any one valuation point.

  7. (7)

    Redemption determinations should be carried out so that all unitholders who have requested redemption at any one valuation point are treated fairly.

Property Authorised Investment Funds

COLL 15.8.14 R
  1. (1)

    The authorised fund manager of a long-term asset fund that is also 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 scheme (the “maximum allowable”).

  2. (2)

    For the purposes of (1), a body corporate shall not be treated as holding more than the maximum allowable to the extent that:

    1. (a)

      the body corporate holds units in a unit trust scheme which holds shares in the property authorised investment fund; and

    2. (b)

      in their capacity as trustees of the unit trust scheme, the trustees are chargeable in the United Kingdom either to income tax or to corporation tax.

  3. (3)

    1Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, the authorised fund manager must:

    1. (a)

      notify the body corporate of that event;

    2. (b)

      not pay any income distribution to the body corporate; and

    3. (c)

      redeem or cancel units forming the body corporate’s holding down to the maximum allowable within a reasonable timeframe.

  4. (4)

    For the purpose of (3)(c), a reasonable timeframe means the timeframe which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.

Reasonable steps to monitor the maximum allowable include:

COLL 15.8.15 G

1Reasonable steps to monitor the maximum allowable include:

  1. (1)

    regularly reviewing the register; and

  2. (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.

Payments: application of rules

COLL 15.8.15A R
  1. (1)

    3COLL 15.8.15CR to COLL 15.8.15PR apply in relation to an LTAF retail class.

  2. (2)

    In relation to a limited protection LTAF class:

    1. (a)

      COLL 15.8.15CR and COLL 15.8.15DG always apply; and

    2. (b)

      COLL 15.8.15QR may be applied.

  3. (3)

    COLL 15.8.15CR to COLL 15.8.15PR apply as specified in the table in (4).

  4. (4)

    This table belongs to (3).

    Rule

    ICVC

    Authorised fund manager

    Depositary of an ICVC, AUT or ACS

    COLL 15.8.15CR

    x

    x

    x

    COLL 15.8.15DG

    x

    x

    x

    COLL 15.8.15EG

    x

    x

    COLL 15.8.15FR

    x

    x

    COLL 15.8.15GR

    x

    COLL 15.8.15HG

    x

    COLL 15.8.15IR

    x

    COLL 15.8.15JR

    x

    x

    COLL 15.8.15KG

    x

    x

    COLL 15.8.15LR

    x

    x

    COLL 15.8.15MG

    x

    x

    COLL 15.8.15NR

    x

    x

    x

    COLL 15.8.15OG

    x

    x

    COLL 15.8.15PR

    x

    x

    Note: “x” means “applies” but not every paragraph in every rule will necessarily apply.

COLL 15.8.15B G

3Where COLL 15.8.15EG to COLL 15.8.15PR are not applied to classes which are 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)).

Payments out of scheme property

COLL 15.8.15C R
  1. (1)

    3The only payments which may be recovered from the scheme property of a long-term asset fund are those in respect of:

    1. (a)

      remunerating the parties operating the authorised fund;

    2. (b)

      the administration of the authorised fund; or

    3. (c)

      the investment or safekeeping of the scheme property.

  2. (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. (3)

    Paragraphs (1) and (2) do not apply to any payments in relation to any taxation payable by the authorised fund.

  4. (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 15.8.15D G
  1. (1)

    3Details of permissible types of payments out of scheme property are to be set out in full in the prospectus in accordance with COLL 15.4.5R(14) (Table: contents of a long-term asset fund prospectus).

  2. (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. (3)

    COLL 15.8.15CR(2) 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. (4)

    Payments to third parties as referred to in COLL 15.8.15CR(4) include payments to platform service providers and other similar platform services.

Performance fees

COLL 15.8.15E G
  1. (1)

    3For 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. (2)

    Any performance fee should be specified in the appropriate manner in the prospectus and should be consistent with COLL 15.8.15CR. In determining whether the performance fee is consistent, the authorised fund manager should have regard to factors such as:

    1. (a)

      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;

    2. (b)

      the performance fee may be based on performance above a defined positive rate of return (the ‘hurdle rate’), which may be fixed or variable;

    3. (c)

      where (a) or (b) applies, the benchmark or hurdle rate may be carried forward to future accrual periods;

    4. (d)

      the period over which it accrues and the frequency with which it crystallises should be reasonable; and

    5. (e)

      except where allowed by COLL 15.8.15CR(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. (3)

    In accordance with COLL 15.4.5R(14) (Table: contents of a long-term asset fund 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.

COLL 15.8.15F R

3Any performance fee specified in the prospectus must be calculated on the basis of the scheme’s performance after deduction of all other payments out of scheme property.

Charges on buying and selling units

COLL 15.8.15G R
  1. (1)

    3No person other than the authorised fund manager may impose charges on unitholders or potential unitholders when they buy or sell units.

  2. (2)

    An authorised fund manager must not make any charge or levy in connection with:

    1. (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:

      1. (i)

        a fixed amount; or

      2. (ii)

        calculated as a percentage of the price of a unit; or

      3. (iii)

        calculated as a percentage of the amount being subscribed; or

    2. (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.

Charges on buying and selling units: guidance

COLL 15.8.15H G
  1. (1)

    3To 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:

    1. (a)

      COLL 15.4.5R (Table: contents of a long-term asset fund prospectus);

    2. (b)

      COLL 15.5.10R (Alterations to the scheme and notices to unitholders) (see also the guidance in COLL 15.5.11G); and

    3. (c)

      COLL 15.5.11AR (Change events relating to feeder LTAFs) (see also the guidance in COLL 15.5.11BG).

  2. (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. (3)

    The prospectus should contain a statement as to the determination of the order in which units that have been acquired at different times by a unitholder are to be taken to be redeemed or cancelled for the purpose of imposing the redemption charge.

  4. (4)

    When a preliminary charge is calculated as a percentage of the price of a unit, the percentage amount should be added to:

    1. (a)

      the price of a unit (for a single-priced authorised fund); or

    2. (b)

      the issue price (for a dual-priced authorised fund).

Charges for the exchange of units in an umbrella

COLL 15.8.15I R

3For 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.

Allocation of payments to income or capital

COLL 15.8.15J R
  1. (1)

    3The 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:

    1. (a)

      pay due regard to whether the nature of the cost is income related or capital related and the objective of the scheme; and

    2. (b)

      agree the treatment of any payment with the depositary.

  2. (2)

    Where, for any class of units for any annual accounting period (see COLL 15.8.18R(2) (Income)), 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 15.8.15K G
  1. (1)

    3Any payment as a result of effecting transactions for the authorised fund should be made from the capital property of the scheme.

  2. (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 15.8.15JR(1) (Allocation of payments to income or capital).

  3. (3)

    For payments transferred to the capital property of the scheme in accordance with (2), the prospectus should disclose the matters in COLL 15.4.5R(14) (Table: contents of a long-term asset fund prospectus).

  4. (4)

    If the authorised fund manager wishes to make a change in relation to the allocation of payments, the procedures in COLL 15.5.10R (Alterations to the scheme and notices to unitholders) will be relevant.

Prohibition on promotional payments

COLL 15.8.15L R
  1. (1)

    3No 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. (2)

    Paragraph (1) does not apply to the costs an authorised fund incurs preparing and printing the key information document, provided the prospectus states, in accordance with COLL 15.4.5R(14) (Table: contents of a long-term asset fund prospectus), that these costs are properly payable to the authorised fund manager from scheme property.

Prohibition on promotional payments: guidance

COLL 15.8.15M G

3Examples of payments which are not permitted by COLL 15.8.15LR include:

  1. (1)

    commission payable to intermediaries (such payments should normally be borne by the authorised fund manager);

  2. (2)

    payments or costs in relation to the preparation or dissemination of financial promotions (other than costs allowed under COLL 15.8.15LR(2)).

Payments of liabilities on transfer of assets

COLL 15.8.15N R
  1. (1)

    3Where the scheme property of an LTAF 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. (2)

    The ICVC or the depositary of the ICVC, ACS or 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:

    1. (a)

      there is nothing in the instrument constituting the fund of the LTAF expressly forbidding the payment; and

    2. (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.

Exemptions from liability to account for profits

COLL 15.8.15O G

3Except as provided in COLL 15.8.3R (Profits from dealing as principal), 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. (1)

    dealings in the units of a scheme; or

  2. (2)

    any transaction in scheme property; or

  3. (3)

    the supply of services to the scheme,

where disclosure of the non-accountability has been made in the prospectus of the scheme.

Allocation of scheme property

COLL 15.8.15P R

3For a scheme that 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 that is fair to the unitholders of the umbrella generally.

Payments: limited protection LTAF classes

COLL 15.8.15Q R
  1. (1)

    3This rule applies in relation to a limited protection LTAF class unless the provisions in COLL 15.8.15EG to COLL 15.8.15PR have been applied.

  2. (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.

Movable or immovable property: ICVCs

COLL 15.8.16 R

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.3

  1. (2)

    [deleted.]3

Exemption from liability to account for profits

COLL 15.8.17 G

1Except as provided in COLL 15.8.3R (Profits from dealing as principal), 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. (1)

    dealings in the units of a scheme; or

  2. (2)

    any transaction in scheme property; or

  3. (3)

    the supply of services to the scheme;

    where disclosure of the non-accountability has been made in the prospectus of the scheme.

Income

COLL 15.8.18 R
  1. (1)

    1A long-term asset fund must have:

    1. (a)

      an annual accounting period;

    2. (b)

      a half-yearly accounting period; and

    3. (c)

      an accounting reference date;

      the details of which must be set out in the prospectus.

  2. (2)

    COLL 6.8.2R(2) to COLL 6.8.2R(7) (Accounting periods) also apply to the half-yearly accounting period and annual accounting period of a long-term asset fund.

  3. (3)

    A long-term asset fund must have an annual income allocation date, which must be within four months of the accounting reference date.

  4. (4)

    A long-term asset fund 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.

  5. (5)

    COLL 6.8.3R(3) (Income allocation and distribution) to COLL 6.8.3AG (Allocation of income to difference classes of unit) also apply to a long-term asset fund.

COLL 15.9 Operational requirements for feeder LTAFs

Application

COLL 15.9.1 R

1This section applies as follows:

  1. (1)

    COLL 15.9.2R to COLL 15.9.6R apply to the authorised fund manager of a feeder LTAF;

  2. (2)

    COLL 15.9.6R also applies to:

    1. (a)

      an ICVC that is a feeder LTAF; and

    2. (b)

      any person acting on behalf of either the feeder LTAF or the authorised fund manager of the feeder LTAF; and

  3. (3)

    COLL 15.9.7R applies to the authorised fund manager of a long-term asset fund which operates as a qualifying master LTAF to a feeder LTAF.

Pre-investment requirements of the authorised fund manager of a feeder LTAF

COLL 15.9.2 R

1Before investing in the qualifying master LTAF, the authorised fund manager of the feeder LTAF must:

  1. (1)

    be satisfied on reasonable grounds that it can obtain from the qualifying master LTAF all the information necessary to comply on an ongoing basis with the rules in COLL;

  2. (2)

    having consulted with the depositary of the feeder LTAF, be satisfied on reasonable grounds that the depositary of the feeder LTAF can obtain from the qualifying master LTAF, the operator of the qualifying master LTAF or the depositary of the qualifying master LTAF all the information necessary to comply with its duties under COLL 15.7.6R and COLL 15.7.7R (Duties of the depositary); and

  3. (3)

    inform the authorised fund manager of the qualifying master LTAF of the date on which the feeder LTAF will begin to invest into the qualifying master LTAF as a feeder LTAF.

Ownership of units in a feeder LTAF

COLL 15.9.3 R

1The authorised fund manager of a feeder LTAF must take reasonable care to ensure that its units are not owned, including beneficially owned, by the qualifying master LTAF or any other scheme in which the qualifying master LTAF invests.

Charges made by the qualifying master LTAF or its operator to a feeder LTAF on investment or disposal

COLL 15.9.4 R
  1. (1)

    1Where the operator or the authorised fund manager of a qualifying master LTAF imposes any charge which is, or is equivalent in effect to, a preliminary charge or redemption charge on the feeder LTAF for the acquisition or disposal of units in the qualifying master LTAF, the authorised fund manager of the feeder LTAF must pay to the feeder LTAF an amount equal to such charge within four business days following the relevant acquisition or disposal.

  2. (2)

    In this rule, where the operator or authorised fund manager of a qualifying master LTAF requires any addition to or deduction from the consideration paid on the acquisition or disposal of units in the qualifying master LTAF which is, or is equivalent in effect to, a dilution levy made in accordance with the instrument constituting the fund and the prospectus, it is to be treated as part of the price of the units and not as part of any preliminary charge or redemption charge referred to in (1).

Avoidance of opportunities for market timing

COLL 15.9.5 R

1The authorised fund manager of a feeder LTAF must take appropriate measures to co-ordinate the timing of the feeder LTAF’svaluation points and dealing days with those of its qualifying master LTAF, including the publication of dealingprices, in order to avoid market timing of their units, and prevent arbitrage opportunities.

Inducements

COLL 15.9.6 R

1Where, in connection with an investment in the units of the qualifying master LTAF, a distribution fee, commission or other monetary benefit is received by:

  1. (1)

    a feeder LTAF;

  2. (2)

    an authorised fund manager of a feeder LTAF; or

  3. (3)

    any person acting on behalf of (1) or (2),

    that fee, commission or other monetary benefit must be paid into the scheme property of the feeder LTAF within four business days of receipt of that fee, commission or other monetary benefit.

Obligations to unitholders of a qualifying master LTAF

COLL 15.9.7 R

1Where the qualifying master LTAF is an authorised fund, the authorised fund manager of the qualifying master LTAF must not, if it would unfairly prejudice the interests of unitholders of the qualifying master LTAF other than the feeder LTAF, provide or make available information to the authorised fund manager of the feeder LTAF without at the same time also providing or making available that information to the unitholders of the qualifying master LTAF other than the feeder LTAF.

COLL 15.10 Termination, suspension, and schemes of arrangement

Application

COLL 15.10.1 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.

Termination

COLL 15.10.2 R

1For a long-term asset fund the provisions in COLL 7.3 to COLL 7.5 will apply as appropriate as if COLL 7 applied to long-term asset funds.

Suspension

COLL 15.10.3 R
  1. (1)

    1The 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, temporarily suspend dealings in units of the scheme, a sub-fund or a class.

  2. (2)

    Any suspension within (1) must only be where the authorised fund manager has determined that due to exceptional circumstances the suspension of dealings is 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. (3)

    At the commencement of suspension under (1), the authorised fund manager must immediately inform the FCA of the suspension and the reasons for it.

  4. (4)

    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, which:2

    1. (a)

      2is clear, fair and not misleading;

    2. (b)

      2draws unitholders’ particular attention to the exceptional circumstance which resulted in the suspension; and

    3. (c)

      2informs unitholders how to obtain the information detailed in (4A).

  5. (4A)

    2The 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.

  6. (5)

    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.

  7. (6)

    The suspension of dealings in units must cease, as soon as (2) no longer applies.

  8. (7)

    The authorised fund manager and the depositary must formally review the suspension at least every 28 days and inform the FCA of the results of this review and any change to the information provided in (3).

  9. (8)

    The authorised fund manager must inform the FCA immediately of the resumption of dealings.

Schemes of arrangement

COLL 15.10.4 R

1In relation to an ICVC, ACS or an AUT which is a long-term asset fund, 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 long-term asset fund and did not exclude unitholders becoming unitholders in another long-term asset fund.

COLL 15 Annex 1 ACS Long-term asset funds: Eligible investors

R

1This Annex belongs to COLL 15.1.3R and COLL 15.1.4G.

For the purposes of the rule on eligible3 investors in a long-term asset fund which is an ACS (see COLL 15.1.3R(2)), the authorised contractual scheme manager must take reasonable care to ensure that ownership of units in the scheme is only recorded in the register for a person:

(1)

who is a:

(a)

professional ACS investor; or

(b)

large ACS investor; or

(c)

person who already holds units in the scheme; and

(2)

to whom units in a long-term asset fund may be promoted without contravening the rules in COBS 4.12A (Promotion of restricted mass market investments)3.

2