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COLL 6.1 Introduction and Application

Application

COLL 6.1.1 R RP

This chapter applies to:

  1. (1)

    an authorised fund manager of an AUT or an ICVC;

  2. (2)

    any other director of an ICVC;

  3. (3)

    a depositary of an AUT or an ICVC; and

  4. (4)

    an ICVC,

where such AUT or ICVC is a UCITS scheme or a non-UCITS retail scheme.

Purpose

COLL 6.1.2 G RP

This chapter helps in achieving the regulatory objective of protecting consumers. It provides the operating framework within which the authorised fund must be operated on a day-to-day basis to ensure that clients are treated fairly when they become, remain or as they cease to be unitholders.

Explanation of this chapter

COLL 6.1.3 G RP
  1. (1)

    The authorised fund manager operates the scheme on a day-to-day basis. Its operation is determined by the rules in this chapter, which require appropriate powers in the instrument constituting the scheme or refer to the need to state the relevant operating procedures in the prospectus of the scheme.

  2. (2)

    The authorised fund manager does not necessarily have to carry out all the activities it is responsible for and may delegate functions to other persons. The rules in this chapter set out the parameters of such delegation.

  3. (3)

    The depositary's duty is, generally speaking, to ensure the safe custody of scheme property and to oversee certain functions of the1authorised fund manager (most notably the pricing and dealing function and investment powers). The oversight responsibilities for a trustee of an AUT are similar to, but not the same as, the oversight responsibilities of the depositary of an ICVC. These differences result from the different legal structure of the authorised funds and the trustee's obligations under trust law.

COLL 6.2 Dealing

Application

COLL 6.2.1 R RP
  1. (R

    This section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.

Purpose

COLL 6.2.2 G RP
  1. (1)

    This section helps in achieving the regulatory objective of securing an appropriate degree of protection for consumers. In accordance with Principle 6, this section is also concerned with ensuring the authorised fund manager pays due regard to its clients' interests and treats them fairly.

  2. (2)

    An authorised fund manager is responsible for arranging for the issue and the cancellation of units for the authorised fund, and is permitted to sell and redeemunits for its own account. The rules in this section are intended to ensure that the authorised fund manager treats the authorised fund fairly when arranging for the issue or cancellation of units, and treats clients fairly when they purchase or sellunits.

  3. (3)

    This section also sets out common standards for how the amounts in relation to unit transactions are to be paid. These arrangements include the initial offer of units, the exchange of units for scheme property and issues and cancellations of units by an ICVC, or by the trustee of an AUT, carried out directly with the unitholder.

  4. (4)

    This section also sets out rules and guidance relating to the authorised fund manager's controls over the issue and cancellation of units including any box holdings.

  5. (5)

    The requirements in this section are to be applied separately to each sub-fund of a scheme which is an umbrella, and, if appropriate, the currency of a sub-fund may be used instead of the base currency of the umbrella.

Initial offers

COLL 6.2.3 R RP
  1. (1)

    During the initial offer period, units may only be issued at the initial price.

  2. (2)

    The length of any initial offer should not be unreasonable when considered alongside the characteristics of the authorised fund.

  3. (3)

    The authorised fund manager must, as soon as practicable after receiving the initial price from the purchaser and no later than the fourth business day following the end of the initial offer, pay the depositary in respect2 of any unit it has agreed to sell during the period of the initial offer:

    2
    1. (a)

      2in the case of a single-priced authorised fund, the initial price of that unit; or

    2. (b)

      2in the case of a dual-priced authorised fund, the initial price of that unit less, where relevant, an amount not exceeding the amount of any preliminary charge stated in the prospectus.

  4. (4)

    The period of the initial offer comes to an end if the authorised fund manager reasonably believes the price that would reflect the current value of the scheme property would vary by more than 2% from the initial price.

Initial offer: guidance

COLL 6.2.4 G RP
  1. (1)

    Details of any initial offer period must be provided in the relevant prospectus as described in COLL 4.2.5R (17)(h) (Table: contents of the prospectus).

  2. (2)

    It may be appropriate that the initial offer for a scheme operating limited issue or limited redemption arrangements, or intending to invest in illiquid assets, is longer than one for a scheme which does not have these features.

Issue and cancellation of units by an ICVC

COLL 6.2.5 R RP
  1. (1)

    Units in an ICVC are issued or cancelled by the ACD making a record of the issue or cancellation and of the number of the units of each class concerned, and cannot be issued or cancelled in any other manner, unless COLL 3.2.6R (11) (Table: contents of the instrument constituting the scheme) applies.

  2. (2)

    The time of the issue or cancellation under (1) is the time when the record is made.

Issue and cancellation of units in an AUT

COLL 6.2.6 R RP
  1. (1)

    The trustee must issue or cancelunits in an AUT when instructed by the manager.

  2. (2)

    Any instructions given by the managermust state, for each class of unit to be issued or cancelled, the number to be issued or cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).

  3. (3)

    If the trustee is of the opinion that it is not in the interests of unitholders that any units should be issued or cancellation or that to do so would not be in accordance with the trust deed or prospectus, it must notify the manager of that fact and it is then relieved of the obligation to issue or cancel those units.

3Issue and cancellation of units in multiple classes

COLL 6.2.6A R RP

3If an authorised 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.

Issue and cancellation of units through an authorised fund manager

COLL 6.2.7 R RP
  1. (1)

    The authorised fund manager may require, on agreement with the depositary, or may permit, on the request of the investor, direct issues and cancellations of units by an ICVC or by the trustee of an AUT.

  2. (2)

    If (1) applies:

    (a) the instrument constituting the scheme must provide for this; and

    (b) the prospectus must provide details of the procedure to be followed which must be consistent with the rules in this section.

Controls over the issue and cancellation of units

COLL 6.2.8 R RP
  1. (1)

    An authorised fund manager must 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 for that class.

  2. (2)

    An authorised fund manager must not:

    1. (a)

      for an AUT, when giving instructions to the trustee2 for the issue or cancellation of units; or

      2
    2. (b)

      for an ICVC, when arranging for the issue or cancellation of units;

    do, or omit to do, anything that2 would, or might, confer on itself2 or an associate a benefit or advantage at the expense of a unitholder or a potential unitholder.

  3. (3)

    For the purpose of (1), the authorised fund manager may take into account instructions to redeemunits at the following valuation point received before any time agreed with the depositary for such purpose.

Controls over the issue and cancellation of units - guidance

COLL 6.2.9 G RP
  1. (1)

    As the authorised fund manager normally controls the issue, cancellation, sale and redemption of an authorised fund'sunits, it occupies a position that could, without appropriate systems and controls, involve a conflict of interest between itself and its clients.

  2. (2)

    SYSC 3.1.1 R (Systems and controls) requires that a firm take reasonable care to establish and maintain such systems and controls as are appropriate to its business and Principle 8 requires a firm to manage conflicts of interest between itself and a customer fairly.

  3. (3)

    To manage the conflict of interest that arises, when an authorised fund manager gives an instruction to issue or cancelunits, the price of the units should be calculated at the valuation point2before or after the instruction has been given, in accordance with (4).

  4. (4)

    An authorised fund manager should agree a period of time with the depositary during which it will give instructions to issue or cancelunits. Where the authorised fund manager operates a box with the principal aim of making a profit, this period will be short (for example, two hours); otherwise a longer period (for example, up to the next valuation point but in all cases within 24 hours) may be acceptable, provided the principles in (2) are followed.

  5. (5)

    The last valuation point should be used for the pricing of units where instructions are given before the expiry of the period of time agreed in (4); otherwise the next valuation point should be used.

  6. (6)

    Where an in specie issue or cancellation occurs it should be undertaken using the next valuation point'sprice.

Modification to number of units issued or cancelled

COLL 6.2.10 R RP
  1. (1)

    Any instruction for the issue or cancellation of units under COLL 6.2.5 R (Issue and cancellation of units by an ICVC) or COLL 6.2.6 R (Issue and cancellation of units in an AUT) may be modified but only if the depositary agrees and has taken reasonable care to determine that:

    1. (a)

      the modification corrects an error in the instruction; and

    2. (b)

      the error is an isolated one.

  2. (2)

    Any error in (1) must be corrected within the payment period applicable under COLL 6.2.13 R (Payment for units issued) or COLL 6.2.14 R (Payment for cancelled units).

Compensation for box management errors

COLL 6.2.11 R RP
  1. (1)

    Where the authorised fund manager has not complied with COLL 6.2.8 R (1) (Controls over the issue and cancellation of units), it must correct the error as soon as possible and must reimburse the authorised fund any costs it may have incurred in correcting the position.

  2. (2)

    The authorised fund manager need not reimburse the authorised fund when:

    1. (a)

      the amount under (1) is not, in the depositary's opinion, material to the authorised fund;

    2. (b)

      the authorised fund manager can demonstrate that it has effective controls in place over box management, including all of the areas that affect the figures which are included in the box management calculations; and

    3. (c)

      the requirements of COLL 6.2.10 R (Modification to number of units issued or cancelled) are complied with.

Box management errors guidance

COLL 6.2.12 G RP

Explanatory table: This table belongs to COLL 6.2.2 G (4) (Purpose).

Correction of box management errors

1

Controls by authorised fund managers

An authorised fund manager needs to be able to demonstrate that it has effective controls over:

(1)

its calculations of what units are owned by it (its 'box'); and

(2)

compliance with COLL 6.2.8 R which is intended to prevent a negative box.

2

Controls by depositaries

(1)

Under COLL 6.6.4 (General duties of the depositary), a depositary should take reasonable care to ensure that a scheme2 is managed in accordance with COLL 6.2 (Dealing) and COLL 6.3 (Pricing and valuation).

(2)

A depositary should therefore make a regular assessment of the authorised fund manager's box management procedures (including supporting systems) and controls. This should include reviewing the authorised fund manager's controls and procedures when the depositary assumes office, on any significant change and on a regular basis, to ensure that a series of otherwise minor changes do not have a cumulative and a significant effect on the accuracy of the controls and procedures.

3

Recording and reporting of box management errors

(1)

An authorised fund manager should record all errors which result in a breach of COLL 6.2.8 R (Controls over the issue and cancellation of units) and as soon as an error is discovered, the authorised fund manager should report the fact to the depositary, together with details of the action taken, or to be taken, to avoid repetition of the error.

(2)

A depositary should report material box management errors to the FSA immediately. Materiality should be determined by taking into account a number of factors including:

  • the implications of the error for the sufficiency of controls put into place by the authorised fund manager;
  • the significance of any breakdown in the authorised fund manager's management controls or other checking procedures;
  • the significance of any failure of systems or back-up arrangements;
  • the duration of an error; and
  • the level of compensation due to the scheme, and an authorised fund manager's ability (or otherwise) to meet claims for compensation in full.

(3)

A depositary should also make a return to the FSA (in the manner prescribed by SUP 16.6.8 R) on a quarterly basis.

Payment for units issued

COLL 6.2.13 R RP
  1. (1)

    The authorised fund manager must, by the close of business on the fourth business day following the issue of any units, arrange for payment to the trustee or the ICVC of:2

    2
    1. (a)

      2in the case of a single-priced authorised fund, the price of the units and any payments required under COLL 6.3.7 R (SDRT provision) and COLL 6.3.8 R (Dilution); or

    2. (b)

      2in the case of a dual-priced authorised fund, the issue price of the units and any payment required under COLL 6.3.7 R.

  2. (2)

    The authorised fund manager must make the payment referred to in (1) in cash or cleared funds unless COLL 6.2.15 R (In specie issue and cancellation) applies.

  3. (3)

    Where the authorised fund manager has not complied with (1), it must reimburse the authorised fund for any lost interest unless the amount involved is not, in the depositary's opinion, material to the authorised fund.

Payment for cancelled units

COLL 6.2.14 R RP
  1. (1)

    On cancellingunits the authorised fund manager must, before the expiry of the fourth business day following the cancellation of the units or, if later, as soon as practicable after delivery to the trustee or the ICVC of such evidence of title to the units as it may reasonably require, require the depositary to pay:2

    1. (a)

      2in the case of a single-priced authorised fund, the price of the units (less any deduction required under COLL 6.3.7 R and COLL 6.3.8 R); or

    2. (b)

      2in the case of a dual-priced authorised fund, the cancellation price of the units (less any deduction required under COLL 6.3.7 R);

    to the authorised fund manager or, where relevant, the unitholder or, for a relevant pension scheme, in accordance with the relevant provisions of the trust deed.

  2. (2)

    If the authorised fund manager has not ensured that the scheme property includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any restriction in COLL 5 (Investment and borrowing powers)) within the period in (1), that period is extended, for any relevant currency, until the shortage is rectified.

  3. (3)

    If (2) applies, the authorised fund manager must take reasonable steps to rectify the currency shortage as quickly as possible.

  4. (4)

    This rule does not apply where COLL 6.2.15 R is in operation.

  5. (5)

    Nothing in this section requires an ICVC, a depositary or an authorised fund manager to part with money or to transfer scheme property for a cancellation or redemption of units where any money due on the earlier issue or sale of those units has not been received.

In specie issue and cancellation

COLL 6.2.15 R RP

The depositary may take into or pay out of scheme property assets other than cash2 as payment for the issue or cancellation of units2 but only if:

  1. (1)

    it has taken reasonable care to ensure that the property concerned would not be likely to result in any material prejudice to the interests of unitholders; and

  2. (2)

    the instrument constituting the scheme so provides.

Sale and redemption

COLL 6.2.16 R RP
  1. (1)

    In accordance with COLL 4.2.5R (17) (Table: contents of the prospectus), the authorised fund manager must describe the arrangements for the sale and redemption of units in the prospectus.

  2. (2)

    The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units in the authorised fund, in accordance with the conditions in the instrument constituting the scheme and the prospectus unless:

    1. (a)

      it has reasonable grounds to refuse such sale; or

    2. (b)

      the issue2 of units2 is prevented under COLL 6.2.18 R (Limited issue).

  3. (3)

    Subject to COLL 6.2.19 R (Limited redemption) and COLL 6.2.21 R (Deferred redemption), the authorised fund manager must, at all times during the dealing day, on request of any qualifying unitholder, effect the redemption of units in accordance with the conditions in the instrument constituting the scheme and the prospectus unless it has reasonable grounds to refuse such redemption.

  4. (4)

    On agreeing to a redemption of units in (3), the authorised fund manager must pay the unitholder the appropriate proceeds of redemption within the period specified in (5) unless the authorised fund manager has reasonable grounds for withholding all or any part of the proceeds.

  5. (5)

    The period in (4) expires at the close of business on the fourth business day following the later of:

    1. (a)

      the valuation point at which the price for the redemption was determined; or

    2. (b)

      the time when the authorised fund manager has all the duly executed instruments and authorisations to effect (or enable the authorised fund manager to effect) the transfer of title to the units.

  6. (6)

    Except where (7) applies, and subject to COLL 6.2.21 R (Deferred redemption), the authorised fund manager must sell or redeemunits at a price determined no later than the end of the business day immediately following the receipt and acceptance of an instruction to do so, or at the next valuation point for the purposes of dealing in 2units if later (or, for a sale or redemption at an historic price, at the price determined at the last valuation point).

    2
  7. (7)

    Where the authorised fund operates limited redemption arrangements, the authorised fund manager must sell or redeemunits at a price2 determined no later than the expiry of a period of 185 days from the date of the receipt and acceptance of the instruction to sell or redeem.

  8. (8)

    [deleted]2

    2
  9. (9)

    [deleted]2

    2
  10. (10)

    Paragraphs (4), (5) and COLL 6.3.5AR (2) (Sale and redemption prices for single-priced authorised funds)2 do not apply where the authorised fund manager is buying units2 as principal on an investment exchange (for an AUT in accordance with a power in the trust deed) and settlement will be made in accordance with the rules of that exchange.

    2

Sale and redemption: guidance

COLL 6.2.17 G RP
  1. (1)

    The prospectus of an authorised fund that does not operate on the basis of historic prices may allow the authorised fund manager to identify a point in time in advance of a valuation point (a cut-off point) after which it will not accept instructions to sell or redeemunits2 at that valuation point. In order to protect customers' interests, the cut-off point should be no earlier than the close of business on the business day before the valuation point it relates to. If there is more than one valuation point in a day the cut-off should not be before any previous valuation point.

  2. (2)

    Where the authorised fund operates limited redemption arrangements, the cut-off point may reflect the expected length of time required to undertake transactions in the underlying investments provided the 185 day limit in COLL 6.2.16 R (7) (Sale and redemption) is complied with.

  3. (3)

    Where (1) applies, different cut-off points may be used to differentiate between the methods of submitting instructions to sell or redeem to the authorised fund manager but not to differentiate between unitholders or potential unitholders.

Limited issue

COLL 6.2.18 R RP
  1. (1)

    If an authorised fund limits the issue of any class of unit, the prospectus of an authorised fund must provide for the circumstances and conditions when units will be issued.

  2. (2)

    Where (1) applies, the authorised fund manager may not provide for the further issue of units unless, at the time of the issue2, it2is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the scheme's investment objective or materially prejudicing existing unitholders.

  3. (3)

    Within a scheme, unitclasses may operate different arrangements for the issue of units provided there is no prejudice to the interests of any unitholder.

Limited redemption

COLL 6.2.19 R RP
  1. (1)

    The instrument constituting the scheme and the prospectus of a non-UCITS retail scheme2 that invests substantially in immovables2 or whose investment objective is to provide a specified level of return, may provide for limited redemption arrangements appropriate to its aims and objectives.

  2. (2)

    Where (1) applies, the scheme must provide for redemptions at least once in every six months.

  3. (3)

    Within a scheme, unit classes may operate different arrangements for redemption of units provided there is no prejudice to the interests of any unitholder.

Limited redemption: guidance

COLL 6.2.20 G RP

The conditions for limited redemption arrangements in COLL 6.2.19 R should be considered, for AUTs as well as for ICVCs, in conjunction with PERG 91 (Meaning of an open-ended investment company) and PERG 9.81 (The investment condition: the 'expectation test' (section 236(3)(a) of the Act)).

Deferred redemption

COLL 6.2.21 R RP
  1. (1)

    The instrument constituting the scheme and the prospectus of an authorised fund which has at least one valuation point on each business day, may permit deferral of redemptions at a valuation point to the next valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.

  2. (2)

    Any deferral of redemptions under (1) must be undertaken in accordance with the procedures explained in the prospectus which must ensure:

    1. (a)

      the consistent treatment of all unitholders who have sought to redeemunits2 at any valuation point at which redemptions2are deferred; and

    2. (b)

      that all deals relating to an earlier valuation point are completed before those relating to a later valuation point are considered.

Deferred redemption: guidance

COLL 6.2.22 G RP

In times of high levels of redemption, deferred redemption will enable the authorised fund manager to protect the interests of continuing unitholders by allowing it to match the sale of scheme property to the level of redemptions. This should reduce the impact of dilution on the scheme.

Property Authorised Investment Funds

COLL 6.2.23 R RP
  1. (1)

    4The authorised fund manager of 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 fund (the "maximum allowable").

  2. (2)

    Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, he 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 the body corporate's holding down to the maximum allowable within a reasonable time-frame.

  3. (3)

    For the purpose of (2)(c), a reasonable time-frame means the time-frame which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the unitholders as a whole.

COLL 6.2.24 G RP

4Reasonable 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.

COLL 6.3 Valuation and pricing

Application

COLL 6.3.1 R RP

This section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.

Purpose

COLL 6.3.2 G RP
  1. (1)

    In accordance with Principle 6, this section is intended to ensure that the authorised fund manager pays due regard to its clients' interests and treats them fairly.

  2. (2)

    An authorised fund manager is responsible for valuing the scheme property of the authorised fund it manages and for calculating the price of units in the authorised fund. This section protects clients by:

    1. (a)

      setting out rules and guidance1 to ensure the prices1 of units in both a single-priced authorised fund and a dual-priced authorised fund are1 calculated fairly and regularly;

    2. (b)

      allowing for the authorised fund manager to mitigate the effects of any dilution (reduction) in the value of the scheme property caused 1by:

      1. (i)

        payment of stamp duty reserve tax (SDRT) in relation to certain unit transactions; and

      2. (ii)

        buying and selling underlying investments as a result of the issue or cancellation of units;

    3. (c)

      making appropriate provision to ensure clients are treated fairly where units are being dealt in1 at a known (historic1) price; and

    4. (d)

      ensuring that prices are1 made public in an appropriate manner.

  3. (3)

    The requirements in this section are to be applied separately to each sub-fund of a scheme which is an umbrella, and, if appropriate, the currency of a sub-fund may be used instead of the base currency of the umbrella. Consequently different methods of pricingunits may be applied by an authorised fund manager to different sub-funds of an umbrella.1

  4. (4)

    1The authorised fund manager must follow the same method of pricing for each class of units in an authorised fund, or in a sub-fund of an umbrella.

Valuation

COLL 6.3.3 R RP
1
  1. (1)

    To determine the price of units the authorised fund manager must carry out a fair and accurate valuation of all the scheme property in accordance with the instrument constituting the scheme and the prospectus.1

  2. (2)

    1For a dual-priced authorised fund, each valuation of the scheme property must consist of two parts, carried out on an issue basis and a cancellation basis respectively.

Valuation points

COLL 6.3.4 R RP

  1. (1)

    An authorised fund must not have fewer than two regular valuation points in any month and if there are only two valuation points in any month, the regular valuation points must be at least two weeks apart.

  2. (2)

    The prospectus of a scheme must contain information about its regular valuation points for the purposes of dealing in units in accordance with COLL 4.2.5R (16) (Table: contents of the prospectus).

  3. (3)

    Where a scheme operates limited redemption arrangements, (1) does not apply and the valuation points must be stated in the prospectus but must not be set more than six months apart.

  4. (4)

    Where a scheme operates limited redemption arrangements, it must be valued and prices published in the manner set out in COLL 6.3.11 R (Publication of prices) at least once in every month.

  5. (5)

    In (4), a valuation point for the purpose of publishing prices only, does not make it a valuation point for the purpose of (2) unless it is disclosed as such in the prospectus.

  6. (6)

    Higher volatility funds must have at least one valuation point every business day.

  7. (6A)

    3Qualifying money market funds must have at least one valuation point every business day at which the valuation is carried out on an amortised cost basis.

  8. (7)

    No valuation points are required during the period of any initial offer.

  9. (8)

    The authorised fund manager may determine to have an additional valuation point for an authorised fund as a result of market movement under COLL 6.3.9 (Forward and historic pricing) or otherwise, in which case it1must inform the depositary.

Price of a unit

COLL 6.3.5 R RP
  1. (1)

    An authorised fund manager must ensure that the1price of a unit of any class is calculated:1

    1. (a)

      1by reference to the net value of the scheme property; and

    2. (b)

      1in accordance with the provisions of both the instrument constituting the scheme and the prospectus.

  2. (2)

    Any unit price calculated in accordance with (1) must be expressed in a form that is accurate to at least four significant figures.

  3. (3)

    1For each class of units in a single-priced authorised fund, a single price must be calculated at which units are to be issued and cancelled.

Sale and redemption prices for single-priced authorised funds1

COLL 6.3.5A R RP

1The authorised fund manager of a single-priced authorised fund must not:

  1. (1)

    sell a unit for more than the price of a unit of the relevant class at the relevant valuation point, to which may be added any preliminary charge permitted and any payments required under COLL 6.3.7 R and COLL 6.3.8 R; or

  2. (2)

    redeem a unit for less than the price of a unit of the relevant class at the relevant valuation point, less any redemption charge permitted and any deductions under COLL 6.3.7 R and COLL 6.3.8 R.

Sale and redemption price parameters for dual-priced authorised funds1

COLL 6.3.5B R RP
  1. (1)

    1The authorised fund manager of a dual-priced authorised fund must not:

    1. (a)

      sell a unit for more than the maximum sale price of a unit of the relevant class at the relevant valuation point, to which may be added any payment required under COLL 6.3.7 R; or

    2. (b)

      redeem a unit for less than the cancellation price of a unit of the relevant class at the relevant valuation point, less any redemption charge permitted and any deduction under COLL 6.3.7 R.

  2. (2)

    The maximum sale price of units under (1)(a) is the total of:

    1. (a)

      the issue price; and

    2. (b)

      the current preliminary charge.

  3. (3)

    The sale price of units under (1)(a) must not be less than the relevant redemption price under (1)(b).

  4. (4)

    The redemption price under (1)(b) must not exceed the relevant issue price of the relevant units.

  5. (5)

    Subject to COLL 6.7.9 R (Charges for the exchange of units in an umbrella), in the case of an umbrella:

    1. (a)

      the maximum price at which units in one sub-fund that is a dual-priced authorised fund may be acquired in exchange for units in another sub-fund must not exceed the relevant maximum sale price (less any preliminary charge) of the new units; and

    2. (b)

      the minimum price at which the old units in a sub-fund that is a dual-priced authorised fund may be taken in exchange must not be less than the equivalent cancellation price.

COLL 6.3.5C G RP

1The prospectus may make provision for large deals to be carried out at a higher sale price or a lower redemption price than those published, provided they do not exceed the relevant maximum and minimum parameters.

Valuation and pricing guidance

COLL 6.3.6 G RP

Table: This table belongs to COLL 6.3.2 G (2) (a) and COLL 6.3.3 R (Valuation)1.

Valuation and pricing

1

The valuation of scheme property

(1)

Where possible, investments should be valued using a reputable source. The reliability of the source of prices should be kept under regular review.

(2)

For some or all of the investments comprising the scheme property, different prices may quoted according to whether they are being bought (offer prices) or sold (bid prices). The valuation of a single-priced authorised fund should reflect the mid-market value of such investments. In the case of a dual-priced authorised fund, the issue basis of the valuation will be carried out by reference to the offer prices of investments and the cancellation basis by reference to the bid prices of those same investments. The prospectus should explain how investments will be valued for which a single price is quoted for both buying and selling.1

1

3(2A)

Schemes investing in approved money-market instruments5should value such instruments on an amortised cost basis on condition that:5

5 5

[Note:CESR's UCITS eligible assets guidelines with respect to article 4(2) of the UCITS eligible assets Directive]

(3)

Any part of the scheme property of an authorised fund that is not an investment should be valued at a fair value, but for immovables this is subject to COLL 5.6.20 R (3) (f) (Standing independent valuer and valuation).

(4)

For the purposes of (2) and (3), any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable on acquiring or disposing of the investment or other part of the scheme property should, in the case of a single-priced authorised fund,2 be excluded from the value of an investment or other part of the scheme property. In the case of a dual-priced authorised fund, any such payments should be added to the issue basis of the valuation, or subtracted from the cancellation basis of the valuation, as appropriate. Alternatively, the prospectus of a dual-priced authorised fund may prescribe any other method of calculating unitprices that ensures an equivalent treatment of the effect of these payments.2

(5)

Where the authorised fund manager has reasonable grounds to believe that:

it should value an investment at a price which, in its opinion, reflects a fair and reasonable price for that investment (the fair value price);

(6)

The circumstances which may give rise to a fair value price being used include:

  • no recent trade in the security concerned; or
  • the occurrence of a significant event since the most recent closure of the market where the price of the security is taken.
In (b), a significant event is one that means the most recent price of a security or a basket of securities is materially different to the price that it is reasonably believed would exist at the valuation point had the relevant market been open.

(7)

In determining whether to use such a fair value price , the authorised fund manager should include in his consideration:

4(7A)

Where the authorised fund manager, the depositary or the standing independent valuer have reasonable grounds to believe that the most recent valuation of an immovable does not reflect the current value of that immovable, the authorised fund manager should consult and agree with the standing independent valuer a fair and reasonable value for the immovable.

(8)

The authorised fund manager should document the basis of valuation (including any fair value pricing policy) and, where appropriate, the basis of any methodology and ensure that the procedures are applied consistently and fairly.

(9)

Where a unit price is determined using properly applied fair value prices in accordance with policies in (8), subsequent information that indicates the price should have been different from that calculated will not normally give rise to an instance of incorrect pricing.

2

The pricing controls of the authorised fund manager

(1)

An authorised fund manager needs to be able to demonstrate that it has effective controls over its calculations of unit prices.

(2)

The controls referred to in (1) should ensure that:

  • asset prices are accurate and up to date;
  • investment 1transactions are accurately and promptly reflected in valuations;
  • the components of the valuation (including stock, cash, and units in issue1), are regularly reconciled to their source or prime records and any reconciling items resolved promptly and debtors reviewed for recoverability;
  • the sources of prices not obtained from the main pricing source are recorded and regularly reviewed;
  • compliance with the investment and borrowing powers is regularly reviewed;
  • dividends are accounted for as soon as securities1 are quoted ex-dividend (unless it is prudent to account for them on receipt):
  • fixed interest dividends, interest and expenses are accrued at each valuation point1;
  • tax positions are regularly reviewed and adjusted, if necessary;
  • reasonable tolerances are set for movements in the key elements of a valuation and movements outside these tolerances are investigated;5
  • the fund manager regularly reviews the portfolio valuation for accuracy5; and5
  • the valuation of OTC derivatives is accurate and up to date and in compliance with the methods agreed with the depositary.5

(3)

In exercising its pricing controls, the authorised fund manager may exercise reasonable discretion in determining the appropriate frequency of the operation of the controls and may choose a longer interval, if appropriate, given the level of activity on the authorised fund1or the materiality of any effect on the price.

(4)

Evidence of the exercise of the pricing controls should be retained.

(5)

Evidence of persistent or repetitive errors in relation to these matters, and in particular any evidence of a pattern of errors working in an authorised fund manager's favour, will make demonstrating effective controls more difficult.

(6)

Where the pricing1function is delegated to a third party, COLL 6.6.15 R (1) (Committees and delegation) will apply.

3

The depositary's review of the authorised fund manager's systems and controls

(1)

This section provides details of the types of checks a depositary should carry out to be satisfied that the authorised fund manager adopts systems and controls which are appropriate to ensure that prices of units are calculated in accordance with this section and to ensure that the likelihood of incorrect prices will be minimised. These checks also apply where an authorised fund manager has delegated all or some of its pricing1 functions to one or more third parties5.

5

(2)

A depositary should thoroughly review an authorised fund manager's systems and controls to confirm that they are satisfactory. The depositary's review should include an analysis of the controls in place to determine the extent to which reliance can be placed on them.

(3)

A review should be performed when the depositary is appointed and thereafter as it feels appropriate given its knowledge of the robustness and the stability of the systems and controls and their operation.

(4)

A review should be carried out more frequently where a depositary knows or suspects that an authorised fund manager's systems and controls are weak or are otherwise unsatisfactory.

(5)

Additionally, a depositary should from time to time review other aspects of the valuation of the scheme property of each authorised fund for which it is responsible, verifying, on a sample basis, if necessary, the assets, liabilities, accruals, units in issue1, securities prices (and in particular the prices of OTC derivatives,5unapproved securities and the basis for the valuation of unquoted securities) and any other relevant matters, for example an accumulation factor or a currency conversion factor.

(6)

A depositary should ensure that any issues, which are identified in any such review, are properly followed up and resolved.

4

The recording and reporting of instances of incorrect pricing

(1)

An authorised fund manager should record each instance where the price of a unit is incorrect as soon as the error is discovered, and report the fact to the depositary together with details of the action taken, or to be taken, to avoid repetition as soon as practicable.

(2)

In accordance with COLL 6.6.11 G (Duty to inform the FSA), the depositary should report any breach of the rules in COLL 6.3 immediately to the FSA. However, notification should relate to instances which the depositary considers material only.

(3)

A depositary should also report to the FSA immediately any instance of incorrect pricing1where the error is 0.5% or more of the price of a unit, where a depositary believes that reimbursement or payment is inappropriate and should not be paid by an authorised fund manager.

(4)

In accordance with SUP 16.6.8 R, a depositary should also make a return to the FSA on a quarterly basis which summarises the number of instances of incorrect pricing1 during a particular period.

5

The rectification of pricing breaches

(1)

COLL 6.6.3 R (1) (Functions of the authorised fund manager) places a duty on the authorised fund manager to take action to reimburse affected unitholders, former unitholders, and the scheme itself, for instances of incorrect pricing1, except if it appears to the depositary that the breach is of minimal significance.

(2)

A depositary may consider that the instance of incorrect pricing1is of minimal significance if:

(3)

In determining (2), if the instance of incorrect pricing1 is due to one or more factors or exists over a period of time, each price should be considered separately.

(4)

If a depositary deems it appropriate, it may, in spite of the circumstances outlined in (2), require a payment from the authorised fund manager or from the authorised fund to the unitholders, former unitholders, the authorised fund or the authorised fund manager (where appropriate).

(5)

The depositary should satisfy itself that any payments required following an instance of incorrect pricing1 are accurately and promptly calculated and paid.

(6)

If a depositary considers that reimbursement or payment is inappropriate, it should report the matter to the FSA, together with its recommendation and justification. The depositary should take into account the need to avoid prejudice to the rights of unitholders, or the rights of unitholders in a class of units.

(7)

It may not be practicable, or in some cases legally permissible, for the authorised fund manager to obtain reimbursement from unitholders, where the unitholders have benefited from the incorrect price.

(8)

In all cases where reimbursement or payment is required, amounts due to be reimbursed to unitholders for individual sums which are reasonably considered by the authorised fund manager and depositary to be immaterial, need not normally be paid.

SDRT Provision

COLL 6.3.7 R
  1. (1)

    The authorised fund manager may, in accordance with the prospectus, require the payment of an SDRT provision for the issue or sale of units or any class of units or the deduction of an SDRT provision for the redemption or cancellation of units or any class of units.

  2. (2)

    Any such payment or deduction becomes due at the same time as payment or transfer of property becomes due for the issue, sale, redemption or cancellation.

  3. (3)

    Any payment referred to in (1) must be paid to the depositary to become part of scheme property as soon as practicable after receipt.

  4. (4)

    As soon as practicable after each valuation point, the authorised fund manager must notify the depositary of the transactions, or types of transactions for which an SDRT provision is applied and the amounts or rates of those SDRT provisions.

Dilution

COLL 6.3.8 R RP
  1. (1)

    When arranging to sell, redeem, issue or cancel units, or when units are issued or cancelled under COLL 6.2.7 R (1) (Issues and cancellations through an authorised fund manager), an authorised fund manager is permitted to:

    1. (a)

      require the payment of a dilution levy; or

    2. (b)

      make a dilution adjustment; or

    3. (c)

      neither require a dilution levy nor make a dilution adjustment;

    in accordance with its statements in the prospectus required by COLL 4.2.5R (18) (Table: contents of the prospectus).

  2. (2)

    An authorised fund manager operating either a dilution levy or a dilution adjustment, must operate that measure in a fair manner to reduce dilution and solely for that purpose.

  3. (3)

    A dilution levy becomes due at the same time as payment or transfer of property becomes due for the issue, sale, redemption or cancellation and any such payment in respect of a dilution levy must be paid to the depositary to become part of scheme property as soon as practicable after receipt.

  4. (4)

    A dilution adjustment may be made as part of the calculation of the unit price for the purpose of reducing dilution in the scheme or to recover any amount which it had already paid or reasonably expects to pay in the future in relation to the issue or cancellation of units.

  5. (5)

    Where the authorised fund manager decides to make or not to make a dilution adjustment, it must not do so for the purpose of creating a profit or avoiding a loss for the account of an affected person.

  6. (6)

    As soon as practicable after a valuation point, the authorised fund manager must provide the depositary with the amount or rate of any dilution adjustment made to the price or any dilution levy applied.

Forward and historic pricing

COLL 6.3.9 R RP
  1. (1)

    For the sale and redemption of units, the authorised fund manager must, in accordance with the prospectus of an authorised fund, operate on the basis of forward price only or historic prices.

  2. (2)

    If forward prices only are to be used, all deals1 must be at a forward price.

  3. (3)

    Forward prices for the sale and redemption of units must be used:

    1. (a)

      for a higher volatility fund;

    2. (b)

      where the regular valuation points are more than one business day1 apart;

    3. (c)

      if the request to deal1 reaches the authorised fund manager through the post or by any similar form of non-interactive communication;

    4. (d)

      for an issue or cancellation under COLL 6.2.7 (Issue and cancellation of units through an authorised fund manager);

    5. (e)

      if the applicant for the sale or redemption so requests; or

    6. (f)

      where the authorised fund manager has reason to believe at any time that the price that would reflect the current value of the scheme property would vary by more than 2% from the last calculated price, unless the authorised fund manager has decided to carry out an additional valuation.

  4. (4)

    If an authorised fund manager operates historic prices, the prospectus must detail the circumstances under which deals in the authorised fund, individually or otherwise, will nevertheless be carried out on a forward price basis or when the authorised fund will elect to move to forward prices or declare an additional valuation point.

  5. (5)

    Where the authorised fund elects to move to forward prices temporarily in accordance with (4), such election will only apply until the next valuation point.

  6. (6)

    All sub-funds of a scheme which is an umbrella must adopt the same pricing basis, but this does not apply merely because of a requirement to price on a forward price basis temporarily under this rule.

Historic pricing: guidance

COLL 6.3.10 G

The authorised fund manager should advise the depositary of the date and time of any decision to use forward prices.

Publication of prices

COLL 6.3.11 R RP

Where the authorised fund manager is prepared to deal1 in units, or is willing to issue or cancel1units, under COLL 6.2.7, it must make the dealing1prices public in an appropriate manner.

Manner of price publication

COLL 6.3.12 G RP
  1. (1)

    In determining the appropriate manner of making prices public, the authorised fund manager should ensure that:

    1. (a)

      a unitholder or potential unitholder can obtain the prices at a reasonable cost;

    2. (b)

      prices are available at reasonable times;

    3. (c)

      publication is consistent with the manner and frequency at which the units are dealt in1;

    4. (d)

      the manner of publication is disclosed in the prospectus; and

    5. (e)

      prices are published in a consistent manner.

  2. (2)

    Examples of what might be deemed appropriate include:

    1. (a)

      publication in a national newspaper;

    2. (b)

      supply through an advertised local rate or freephone telephone number;

    3. (c)

      publication on the internet;

    4. (d)

      inclusion in a database of prices which is publicly available; or

    5. (e)

      communication to all existing unitholders.

  3. (3)

    The authorised fund manager should make previous prices available to any unitholder or potential unitholder.

Maintaining the value of a qualifying money market fund

COLL 6.3.13 R RP

3The authorised fund manager of a qualifying money market fund must:

  1. (1)

    carry out a valuation of the scheme property on a mark to market basis at least once every week and at the same valuation point used to value the scheme property on an amortised cost basis; and

  2. (2)

    ensure that the value of the scheme property when valued on a mark to market basis does not differ by more than 0.5% from the value of the scheme property when valued on an amortised cost basis.

COLL 6.3.14 G RP

3The authorised fund manager should advise the depositary when the mark to market value of a qualifying money market fund varies from its amortised cost value by 0.1%, 0.2% and 0.3% respectively. The authorised fund manager of a qualifying money market fund should agree procedures with the depositary designed to stabilise the value of the scheme in these events.

COLL 6.4 Title and registers

Application

COLL 6.4.1 R RP
  1. (1)

    This section applies to a manager and a trustee of an AUT.

  2. (2)

    COLL 6.4.9 (Plan registers) also applies to the ACD, any other director and the depositary of an ICVC.

Purpose

COLL 6.4.2 G RP

The aim of this section is to protect consumers, by setting out the requirements for a register of unitholders for an AUT and for a plan register for an authorised fund, so a proper record of ownership of units is maintained, whether held directly or indirectly through a group plan.

Explanation of this section

COLL 6.4.3 G RP
  1. (1)

    This section deals with matters relating to the register of unitholders of units in an AUT including its establishment and contents. The manager or trustee may be responsible for the register. In any event, the person responsible for the register must be stated in the trust deed and this section details what his duties are. The provisions relating to documentsevidencingtitle to units, including the issue of bearer certificates are dependent on the provisions in the trust deed and their operation should be set out in the prospectus.

  2. (2)

    For an ICVC, requirements as to the register of holders and transfer of units are contained in Schedule 3 of the OEIC Regulations (Register of shareholders).

  3. (3)

    COLL 6.4.9 makes provision to ensure that if the cost of the plan register is borne by the scheme, plan investors have the same rights in respect of notice and disclosure as unitholders on the main register.

Register: general requirements and contents

COLL 6.4.4 R RP
  1. (1)

    Either the manager or the trustee (as nominated in the trust deed) must establish and maintain a register of unitholders as a document in accordance with this section.

  2. (2)

    The manager or trustee in accordance with their duties under (1) 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. (3)

    The register must contain:

    1. (a)

      the name and address of each unitholder (for joint unitholders, no more than four need to be registered) other than units represented by bearer certificates;

    2. (b)

      the number of units of each class held by each unitholder (other than units represented by bearer certificates);

    3. (c)

      the date on which the unitholder was registered for units standing in his name (other than units represented by bearer certificates); and

    4. (d)

      the number of units of each class currently in issue, including bearer certificates and the number of units of those bearer certificates.

  4. (4)

    No notice of any trust, express, implied or constructive which may be entered in the register is binding on the manager or trustee, but this does not affect their obligations under COLL 6.4.9 R (1) (Plan registers).

  5. (5)

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

  6. (6)

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

    1. (a)

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

    2. (b)

      in relation to a change of name in (a) where a certificate has been issued, either endorse the existing certificate or issue a new one;

    3. (c)

      make the register available for inspection free of charge in the United Kingdom by or on behalf of any unitholder (including the manager), during office hours, but it may be closed for periods not exceeding 30 business days in any one year;

    4. (d)

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

    5. (e)

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

    6. (f)

      carry out any conversion of units allowed for by COLL 6.4.8 R (Conversion of units) after consultation with the manager or trustee, as appropriate.

The manager as Unitholder

COLL 6.4.5 R RP
  1. (1)

    If no person is entered in the register as the unitholder of a unit, the manager must be treated as the unitholder of each such unit which is in issue (other than a unit which is represented by a bearer certificate).

  2. (2)

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

Transfer of units by act of parties

COLL 6.4.6 R RP
  1. (1)

    Every unitholder 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:

    1. (a)

      it is permitted by the trust deed or prospectus; and

    2. (b)

      the transfer is excluded by Schedule 19 of the Finance Act 1999 from a charge to stamp duty reserve tax, or there has been paid to the trustee, for the account of the AUT, an amount agreed between the trustee and the manager not exceeding the amount that would be derived by applying the rate of stamp duty reserve tax to the market value of the units being transferred.

  2. (2)

    Every instrument of transfer of units 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 manager, the transferor must be treated as the unitholder until the name of the transferee has been entered in the register.

  3. (3)

    Every instrument of transfer (stamped as necessary) must be left for registration, with the person responsible for the register, accompanied by:

    1. (a)

      any necessary documents that may be required by legislation; and

    2. (b)

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

  4. (4)

    The details of instruments of transfer must be kept for a period of six years from the date of its registration.

  5. (5)

    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.

Certificates (including bearer certificates)

COLL 6.4.7 R RP
  1. (1)

    Following the sale of units or as a result of COLL 6.4.6 R (Transfer of units by act of parties) a document recording title to those units may be issued in such a form as the trust deed permits.

  2. (2)

    The person responsible for the register must issue any document in (1) or provide relevant information in a timely manner where the procedures for redeeming units require the unitholder to surrender that document.

  3. (3)

    Bearer certificates may only be issued if they are permitted by the instrument constituting the scheme.

Conversion of units

COLL 6.4.8 R RP

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.

Plan registers

COLL 6.4.9 R RP
  1. (1)

    The ACD and any other directors of an ICVC or the person responsible for the register of an AUT may arrange for a plan register to be established and maintained.

  2. (2)

    Where payments are made out of scheme property to establish and maintain a plan register, plan investors must be treated as unitholders for the purposes of COLL 4.3 to COLL 4.5 and COLL 6.4.4 R (Register: general requirements and contents).

COLL 6.5 Appointment and replacement of the authorised fund manager and the depositary

Application

COLL 6.5.1 R

This section applies in accordance with COLL 6.5.2 R (Table of application).

COLL 6.5.2 R RP

Table of application

This table belongs to COLL 6.5.1 R.

Rule

ICVC

ACD

Any other director of an ICVC

Depositary of an ICVC

Manager of an AUT

Trustee of an AUT

6.5.1R

x

x

x

x

x

x

6.5.3R

x

x

x

x

6.5.4R

x

x

x

6.5.5R

x

x

6.5.6R

x

x

6.5.7R

x

x

6.5.8R

x

x

6.5.9R

x

x

6.5.10R

x

x

x

x

Note: "x" means "applies", but not every paragraph in every rule will necessarily apply.

Appointment of an ACD

COLL 6.5.3 R RP
  1. (1)

    The directors (or director) of an ICVC must take all practicable steps to ensure the ICVC has at all times as its ACD a person who is qualified to act as ACD.

  2. (2)

    If the ICVC ceases to have any director, the depositary must exercise its powers, under the OEIC Regulations, to appoint a person to be an ACD of the ICVC.

  3. (3)

    For an ICVC that holds annual general meetings under the OEIC Regulations, the1 appointment of an ACD (other than the first ACD), under (1) or (2), must terminate at the close of the next annual general meeting following the date of the appointment or (if later) upon the expiration of 12 months from the date the appointment takes effect, unless the appointment has been approved by a resolution of the unitholders before the close of that annual general meeting or expiration of that 12 month period (as the case may be).

    1
  4. (4)

    An ACD must not voluntarily terminate its appointment as ACD unless the termination is effective at the same time as the commencement of the appointment of a successor ACD.

  5. (5)
    1. (a)

      In the event of:

      1. (i)

        any person becoming or ceasing to be a director;

      2. (ii)

        the appointment of an ACD being terminated;

      3. (iii)

        a new ACD being appointed; or

      4. (iv)

        a corporate director (including the ACD) becoming aware of any change of its controller;

      the FSA must immediately be notified in accordance with (b).

    2. (b)

      In the case of:

      1. (i)

        (a)(i), by the ACD;

      2. (ii)

        (a)(ii), by the ACD whose appointment is being terminated;

      3. (iii)

        (a)(iii), by the new ACD; and

      4. (iv)

        (a)(iv), by the corporate director concerned.

Termination of appointment of an ACD

COLL 6.5.4 R RP
  1. (1)

    The appointment of an ACD terminates immediately upon it ceasing to be a director.

  2. (2)

    The appointment of an ACD terminates if a notice of termination of that appointment, the terms of which have been approved by a resolution of the board of directors of the ICVC, is given to the ACD.

  3. (3)

    If there is no director other than the ACD, the appointment of the ACD terminates if a notice of termination of that appointment is given by the depositary to the ACD and to the ICVC, following any of the following events:

    1. (a)

      the calling of a meeting to consider a resolution for winding up the ACD;

    2. (b)

      an application being made to dissolve the ACD or to strike it off the Register of Companies;

    3. (c)

      the presentation of a petition for the winding up of the ACD;

    4. (d)

      the making of, or any proposals for the making of, a composition or arrangement with any one or more of the ACD's creditors;

    5. (e)

      the appointment of a receiver to the ACD (whether an administrative receiver or a receiver appointed over particular property);

    6. (f)

      anything equivalent to (a) to (e) above occurring in respect of the ACD in a jurisdiction outside the United Kingdom.

  4. (4)

    Any termination under (2) or (3) takes effect when the notice is given, or on any subsequent time for its effect stated in the notice, or, if later, the time at which the termination is permitted to take effect under regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company).

  5. (5)

    The depositary must (unless the termination takes effect at the same time as the appointment of a successor ACD) ensure that the unitholders are informed of the termination of the appointment of an ACD.

  6. (6)

    The depositary is entitled to be reimbursed out of the scheme property for its out of pocket expenses in complying with (5).

Other directors

COLL 6.5.5 R RP
  1. (1)

    Any directors of an ICVC other than the ACD must exercise reasonable care to ensure that the ACD undertakes the responsibilities allocated under COLL 6.6.3 R (1) (Functions of the authorised fund manager) in a competent manner and the ACD must give those directors the information and explanations they consider necessary for this purpose.

  2. (2)

    A director of an ICVC must not appoint an alternate director.

  3. (3)

    When there is no person acting as ACD, the directors of an ICVC have the functions of an ACD under COLL 6.6.3 R (1) , but this does not affect the powers of the directors under COLL 6.6.15 R (Committees and delegation).

  4. (4)

    When (3) applies, the directors must retain the services of one or more authorised persons to assist them in performing the functions referred to in COLL 6.6.3 R (1) and COLL 6.6.3 R (2) .

ICVC without a director

COLL 6.5.6 R RP

If the ICVC ceases to have any directors, the depositary may:

  1. (1)

    retain the services of an authorised person to carry out the functions referred to in COLL 6.6.3 R (3)(a) and (b); or

  2. (2)

    manage the scheme property itself on behalf of the ICVC until a director is appointed or the winding up of the ICVC is commenced provided it is not prohibited from doing so by any law or rule.

Replacement of a manager

COLL 6.5.7 R RP
  1. (1)

    The manager of an AUT is subject to removal by written notice by the trustee upon any of the following events:

    1. (a)

      the calling of a meeting to consider a resolution for winding up the manager;

    2. (b)

      an application being made to dissolve the manager or to strike it off the Register of Companies;

    3. (c)

      the presentation of a petition for the winding up of the manager;

    4. (d)

      the making of, or any proposals for the making of, a composition or arrangement with any one or more of the manager's creditors;

    5. (e)

      the appointment of a receiver to the manager (whether an administrative receiver or a receiver appointed over particular property);

    6. (f)

      anything equivalent to (a) to (e) above occurring in respect of the manager in a jurisdiction outside the United Kingdom;

    7. (g)

      the trustee forming the reasonable opinion, and stating in writing, that a change of manager is desirable in the interest of unitholders;

    8. (h)

      a resolution of unitholders being passed to remove the manager; or

    9. (i)

      the unitholders of three quarters in value of all of 2the units then in issue2(excluding units held or treated as held by the manager or by any associate of the manager) making a request in writing to the trustee that the manager should be removed.

      2
  2. (2)

    On receipt of a notice by the trustee under (1), the manager of the AUT ceases to be the manager; and the trustee must by deed appoint another person eligible under the Act to be the manager of the AUT upon and subject to that other entering into such deed or deeds as the trustee may require.

  3. (3)

    If the name of the AUT contains a reference to the name of the former manager, the former manager is entitled to require the new manager and the trustee immediately on receipt of a notice under (1) to propose a change in the name of the AUT

Retirement of a manager of an AUT

COLL 6.5.8 R RP
  1. (1)

    The manager of an AUT has the right to retire in favour of another person eligible under the Act and approved in writing by the trustee upon:

    1. (a)

      the retiring manager appointing that person by deed as manager in its place and assigning to that person all its rights and duties as such a manager; and

    2. (b)

      the new manager entering into such deeds as the trustee reasonably considers necessary or desirable to be entered into by that person in order to secure the due performance of its duties as the manager of the AUT.

  2. (2)

    Upon retirement, the retiring manager:

    1. (a)

      subject to (3), is released from all further obligations under the rules in this sourcebook and under the trust deed; and

    2. (b)

      may retain any consideration paid to it in connection with the change without having to account for it to any unitholder.

  3. (3)

    Sub-paragraph (2)(a) does not affect the rights of the trustee or any other person in respect of any act or omission on the part of the retiring manager before his retirement.

Consequences of removal or retirement of a manager of an AUT

COLL 6.5.9 R RP
  1. (1)

    Upon the removal or retirement of the manager, the removed or retiring manager:

    1. (a)

      is entitled to be recorded in the register for those units continued to be held or treated as held by it; and

    2. (b)

      may require the trustee to issue to it a certificate for those units (if not previously issued).

  2. (2)

    (Paragraph (1) is subject to any restriction in the prospectus relating to the permitted categories of unitholders.

Retirement of the depositary

COLL 6.5.10 R RP
  1. (1)

    The depositary of an authorised fund may not retire voluntarily except upon the appointment of a new depositary.

  2. (2)

    The depositary of an authorised fund must not retire voluntarily unless, before its retirement, it has ensured that the new depositary has been informed of any circumstance of which the retiring depositary has informed the FSA.

  3. (3)

    When the depositary of an authorised fund wishes to retire or ceases to be an authorised person, the authorised fundmanager may, subject to section 251 of the Act (Alteration of schemes and changes of manager or trustee) or regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company) appoint another person eligible to be the depositary in its place.

COLL 6.6 Powers and duties of the scheme, the authorised fund manager, and the depositary

Application

COLL 6.6.1 R

This section applies in accordance with COLL 6.6.2 R (Table of application).

Table of application

COLL 6.6.2 R RP

This table belongs to COLL 6.6.1 R.

Rule

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Manager of an AUT

Trustee of an AUT

6.6.1R

x

x

x

x

x

x

6.6.3R

x

x

x

x

x

6.6.4R

x

x

6.6.5R

x

x

x

x

x

6.6.6R

x

x

6.6.7R

x

x

6.6.8R

x

x

6.6.9R

x

x

6.6.10R

x

x

x

x

6.6.11G

x

x

6.6.12R

x

x

6.6.13R

x

x

x

x

x

6.6.14R

x

x

x

x

6.6.15R

x

x

x

x

x

x

6.6.16G

x

x

x

x

6.6.17R

x

x

x

x

x

6.6.18G

x

x

x

x

x

Note: "x" means "applies", but not every paragraph in every rule will necessarily apply.

Functions of the authorised fund manager

COLL 6.6.3 R RP
  1. (1)

    The authorised fundmanager must manage the scheme in accordance with:

    1. (a)

      the instrument constituting the scheme;

    2. (b)

      the rules in this sourcebook;

    3. (c)

      the most recently published prospectus; and

    4. (d)

      for an ICVC, the OEIC Regulations.

  2. (2)

    The authorised fund manager must take such steps as necessary to ensure compliance with the rules in this sourcebook that impose obligations upon the ICVC.

  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 in writing how rights attaching to the ownership of the scheme property are to be exercised, but not where COLL 6.6.13 R (2) (Exercise of rights in respect of the scheme property) applies; and

    3. (c)

      take action immediately to rectify any breach of COLL 6.3 and, where the breach relates to the incorrect pricing of units or to the late payment in respect of the issue of units, the rectification must, (unless the depositary otherwise directs under (4)), extend to the reimbursement or payment, or arranging the reimbursement or 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 manager to the trustee; or

      5. (v)

        by the trustee (for the account of the AUT) to the manager.

  4. (4)

    Rectification under (3)(c) need not, unless the depositary so directs, extend to any such reimbursement or payment where it appears to the depositary such breach, is of minimal significance.

General duties of the depositary

COLL 6.6.4 R RP
  1. (1)

    The depositary of an authorised fund must take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:

    1. (a)

      COLL 5 (Investment and borrowing powers);

    2. (b)

      COLL 6.2 (Dealing);

    3. (c)

      COLL 6.3 (Valuation and pricing);

    4. (d)

      COLL 6.8 (Income: accounting, allocation and distribution); and

    5. (e)

      any provision of the instrument constituting the scheme or prospectus that relates to the provisions referred to in (a) to (d).

  2. (2)

    The depositary must, in so far as not required under (1)(c), take reasonable care to ensure on a continuing basis that:

    1. (a)

      the authorised fund manager is adopting appropriate procedures to ensure that the price of a unit is calculated for each valuation point in accordance with COLL 6.3 ; and

    2. (b)

      the authorised fund manager has maintained sufficient records to show compliance with COLL 6.3 .

  3. (3)

    The depositary, when acting in its capacity as depositary, must act solely in the interests of the unitholders.

  4. (4)

    The depositary:

    1. (a)

      must also take reasonable care to ensure that;

      1. (i)

        the authorised fund manager considers whether or not to exercise the power provided by COLL 6.3.7 R (SDRT provision) or COLL 6.3.8 R (Dilution) (as the case may be) and, if applicable, the rate or amount of any SDRT provision, dilution levy or dilution adjustment that is imposed;

      2. (ii)

        the authorised fund manager has in relation to (i), taken account of all factors that are material and relevant to the authorised fund manager's decision; and

      3. (iii)

        when the authorised fund manager considers whether or not to exercise the power under COLL 6.3.8 R, the authorised fund manager has acted in accordance with the restrictions imposed by that rule; and

    2. (b)

      has no duty in respect of the authorised fund manager's exercise of the discretion referred to in (a).

Duties of the authorised fund manager and the depositary under the general law

COLL 6.6.5 R RP
  1. (1)

    The duties and powers of the authorised fund manager, the directors of an ICVC and the depositary under the rules in this sourcebook and under the instrument constituting the scheme are in addition to the powers and duties under the general law.

  2. (2)

    Paragraph (1) applies only in so far as the relevant general law is not qualified by the rules in this sourcebook or the instrument constituting the scheme or the OEIC Regulations.

Maintenance of records

COLL 6.6.6 R RP
  1. (1)

    The authorised fund manager must make and retain for six years such records as enable:

    1. (a)

      the scheme and the authorised fund manager to comply with the rules in this sourcebook and the OEIC Regulations; and

    2. (b)

      it to demonstrate at any time that such compliance has been achieved.

  2. (2)

    The authorised fund manager must make and retain for six years a daily record of the units in the scheme 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.

  3. (3)

    Where relevant, an authorised fund manager must make and retain for a period of six years a daily record of:

    1. (a)

      how it calculates and estimates dilution; and

    2. (b)

      its policy and method for determining the amount of any dilution levy or dilution adjustment.

  4. (4)

    The authorised fund manager must on the request of the depositary immediately supply it with such information concerning the management and administration of the authorised fund as the depositary may reasonably require.

Maintenance of capital: notification

COLL 6.6.7 R RP

The ACD must immediately notify the FSA in writing if the ICVC's capital falls below the minimum or exceeds the maximum stated in the instrument of incorporation.

Auditor: AUTs

COLL 6.6.8 R RP
  1. (1)

    The manager of an AUT must, upon any vacancy for the position of auditor for an AUT, with the approval of the trustee, appoint as auditor for the AUT a person qualified for appointment as auditor of an authorised person.

  2. (2)

    The audit fees of the auditor are determined by the manager with the approval of the trustee.

  3. (3)

    The manager of an AUT may, with the approval of the trustee, at any time, remove the auditor of an AUT; this power exists notwithstanding anything in any agreement between the persons concerned.

Returns: AUTs

COLL 6.6.9 R RP

The manager of an AUT must prepare and supply to the trustee the returns required to be submitted by the trustee to HM Revenue and Customs1.

1

Dealings in scheme property

COLL 6.6.10 R RP
  1. (1)

    The authorised fund manager may give instructions to deal in the property of the scheme.

  2. (2)

    The authorised fundmanager must obtain the consent of the depositary for the acquisition or disposal of immovable property.

  3. (3)

    Where the depositary is of the opinion that a deal in property is not within the rules in this sourcebook and the instrument constituting the scheme, the depositary may require the authorised fund manager to cancel the transaction or make a corresponding disposal or acquisition to secure restoration of the previous situation and to meet any resulting loss or expense.

  4. (4)

    Where the depositary is of the opinion that:

    1. (a)

      an acquisition of property necessarily involves documents evidencing title being kept in the custody of a person other than the depositary; and

    2. (b)

      the depositary cannot reasonably be expected to accept the responsibility which would otherwise be placed upon it if it were to permit custody by that other person;

    the authorised fund manager must, if the depositary so requests, either cancel the transaction or make a corresponding disposal.

Duty to inform the FSA

COLL 6.6.11 G RP

(General notification requirements) contains rules and guidance on matters that should be notified to the FSA. Such matters include, but are not limited to, any circumstance that the depositary becomes aware of whilst undertaking its functions or duties in COLL 6.6.4 R (1) (General duties of the depositary) that the FSA would reasonably view as significant.

Control by the depositary over the scheme property

COLL 6.6.12 R RP
  1. (1)

    The depositary of an authorised fund is responsible for the safekeeping of all of the scheme property (other than tangible movable property) entrusted to it and must:

    1. (a)

      take all steps and complete all documents needed to ensure completion of transactions properly entered into for the account of the scheme;

    2. (b)

      ensure that scheme property in registered form is, as soon as practicable, registered in the name of the depositary, its nominee, or a person retained by it under COLL 6.6.15 R (1) (Committees and delegation);

    3. (c)

      take into its custody or under its control documents of title to the scheme property other than for transactions in derivatives or forward transactions; and

    4. (d)

      ensure that any transaction in derivatives or a forward transaction is entered into so as to ensure that any resulting benefit is received by the depositary.

  2. (2)

    The depositary is responsible for the collection of income due to be paid for the account of the authorised fund.

  3. (3)

    The depositary must keep for six years such records as are necessary:

    1. (a)

      to enable it to comply with the rules in this sourcebook; and

    2. (b)

      to demonstrate that it has achieved such compliance.

Exercise of rights in respect of the scheme property

COLL 6.6.13 R RP
  1. (1)

    The depositary must take all necessary steps to ensure that instructions given to it by the authorised fund manager for the exercise of rights attaching to the ownership of scheme property are carried out.

  2. (2)

    Where the scheme property of an authorised fund contains units in any other scheme managed or otherwise operated by the manager of the AUT or, as the case may be, by any director of the ICVC or by any associate of either, the depositary must exercise any voting rights associated with those units in accordance with what he reasonably believes to be the interests of the unitholders in the authorised fund.

Duties of the depositary and the authorised fund manager: investment and borrowing powers

COLL 6.6.14 R RP
  1. (1)

    The authorised fundmanager must avoid the scheme property being used or invested contrary to COLL 5, or any provision in the instrument constituting the scheme or the prospectus as referred to in COLL 5.2.4 R (Investment powers:general), and COLL 5.6.4 R (Investment powers: general)2, except to the extent permitted by (3)(b).

  2. (2)

    The authorised fund manager must, immediately upon becoming aware of any breach of a provision listed in (1), take action, at its own expense, to rectify that breach, unless the breach occurred as the result of any of the circumstances within (3).

  3. (3)

    The authorised fund manager must restore compliance with COLL 5 as soon as reasonably practicable having regard to the interests of the unitholders and, in any event, within the period specified in (5) or, when applicable, (6) where:

    1. (a)

      the scheme property is:

      1. (i)

        used or invested contrary to COLL 5 (other than a provision excusing a failure to comply on a temporary basis); and

      2. (ii)

        the contravention is beyond the control of both the authorised fund manager and the depositary; or

    2. (b)

      there is a transaction ("subsequent transaction") deriving from a right (such as the right to convert stock or subscribe to a rights issue) attributable to an investment ('original investment') of the scheme if:

      1. (i)

        the subsequent transaction, but for this rule would constitute a breach of COLL 5; and

      2. (ii)

        at the time of the acquisition of the original investment, it was reasonable for the authorised fund manager, to expect that a breach would not be caused by the subsequent transaction; and

      in this rule the reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the depositary or the authorised fund manager.

  4. (4)

    Immediately upon the depositary becoming aware of any breach of any provision listed in (1), it must ensure that the authorised fund manager complies with (2).

  5. (5)

    The maximum period for restoration of compliance under (3) starts at the date of discovery of the relevant circumstance and lasts, subject to any extension under (6):

    1. (a)

      for six months; or

    2. (b)

      where the transaction in question was a transaction in derivatives or a forward transaction under COLL 5.2.20 R (Permitted transactions (derivatives and forwards)) or COLL 5.6.13R (Permitted transactions (derivatives and forwards)), until the close of business five business days later; or

    3. (c)

      where the transaction relates to an immovable, for two years.

  6. (6)

    The period specified at (5)(b) is extended where:

    1. (a)

      the transaction involved a delivery of a commodity, from five to twenty business days;

    2. (b)

      the reason for the contravention in (3)(a) is the inability of the authorised fund manager to close out a transaction because of a limit in the number or value of transactions imposed by an eligible derivatives market, until five business days after:

      1. (i)

        the inability resulting from any such limit is removed; or

      2. (ii)

        it becomes, to the knowledge of the authorised fund manager, reasonably practicable and reasonably prudent for the transaction to be closed out in some other way.

Committees and delegation

COLL 6.6.15 R RP
  1. (1)

    The directors of an ICVC may delegate to any one or more of their number any of the directors' powers or duties but remain responsible for the acts or omissions of any such directors.

  2. (2)

    The authorised fundmanager of a scheme and the directors of an ICVC have the power to retain the services of anyone to assist in the performance of their respective functions, provided that:

    1. (a)

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

      1. (i)

        the depositary; or

      2. (ii)

        any other person whose interests may conflict with those of the authorised fundmanager or the unitholders; or

      3. (iii) 5

        an authorised person operating from an establishment in the United Kingdom unless such person has a Part IV permission to manage investments; or5

      4. (iv)

        any other person operating from an establishment in a country other than the United Kingdom unless such person:5

        1. (A)

          is authorised or registered in such country for the purpose of asset management; and5

        2. (B)

          is subject to prudential supervision in such country;5

        and in addition if that person is not an EEA firm, co-operation is ensured between the FSA and the overseas regulator of that person;5

    2. (b)

      the authorised fundmanager ensures that at all times it can monitor effectively the relevant activities of any person so retained;

    3. (c)

      the mandate permits the authorised fund manager to:

      1. (i)

        give further relevant instructions to the person so retained; and

      2. (ii)

        withdraw the mandate with immediate effect when this is in the interests of the unitholders; and

    4. (d)

      the mandate does not prevent effective supervision of the authorised fund manager and it must not prevent the authorised fund manager from acting, or the scheme from being managed in the best interests of the unitholders.

  3. (3)

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

  4. (4)

    The depositary of a scheme may delegate any function to any person save:

    1. (a)

      the ICVC or any director of the ICVC or the authorised fund manager of a scheme, to assist the depositary to perform:

      1. (i)

        any function of oversight in respect of the scheme, its directors or the authorised fund manager as the case may be; or

      2. (ii)

        any function of custody or control of the schemeproperty;

    2. (b)

      an associate of the ICVC or of any of the directors of the ICVC or of the authorised fund manager of the scheme (as the case may be) to assist the depositary to perform any function in (a)(i); or

    3. (c)

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

  5. (5)

    Where a depositary retains services under (4):

    1. (a)

      if it retains the services of a director of the ICVC, or an associate or such a director or its own associate, then its liability for those services shall remain unaffected; and

    2. (b)

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

      1. (i)

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

      2. (ii)

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

      3. (iii)

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

  6. (6)

    Where COLL 6.5.5 R (4) (Other directors) applies, the directors have, in respect of the functions of the ACD under COLL 6.6.3 R (Functions of the authorised fund manager), the same rights and responsibilities as for an ACD under this rule.

Delegation: guidance

COLL 6.6.16 G RP
  1. (1)

    6SYSC 3.2 (Areas covered by systems and controls) contains contains guidance relating to delegation, including external delegation.66SYSC 3.2.4 G (1) states that a firm cannot contract out of its regulatory obligations.

  2. (2)

    SUP 15.8.6 R (Delegation by UCITS management companies) requires anauthorised fund manager of a UCITS scheme to inform the FSA whereone of its duties is delegated to another person.

  3. (3)

    For the purpose of , COLL 6.6.15 R (2) (a) (iv) adequate co-operation will be ensured where the FSA has entered into a co-operation agreement of the kind referred to in article 50(4)of the UCITS Directive with the relevant overseas regulator.5

Conflicts of interest

COLL 6.6.17 R RP
  1. (1)

    The authorised fund manager, any other director of an ICVC and the depositary must take reasonable care to ensure that a transaction within (a) to (f) is not carried out on behalf of the scheme:

    1. (a)

      putting cash on deposit with an affected person unless that person is an eligible institution or an approved bank and the arm's length requirement in (2) is satisfied;

    2. (b)

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

    3. (c)

      the dealing in property by an affected person, to, or with, the scheme (or the depositary for the account of the scheme), unless (3) applies;

    4. (d)

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

      1. (i)

        (3) applies; or

      2. (ii)

        the purpose of the vesting is that the whole or part of the property of a body corporate or a collective investment scheme becomes the first property of the scheme and the unitholders of shares or units in the body corporate or collective investment scheme become the first unitholders in the scheme;

    5. (e)

      the acquisition of scheme property by an affected person from the scheme (or the depositary acting for the account of the scheme), unless COLL 6.2.15 R (In specie issue and cancellation) applies, or unless (3) applies; and

    6. (f)

      transactions within COLL 5.4 (Stock lending) by an affected person with, or in relation to, the scheme unless the arm's length requirement in (2) is satisfied.

  2. (2)

    Any transaction in (1)(a),(b) or (f) must be at least as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm's length between the affected person and an independent party.

  3. (3)

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

  4. (4)

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

    1. (a)

      the property is an approved security or an approved derivative;

    2. (b)

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

    3. (c)

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

    4. (d)

      the authorised fund manager has taken all reasonable steps to ensure that the transaction is effected on the terms which are the best available for the scheme.

  5. (5)

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

    1. (a)

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

      1. (i)

        independent of any affected person; and

      2. (ii)

        qualified to value property of the relevant kind; and

    2. (b)

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

  6. (6)

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

    1. (a)

      paragraph (4)(a) is not satisfied;

    2. (b)

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

    3. (c)

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

Conflicts of interest: guidance

COLL 6.6.18 G RP
  1. (1)

    The effect of COBS TP 2.12R is that3COB 7.1 (Conflict of interest and material interest) (as it was in force on 31 October 2007) continues to apply3 for scheme management activity and contains rules on the fair treatment of customers where a firm has a conflict of interest in relation to a transaction. COLL 6.6.17 R (1) provides rules for specific circumstances where COB 7.1 would not be appropriate for an authorised fund.

  2. (2)

    Regulation 44 of the OEIC Regulations (Invalidity of certain transactions involving directors) is relevant to the application of COLL 6.6.17 R.

COLL 6.7 Payments

Application

COLL 6.7.1 R

This section applies in accordance with COLL 6.7.2 R (Table of application).

Table of application

COLL 6.7.2 R RP

Table of Application. This table belongs to COLL 6.7.1 R.

Rule

ICVC

ACD

Depositary of an ICVC

Manager of an AUT

Trustee of an AUT

6.7.1R to 6.7.5G

x

x

x

x

x

6.7.6G

x

x

x

6.7.7R

x

x

6.7.8G

x

x

6.7.9R

x

x

6.7.10R

x

x

x

x

6.7.11G

x

x

x

x

6.7.12R

x

x

x

6.7.13G

x

x

x

6.7.14R

x

6.7.15R

x

x

x

x

x

6.7.16G

x

x

x

x

6.7.17R

x

x

x

Note: "x" means "applies", but not every paragraph in every rule will necessarily apply.

Purpose

COLL 6.7.3 G RP
  1. (1)

    This section assists in securing the regulatory objective of protecting consumers through requirements which govern the payments out of scheme property and charges imposed on investors when buying or selling units.

  2. (2)

    The requirements clarify the nature of permitted charges and payments and ensure the disclosure for unitholders of any increases in charges and payments to the authorised fund manager.

  3. (3)

    The prospectus should make adequate provision for payments from an authorised fund. This section:

    1. (a)

      prohibits, or stipulates the conditions on which, the payments out of the scheme property can be made;

    2. (b)

      requires certain payments to be conditional on disclosure in the prospectus; and

    3. (c)

      governs the allocation of payments between capital and income.

Payments out of scheme property

COLL 6.7.4 R RP
  1. (1)

    The only payments which may be recovered from the scheme property of an authorised 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.4

Payments out of scheme property: guidance

COLL 6.7.5 G RP
  1. (1)

    Details of permissible types of payments out of scheme property are to be set out in full in the prospectus in accordance with COLL 4.2.5R (13) and COLL 4.2.5R (14) (Table: contents of the 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. (3)

    COLL 6.7.4 R (2) (Payments out of scheme property) 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 6.7.4 R (4) include payment to providers of fund supermarket services and other similar platform services.4

Performance fees

COLL 6.7.6 G RP
  1. (1)

    For 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 6.7.4 R. In determining whether the performance fee is consistent the authorised fund manager should have regard to factors such as:

    1. (a)

      it should be calculated and paid after consideration of all other payments;

    2. (b)

      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;

    3. (c)

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

    4. (d)

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

    5. (e)

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

    6. (f)

      except where allowed by COLL 6.7.4 R (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 4.2.5R (13) (Table: contents of 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.

Charges on buying and selling units

COLL 6.7.7 R RP
  1. (1)

    No 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 either a fixed amount or calculated as a percentage of the price of a unit; 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.

  3. (3)

    This rule is subject to COLL 6.3.7 R (SDRT provision) and COLL 6.3.8 R (Dilution).

Charges on buying and selling units: guidance

COLL 6.7.8 G RP
  1. (1)

    To 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 COLL 4.2.5 R (Table: contents of prospectus) and COLL 4.3 (Approvals and notifications).

  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 which have been acquired at different times by a unitholder are to be taken to be redeemed or cancelled for the purpose of the imposition of the redemption charge.

Charges for the exchange of units in an umbrella

COLL 6.7.9 R RP

For 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 6.7.10 R RP
  1. (1)

    The 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 annual accounting period, 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 6.7.11 G RP
  1. (1)

    Any 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 6.7.10 R (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 4.2.5R (14).

  4. (4)

    If the authorised fund manager wishes to make a change in relation to the allocation of payments, the procedures in COLL 4.3 (Approvals and notifications) will be relevant.

Prohibition on promotional payments

COLL 6.7.12 R RP
2
  1. (1)

    No 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. (2)

    2Paragraph (1) does3 not apply to the costs an authorised fund incurs3 preparing and printing the simplified prospectus, key features document or key features illustration3, provided the prospectus states, in accordance with COLL 4.2.5 R (13) and (14) (Table: contents of the prospectus), that these costs are properly payable to the authorised fund manager from scheme property.

    333

Prohibition on promotional payments: guidance

COLL 6.7.13 G RP

Examples of payments which are not permitted by COLL 6.7.12 R 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 6.7.12 R (2)2).4

    2
  3. (3)

    [deleted]4

Movable or immovable property

COLL 6.7.14 R RP

An ICVC must not incur any expense for the use by it of any movable or immovable property except to the extent that such property is necessary for the direct pursuit of its business or held in accordance with its investment objectives.

Payment of liabilities on transfer of assets

COLL 6.7.15 R RP
  1. (1)

    Where the property of an authorised fund 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, its depositary or the trustee of the 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 scheme of the authorised fund 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 6.7.16 G RP

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 6.7.17 R RP

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

COLL 6.8 Income: accounting, allocation and distribution

Application

COLL 6.8.1 R RP
  1. (1)

    This section applies to an authorised fund manager.

  2. (2)

    COLL 6.8.4 R (1) (Unclaimed, de minimis and joint unitholder distributions) also applies to the depositary of an authorised fund.

  3. (3)

    Except in the case of COLL 6.8.2 R (1) (Accounting periods) and COLL 6.8.3 R (1) (Income allocation and distribution), COLL 6.8 applies as if each sub-fund were a separate authorised fund.

Accounting periods

COLL 6.8.2 R RP
  1. (1)

    An authorised fund must have:

    1. (a)

      an annual accounting periods;

    2. (b)

      a half-yearly accounting period; and

    3. (c)

      an accounting reference date.

  2. (2)

    A half-yearly accounting period begins with the first day of an annual accounting period and ends on:

    1
    1. (a)

      the day which is six months before the last day of that annual accounting period; or

    2. (b)

      some other reasonable date as set out in the prospectus of the scheme.1

  3. (3)

    The first annual accounting period of a scheme must begin:

    1. (a)

      on the first day of any period of initial offer; or

    2. (b)

      in any other case, on the date of the relevant authorisation order;

    and in either case must end on the next accounting reference date, except where (4) applies.1

  4. (4)

    When the accounting reference date of a scheme falls less than six months after the beginning of the first annual accounting period, that period may be extended until the subsequent accounting reference date.1

  5. (5)

    Each annual accounting period of a scheme subsequent to the first period is to run for a period of 12 months, beginning on the next day after the accounting reference date, except where (6) applies.1

  6. (6)

    Following a revision to the prospectus of the scheme that includes a change to the accounting reference date, the annual accounting period may be shortened, or extended by up to six months, so as to end on the new accounting reference date.1

  7. (7)

    The authorised fund manager must consult the depositary and the scheme's auditor before shortening or extending an accounting period in accordance with (4) or (6).1

COLL 6.8.2A G RP

1When the annual accounting period of a scheme is extended under COLL 6.8.2 R (4) or (6), resulting in a longer than usual period before the publication of reports to unitholders, the authorised fund manager should make summary information about the investment activities of the scheme available to unitholders during that period, in accordance with Principles 6 (Customers' interests) and 7 (Communications with clients).

Income allocation and distribution

COLL 6.8.3 R RP

  1. (1)

    An authorised fund must have an annual income allocation date, which must be within four months of the accounting reference date.

  2. (2)

    An authorised fund may have interim income allocation dates and one or more interim accounting periods for each of those dates2 and, if it does, the interim income allocation date must be within four months of the end of the relevant interim accounting period(s).2

    2
  3. (3)

    An authorised fund must have a distribution account to which the income property is transferred at the end of the relevant accounting period.

  4. (4)

    If income is allocated and distributed during an accounting period:

    1. (a)

      with effect from the end of the relevant accounting period, the amount of income allocated to unit classes that accumulate income becomes part of the capital property and requires an adjustment to the proportion of the value of the scheme property to which they relate if other classes of units are in issue during the period;

    2. (b)

      the adjustment in (a) must ensure the price of units remains unchanged despite the transfer of income; and

    3. (c)

      the amount of any interim distribution may not be more than the amount which, in the opinion of the authorised fund manager, would be available for allocation if the interim accounting period and all previous interim accounting periods in the same annual accounting period, taken together, were an annual accounting period.

Unclaimed, de minimis and joint unitholder distributions

COLL 6.8.4 R RP
  1. (1)

    Any distribution remaining unclaimed after a period of six years, or such longer time specified by the prospectus, must become part of the capital property.

  2. (2)

    The authorised fund manager and the depositary may agree a de minimis amount in respect of which a distribution of income is not required, and how any such amounts are to be treated.

  3. (3)

    Distributions made to the first named joint unitholder on the register will be as effective a discharge to the trustee and manager, as if the first named joint unitholder had been a sole unitholder.

Guidance: contents of the prospectus

COLL 6.8.5 G RP

COLL 4.2.5 R (Table: contents of prospectus) requires the details of COLL 6.8.2 R, COLL 6.8.3 R (1) and COLL 6.8.3 R (2) and COLL 6.8.4 R (1) and COLL 6.8.4 R (2) to be contained in the prospectus as well as when, and how, the distribution will be paid (e.g. by cheque or BACS) and also how any unclaimed distributions are to be processed.

COLL 6.9 Independence, names and UCITS business restrictions

Application

COLL 6.9.1 R RP

This section applies to an1authorised fund manager, a1depositary, an ICVC and any other directors of an ICVC1.

1 1 1

Independence of depositaries and scheme operators

COLL 6.9.2 G RP
  1. (1)

    Regulation 15(8)(f) of the OEIC Regulations (Requirements for authorisation) requires independence between the depositary, the ICVC and the ICVC's directors, as does section 243(4) of the Act (Authorisation orders) for the trustee and manager of an AUT. COLL 6.9.3 G to COLL 6.9.5 G give FSA's view of the meaning of independence of these relationships. An ICVC, its directors and depositary or a manager and a trustee of an AUT are referred to as "relevant parties" in this guidance.

  2. (2)

    There are at least three possible kinds of links between the relevant parties:

    1. (a)

      directors in common;

    2. (b)

      cross-shareholdings; and

    3. (c)

      contractual commitments.

  3. (3)

    If any of these links exist between the relevant parties, the FSA will have regard to COLL 6.9.3 G to COLL 6.9.5 G in determining whether there is independence.

Independence: influence by directors

COLL 6.9.3 G RP
  1. (1)

    Independence is likely to be lost if, by means of executive power, either relevant party could control the action of the other.

  2. (2)

    The board of one relevant party should not be able to exercise effective control of the board of another relevant party. Arrangements which might indicate this situation include quorum provisions and reservations of decision-making capacity of certain directors.

  3. (3)

    For an AUT, the FSA would interpret the concept of directors in common to include any directors of associates of one relevant party who are simultaneously directors of the other relevant party.

  4. (4)

    For an ICVC, independence would not be met if:

    1. (a)

      a director of the ICVC or any associate of the director is a director, an employee, or both of the depositary; or

    2. (b)

      a director of an ICVC:

      1. (i)

        has a direct or indirect shareholding for investment purposes of more than 0.5% of the votes at a general meeting or a meeting of holders of the class of share concerned of the depositary of that ICVC; or

      2. (ii)

        has any other relationship with the depositary which might reasonably be expected to give rise to a potential conflict of interest.

Independence: influence by shareholding

COLL 6.9.4 G RP

Independence is likely to be lost if either of the relevant parties could control the actions of the other by means of shareholders' votes. The FSA considers this would happen if any shareholding by one relevant party and their respective associates in the other exceeds 15% of the voting share capital, either in a single share class or several share classes. The FSA would be willing, however, to look at cross-shareholdings exceeding 15% on a case-by-case basis to consider if there were exceptional grounds for concluding that independence was safeguarded by other means.

Independence: contractual commitments

COLL 6.9.5 G RP

The FSA would encourage relevant parties to consult it in advance about its view on the consequences of any intended contractual commitment or relationship which could affect independence, whether directly or indirectly.

Undesirable or misleading names

COLL 6.9.6 G RP
  1. (1)

    Regulation 15(9) of the OEIC Regulations and section 243(8) of the Act require that an authorised fund's name must not be undesirable or misleading. This section contains guidance on some specific matters the FSA will consider in determining whether the name of an authorised fund is undesirable or misleading. It is in addition to the requirements of regulation 19 of the OEIC Regulations (Prohibition on certain names).

  2. (2)

    The FSA will take into account whether the name of the scheme:

    1. (a)

      is substantially similar to the name of another authorised fund;

    2. (b)

      implies that the authorised fund has merits which are not, or might not be, justified;

    3. (c)

      implies that the authorised fund manager has particular qualities, which may not be justified;

    4. (d)

      is inconsistent with the authorised fund's investment objectives or policy;

    5. (e)

      implies that the authorised fund is not an authorised fund (for example, describing the authorised fund as a "plan" or "account" are unlikely to be acceptable); and

    6. (f)

      might mislead investors into thinking that persons other than the authorised fund manager are responsible for the authorised fund.

  3. (3)

    The FSA is unlikely to approve a name of an authorised fund that includes the word "guaranteed" unless:

    1. (a)

      the guarantee is given by:

      1. (i)

        an authorised person;

      2. (ii)

        a person authorised by a Home State regulator; or

      3. (iii)

        a person subject to prudential supervision in accordance with criteria defined by Community law or prudential rules at least as stringent as those laid down by Community law;

      other than the authorised fund manager or the depositary.

    2. (b)

      the authorised fund manager can demonstrate that the guarantor has the authority and resources to honour the terms of the guarantee;

    3. (c)

      the guarantee covers all unitholders within the authorised fund and is legally enforceable by each Unitholder who is intended to benefit from it or by a person acting on that unitholder's behalf;

    4. (d)

      the guarantee relates to the total amount paid for a unit which includes any charge or other costs of buying or selling units in the authorised fund;

    5. (e)

      the guarantee provides for payment at a specified date or dates and is unconditional although reasonable commercial exclusions such as force majeure may be included; and

    6. (f)

      where the guarantee applies to different classes of unit, it is identical in its application to all classes except for the differences attributable to income already received or charges already suffered by the different classes of unit.

  4. (4)

    The name of an authorised fund may indicate a guaranteed capital return or income return or both but only if the total amount paid for a unit is guaranteed in accordance with (3).

  5. (5)

    The FSA is unlikely to approve a name of an authorised fund that includes words implying a degree of capital security (such as "capital protected" or anything with a similar meaning) unless the degree of capital security is apparent from the name and clearly stated in the prospectus, and:

    1. (a)

      the principles in (3) are satisfied except that, for the purposes of (3)(d), the guarantee may relate to an amount not materially less than the total amount paid for a unit; or

    2. (b)

      the investment objective and investment policy for the authorised fund are such as to show a clear intention to provide a material degree of security in respect of the total amount paid for a unit.

  6. (6)

    When determining whether (5) is complied with, the FSA will take into account whether the degree of capital security implied by the name fairly reflects the nature of the arrangements for providing that security. This assessment will take place on a case-by-case basis.

Undesirable or misleading names: umbrellas

COLL 6.9.7 R RP

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

Undesirable or misleading names: umbrellas - guidance

COLL 6.9.8 G RP

When deciding whether COLL 6.9.7R is complied with, the FSA will take into account COLL 6.9.6G. COLL 6.9.7R applies generally and not just to the names that include the words "guaranteed" or "capital protected".

Restrictions of business for UCITS management companies

COLL 6.9.9 R RP

A UCITS management company must not engage in any activities other than:

  1. (1)

    acting as:

    1. (a)

      an authorised fund manager of an authorised fund; or

    2. (b)

      an operator of any other collective investment scheme for which the firm is subject to prudential supervision;

  2. (2)

    activities for the purposes of or in connection with those in (1);

  3. (3)

    collective portfolio management, including without limitation:

    1. (a)

      investment management;

    2. (b)

      administration:

      1. (i)

        legal and fund management accounting services;

      2. (ii)

        customer enquiries;

      3. (iii)

        valuation and pricing (including tax returns);

      4. (iv)

        regulatory compliance monitoring;

      5. (v)

        maintenance of unitholder register;

      6. (vi)

        distribution of income;

      7. (vii)

        unit issues and redemptions;

      8. (viii)

        contract settlements (including certificate dispatch); and

      9. (ix)

        record keeping; and

    3. (c)

      marketing;

  4. (4)

    managing investments where the relevant portfolio includes one or more ISD instruments;

  5. (5)

    advising on investments where:

    1. (a)

      the firm has a permission for the activity in (4); and

    2. (b)

      each of the instruments are ISD instruments; and

  6. (6)

    safeguarding and administration of collective investment scheme units where the firm has a permission for the activity in (4).

Connected activities: guidance

COLL 6.9.10 G RP
  1. (1)

    Examples of the connected activities referred to in COLL 6.9.9 R (2) include management of group plans, as long as they are dedicated to investments in unit trust schemes and OEICs for which the firm acts as an authorised fund manager.

  2. (2)

    The restrictions of business imposed by COLL 6.9.9R reflect the position under Article 5 of the UCITS Directive. In accordance with recital (7) of the amending UCITS Management Directive (2001/107/EC)the activities referred to at COLL 6.9.9R (3) (a) to COLL 6.9.9R (3) (c) may be performed on behalf of EEA UCITS management companies.

Notification to the FSA in its role as registrar of ICVCs

COLL 6.9.11 R RP

An ICVC must notify the FSA within 14 days of the occurrence of any of the following:

  1. (1)

    any amendment to the instrument of incorporation;

  2. (2)

    any change in the address of the head office of the ICVC;

  3. (3)

    any change of director;

  4. (4)

    any change of depositary;

  5. (5)

    in respect of any director or depositary, any change in the information mentioned in regulation 12(1)(b) or (c) of the OEIC Regulations (Applications for authorisation);

  6. (6)

    any change of the auditor of the ICVC;

  7. (7)

    any order in respect of the ICVC made by virtue of regulation 70 of the OEIC Regulations (Mergers and divisions).