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COLL 4.6 2Simplified Prospectus provisions

Application

COLL 4.6.1R

2This section applies to an ICVC, an authorised fund manager of an AUT, ACS9 or ICVC and any other director of an ICVC where, in each case, the AUT, ACS9 or ICVC is a simplified prospectus scheme.

Production and publication of simplified prospectus

COLL 4.6.2R
  1. (1)

    An operator of a simplified prospectus scheme must, for each simplified prospectus scheme in respect of which it is the operator, produce and publish a simplified prospectus in accordance with the rules in this section and ensure that it contains in summary form each of the matters referred to in the table below that relates to this rule.

  2. (2)

    A simplified prospectus must be incorporated in a written document or in any durable medium.

  3. (3)

    An operator of a simplified prospectus scheme must be satisfied on reasonable grounds that each simplified prospectus which it produces:

    1. (a)

      includes all such information as is necessary to enable an investor to make an informed decision about whether to acquire units in the scheme;

    2. (b)

      does not omit any key item of information;

    3. (c)

      wherever possible is written in plain language which avoids technical language and jargon; and

    4. (d)

      adopts a format and style of presentation which is clear and attractive to the average reader, so that it can be easily understood by him.

  4. (4)

    The simplified prospectus may be attached to the full prospectus as a removable part of it.

Revision of simplified prospectus

COLL 4.6.3R

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

COLL 4.6.4G

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

Filing requirements

COLL 4.6.5R

A UCITS management company must for each UCITS scheme it manages file the scheme's initial simplified prospectus, together with each revision to it, with:

  1. (1)

    the FCA ; and

  2. (2)

    the competent authority of each EEA state in which its units are to be marketed in the exercise of an EEA right.

UK firms exercising passporting rights in respect of UCITS scheme

COLL 4.6.6R
  1. (1)

    A UCITS management company must for each UCITS scheme it manages and in respect of which it is marketing units in another EEA State in the exercise of an EEA right, produce a simplified prospectus for the scheme drawn up in accordance with the requirements contained in this section.

  2. (2)

    The simplified prospectus must be drawn up in the, or one of the, official languages of the EEA State for which it was prepared or in a language approved by the competent authority of that EEA State.

  3. (3)

    The simplified prospectus may, without alteration, be used for marketing purposes in the EEA State for which it was prepared and in which the units of the simplified prospectus scheme are to be sold.

COLL 4.6.7G
  1. (1)

    In translating the simplified prospectus from English into one or more of the official languages of the EEA State in which the simplified prospectus scheme is to be marketed, or into a language approved by the competent authority of that State, it is permissible under article 28.3 of the UCITS Directive, in the FCA's view, for figures expressed in pounds sterling to be converted into the appropriate local currency such as euros. It is not necessary, for example, for the simplified prospectus of a scheme that is to be marketed across the EEA in the exercise of an EEA right, to refer to each amount in pounds sterling, in euros and additionally in every other local currency of an EEA State in which units of the scheme are to be marketed that has not adopted the euro as its currency.

    8
  2. (2)

    Operators considering marketing the units of their simplified prospectus schemes in another EEA State in the exercise of an EEA right should have regard to the local marketing legislation of such country.

Contents of the simplified prospectus

COLL 4.6.8R

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

Contents of simplified prospectus

Note:

By reproducing schedule C (Contents of the simplified prospectus) to the UCITS Directive (as amplified by Commission Recommendation (2004/384/EC)) and cross-referring to other relevant material, this annex details the facts or matters that must included in a simplified prospectus.

Brief presentation of the simplified prospectus scheme (in this Table referred to as "the scheme").

(1)

when the scheme was created and an indication of the EEA State where the scheme has been registered or incorporated;

(2)

in the case of a scheme having different investment compartments (sub-funds), the indication of this circumstance;

(3)

the name and contact details of the operator (when applicable);

(4)

the expected period of existence of the scheme (when applicable);

(5)

the name and contact details of the depositary;

(6)

the name and contact details of the auditors;

(7)

the name and brief details of the financial group (e.g. a bank) promoting the scheme;

Investment information

(8)

a short description of the scheme's objectives including:

(a)

a concise and appropriate description of the outcomes sought for any investment in the scheme;

(b)

a clear statement of any guarantees offered by third parties to protect investors and any restrictions on those guarantees;

6

(c)

a statement, where relevant, that the scheme is intended to track an index or indices, and sufficient information to enable investors both to identify the relevant index or indices and to understand the extent or degree of tracking pursued; and6

(d)

where the scheme is a qualifying money market fund, short-term money market fund or money market fund, a statement identifying it as such a fund and a statement that the scheme's investment objectives and policies will meet the conditions in the definition of qualifying money market fund, short-term money market fund or money market fund, as appropriate;6

Notes:

1.

Information on (8)(a) should include a statement as to whether there is any arrangement intended to result in a particular capital or income return from the units or any investment objective of giving protection to their capital value or income return and, if so, details of that arrangement or protection.

2.

The information disclosed under (8)(b) should include an explanation of what is to happen when an investment is encashed before the expiry of any related guarantee or protection.

(9)

the scheme's investment policy, including:

(a)

the main categories of eligible financial instruments which are the object of investment;

(b)

whether the scheme has a particular strategy in relation to any industrial, geographic or other market sectors or specific classes of assets, e.g. investments in emerging countries' financial instruments;

(c)

where relevant, a warning that, whilst the actual portfolio composition is required to comply with the broad legal and statutory rules and limits, risk-concentration may occur in regard of certain tighter asset classes, economic and geographic sectors;

(d)

if the scheme invests in bonds, an indication of whether they are corporate or government, their duration and the ratings requirements;

(e)

if the scheme uses financial derivative instruments, an indication of whether this is done in pursuit of the scheme's objectives, or for hedging purposes only;

(f)

whether the scheme's management style makes some reference to a benchmark; and in particular whether the scheme has an 'index tracking' objective, with an indication of the strategy to be pursued to achieve this; and

(g)

whether the scheme's management style is based on a tactical asset allocation with high frequency portfolio adjustments;

provided the information is material and relevant;

Note:

The information referred to in paragraphs (8) and (9) may be set out as a single item in the simplified prospectus (e.g. for the information on index tracking), provided that the information so combined does not lead to confusion of the objectives and policies of the scheme. The order of the information items may be adapted to reflect the scheme's specific investment objectives and policy.

(10)

a brief assessment of the scheme's risk profile by investment compartment or sub-fund, including:

(a)

overall structure of the information provided:

(i)

a statement to the effect that the value of investments may fall as well as rise and that investors may get back less than they put in;

(ii)

a statement that details of all the risks actually mentioned in the simplified prospectus may be found in the full prospectus;

(iii)

a description in words of any risk investors have to face in relation to their investment, but only where such risk is relevant and material, based on risk impact and probability; and

(b)

details regarding the description (in words) of the following risks:

(i)

specific risks:

The description referred to in paragraph (10)(a)(iii) should include a brief and understandable explanation of any specific risk arising from particular investment policies or strategies or associated with specific markets or assets relevant to the scheme such as:

A

the risk that the entire market of an asset class will decline thus affecting the prices and values of the assets (market risk);

B

the risk that an issuer or a counterparty will default (credit risk);

C

only where strictly relevant, the risk that a settlement in a transfer system does not take place as expected because a counterparty does not pay or deliver on time or as expected (settlement risk);

D

the risk that a position cannot be liquidated in a timely manner at a reasonable price (liquidity risk);

E

the risk that the investment's value will be affected by changes in exchange rates (exchange or currency risk);

F

only where strictly relevant, the risk of loss of assets held in custody that could result from the insolvency, negligence or fraudulent action of the custodian or of a subcustodian (custody risk); and

G

risks related to a concentration of assets or markets; and

(ii)

horizontal risk factors:

The description referred to in paragraph (10)(a)(iii) should also mention, where relevant and material, the following factors that may affect the product:

A

performance risk, including the variability of risk levels depending on individual fund selections, and the existence, absence of, or restrictions on any guarantees given by third parties;

B

risks to capital, including potential risk of erosion resulting from withdrawals/cancellations of units and distributions in excess of investment returns;

C

exposure to the performance of the provider/third-party guarantor, where investment in the product involves direct investment in the provider, rather than assets held by the provider;

D

inflexibility, both within the product (including early surrender risk) and constraints on switching to other providers;

E

inflation risk; and

F

lack of certainty that environmental factors, such as a tax regime, will persist;

(iii)

possible prioritisation of information disclosure:

In order to avoid conveying a misleading image of the relevant risks, the information items should be presented so as to prioritise, based on scale and materiality, the risks so as to better highlight the individual risk profile of the scheme;

(11)

the historical performance of the scheme (where applicable) and a warning that this is not an indicator of future performance (which may be either included in or attached to the simplified prospectus), including:

(a)

disclosure of past performance:

(i)

the scheme's past performance, as presented using a bar chart showing annual returns for the last ten full consecutive years. If the scheme has been in existence for fewer than ten years but at least for a period of one year, it is recommended that the annual returns, calculated net of tax and charges, be given for as many years as are available; and

(ii)

if a scheme is managed according to a benchmark or if its cost structure includes a performance fee depending on a benchmark, the information on the past performance of the scheme should include a comparison with the past performance of the benchmark according to which the scheme is managed or the performance fee is calculated;

Note:

Comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

(b)

disclosure of cumulative performance:

Disclosure should be made of the cumulative performance of the scheme over the ten year period referred to in paragraph (11)(a)(i). A comparison should also be made with the cumulative performance (where relevant) of a benchmark, when comparison to a benchmark is required in accordance with paragraph (11)(a)(ii);

Note:

Where the scheme has been in existence for fewer than ten years but at least for a period of one year, disclosure of the past cumulative performance should be made for as many years as are available.

(c)

exclusion of subscription and redemption fees, subject to appropriate disclosure:

A statement should be made that past performance of the scheme does not include the effect of subscription and redemption fees.

Notes:

1.

Where a comparison is being made with the cumulative performance of a benchmark as required by paragraph (11)(b), the comparison should be achieved by representing the past performance of the benchmark and that of the scheme through the use of appropriate graphs to assist the reader to make the comparison.

2.

The scheme's historical performance may be produced as a separate attachment to the simplified prospectus.

(12)

a profile of the typical investor the scheme is designed for;

Economic information

(13)

the scheme's applicable tax regime, including:

(a)

the tax regime applicable to the scheme in the UK; and

(b)

a statement which explains that the regime of taxation of the income or capital gains received by individual investors depends on the tax law applicable to the personal situation of each individual investor and/or to the place where the capital is invested and that if investors are unclear as to their fiscal position, they should seek professional advice or information from local organisations, where available;

Note:

This information should include a statement in relation to SDRT provision, explaining how the scheme may suffer stamp duty reserve tax as a result of transactions in units and whether the operator's policy is such that an SDRT provision may be imposed.

(14)

details of any entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, distinguishing between those to be paid by the unitholder and those to be paid from the scheme's or the sub-fund's assets, including:

(a)

overall contents of the information provided:

(i)

disclosure of a total expense ratio (TER), calculated as indicated in Annex 1 to this chapter, except for a newly created fund where a TER cannot yet be calculated;

(ii)

on an ex ante basis, disclosure of the expected cost structure, that is an indication of all costs available according to the list set forth in Annex 1 to this chapter so as to provide investors, in so far as possible, with a reasonable estimate of expected costs;

(iii)

all entry and exit commissions and other expenses directly paid by the investor;

(iv)

an indication of all the other costs not included in the TER, including disclosure of transaction costs;

(v)

as an additional indicator of the importance of transaction costs, the portfolio turnover rate, calculated as shown in Annex 2 to this chapter; and

(vi)

an indication of the existence of fee-sharing agreements and soft commissions;

Note:

1.

In explaining the function of the TER to the reader, appropriate wording should be used in the simplified prospectus. For example, TER might be explained in the following terms: "The TER shows the annual operating expenses of the scheme - it does not include transaction expenses. All European funds highlight the TER to help you compare the annual operating expenses of different schemes."

2.

It is the FCA's understanding that the disclosure of a reasonable estimate of expected costs on an ex ante basis, as required by paragraph (14)(a)(ii), only applies to new schemes where a TER cannot yet be calculated. Where a TER can be calculated for a simplified prospectus scheme, there is no need to have to disclose a reasonable estimate of expected costs on an ex ante basis in accordance with paragraph (14)(a)(ii), in addition to the TER.

3.

Paragraph (14)(a)(vi)) should not be interpreted as a general validation of the compliance of any individual agreement or commission with the provisions of the Handbook . Taking into account current market practice, consideration should be given as to how far the scheme's existing fee-sharing agreements and comparable fee arrangements are for the exclusive benefit of the scheme.

4.

The simplified prospectus should make a reference to the full prospectus for detailed information on these kinds of arrangements, which should allow any investor to understand to whom expenses are to be paid and how possible conflicts of interest will be resolved in his/her best interest. The information provided in the simplified prospectus should remain concise in this respect.

5.

Details of entry and exit commissions relating to the scheme and details of the scheme's other possible expenses or fees, must be presented in the simplified prospectus in the form required by COBS 4.6.9 R (Charges and reduction in yield).4

(b)

information about 'fee sharing agreements' and 'soft commissions':

(i)

identification of 'fee-sharing agreements';

Note:

For the purposes of paragraph (14)(b)(i), fee-sharing agreements should be taken as those agreements whereby a party remunerated, either directly or indirectly, out of the assets of a scheme agrees to split its remuneration with another party and which result in that other party meeting expenses through this fee-sharing agreement that should normally be met, either directly or indirectly, out of the assets of the scheme.

(ii)

identification of soft commissions;

Note:

For the purposes of paragraph (14) (b) (ii), soft commissions should be regarded as any economic benefit, other than clearing and execution services, that an asset manager receives in connection with the scheme's payment of commissions on transactions that involve the scheme's portfolio securities. Soft commissions are typically obtained from, or through, the executing broker.

(c)

presentation of TER and portfolio turnover rate;

Note:

Both the TER and the portfolio turnover rate may be either included in or attached to the simplified prospectus in the same paper as information on past performance.

Commercial information

(15)

how to buy the units;

Note:

This should include an explanation of any relevant right to cancel or withdraw from the purchase, or, where it is the case, that such rights do not apply.

(16)

how to sell the units;

(17)

in the case of a scheme having different investment compartments (sub-funds), an explanation of how to switch from one investment compartment into another and any charges applicable in such cases;

(18)

when and how dividends on units or shares of the scheme (if applicable) are distributed;

(19)

when and where prices of units are published or made available;

Additional information

(20)

A statement that, on request, the full prospectus and the annual and half-yearly reports of the scheme may be obtained free of charge before the conclusion of the contract and afterwards, together with details of how they may be obtained or how a person may gain access to them;

(21)

the name and contact details of the FCA as being the competent authority which has authorised or registered the scheme;

(22)

details of a contact point (person or department, and, if appropriate the times of day etc.) where additional information may be obtained if needed;

(23)

the date of publication of the simplified prospectus;7

7

7Additional information for a feeder NURS: Objectives and investment policy

7(24)

(a)

where the scheme is a feeder NURS, in the description of objectives and investment policy, information about the proportion of the feeder NURS' assets which is invested in the qualifying master scheme; and

(b)

a description of the qualifying master scheme's objectives and investment policy, supplemented by:

(i)

an indication that the investment returns of the feeder NURS will be very similar to those of the qualifying master scheme; or

(ii)

an explanation of how and why the investment returns of the feeder NURS and qualifying master scheme may differ;

7Additional information for a feeder NURS: Risk profile

7(25)

(a)

a description and explanation of any material differences between the risk profile of the feeder NURS and that of the qualifying master scheme; and

(b)

details of:

(i)

any liquidity risk; and

(ii)

the relationship between purchase and redemption arrangements for the qualifying master scheme and feeder NURS;

7Additional information for a feeder NURS: Practical information

7(26)

where the scheme is a feeder NURS, information specific to the feeder NURS, including:

(a)

a statement that the following documents of the qualifying master scheme are available to unitholders of the feeder NURS upon request, and details of how they may be obtained:

(i)

the prospectus;

(ii)

A

the key investor information document; or

B

where the authorised fund manager of the qualifying master scheme has a dispensation in the form of a general waiver by consent so that it may provide a key investor information document as modified by the general waiver direction, that document (a 'NURS KII document'); or

C

the key features document; or

D

the simplified prospectus; or

E

the nearest equivalent document for a qualifying master scheme that is a recognised scheme; and10

(iii)

the annual and half-yearly long reports (or nearest equivalent documents for a qualifying master scheme that is a recognised scheme); and

(iv)

[deleted]10

(b)

where the qualifying master scheme is not established in the United Kingdom, and where this may affect the feeder NURS' tax treatment, a statement to this effect;

7Feeder NURS: past performance presentations

7(27)

(a)

any past performance presentation in the document of the feeder NURS must be specific to the feeder NURS and must not reproduce the performance record of the qualifying master scheme;

(b)

the requirement in (a) does not apply where the feeder NURS:

(i)

shows the past performance of its qualifying master scheme as a benchmark; or

(ii)

was launched as a feeder NURS at a later date than the qualifying master scheme and where a simulated performance which is based on the past performance of the qualifying master scheme is shown for the years before the feeder NURS existed; or

(iii)

has a performance record from before the date on which it began to operate as a feeder, its own record being retained in the bar chart of the relevant years, with any material change labelled.

General Note:

In making the disclosures required by paragraphs (8) to (19) of this Table, the information must be presented in the form of questions and answers. This format is designed to assist the comprehension of the reader. This requirement will not apply in relation to a simplified prospectus that is to be used to market the units of the scheme in another EEA state or in relation to a simplified prospectus that is to be used to market the units of the scheme exclusively to persons who are not retail clients 4 4.

Charges and reduction in yield1

COLL 4.6.9R
  1. (1)

    14In disclosing the information required by paragraph 14 of COBS 4.6.8 G (Table: Contents of the simplified prospectus), a firm must include an effect of charges table and a reduction in yield figure prepared in accordance with the rules in sections 2 (Effect of charges table) and 3 (Reduction in yield) of COBS 13 Annex 3.

  2. (2)

    This rule does not apply to a simplified prospectus for units in a simplified prospectus scheme that will be marketed and sold in another EEA State or exclusively to those who are not retail clients.4

  3. (3)

    Note (5) to paragraph (14) of COBS 4.6.8 G, and COBS 4.6.9 R cease to have effect on 30 June 2011,5 unless remade.4

    5

Composite documents for several schemes, sub-funds and classes

COLL 4.6.10G

3In the FCA's view, a firm may, for the purposes of the rules in COBS 14 requiring a firm to provide a key features document or a simplified prospectus, combine the required information on several simplified prospectus schemes,4 key features scheme 4 4or EEA simplified prospectus schemes or any combination of them into a composite document, provided the document continues to comply with the general requirements such as being clear. Similarly, the information on different sub-funds or classes within a scheme may be combined into a composite document or provided as separate documents. Where the latter approach is adopted, references in this section to "scheme" or "simplified prospectus scheme " should be taken as referring to the relevant sub-fund or class, as applicable.

Multiclass schemes: use of representative class

COLL 4.6.11G

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

COLL 4.6.12R

4An authorised fund manager must ensure that its financial promotions which contain an invitation to purchase units in a UCITS scheme indicate that a simplified prospectus and a full prospectus exist, and the places where they may be obtained by the public or how the public may have access to them.

Use of the "Key facts" logo within a simplified prospectus

COLL 4.6.13R

4A simplified prospectus may include the "Key facts" logo if:

  1. (1)

    the "Key facts" logo is situated in a prominent position at the top of the document; and

  2. (2)

    The document also contains the following statement in a prominent position:

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