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COLL 6.1 Introduction and Application

Application

COLL 6.1.1 R

This chapter applies to:

  1. (1)

    an authorised fund manager of an AUT, ACS2 or an ICVC;

  2. (2)

    any other director of an ICVC;

  3. (3)

    a depositary of an AUT, ACS2 or an ICVC; and

  4. (4)

    an ICVC,

where such AUT, ACS2 or ICVC is a UCITS scheme or a non-UCITS retail scheme.

Purpose

COLL 6.1.2 G

This chapter helps in achieving the statutory 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
  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 fund3 or refer to the need to state the relevant operating procedures in the prospectus of the scheme.

    3
  2. (2)
    1. (a)

      4The authorised fund manager does not necessarily have to carry out all the activities it is responsible for and may delegate functions to other persons.

    2. (b)

      4The rules in this chapter set out the parameters of such delegation4, except in relation to a non-UCITS retail scheme managed by a full-scope UK AIFM, where this chapter supplements FUND 3.10 (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 or ACS2. 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
  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
  1. (1)

    This section helps in achieving the statutory 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 of an AUT, ACS or ICVC7 is responsible for arranging for the issue and the cancellation of units for the authorised fund. An authorised fund manager of an AUT, ICVC or co-ownership scheme7 is permitted to sell and redeemunits for its own account. An authorised fund manager of a limited partnership scheme is only permitted to sell and redeemunits as agent for the scheme.7 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.

    7
  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 depositary of an AUT or ACS7, carried out directly with the Unitholder.

    7
  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
  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
  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
  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 fund8) applies.

    8
  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 or ACS

COLL 6.2.6 R
  1. (1)

    The depositary7 must issue or cancelunits in an AUT or ACS7 when instructed by the authorised fund manager.7

    77
  2. (2)

    Any instructions given by the authorised fund manager7must 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).

    7
  3. (3)

    If the depositary7 is of the opinion that it is not in the interests of Unitholders that any units should be issued or cancelled7 or that to do so would not be in accordance with the trust deed, contractual scheme deed7 or prospectus, it must notify the authorised fund manager7 of that fact and it is then relieved of the obligation to issue or cancel those units.

    777

3Issue and cancellation of units in multiple classes

COLL 6.2.6A R

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
  1. (1)

    The authorised fund managermay 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 depositary of an AUT or ACS7.

    7
  2. (2)

    If (1) applies:

    (a) the instrument constituting the fund8 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.

    8

Controls over the issue and cancellation of units

COLL 6.2.8 R
  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 or ACS7, when giving instructions to the depositary72 for the issue or cancellation of units; or

      27
    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
  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
  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 or ACS7) 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
  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

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 FCA 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 FCA (in the manner prescribed by SUP 16.6.8 R) on a quarterly basis.

Payment for units issued

COLL 6.2.13 R
  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 depositary of an AUT or ACS7 or the ICVC of:2

    27
    1. (a)

      2in the case of a single-priced authorised fund, the price of the units and any payments required under 9COLL 6.3.8 R (Dilution); or

    2. (b)

      2in the case of a dual-priced authorised fund, the issue price of the units9.

  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
  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 depositary of the AUT or ACS7 or the ICVC of such evidence of title to the units as it may reasonably require, require the depositary to pay:2

    7
    1. (a)

      2in the case of a single-priced authorised fund, the price of the units (less any deduction required under 9COLL 6.3.8 R); or

    2. (b)

      2in the case of a dual-priced authorised fund, the cancellation price of the units9;

    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 or contractual scheme deed7.

  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

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 fund8 so provides.

    8

Sale and redemption

COLL 6.2.16 R
  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 fund8 and the prospectus unless:

    8
    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 fund8 and the prospectus unless it has reasonable grounds to refuse such redemption.

    8
  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)

    Except where (5A) applies the5 period in (4) expires at the close of business on the fourth business day following the later of:

    5
    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. (5A)

    5Where a non-UCITS retail scheme operating as a FAIF operates limited redemption arrangements, the period in (4) expires no later than the expiry of a period of 185 days from the date of receipt and acceptance of the instruction to redeem.

  7. (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 later9.

    2
  8. (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.

  9. (8)

    [deleted]2

    2
  10. (9)

    [deleted]2

    2
  11. (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 of an AUT or ICVC7 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
  1. (1)

    The prospectus of an authorised fund9 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.

  4. (4)

    6CESR's guidelines on a common definition of European money market funds recommend that, for a UCITS scheme which is a short-term money market fund or a money market fund, the settlement period in COLL 6.2.16 R (5) should expire at the close of business on the third business day.

Limited issue

COLL 6.2.18 R
  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
  1. (1)

    The instrument constituting the fund8 and the prospectus of a non-UCITS retail scheme2 operating as a FAIF, or5 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.

    8
  2. (2)

    Where (1) applies, the scheme must provide for sales and5redemptions at least once in every six months.

  3. (3)

    Within a scheme, unit classes may operate different arrangements for sales and redemptions5 of units provided there is no prejudice to the interests of any Unitholder.

    5
  4. (4)

    5The scheme may provide for sales of units of any class to be executed at a greater frequency than redemptions of units of the same class.

Limited redemption: guidance

COLL 6.2.20 G

The conditions for limited redemption arrangements in COLL 6.2.19 R should be considered, for AUTs and ACSs7 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
  1. (1)

    Subject to (1A) and (3) the5instrument constituting the fund8 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.

    58
  2. (1A)

    5Subject to (3) the instrument constituting the fund8 and the prospectus of a non-UCITS retail scheme operating as a FAIF may permit deferral of redemptions at a valuation point to a following valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.

    8
  3. (2)

    Any deferral of redemptions under (1) or (1A)5 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.

  4. (3)

    5Any deferral under (1A) is subject to the limitations on payments to Unitholders in COLL 6.2.16 R (5A).

Deferred redemption: guidance

COLL 6.2.22 G

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
  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

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
8
  1. (1) 8

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

  2. (2)

    COLL 6.3.3A R to COLL 6.3.3D R (Accounting procedures):

    1. (a)

      apply to:

      1. (i)

        a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services; and

      2. (ii)

        an EEA UCITS management company providing collective portfolio management services for a UCITS scheme from a branch in the United Kingdom;

        in addition to applying in accordance with (1); but

    2. (b)

      do not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.8

Purpose

COLL 6.3.2 G
  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 10the authorised fund manager to mitigate the effects of any dilution (reduction) in the value of the scheme property caused by10 buying and selling underlying investments as a result of the issue or cancellation of units; and10

      1
    3. (c)

      [deleted]10

      11
    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.

  5. (5)

    10A full-scope UK AIFM that is the authorised fund manager of a non-UCITS retail scheme should comply with the requirements of:

    1. (a)

      10FUND 3.9 (Valuation); and

    2. (b)

      10this chapter.

Valuation

COLL 6.3.3 R
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 fund9 and the prospectus.1

    9
  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.

Accounting procedures

COLL 6.3.3A R
  1. (1)

    8An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure the employment of the accounting policies and procedures referred to in SYSC 4.1.9 R (Accounting policies), so as to ensure the protection of Unitholders.

  2. (2)

    Accounting for the scheme shall be carried out in such a way that all assets and liabilities of the scheme can be directly identified at all times.

  3. (3)

    If the scheme is an umbrella, separate accounts must be maintained for each sub-fund.

[Note: article 8(1) of the UCITS implementing Directive]

COLL 6.3.3B R

8An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must have accounting policies and procedures established, implemented and maintained, in accordance with the accounting rules of the UCITS Home State, so as to ensure that the calculation of the net asset value of each scheme it manages is accurately effected, on the basis of the accounting, and that subscription and redemption orders can be properly executed at that net asset value.

[Note: article 8(2) of the UCITS implementing Directive]

COLL 6.3.3C G
  1. (1)

    8The accounting policies and procedures referred to in COLL 6.3.3B R should enable the authorised fund manager of a UCITS scheme to value the scheme property accurately at each valuation point and to calculate dealingprices by reference to that valuation.

  2. (2)

    Where different share or unitclasses exist, it should be possible to extract from the accounting records the net asset value of each different class.

[Note: recital (9) of the UCITS implementing Directive]

COLL 6.3.3D R

8An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must establish appropriate procedures to ensure the proper and accurate valuation of the assets and liabilities of each scheme it manages.

[Note: article 8(3) of the UCITS implementing Directive]

Valuation points

COLL 6.3.4 R

  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 except where the scheme is a non-UCITS retail scheme operating as a FAIF.6

  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. (6B)

    UCITS schemes operating as short-term money market funds must have at least one valuation point every business day at which the valuation is carried out on an amortised cost or mark to market basis.7

  9. (6C)

    Non-UCITS retail schemes operating as short-term money market funds must have at least one valuation point every business day or, where the scheme is marketed solely through employee savings schemes or to a specific category of investors that is subject to redemption restrictions, at least one every week at which the valuation is carried out on an amortised cost or mark to market basis.7

  10. (6D)

    Money market funds must value with the appropriate frequency as required in (6B) or (6C) on a mark to market basis.7

  11. (7)

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

  12. (8)

    The authorised fund manager may determine to have an additional valuation point for an authorised fund,10 in which case it1must inform the depositary.

Price of a unit

COLL 6.3.5 R
  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 fund9 and the prospectus.

      9
  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

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 payment made under 10COLL 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 deduction under 10COLL 6.3.8 R.

Sale and redemption price parameters for dual-priced authorised funds1

COLL 6.3.5B R
  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 point10; 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 permitted10.

  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

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

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]

(2B)

Short-term money market funds may value approved money-market instruments on an amortised cost basis.7

[Note: paragraph 21 of CESR's guidelines on a common definition of European money market funds]7

(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 FCA), the depositary should report any breach of the rules in COLL 6.3 immediately to the FCA. However, notification should relate to instances which the depositary considers material only.

(3)

A depositary should also report to the FCA 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 FCA 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 6.6.3R(3)(c) 10(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 FCA, 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.

COLL 6.3.7 R

[deleted]10

Dilution

COLL 6.3.8 R
  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 pricing

COLL 6.3.9 R
  1. (1)

    For the sale and redemption of units, all deals must be at a forward price10.

  2. (2)

    [deleted]10

    1
  3. (3)

    [deleted]10

  4. (4)

    [deleted]10

  5. (5)

    [deleted]10

  6. (6)

    [deleted]10

COLL 6.3.10 G

[deleted]10

Publication of prices

COLL 6.3.11 R

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
  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 or a short-term money market fund7

COLL 6.3.13 R

3The authorised fund manager of a qualifying money market fund or a short-term money market fund valuing scheme property on an amortised cost basis7 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

3The authorised fund manager should advise the depositary when the mark to market value of a qualifying money market fund or a short-term money market fund valuing scheme property on an amortised cost basis 7varies from its amortised cost value by 0.1%, 0.2% and 0.3% respectively. The authorised fund manager of a qualifying money market fund or short-term money market fund7 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
  1. (1)

    This section applies to an authorised fund manager and a depositary of an AUT or ACS.1

    1
  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

The aim of this section is to protect consumers, by setting out the requirements for a register of Unitholders for an AUT or ACS1 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
  1. (1)
    1. (a)

      3This section deals with matters relating to the register of Unitholders of units in an AUT or ACS including its establishment and contents.

    2. (b)

      3The authorised fund manager or depositary may be responsible for the register.

    3. (c)

      3In any event, the person responsible for the register must be stated in the trust deed or contractual scheme deed and this section details what his duties are.

    4. (d)

      3The provisions relating to documents evidencing title to units3are dependent on the provisions in the trust deed or contractual scheme deed and their operation should be set out in the prospectus.

    11111
  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
  1. (1)

    Either:1

    1
    1. (a)

      the manager or the trustee (as nominated in the trust deed); or1

    2. (b)

      the authorised contractual scheme manager or the depositary of the ACS (as nominated in the contractual scheme deed);1

    must establish and maintain a register of Unitholders as a document in accordance with this section.1

  2. (2)

    The manager or trustee or the authorised fund manager or depositary1 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)3;

    2. (b)

      the number of units of each class held by each Unitholder3;

    3. (c)

      the date on which the Unitholder was registered for units standing in his name3; and

    4. (d)

      the number of units of each class currently in issue3.

  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 or the authorised fund manager or depositary1, 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 or authorised fund manager1), during office hours3;

    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 or authorised fund manager1 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 or the authorised fund manager or depositary1, as appropriate.

The authorised fund manager as Unitholder

COLL 6.4.5 R
  1. (1)

    Subject to (3), if1 no person is entered in the register as the Unitholder of a unit, the authorised fund manager1 must be treated as the Unitholder of each such unit which is in issue3.

    11
  2. (2)

    Where units are transferred to the authorised fund manager1, they need not be cancelled and the authorised fund manager1 need not be entered on the register as the new Unitholder.

    11
  3. (3)

    In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager as the agent for the scheme provided the authorised contractual scheme manager is not entered in the register as the new Unitholder.1

Transfer of units by act of parties: AUTs and ACSs

COLL 6.4.6 R
  1. (1)

    Every Unitholder of an AUT1 is entitled to transfer units held on the register by an instrument of transfer in any form that the person responsible for the register may approve, but that person is under no duty to accept a transfer unless it is permitted by the trust deed or prospectus.3

  2. (1A)

    Provided:1

    1. (a)

      the requirements in COLL 6.4.6A R (Transfer of units in an ACS) are satisfied; and

    2. (b)

      transfers of units are allowed by the contractual scheme deed and prospectus in accordance with the conditions specified by FCA rules;1

    every Unitholder of an ACS is entitled to transfer units held on the register by an instrument of transfer in any form that the person responsible for the register may approve, but that person is under no duty to accept a transfer unless it is permitted by the contractual scheme deed and prospectus.1

  3. (2)

    Every instrument of transfer of units of an AUT or ACS1 must be signed by, or on behalf of, the Unitholder transferring the units (or, for a body corporate, sealed by that body corporate or signed by one of its officers (or in Scotland, two of its officers)) authorised to sign it and, unless the transferee is the authorised fund manager1, the transferor must be treated as the Unitholder until the name of the transferee has been entered in the register.

  4. (3)

    In the case of an AUT or ACS, every1 instrument of transfer (stamped as necessary) must be left for registration, with the person responsible for the register, accompanied by:

    1
    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.

  5. (4)

    In the case of an AUT or ACS, the1 details of instruments of transfer must be kept for a period of six years from the date of its registration.

    1
  6. (5)

    In the case of an AUT or ACS, on1 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.

    1

Transfer of units in an ACS

COLL 6.4.6A R
  1. (1)

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

  2. (2)

    The FCA specifies that for the purposes of (1), and for the purposes of COLL 3.2.6 R(27G) (ACSs: UCITS and NURS transfer of units) and COLL 4.2.5 R(5B) (ACSs: UCITS and NURS transfer of units), units in an ACS may only be transferred to a person that is a:

    1. (a)

      professional ACS investor; or

    2. (b)

      large ACS investor; or

    3. (c)

      person who already holds units in the scheme.

COLL 6.4.6B G

1The FCA recognises that some transfers of units arise by operation of law (such as upon death or bankruptcy of the Unitholder, or otherwise) and are accordingly outside the control of the authorised contractual scheme manager. The authorised contractual scheme manager is expected to comply with its responsibilities under COLL 6.6.3B R (Redemption of ACS units by an authorised contractual scheme manager) in such cases by redeeming such units.

Certificates

COLL 6.4.7 R
  1. (1)

    Following the sale of units or as a result of COLL 6.4.6 R (Transfer of units by act of parties: AUTs and ACSs1) a document recording title to those units may be issued in such a form as the trust deed or contractual scheme deed1 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)

    [deleted]3

    122
  4. (4)

    Bearer certificates may not be issued for AUTs or 3ACSs.1

Conversion of units

COLL 6.4.8 R

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
  1. (1)

    The ACD and any other directors of an ICVC or the person responsible for the register of an AUT or an ACS1 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

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

Authorised fund manager of an AUT or ACS3

3

Depositary of an AUT or ACS3

3

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.

COLL 6.5.2A G

4 COLL 6.6A and COLL 6.6B set out additional FCArules and guidance applicable to the authorised fund manager and depositary of a UCITS scheme in relation to the appointment and duties of the depositary.

Appointment of an ACD

COLL 6.5.3 R
  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 FCA 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
  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
  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

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 COLL 6.6.3 R (1) (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 an authorised fund manager of an AUT or ACS

COLL 6.5.7 R
  1. (1)

    The authorised fund manager3 of an AUT3 or ACS3 is subject to removal by written notice by the depositary3 upon any of the following events:

    33
    1. (a)

      the calling of a meeting to consider a resolution for winding up the authorised fund manager3;

      3
    2. (b)

      an application being made to dissolve the authorised fund manager3 or to strike it off the Register of Companies;

      3
    3. (c)

      the presentation of a petition for the winding up of the authorised fund manager3;

      3
    4. (d)

      the making of, or any proposals for the making of, a composition or arrangement with any one or more of the authorised fund manager's3 creditors;

      3
    5. (e)

      the appointment of a receiver to the authorised fund manager3 (whether an administrative receiver or a receiver appointed over particular property);

      3
    6. (f)

      anything equivalent to (a) to (e) above occurring in respect of the authorised fund manager3 in a jurisdiction outside the United Kingdom;

      3
    7. (g)

      the depositary3 forming the reasonable opinion, and stating in writing, that a change of authorised fund manager3 is desirable in the interest of Unitholders;

      33
    8. (h)

      a resolution of Unitholders being passed to remove the authorised fund manager3; or

      3
    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 authorised fund manager3 or by any associate of the authorised fund manager3) making a request in writing to the depositary3 that the authorised fund manager3 should be removed.

      23333
  2. (2)

    On receipt of a notice by the depositary3 under (1), the authorised fund manager3 of the AUT or ACS3 ceases to be the authorised fund manager3; and the depositary3 must by deed appoint another person eligible under the Act to be the authorised fund manager3 of the AUT or ACS3 upon and subject to that other entering into such deed or deeds as the depositary3 may require.

    333333
  3. (3)

    If the name of the AUT or ACS3 contains a reference to the name of the former authorised fund manager3, the former authorised fund manager3 is entitled to require the new authorised fund manager3 and the depositary3 immediately on receipt of a notice under (1) to propose a change in the name of the AUT or ACS.3

    3333

Retirement of an authorised fund manager of an AUT or ACS

COLL 6.5.8 R
  1. (1)

    The authorised fund manager of an AUT or ACS3 has the right to retire in favour of another person eligible under the Act and approved in writing by the depositary3 upon:

    33
    1. (a)

      the retiring authorised fund manager3 appointing that person by deed as authorised fund manager3 in its place and assigning to that person all its rights and duties as such a authorised fund manager3; and

      333
    2. (b)

      the new authorised fund manager3 entering into such deeds as the depositary3 reasonably considers necessary or desirable to be entered into by that person in order to secure the due performance of its duties as the authorised fund manager3 of the AUT or ACS3.

      333
  2. (2)

    Upon retirement, the retiring authorised fund manager3:

    3
    1. (a)

      subject to (3), is released from all further obligations under the rules in this sourcebook and under the trust deed or contractual scheme deed3; 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 depositary3 or any other person in respect of any act or omission on the part of the retiring authorised fund manager3 before his retirement.

    33

Consequences of removal or retirement of an authorised fund manager of an AUT or ACS

COLL 6.5.9 R
  1. (1)

    Upon the removal or retirement of the authorised fund manager3, the removed or retiring authorised fund manager of an AUT or ACS:3

    33
    1. (a)

      is entitled to be recorded in the register for those units continued to be held or treated as held by it as principal3; and

    2. (b)

      may require the depositary3 to issue to it a certificate for those units (if not previously issued).

      3
  2. (2)

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

    3

Retirement of the depositary

COLL 6.5.10 R
  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 FCA.

  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), section 261Q of the Act (Alteration of contractual schemes and changes of operator or depositary)3 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

This table belongs to COLL 6.6.1 R.

Rule

ICVC

ACD

Any other directors of an ICVC

Depositary of an ICVC

Authorised fund manager of an AUT or ACS10

10

Depositary of an AUT or ACS10

10

6.6.1R

x

x

x

x

x

x

6.6.3R

x

x

x

x

x

106.6.3AR*

x

106.6.3BR*

x

6.6.4R

x

x

6.6.5R

x

x

x

x

x9

96.6.5AR*10

x

x10

96.6.5BG*10

x

x10

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

8

x

86.6.15AR*

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

8Notes:

(1)

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

8(2)

* COLL 6.6.3A Rand COLL 6.6.3B R only apply to authorised contractual scheme managers of ACSs.10

10

10(3)

* COLL 6.6.5A R and COLL 6.6.5B G only apply to ACDs of ICVCs which are umbrellas and authorised contractual scheme managers of co-ownership schemes which are umbrellas.10

10(4)

* COLL 6.6.15A R has a special application as set out in COLL 6.6.15AR (1).10

Functions of the authorised fund manager

COLL 6.6.3 R
  1. (1)

    The authorised fundmanager must manage the scheme in accordance with:

    1. (a)

      the instrument constituting the fund;11

      11
    2. (b)

      the 13applicable rules13;

    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 rules13that 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 authorised fund manager to the depositary of the AUT or ACS;10 or

        10
      5. (v)

        by the depositary10 (for the account of the AUT or ACS) to the authorised fund manager.10

        1010
  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.

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

COLL 6.6.3A R
  1. (1)

    10The authorised contractual scheme manager of an authorised contractual scheme which is a UCITS scheme or a non-UCITS retail scheme must take reasonable care to ensure that ownership of units in the scheme is only recorded in the register for a:

    1. (a)

      professional ACS investor; or

    2. (b)

      large ACS investor; or

    3. (c)

      person who already holds units in the scheme.

  2. (2)

    The authorised contractual scheme manager of an authorised contractual scheme must take reasonable care to ensure that rights or interests in units in the scheme are not acquired by any person from or through an intermediate Unitholder, unless that person meets the criteria within (1)(a) to (c).

  3. (3)

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

Redemption of ACS units by an authorised contractual scheme manager

COLL 6.6.3B R

10The authorised contractual scheme manager of an authorised contractual scheme must redeemunits in the scheme as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in COLL 6.6.3AR (1)(a) to (c).

General duties of the depositary

COLL 6.6.4 R
  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 fund11 or prospectus that relates to the provisions referred to in (a) to (d).

      11
  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 13COLL 6.3.8 R (Dilution) 13and, if applicable, the rate or amount of any 13dilution 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).

  5. (5)

    [deleted]12

    8
  6. (6)

    [deleted]12

    8
  7. (7)

    [deleted]12

COLL 6.6.4A G

[deleted]12

8

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

COLL 6.6.5 R
  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 fund11 are in addition to the powers and duties under the general law.

    11
  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 fund11 or the OEIC Regulations.

    11

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

COLL 6.6.5A R

9Where reasonable grounds exist for an ACD of an ICVC or an authorised contractual scheme manager of a co-ownership scheme10 which is an umbrella to consider that a foreign law contract entered into by the ICVC or authorised contractual scheme manager on behalf of the co-ownership scheme10 may have become inconsistent with the principle of limited recourse stated in the instrument constituting the fund11 of the ICVC or co-ownership scheme10 (see COLL 3.2.6 R (22A) (ICVCs: Umbrella schemes - principle of limited recourse) and COLL 3.2.6 R(22B) (Co-ownership schemes: Umbrella schemes - principle of limited recourse)10) the ACD or authorised contractual scheme manager of the co-ownership scheme10 must:

10 11
  1. (1)

    promptly investigate whether there is an inconsistency; and

  2. (2)

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

COLL 6.6.5B G

9In deciding what steps are appropriate to remedy the inconsistency, the ACD of an ICVC or the authorised contractual scheme manager of a co-ownership scheme10 should have regard to the best interests of the Unitholders. Appropriate steps to remedy the inconsistency may include:

  1. (1)

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

  2. (2)

    causing the ICVC or the authorised contractual scheme manager on behalf of the co-ownership scheme to exit the foreign law contract.10

Maintenance of records

COLL 6.6.6 R
  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.

COLL 6.6.6A R
  1. (1)

    This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme, a depositary, an ICVC and any other director of an ICVC which is a UCITS scheme; and

    2. (b)

      subject to (2), a UKUCITS management company providing collective portfolio management services for an EEA UCITS scheme under the freedom to provide cross border services.

  2. (2)

    COLL 6.6A.6 R ((Strategies for the exercise of voting rights) also applies to a UKUCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State, as well as applying in accordance with (1).

  3. (3)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Maintenance of capital: notification

COLL 6.6.7 R

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

Auditor: AUTs or ACSs

COLL 6.6.8 R
  1. (1)

    The authorised fund manager10 of an AUT or ACS10 must, upon any vacancy for the position of auditor for an AUT or ACS10, with the approval of the depositary,10 appoint as auditor for the AUT or ACS10 a person qualified for appointment as auditor of an authorised person.

    1010
  2. (2)

    The audit fees of the auditor are determined by the authorised fund manager10 with the approval of the depositary10.

    1010
  3. (3)

    The authorised fund manager of an AUT or ACS10 may, with the approval of the depositary10, at any time, remove the auditor of an AUT or ACS10; this power exists notwithstanding anything in any agreement between the persons concerned.

    1010

Returns: AUTs

COLL 6.6.9 R

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
  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 fund11, 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.

    11
  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 FCA

COLL 6.6.11 G

SUP 15.3 (General notification requirements) contains rules and guidance on matters that should be notified to the FCA. 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 FCA would reasonably view as significant.

Control by the depositary over the scheme property

COLL 6.6.12 R
  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 custody12 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
  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 authorised fund manager10 of the AUT or ACS10 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.

    10

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

COLL 6.6.14 R
  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 fund11 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).

    11
  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
  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. (1A)

    The directors of an ICVC have the power to retain the services of anyone to assist in the performance of their functions, subject to the duty of the ACD to comply with COLL 6.6.15A R.8

  3. (2)

    [deleted]8

  4. (3)

    [deleted]8

    8
  5. (4)

    The depositary of a non-UCITS retail scheme managed by a small authorised UK AIFM12 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 manageras 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.

  6. (5)

    Where a depositary retains services under (4):

    1. (a)

      if it retains the services of a director of the ICVC, or an associate of such a director or its own associate, or the authorised fund manager of a scheme or that authorised fund manager'sassociate,7 then its liability for those services shall remain unaffected; and

      7
    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.

  7. (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 and COLL 6.6.15A R.8

COLL 6.6.15A R
  1. (1)

    8This rule applies to:

    1. (a)

      an authorised fund manager (other than an EEA UCITS management company) of an AUT, ACS10 or an ICVC where such AUT, ACS10 or ICVC is a UCITS scheme13;

    2. (aa)

      13a small authorised UK AIFM that is the authorised fund manager of an AUT, ACS or an ICVC that is a non-UCITS retail scheme; and

    3. (b)

      a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

  2. (2)

    The authorised fund manager has the power to retain the services of any person to assist it in the performance of its functions, provided that:

    1. (a)

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

      1. (i)

        the depositary; or

      2. (ii)

        any other person whose interests may conflict with those of the authorised fund manager or Unitholders; or

      3. (iii)

        an authorised person operating from an establishment in the United Kingdom unless such person has a Part 4A permission to manage investments; or

      4. (iv)

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

        1. (A)

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

        2. (B)

          is subject to prudential supervision in such country;

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

    2. (b)

      the authorised fund manager 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 instructions to the person so retained; and

      2. (ii)

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

    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; and

    5. (e)

      having regard to the nature of the functions to be carried out under the mandate, the person to whom the mandate is given must be qualified and capable of undertaking those functions.

  3. (3)

    Subject to the provisions of the OEIC Regulations and COLL 6.6.15 R (1) and (1A), where services are retained under (2), the responsibility which the authorised fund manager had in respect of such services prior to that retention of services will remain unaffected.

[Note: article 13 of the UCITS Directive]

Delegation: guidance

COLL 6.6.16 G
  1. (1)

    Directors of an ICVC, authorised fund managers and depositaries should also have regard to SYSC 8 (Outsourcing).66SYSC 8.1.6 R4 states that a firm remains fully responsible for discharging 6all of its obligations under the regulatory system6 if it outsources crucial or important operational functions4 or any relevant services and activities.6

    646644
  2. (2)

    SUP 15.8.6 R (Delegation by UCITS management companies) requires the 8authorised fund manager of a UCITS scheme to inform the FCA before it delegates 8one of its duties to another person.

    888
  3. (3)

    For the purpose of COLL 6.6.15AR (2)(a)(iv), 88 adequate co-operation will be ensured where the FCA has entered into a co-operation agreement of the kind referred to in article 102(3) 8of the UCITS Directive with the relevant overseas regulator.5

    8
  4. (4)

    12COLL 6.6B sets out the FCA’srules and guidance that apply to a depositary of a UCITS scheme seeking to delegate any of its functions.

Conflicts of interest

COLL 6.6.17 R
  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
  1. (1)

    [deleted]

  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 6.6A Duties of AFMs in relation to UCITS schemes and EEA UCITS schemes

Application

COLL 6.6A.1 R
  1. (1)

    1This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme, a depositary, an ICVC and any other director of an ICVC which is a UCITS scheme; and

    2. (b)

      subject to (2), a UKUCITS management company providing collective portfolio management services for an EEA UCITS scheme under the freedom to provide cross border services.

  2. (2)

    COLL 6.6A.6 R (Strategies for the exercise of voting rights) also applies to a UKUCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State, as well as applying in accordance with (1).

  3. (3)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Duties of AFMs of UCITS schemes and EEA UCITS schemes to act in the best interests of the scheme and its Unitholder

COLL 6.6A.2 R

An authorised fund manager of a UCITS scheme2 or a UK UCITS management company of an EEA UCITS scheme must:

  1. (1)

    ensure that the Unitholders of any such scheme it manages are treated fairly;

  2. (2)

    refrain from placing the interests of any group of Unitholders above the interests of any other group of Unitholders;

  3. (3)

    apply appropriate policies and procedures for preventing malpractices that might reasonably be expected to affect the stability and integrity of the market;

  4. (4)
    1. (a)

      ensure that fair, correct and transparent pricing models and valuation systems are used for each scheme it manages, in order to comply with the duty to act in the best interests of the Unitholders; and

    2. (b)

      be able to demonstrate that the investment portfolio of each such scheme it manages is accurately valued; 2

  5. (5)

    act in such a way as to prevent undue costs being charged to any such scheme it manages and its Unitholders; and2

  6. (6)

    in carrying out its functions act: 2

    1. (a)

      honestly, fairly, professionally and independently; and2

    2. (b)

      solely in the interests of the UCITS scheme and its Unitholders.2

[Note: article 22 of the UCITS Implementing Directive and article 25(2) first paragraph of the UCITS Directive2]

COLL 6.6A.3 G
  1. (1)

    Examples of malpractices for the purposes of COLL 6.6A.2R (3) would include market timing and late trading, which may have detrimental effects on Unitholders and may undermine the functioning of the market.

  2. (2)

    Examples of undue costs for the purposes of COLL 6.6A.2R (5) would include unreasonable charges and excessive trading, taking into account the scheme's investment objectives and policy.

[Note: recital (18) of the UCITS implementing Directive]

Due diligence requirements of AFMs of UCITS schemes and EEA UCITS schemes

COLL 6.6A.4 R

An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must:

  1. (1)

    ensure a high level of diligence in the selection and ongoing monitoring of scheme property, in the best interests of the scheme and the integrity of the market;

  2. (2)

    ensure it has adequate knowledge and understanding of the assets in which any scheme it manages is invested;

  3. (3)

    establish written policies and procedures on due diligence and implement effective arrangements for ensuring that investment decisions on behalf of any UCITS scheme or EEA UCITS scheme it manages are carried out in compliance with the objectives and the investment strategy and risk limit system of the scheme;

  4. (4)

    when implementing its risk management policy, and where it is appropriate after taking into account the nature of a proposed investment:

    1. (a)

      formulate forecasts and analyse the investment’s impact on the portfolio composition, liquidity and risk and reward profile of the scheme before carrying out the investment; and

    2. (b)

      carry out the analysis in (a) only on the basis of reliable and up-to-date information, both in quantitative and qualitative terms;

  5. (5)

    exercise due skill, care and diligence when entering into, managing or terminating any arrangement with third parties in relation to the performance of risk management activities; and

  6. (6)

    before entering into any arrangements of the type referred to in (5):

    1. (a)

      take the necessary steps in order to verify that the third party has the ability and capacity to perform the risk management activities reliably, professionally and effectively; and

    2. (b)

      establish methods for the on-going assessment of the standard of performance of the third party.

[Note: article 23 of the UCITS implementing Directive]

Compliance with the regulatory requirements applicable to the conduct of business activities of a UCITS management company

COLL 6.6A.5 R

The authorised fund manager of a UCITS scheme or the UK UCITS management company of an EEA UCITS scheme must comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of its investors and the integrity of the market.

[Note: article 14(1)(e) of the UCITS Directive]

Strategies for the exercise of voting rights

COLL 6.6A.6 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must develop adequate and effective strategies for determining when and how voting rights attached to ownership of scheme property, or the instruments held by an EEA UCITS scheme, are to be exercised, to the exclusive benefit of the scheme concerned.

  2. (2)

    The strategy referred to in (1) must determine measures and procedures for:

    1. (a)

      monitoring relevant corporate events;

    2. (b)

      ensuring that the exercise of voting rights is in accordance with the investment objectives and policy of the relevant scheme; and

    3. (c)

      preventing or managing any conflicts of interest arising from the exercise of voting rights.

  3. (3)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must make available to Unitholders:

    1. (a)

      a summary description of the strategies referred to in (1); and

    2. (b)

      free of charge and on their request, details of the actions taken on the basis of the strategies referred to in (1).

[Note: article 21 of the UCITS implementing Directive]

Appointment of a single depositary

COLL 6.6A.7 R

2An authorised fund manager of a UCITS scheme, or a UK UCITS management company of an EEA UCITS scheme, must (for each scheme it manages) ensure that:

  1. (1)

    a single depositary is appointed; and

  2. (2)

    the assets of the UCITS are entrusted to the depositary for safekeeping in accordance with:

    1. (a)

      for a UCITS scheme, COLL 6.6B.18R and COLL 6.6B.19R; and

    2. (b)

      for an EEA UCITS scheme, the national laws and regulations in the Home State of the EEA UCITS scheme that implement article 22(5) of the UCITS Directive.

[Note: article 22(1) and (5) of the UCITS Directive]

Eligible depositaries for UCITS schemes

COLL 6.6A.8 R

2An authorised fund manager must ensure that the depositary it appoints under COLL 6.6A.7R is a firmestablished in the United Kingdom that has the Part 4A permission of acting as trustee or depositary of a UCITS and is one of the following:

  1. (1)

    a national central bank; or

  2. (2)

    a credit institution; or

  3. (3)

    a firm which:

    1. (a)

      has own funds of not less than the higher of:

      1. (i)

        the requirement calculated in accordance with articles 315 or 317 of the EU CRR; or

      2. (ii)

        £4million; and

    2. (b)

      either:

      1. (i)

        is a full-scope IFPRU investment firm; or

      2. (ii)

        is an investment management firm to which IPRU(INV) 5 applies; and

    3. (c)

      satisfies the non-bank depositary organisational requirements in COLL 6.6B.11R.

[Note: article 23(2)(a), (b) and (c) (first sentence) of the UCITS Directive]

COLL 6.6A.9 G

2For a depositary to be established in the United Kingdom, it must have its registered office or branch in the United Kingdom.

Eligible depositaries for EEA UCITS schemes

COLL 6.6A.10 R

2A UK UCITS management company must ensure the depositary it appoints for each EEA UCITS scheme it manages is established in the Home State of the EEA UCITS scheme and is eligible to be a depositary in that Home State.

[Note: article 23(2) of the UCITS Directive]

Written contract

COLL 6.6A.11 R
  1. (1)

    2An authorised fund manager of a UCITS scheme, or a UK UCITS management company of an EEA UCITS scheme, must ensure that the appointment of the depositary is evidenced by a written contract.

  2. (2)

    The contract must regulate the flow of information deemed necessary to allow the depositary to perform its functions for the scheme.

[Note: article 22(2) of the UCITS Directive]

COLL 6.6A.12 G

2The written contract referred to in COLL 6.6A.11R may cover more than one scheme.

COLL 6.6A.13 G

2Article 2 of the UCITS level 2 regulation sets out the minimum information that must be included in the written contract between:

  1. (1)
    1. (a)

      the authorised fund manager of a UCITS scheme; or

    2. (b)

      a UK UCITS management company of an EEA UCITS scheme; and

  2. (2)

    the depositary.

COLL 6.6B UCITS depositaries

Application

COLL 6.6B.1 R

1This section applies to the depositary of a UCITS scheme managed by an authorised fund manager.

General obligations

COLL 6.6B.2 R

A depositary in carrying out its functions must act:

  1. (1)

    honestly, fairly, professionally and independently; and

  2. (2)

    solely in the interests of the UCITS scheme and its Unitholders.

[Note: article 25(2) first paragraph of the UCITS Directive]

Conflicts of interest: depositaries

COLL 6.6B.3 R

A depositary must not carry out activities with regard to the UCITS scheme, or the authorised fund manager, acting on behalf of the scheme, that may create conflicts of interest between the scheme, the Unitholders in the scheme or the authorised fund manager and itself, unless:

  1. (1)

    the depositary has properly identified any such potential conflicts of interest;

  2. (2)

    the depositary has functionally and hierarchically separated the performance of its depositary tasks from its other potentially conflicting tasks; and

  3. (3)

    the potential conflicts of interest are properly managed, monitored and disclosed to the Unitholders of the scheme.

[Note: article 25(2) second paragraph of the UCITS Directive]

Eligible depositaries for UCITS schemes

COLL 6.6B.5 G

COLL 6.6A.8R sets out the categories of firms that may be appointed by an authorised fund manager as the depositary of a UCITS scheme.

COLL 6.6B.6 G

For a depositary to be established in the United Kingdom, it must have its registered office or branch in the United Kingdom.

Depositaries appointed under COLL 6.6A.8R(3) (non-bank depositaries): Capital requirements

COLL 6.6B.7 G

A depositary appointed in accordance with COLL 6.6A.8R(3) needs to satisfy the capital requirements in either:

  1. (1)

    IPRU(INV) 5; or

  2. (2)

    IFPRU and the EU CRR.

COLL 6.6B.8 R

A full-scope IFPRU investment firm which is appointed as a depositary of a UCITS scheme must maintain own funds of at least £4million.

COLL 6.6B.9 G
  1. (1)

    If the depositary is a full-scope IFPRU investment firm, it is subject to the capital requirements of IFPRU and the EU CRR.

  2. (2)

    However, these requirements are not in addition to COLL 6.6B.8R and therefore that firm may use the own funds required under IFPRU and the EU CRR to meet the £4million requirement.

COLL 6.6B.10 G

If the depositary appointed in accordance with COLL 6.6A.8R(3) is an incoming EEA firm that has a top-up permission for acting as trustee or depositary of a UCITS, it must comply with the applicable capital requirements set out in IPRU(INV) 5.

Depositaries appointed under COLL 6.6A.8R(3) (non-bank depositaries): organisational requirements

COLL 6.6B.11 R

A depositary appointed under COLL 6.6A.8R(3) must:

  1. (1)

    ensure that it has the infrastructure necessary to keep in custody UCITS custodial assets that can be registered in a financial instruments account opened in the depositary’s books;

  2. (2)

    establish adequate policies and procedures sufficient to ensure the compliance of the depositary, including its managers and employees, with its obligations under the regulatory system;

  3. (3)

    have:

    1. (a)

      sound administrative and accounting procedures and internal control mechanisms;

    2. (b)

      effective procedures for risk assessment; and

    3. (c)

      effective control and safeguard arrangements for information processing systems;

  4. (4)

    maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest;

  5. (5)

    arrange for records to be kept of all services, activities and transactions that it undertakes, which must be sufficient to enable the competent authority to monitor the firm’s compliance with the requirements under the regulatory system;

  6. (6)

    take reasonable steps to ensure continuity and regularity in the performance of its depositary functions by employing appropriate and proportionate systems, resources and procedures to perform its depositary activities;

  7. (7)

    ensure that all members of its management body and senior management at all times:

    1. (a)

      are of sufficiently good repute; and

    2. (b)

      possess sufficient knowledge, skills and experience;

  8. (8)

    ensure that its management body possesses adequate collective knowledge, skills and experience to be able to understand the depositary’s activities, including the main risks; and

  9. (9)

    require each member of its management body and senior management to act with honesty and integrity.

[Note: article 23(2)(c) (second sentence) of the UCITS Directive]

COLL 6.6B.12 G

A firm’s attention is also drawn to the organisational requirements in SYSC. The rules and guidance in SYSC apply to a depositary appointed under COLL 6.6A.8R(3), in accordance with the application provisions summarised in SYSC 1.1A (Application) and provided in detail in SYSC 1 Annex 1.

Written contract

COLL 6.6B.13 R
  1. (1)

    A depositary must ensure that its appointment as depositary of a UCITS scheme is evidenced by a written contract.

  2. (2)

    The contract must regulate the flow of information deemed necessary to allow the depositary to perform its functions for the scheme.

[Note: article 22(2) of the UCITS Directive]

COLL 6.6B.14 G

The written contract referred to in COLL 6.6B.13R may cover more than one UCITS scheme.

COLL 6.6B.15 G

Article 2 of the UCITS level 2 regulation sets out the minimum information that must be included in the written contract between the authorised fund manager and the depositary.

Depositary functions: oversight

COLL 6.6B.16 R

The depositary must, for each UCITS scheme for which it is appointed:

  1. (1)

    ensure that the sale, issue, repurchase, redemption and cancellation of units of the scheme are carried out in accordance with:

    1. (a)

      the applicable national law;

    2. (b)

      the instrument constituting the fund;

    3. (c)

      the prospectus; and

    4. (d)

      COLL 6.2 (Dealing);

  2. (2)

    ensure that the price of the units of the UCITS is calculated in accordance with:

    1. (a)

      the applicable national law;

    2. (b)

      the instrument constituting the fund;

    3. (c)

      the prospectus; and

    4. (d)

      COLL 6.3 (Valuation and pricing);

  3. (3)

    carry out the instructions of the authorised fund manager, unless they conflict with:

    1. (a)

      the applicable national law; or

    2. (b)

      the instrument constituting the fund; or

    3. (c)

      the prospectus; or

    4. (d)

      COLL 5 (Investment and borrowing powers);

  4. (4)

    ensure that, in transactions involving the assets of the UCITS scheme, any consideration is remitted to the scheme within the usual time limits; and

  5. (5)

    ensure that the income of the UCITS scheme is applied in accordance with:

    1. (a)

      the applicable national law;

    2. (b)

      the instrument constituting the fund;

    3. (c)

      the prospectus; and

    4. (d)

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

[Note: article 22(3) of the UCITS Directive]

Depositary functions: cash monitoring

COLL 6.6B.17 R

The depositary must ensure that the cash flows of each UCITS scheme are properly monitored and that:

  1. (1)

    all payments made by, or on behalf of, investors upon the subscription of units of the scheme have been received;

  2. (2)

    all cash of the scheme has been booked in cash accounts which are:

    1. (a)

      opened in the name of:

      1. (i)

        the scheme; or

      2. (ii)

        the authorised fund manager, acting on behalf of the scheme; or

      3. (iii)

        the depositary acting on behalf of the scheme; and

    2. (b)

      at:

      1. (i)

        a central bank; or

      2. (ii)

        a CRD credit institution; or

      3. (iii)

        a bank authorised in a third country; and

    3. (c)

      maintained in accordance with the principles in article 16 (safeguarding of client financial instruments and funds) of the MiFID implementing directive; and

  3. (3)

    where cash accounts are opened in the name of the depositary acting on behalf of the scheme in accordance with (2)(a)(iii), the depositary must ensure that no cash of the entity referred to in (2)(b), and none of the depositary’s own cash, is booked on such accounts.

[Note: article 22(4) of the UCITS Directive]

Depositary functions: safekeeping of financial instruments

COLL 6.6B.18 R
  1. (1)

    The depositary of a UCITS scheme must hold in custody all UCITS custodial assets of the scheme.

  2. (2)

    The depositary must ensure that all UCITS custodial assets that can be registered in a financial instruments account:

    1. (a)

      are registered in the depositary’s books within segregated accounts opened in the name of:

      1. (i)

        the UCITS scheme; or

      2. (ii)

        the authorised fund manager, acting on behalf of the scheme; and

    2. (b)

      can be clearly identified as belonging to the UCITS scheme at all times in accordance with:

      1. (i)

        the applicable law; and

      2. (ii)

        the applicable provisions in CASS 6.

[Note: article 22(5)(a) of the UCITS Directive]

Depositary functions: safekeeping of other assets

COLL 6.6B.19 R

The depositary must, for UCITS schemeproperty other than UCITS custodial assets:

  1. (1)

    verify that the UCITS scheme or the authorised fund manager, acting on behalf of the scheme, is the owner of the assets based:

    1. (a)

      on information or documents provided by the authorised fund manager; and

    2. (b)

      where available, on external evidence; and

  2. (2)

    maintain, and keep up to date, a record of those assets for which it is satisfied that the UCITS scheme or the authorised fund manager, acting on behalf of the scheme, is the owner.

[Note: article 22(5)(b) of the UCITS Directive]

Inventory of assets

COLL 6.6B.20 R

The depositary must provide a comprehensive inventory of all the assets comprising the schemeproperty of the UCITS scheme to the authorised fund manager on a regular basis.

[Note: article 22(6) of the UCITS Directive]

Re-use of assets

COLL 6.6B.21 R
  1. (1)

    The depositary must not re-use UCITS custodial assets except:

    1. (a)

      where permitted under COLL 5.4 (stock lending); and

    2. (b)

      when carrying out the instructions of the authorised fund manager on behalf of the scheme.

  2. (2)

    Re-use of the UCITS custodial assets comprises any transaction in relevant schemeproperty including, but not limited to, transferring, pledging, selling and lending.

[Note: article 22(7) first paragraph of the UCITS Directive]

Limitation on delegation

COLL 6.6B.22 R

A depositary must not delegate its oversight function in COLL 6.6B.16R or its cash monitoring function in COLL 6.6B.17R to a third party.

[Note: article 22a(1) of the UCITS Directive]

COLL 6.6B.23 G

The use of services provided by securities settlement systems, as specified in the Settlement Finality Directive, or similar services provided by third-country securities settlement systems, does not constitute a delegation by the depositary of its functions for the purposes of COLL 6.6B.22R.

[Note: article 22a(4) of the UCITS Directive]

COLL 6.6B.24 G
  1. (1)
    1. (a)

      If a depositary performs part of its functions through a branch in another EEA State, this is not a delegation by the depositary of its functions to a third party.

    2. (b)

      This is because ‘third party’ in COLL 6.6B.22R means any party that is not part of the same legal entity as the depositary.

  2. (2)

    Paragraph (1) also applies where the depositary is the UKbranch of an EEA firm and it performs part of its functions:

    1. (a)

      through a branch in another EEA State; or

    2. (b)

      from the EEA State where it has its registered office.

  3. (3)
    1. (a)

      A depositary that performs part of its functions through a branch or registered office in another EEA State should ensure that those arrangements do not impede the depositary’s ability to meet the threshold conditions.

    2. (b)
      1. (i)

        In particular, the arrangements should not impede the FCA’s ability to supervise the depositary effectively.

      2. (ii)

        For example, the FCA’s ability to supervise the depositary might be impeded if the depositary performed tasks other than administrative and supporting tasks from its branch or registered office in another EEA State.

Delegation: safekeeping

COLL 6.6B.25 R

A depositary may delegate the functions in COLL 6.6B.18R and COLL 6.6B.19R to one or more third parties if:

  1. (1)

    the tasks are not delegated with the intention of avoiding the requirements of the UCITS Directive;

  2. (2)

    the depositary can demonstrate that there is an objective reason for the delegation;

  3. (3)

    the depositary:

    1. (a)

      has exercised all due skill, care and diligence in the selection and appointment of any third party to whom it intends to delegate parts of its tasks; and

    2. (b)

      continues to exercise all due skill, care and diligence in the periodic review and ongoing monitoring:

      1. (i)

        of any third party to whom it has delegated parts of its tasks; and

      2. (ii)

        of the arrangements of that third party in respect of the matters delegated to it; and

  4. (4)

    the depositary ensures that the third party delegate meets the following conditions at all times:

    1. (a)

      the third party has structures and expertise that are adequate and proportionate to the nature and complexity of the assets of the UCITS scheme that have been entrusted to it;

    2. (b)

      (subject to COLL 6.6B.26R) for custody tasks in relation to UCITS custodial assets, the third party is subject to:

      1. (i)

        effective prudential regulation, including minimum capital requirements, and supervision in the jurisdiction concerned; and

      2. (ii)

        an external periodic audit to ensure that the financial instruments remain in its custody;

    3. (c)

      the third party segregates the assets of the depositary’s clients from its own assets and from the assets of the depositary in such a way that they can, at any time, be clearly identified as belonging to clients of a particular depositary;

    4. (d)

      the third party takes all necessary steps to ensure that in the event of insolvency of the third party, UCITS custodial assets held in custody by the third party are unavailable for distribution among, or realisation for the benefit of, creditors of the third party; and

    5. (e)

      the third party complies with the general obligations and prohibitions relating to the depositary in:

      1. (i)

        COLL 6.6B.2R (General obligations);

      2. (ii)

        COLL 6.6B.3R (Conflicts of interests: depositaries);

      3. (iii)

        COLL 6.6B.13R (Written contract);

      4. (iv)

        COLL 6.6B.18R (Depositary functions: safekeeping of financial instruments);

      5. (v)

        COLL 6.6B.19R (Depositary functions: safekeeping of other assets); and

      6. (vi)

        COLL 6.6B.21R (Reuse of assets).

[Note: article 22a(2) and (3) of the UCITS Directive]

Delegation: third countries

COLL 6.6B.26 R

A depositary may delegate custody tasks in relation to UCITS custodial assets to an entity in a third country even though that entity does not satisfy the conditions in COLL 6.6B.25R(4)(b)(i) if:

  1. (1)

    the law of that third country requires those UCITS custodial assets to be held in custody by a local entity;

  2. (2)

    no local entity satisfies the conditions in COLL 6.6B.25R(4)(b)(i);

  3. (3)

    the depositary delegates its functions to such a local entity only:

    1. (a)

      to the extent required by the law of that third country; and

    2. (b)

      for as long as there is no local entity that satisfies the delegation conditions in COLL 6.6B.25R(4)(b)(i);

  4. (4)

    the investors of the relevant UCITS scheme are informed before their investment:

    1. (a)

      that such delegation is required due to legal constraints in the third country;

    2. (b)

      of the reasons as to why the delegation is necessary; and

    3. (c)

      of the risks involved in such a delegation; and

  5. (5)

    the authorised fund manager, acting on behalf of the UCITS scheme, has consented to the delegation arrangements before they become effective.

[Note: article 22a(3) of the UCITS Directive]

Delegation: sub-delegation

COLL 6.6B.27 R

A depositary must ensure that a third party to whom the depositary has delegated functions under COLL 6.6B.25R does not, in turn, sub-delegate those functions unless the delegate complies with the same requirements that apply to the depositary, with any necessary changes, in relation to the delegation by the depositary of its functions in COLL 6.6B.25R and COLL 6.6B.26R.

[Note: article 22a(3) third paragraph of the UCITS Directive]

Delegation: omnibus account

COLL 6.6B.28 G

A depositary may delegate the safekeeping of assets to a third party that maintains an omnibus account for multiple UCITS schemes, provided it is a segregated common account that is segregated from the third party’s own assets.

[Note: recital 22 of the UCITS Directive]

Provision of information

COLL 6.6B.29 G

The requirements of SUP 2 (Information gathering by the FCA or PRA2 on its own initiative) apply to the depositary, under which it must enable the FCA to obtain, on request, all information that the depositary has obtained while discharging its duties and that the FCA considers necessary.

[Note: article 26a first paragraph of the UCITS Directive]

Reporting of breaches

COLL 6.6B.30 R

A depositary must have appropriate procedures for its employees to report potential or actual breaches of national provisions transposing the UCITS Directive internally through a specific, independent and autonomous channel.

[Note: article 99d(5) of the UCITS Directive]

COLL 6.6B.31 G

SYSC 18 (Guidance on Public Interest Disclosure Act: Whistleblowing) contains further guidance on the effect of the Public Interest Disclosure Act 1998 in the context of the relationship between firms and the FCA.

Subordinate measures

COLL 6.6B.32 G

Articles 3 to 17 of the UCITS level 2 regulation provide detailed rules supplementing this section.

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

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

Rule

ICVC 8

8

ACD 8

8

Depositary of an ICVC, AUT or ACS8

Authorised fund manager of an AUT or ACS8

8

6.7.1R to 6.7.5G

x

x

x

x

8

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

8

6.7.11G

x

x

x

8

6.7.12R

x

x

x

6.7.13G

x

x

x

6.7.14R

x

6.7.15R

x

x

x

x

8

6.7.16G

x

x

x

8

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
  1. (1)

    This section assists in securing the statutory 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
  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
  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 payments to platform service providers7 and other similar platform services.4

    7

Performance fees

COLL 6.7.6 G
  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
  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:10

      1. (i)

        10a fixed amount; or

      2. (ii)

        10calculated as a percentage of the price of a unit; or

      3. (iii)

        10calculated as a percentage of the amount being subscribed; or

    2. (b)

      the redemption or cancellation of units, except a redemption charge made in accordance with the prospectus current at the time the relevant units were purchased by the Unitholder.

  3. (3)

    This rule is subject to 10COLL 6.3.8 R (Dilution) and COLL 11.3.11 R (Obligations of the master UCITS).6

    6

Charges on buying and selling units: guidance

COLL 6.7.8 G
  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.

  4. (4)
    1. (a)

      10For a UCITS scheme, article 10(2)(a) of the KII Regulation requires the key investor information document to disclose the maximum percentage that might be deducted as an entry charge from the investor’s capital commitment.

    2. (b)

      10Where a preliminary charge is charged as a fixed amount or is calculated as a percentage of the price of a unit, the AFM should ensure that the actual amount charged, if it were expressed as a percentage of the amount being subscribed, does not exceed the maximum percentage stated as the entry charge in the key investor information document.

  5. (5)

    10When a preliminary charge is calculated as a percentage of the price of a unit, the percentage amount should be added to:

    1. (a)

      10the price of a unit (for a single-priced authorised fund); or

    2. (b)

      10the issue price (for a dual-priced authorised fund).

Charges for the exchange of units in an umbrella

COLL 6.7.9 R

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
  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 class of units5 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
  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
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 investor information document6, 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

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

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
  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 or the depositary of the ICVC, ACS or8AUT 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:

    8
    1. (a)

      there is nothing in the instrument constituting the fund9 of the authorised fund expressly forbidding the payment; and

      9
    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

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

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
  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
  1. (1)

    An authorised fund must have:

    1. (a)

      an annual accounting period;3

      3
    2. (b)

      a half-yearly accounting period; and

    3. (c)

      an accounting reference date.

  2. (2)

    A half-yearly accounting period begins when3 an annual accounting period begins3 and ends on:

    13
    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 must begin immediately after the end of the previous period and must end on the next accounting reference date3, except where (6) or (6A)3 applies.1

    3
  6. (5A)

    3Each annual accounting period or half-yearly accounting period must end either at the end of the day determined under this rule or, if the authorised fund manager so decides, at the last valuation point on that day.

  7. (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

  8. (6A)

    3If the authorised fund manager notifies the depositary that a particular annual accounting period or half-yearly accounting period is to end on a specified day, which is not more than seven days after, and not more than seven days before, the day on which the period would otherwise end under this rule, that notice is to have effect provided it is given before the day on which the period would otherwise end.

  9. (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

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 6.8.2B R

5The allocation or distribution of the income of a UCITS scheme must be determined in accordance with its instrument constituting the fund7, its prospectus and the general law of the United Kingdom.

7

[Note: article 86 of the UCITS Directive]

5
COLL 6.8.3 R

  1. (1)

    An authorised fund must have an annual income allocation date, which must be within four months of the end of the relevant annual accounting period.3

    3
  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 amount of income allocated to classes of units that distribute income3 is transferred as3 at the end of the relevant accounting period.

    3
  4. (3A)

    3The amount available for income allocations must be calculated by:

    1. (a)

      taking the net revenue after taxation determined in accordance with the IMA SORP;

    2. (b)

      making any transfers, to the extent permitted by the prospectus, between the income account and the capital account in order that the amount available for income allocations is calculated as if the revenue from debt securities had been determined disregarding the effect of:

      1. (i)

        the change in the Retail Prices Index during the period, provided that the policy is to invest predominantly in index-linked securities and the transfer relates only to amounts in respect of index-linked gilt-edged securities; or

      2. (ii)

        amortisation, provided that the amount available for income allocations is not less than if such transfers had not been made;

    3. (c)

      making any other transfers between the income account and the capital account that are required in relation to:

      1. (i)

        stock dividends;

      2. (ii)

        income equalisation included in income allocations from other collective investment schemes;

      3. (iii)

        the allocation of payments in accordance with COLL 6.7.10 R (Allocation of payments to income or capital);

      4. (iv)

        taxation;

        4
      5. (v)

        the aggregate amount of income property included in unitsissued, cancelled and converted6 during the period; and4

        6
      6. (vi)

        amounts determined by the authorised fund manager to be the reportable income of other collective investment schemes.4

  5. (4)

    If income is allocated during an accounting period:

    3
    1. (a)

      with effect from the end of the relevant annual or interim accounting period3, the amount of income allocated to classes of units3 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;

      33
    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 allocation3 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.

      3

Allocation of income to different classes of unit

COLL 6.8.3A G

3In the case of sub-funds with more than one class of units in issue, the proportionate interests of each class of units in the amount available for income allocations should be determined in accordance with the instrument constituting the fund.7

7

Unclaimed, de minimis and joint Unitholder distributions

COLL 6.8.4 R
  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

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

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

1 1 1
COLL 6.9.1A G

9Articles 20 to 24 of the UCITS level 2 regulation set out detailed provisions that must be read by the authorised fund manager and the depositary of a UCITS scheme alongside COLL 6.9.2G to COLL 6.9.5G.

Independence of depositaries and scheme operators

COLL 6.9.2 G
  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, and section 261D(4) of the Act (Authorisation orders) for the depositary and authorised fund manager of an ACS6. COLL 6.9.3 G to COLL 6.9.5 G give the6FCA'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 or an authorised fund manager and depositary of an ACS6 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 FCA 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
  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 or ACS6, the FCA 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

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 FCA 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 FCA 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

The FCA 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
  1. (1)

    Regulation 15(9) of the OEIC Regulations, and sections 243(8) and 261D(10)6 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 FCA 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).

    6
  2. (2)

    The FCA 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 FCA 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 EU3 law or prudential rules at least as stringent as those laid down by EU3 law;

        33

      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 FCA 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 FCA 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

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

When deciding whether COLL 6.9.7R is complied with, the FCA 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 on the use of the term ‘money market fund’

COLL 6.9.8A R

4An authorised fund or a sub-fund may only be named or marketed as a ‘money market fund’ if it is:

  1. (1)

    a qualifying money market fund; or

  2. (2)

    a short-term money market fund; or

  3. (3)

    a money market fund.

Use of the term 'UCITS ETF'8

COLL 6.9.8B G
  1. (1)

    8ESMA has issued guidelines on the use of the term ‘UCITS ETF’. A ‘UCITS ETF’ is a UCITS with at least one unit or share class which is traded throughout the day, on at least one regulated market or multilateral trading facility, with at least one market maker that takes action to ensure that the stock exchange value of its units or shares does not significantly vary from its net asset value and, where applicable, its indicative net asset value.

  2. (2)

    A ‘UCITS ETF’ should use the identifier ‘UCITS ETF’ which identifies it as an exchange traded fund. This identifier should be used in its name, fund rules, instrument of incorporation, prospectus, key investor information document or marketing communications. The identifier ‘UCITS ETF’ should be used in all EU languages.

  3. (3)

    A UCITS which is not a ‘UCITS ETF’ should not use the ‘UCITS ETF’ identifier, ‘ETF’ or ‘exchange traded fund’ in its name or in any of the documents or communications referred to in (2).

[Note: ESMA's Guidelines to competent authorities and UCITS management companies on ETFs and other UCITS issues (ESMA/2012/832)]

Restrictions of business for UCITS management companies

COLL 6.9.9 R

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

  1. (1)

    [deleted]

      7
  2. (1A)

    managing a UCITS;7

  3. (1B)

    managing an AIF;7

  4. (1C)

    acting as a residual CIS operator;7

  5. (2)

    activities for the purposes of or in connection with those in (1A), (1B) or (1C);7

    7
  6. (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;

  7. (4)

    managing investments where the relevant portfolio includes one or more financial instruments2;

  8. (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 financial instruments2; and

  9. (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
  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, co-ownership schemes, limited partnership schemes6 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 65 of the UCITS Directive. In accordance with recital (12) of the Directive 5the 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.

    55

Notification to the FCA in its role as registrar of ICVCs

COLL 6.9.11 R

An ICVC must notify the FCA 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).

COLL 6.10 Senior personnel responsibilities

Application

COLL 6.10.1 R
  1. (1)

    1This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme; and

    2. (b)

      a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

  2. (2)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Senior personnel responsibilities

COLL 6.10.2 R

In complying with SYSC 4.3.1 R (Responsibility of senior personnel), an authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure that its senior personnel:

  1. (1)

    are responsible for the implementation of the general investment policy for each scheme it manages, as defined, where relevant, in the prospectus or the instrument constituting the fund;2

    2
  2. (2)

    oversee the approval of investment strategies for each scheme it manages;

  3. (3)

    are responsible for ensuring that the authorised fund manager or UK UCITS management company has a permanent and effective compliance function as referred to in SYSC 6.1 (Compliance), even if this function is performed by a third party;

  4. (4)

    ensure and verify on a periodic basis that the general investment policy, the investment strategies and the risk limit system of each scheme it manages are properly and effectively implemented and complied with, even if the risk management function is performed by a third party;

  5. (5)

    approve and review on a periodic basis the adequacy of the internal procedures for undertaking investment decisions for each scheme it manages, so as to ensure that those decisions are consistent with the approved investment strategies; and

  6. (6)

    approve and review on a periodic basis the risk management policy and arrangements, processes and techniques for implementing that policy, as referred to in COLL 6.12.5 R (Risk management policy), including the risk limit system for each scheme it manages.

[Note: article 9(2) of the UCITS implementing Directive]

COLL 6.10.3 R

An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure that its senior personnel receive, on a regular basis, reports on the implementation of investment strategies and of the internal procedures for taking the investment decisions referred to in COLL 6.10.2R (2) to COLL 6.10.2R (5).

[Note: article 9(5) of the UCITS implementing Directive]

COLL 6.11 Risk control and internal reporting

Application

COLL 6.11.1 R
  1. (1)

    1This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme; and

    2. (b)

      a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

  2. (2)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Permanent risk management function

COLL 6.11.2 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must establish and maintain a permanent risk management function.

  2. (2)

    The function referred to in (1) must be hierarchically and functionally independent from operating units, except where such independence would not be appropriate and proportionate in view of the nature, scale and complexity of the authorised fund manager’s or UK UCITS management company’s business and of each scheme it manages.

  3. (3)

    The authorised fund manager or UK UCITS management company must be able to demonstrate that:

    1. (a)

      appropriate safeguards against conflicts of interest have been adopted so as to allow an independent performance of risk management activities; and

    2. (b)

      its risk management process satisfies the requirements of COLL 6.12.3 R (Risk management process) or, where appropriate, the relevant UCITS Home State measures implementing article 51 of the UCITS Directive.

[Note: articles 12(1) and 12(2) of the UCITS implementing Directive]

COLL 6.11.3 G

Where the risk management function required under COLL 6.11.2 R (1) is not hierarchically and functionally independent, the authorised fund manager or UK UCITS management company should nevertheless be able to demonstrate that its risk management process satisfies the requirements of COLL 6.12.3 R (Risk management process) and that, in particular, the appropriate safeguards have been adopted.

[Note: article 12(2) third paragraph and recital (12) of the UCITS implementing Directive]

Duties of the permanent risk management function

COLL 6.11.4 R
  1. (1)

    The permanent risk management function must:

    1. (a)

      implement the risk management policy and procedures;

    2. (b)

      ensure compliance with the risk limit system, including statutory limits concerning global exposure and counterparty risk, as required by COLL 5.2 (General investment powers and limits for UCITS schemes) and COLL 5.3 (Derivative exposure) or, where appropriate, the relevant UCITS Home State measures implementing articles 41, 42 and 43 of the UCITS implementing Directive;

    3. (c)

      provide advice to the governing body, as regards the identification of the risk profile of each scheme it manages;

    4. (d)

      provide regular reports to the governing body and, where it exists, the supervisory function on:

      1. (i)

        the consistency between the current level of risk incurred by each scheme it manages and the risk profile agreed for that scheme;

      2. (ii)

        the compliance of each scheme it manages with the risk limit system referred to in (b); and

      3. (iii)

        the adequacy and effectiveness of the risk management process, indicating in particular whether appropriate remedial measures have been taken in the event of any deficiencies;

    5. (e)

      provide regular reports to the senior personnel outlining the current level of risk incurred by the relevant scheme and any actual or foreseeable breaches to their limits, so as to ensure that prompt and appropriate remedial action can be taken; and

    6. (f)

      review and support, where appropriate, the arrangements for the valuation of OTC derivatives, as referred to in COLL 5.2.23 R (OTC transactions in derivatives), COLL 5.2.23C R (Valuation of OTC derivatives) and in this rule or, where appropriate, the relevant UCITS Home State measures implementing article 44 of the UCITS implementing Directive.

  2. (2)

    The permanent risk management function must have the authority and access to all relevant information necessary to fulfil the duties set out in (1).

[Note: articles 12(3), 12(4) and 44(3) of the UCITS implementing Directive]

COLL 6.12 Risk management policy and risk measurement

Application

COLL 6.12.1 R

1This section applies to:

  1. (1)

    an authorised fund manager and a depositary of a UCITS scheme; and

  2. (2)

    a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

COLL 6.12.2 G

In the FCA's view the requirements relating to risk management policy and risk measurement set out in this section are the regulatory responsibility of the management company'sHome State regulator but to the extent that they constitute fund application rules, are also the responsibility of the UCITS'Home State regulator. As such, these responsibilities may overlap between the competent authorities of the Home and Host States. EEA UCITS management companies providing collective portfolio management services for a UCITS scheme, whether from a branch in the United Kingdom or under the freedom to provide cross border services, are therefore advised that they will be expected to comply with the requirements of this section, except for COLL 6.12.3 R (2) which, as a notification requirement, is a matter reserved for the rules of the management company'sHome State.

Risk management process

COLL 6.12.3 R
  1. (1) 3
    1. (a)

      An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must use a risk management process enabling it to monitor and measure at any time the risk of the scheme's positions and their contribution to the overall risk profile of the scheme.3

    2. (b)

      In particular, an authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must not solely or mechanistically rely on credit ratings issued by credit rating agencies, as defined in article 3(1)(b) of Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, for assessing the creditworthiness of the scheme's assets.3

  2. (2)

    An authorised fund manager (excluding the EEA UCITS management company of a UCITS scheme) or a UK UCITS management company of an EEA UCITS scheme must regularly notify the following information5 to the FCA and at least on an annual basis:

    1. (a)

      a true and fair view of the types of derivatives and forward transactions to be used within the scheme together with their underlying risks and any relevant quantitative limits; and

    2. (b)

      the methods for estimating risks in derivative and forward transactions.

[Note: article 51(1), first and third paragraphs, of the UCITS Directive and article 45(1) of the UCITS implementing Directive]

COLL 6.12.3A R

5An authorised fund manager or a UK UCITS management company of an EEA UCITS scheme subject to COLL 6.12.3R(2) must notify the FCA of the information specified in points (a) and (b) of that rule:

  1. (1)

    annually, within 30 business days of 31 October, with information that is accurate as of 31 October of that year;

  2. (2)

    using the form in COLL 6 Annex 2R; and

  3. (3)

    by submitting it:

    1. (a)

      online through the appropriate systems accessible from the FCA’s website; or

    2. (b)

      if the appropriate systems are unavailable, via email to fundsupervision@fca.org.uk.

COLL 6.12.3B G
  1. (1)

    5In addition, an authorised fund manager or a UK UCITS management company of an EEA UCITS scheme subject to COLL 6.12.3R(2) should submit a notification to the FCA if there has been a significant change to the fund’s risk profile since its last report, by sending the form in COLL 6 Annex 2R, completed as applicable, to fundsupervision@fca.org.uk.

  2. (2)

    A significant change to the fund’s risk profile could include, but is not limited to:

    1. (a)

      the first use of derivatives for investment purposes, if derivatives have previously been used only for efficient portfolio management;

    2. (b)

      investment in non-standard derivatives, if only standard derivatives have been used previously;

    3. (c)

      a change in the type of risk measure used to calculate global exposure (commitment method, relative VaR or absolute VaR); and

    4. (d)

      where a VaR measure is used, a change in the parameters of the calculation.

  3. (3)

    Reports of significant changes only need to contain new information for the period since the previous report.

COLL 6.12.4 G
  1. (1)

    The risk management process in COLL 6.12.3 R should take account of the investment objectives and policy of the scheme as stated in the most recent prospectus.

  2. (2)

    The depositary of a UCITS scheme should take reasonable care to review the appropriateness of the risk management process in line with its duties under COLL 6.6.4 R (General duties of the depositary) and COLL 6.6.14 R (Duties of the depositary and authorised fund manager: investment and borrowing powers), as appropriate.

  3. (3)

    An authorised fund manager or a UK UCITS management company is expected to demonstrate more sophistication in its risk management process for a scheme with a complex risk profile than for one with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.

  4. (4)

    An authorised fund manager or a UK UCITS management company should take reasonable care to establish and maintain such systems and controls as are appropriate to its business as required by SYSC 4.1 (General requirements).

  5. (5)

    The risk management process should enable the analysis required by COLL 6.12.3 R to be undertaken at least daily or at each valuation point, whichever is more frequent.

  6. (6)

    An authorised fund manager or a UK UCITS management company of an EEA UCITS scheme should undertake the risk assessment required by COLL 5.2.20R (7)(d) (Permitted transactions (derivatives and forwards)) with the highest care when the counterparty to the derivative transaction is an associate of the authorised fund manager, the UK UCITS management company or the credit issuer.

[Note:CESR's UCITS eligible assets guidelines with respect to article 8(2)(d) of the UCITS eligible assets Directive]

Risk management policy

COLL 6.12.5 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must establish, implement and maintain an adequate and documented risk management policy for identifying the risks to which that scheme is or might be exposed.

  2. (2)

    The risk management policy must comprise such procedures as are necessary to enable the authorised fund manager or UK UCITS management company to assess the exposure of each UCITS it manages to market risk, liquidity risk and counterparty risk, and to all other risks, including operational risk, that might be material for that scheme.

  3. (3)

    The risk management policy must address at least the following elements:

    1. (a)

      the techniques, tools and arrangements that enable the authorised fund manager or UK UCITS management company to comply with the obligations set out in this section and COLL 5.3 (Derivative exposure);

    2. (b)

      the allocation of responsibilities within the authorised fund manager or UK UCITS management company pertaining to risk management; and

    3. (c)

      the terms, contents and frequency of reporting of the risk management function referred to in COLL 6.11.2 R (Permanent risk management function) to the governing body, senior personnel and, where appropriate, to the supervisory function.

  4. (4)

    To meet its obligations in (1), (2) and (3) an authorised fund manager or a UK UCITS management company must take into account the nature, scale and complexity of its business and of the UCITS it manages.

[Note: article 38 of the UCITS implementing Directive]

COLL 6.12.6 G

UK UCITS management companies operating EEA UCITS schemes are advised that to the extent that the matters referred to in COLL 6.12.5 R (3)(a) are viewed by the UCITSHome State regulator as falling under its responsibility, they will be expected to comply with the UCITS Home State measures implementing articles 40 and 41 of the UCITS implementing Directive.

Monitoring of risk management policy

COLL 6.12.7 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must assess, monitor and periodically review:

    1. (a)

      the adequacy and effectiveness of the risk management policy and of the arrangements, processes and techniques referred to in COLL 6.12.5 R;

    2. (b)

      the level of compliance by the authorised fund manager or the UK UCITS management company with the risk management policy and with those arrangements, processes and techniques referred to in COLL 6.12.5 R; and

    3. (c)

      the adequacy and effectiveness of measures taken to address any deficiencies in the performance of the risk management process.

  2. (2)

    The authorised fund manager (excluding an EEA UCITS management company of a UCITS scheme) or a UK UCITS management company of an EEA UCITS scheme must notify the FCA of any material changes to the risk management process.

[Note: article 39(1) and 39(2) of the UCITS implementing Directive]

COLL 6.12.8 G

UK UCITS management companies are advised that when they applied for authorisation from the FCA under the Act, their ability to comply with the requirements in COLL 6.12.7 R would have been assessed by the FCA as an aspect of their fitness and properness in determining whether the threshold conditions set out in Schedule 6 (Threshold conditions) of the Act were met. Firms are further advised that their compliance with these requirements is subject to review by the FCA on an ongoing basis in determining whether they continue to meet the threshold conditions.

[Note: article 39(3) of the UCITS implementing Directive]

Measurement and management of risk

COLL 6.12.9 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must adopt adequate and effective arrangements, processes and techniques in order to:

    1. (a)

      measure and manage at any time the risks to which that UCITS is or might be exposed; and

    2. (b)

      ensure compliance with limits concerning global exposure and counterparty risk, in accordance with COLL 5.2.11B R (Counterparty risk and issuer concentration) and COLL 5.3 (Derivative exposure).

  2. (2)

    For the purposes of (1), the authorised fund manager or a UK UCITS management company must take the following actions for each UCITS it manages:

    1. (a)

      put in place such risk measurement arrangements, processes and techniques as are necessary to ensure that the risks of positions taken and their contribution to the overall risk profile are accurately measured on the basis of sound and reliable data and that the risk measurement arrangements, processes and techniques are adequately documented;

    2. (b)

      conduct, where appropriate, periodic back-tests in order to review the validity of risk measurement arrangements which include model-based forecasts and estimates;

    3. (c)

      conduct, where appropriate, periodic stress tests and scenario analyses to address risks arising from potential changes in market conditions that might adversely impact the UCITS;

    4. (d)

      establish, implement and maintain a risk limit system for each UCITS;

    5. (e)

      ensure that the current level of risk complies with that risk limit system; and

    6. (f)

      establish, implement and maintain adequate procedures that, in the event of actual or anticipated breaches to that risk limit system, result in timely remedial actions in the best interests of Unitholders.

  3. (3)

    The arrangements, processes and techniques referred to in (1) should be proportionate in view of the nature, scale and complexity of the business of the authorised fund manager or the UK UCITS management company and the UCITS it manages and be consistent with the UCITS' risk profile.

[Note: articles 40(1) and 40(2) of the UCITS implementing Directive]

COLL 6.12.10 G

UK UCITS management companies operating EEA UCITS schemes are advised that to the extent that the matters referred to in COLL 6.12.9R (1)(b) are viewed by the UCITSHome State regulator as falling under its responsibility, they will be expected to comply with the UCITS Home State measures implementing articles 41 and 43 of the UCITS implementing Directive.

COLL 6.12.11 R
  1. (1)

    An authorised fund manager or a UKUCITS management company of an EEA UCITS scheme must employ an appropriate liquidity risk management process in order to ensure that each UCITS it manages is able to comply at any time with COLL 6.2.16 R (Sale and redemption) or the equivalent UCITS Home State measures implementing article 84(1) of the UCITS Directive.

  2. (2)

    Where appropriate, the authorised fund manager or UKUCITS management company must conduct stress tests to enable it to assess the liquidity risk of the UCITS under exceptional circumstances.

[Note: article 40(3) of the UCITS implementing Directive]

COLL 6.12.12 R

An authorised fund manager or a UKUCITS management company of an EEA UCITS scheme must ensure that, for each UCITS it manages, the liquidity profile of the investments of the scheme is appropriate to the redemption policy laid down in the instrument constituting the fund2 or the prospectus.

2

[Note: article 40(4) of the UCITS implementing Directive]

CESR guidelines: Risk management principles for UCITS

COLL 6.12.13 G

Authorised fund managers are advised that CESR issued guidelines prior to the revision of the UCITS Directive in 2009 which, to the extent they remain compatible with the rules and other guidance in COLL, should be complied with in applying the rules in this section. These guidelines are available at:

Guidelines - Risk management principles for UCITS (CESR/09-178)

https://www.esma.europa.eu/sites/default/files/library/2015/11/09_178.pdf 4

COLL 6.13 Record keeping

Application

COLL 6.13.1 R
  1. (1)

    1This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme; and

    2. (b)

      a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

  2. (2)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Recording of portfolio transactions

COLL 6.13.2 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure, for each portfolio transaction relating to a scheme it manages, that a record of information which is sufficient to reconstruct the details of the order and the executed transaction is produced without delay.

  2. (2)

    The record referred to in (1) must include:

    1. (a)

      the name or other designation of the scheme and of the person acting on behalf of the scheme;

    2. (b)

      the details necessary to identify the instrument in question;

    3. (c)

      the quantity;

    4. (d)

      the type of the order or transaction;

    5. (e)

      the price;

    6. (f)

      for orders, the date and exact time of the transmission of the order and the name or other designation of the person to whom the order was transmitted, or for transactions, the date and exact time of the decision to deal and execution of the transaction;

    7. (g)

      the name of the person transmitting the order or executing the transaction;

    8. (h)

      where applicable, the reasons for the revocation of an order; and

    9. (i)

      for executed transactions, the counterparty and execution venue identification.

[Note: article 14 of the UCITS implementing Directive]

Recording of subscription and redemption orders

COLL 6.13.3 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must take all reasonable steps to ensure that every subscription and redemption order it receives relating to units in any such scheme it manages are centralised and recorded immediately after receipt of that order.

  2. (2)

    The record referred to in (1) must include information on the following:

    1. (a)

      the relevant scheme;

    2. (b)

      the person giving or transmitting the order;

    3. (c)

      the person receiving the order;

    4. (d)

      the date and time of the order;

    5. (e)

      the terms and means of payment;

    6. (f)

      the type of the order;

    7. (g)

      the date of execution of the order;

    8. (h)

      the number of units subscribed or redeemed;

    9. (i)

      the subscription or redemption price for each unit;

    10. (j)

      the total subscription or redemption value of the units; and

    11. (k)

      the gross value of the order including charges for subscription or net amount after charges for redemption.

[Note: article 15 of the UCITS implementing Directive]

Recordkeeping requirements

COLL 6.13.4 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure the retention of the records referred to in COLL 6.13.2 R and COLL 6.13.3 R for a period of at least five years or, in exceptional circumstances and where directed by the FCA, for a longer period, determined by the nature of the instrument or portfolio transaction, where it is necessary to enable the FCA to exercise its supervisory functions under the UCITS Directive.

  2. (2)

    Following the termination of its authorisation, an authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must retain its records referred to in (1) for the outstanding term of the five year period or, if it transfers its responsibilities in relation to the UCITS to another authorised fund manager or management company, arrange for those records for the past five years to be accessible to that other manager.

  3. (3)

    The authorised fund manager or the UK UCITS management company must retain the records referred to in COLL 6.13.2 R and COLL 6.13.3 R in a medium that allows the storage of information in a way accessible for future reference by the FCA, and in such a form and manner that the following conditions are met:

    1. (a)

      the FCA must be able to access them readily and to reconstitute each key stage of the processing of each portfolio transaction;

    2. (b)

      it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained; and

    3. (c)

      it must not be possible for the records to be otherwise manipulated or altered.

[Note: article 16 of the UCITS implementing Directive]

Electronic data processing

COLL 6.13.5 R

An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must make appropriate arrangements for suitable electronic systems so as to permit a timely and proper recording of each portfolio transaction or subscription or redemption order, in order to be able to comply with COLL 6.13.2 R (Recording of portfolio transactions) and COLL 6.13.3 R (Recording of subscription and redemption orders).

[Note: article 7(1) of the UCITS implementing Directive]

COLL 6.13.6 R

An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must ensure a high level of security during the electronic data processing referred to in COLL 6.13.5 R as well as the integrity and confidentiality of the recorded information, as appropriate.

[Note: article 7(2) of the UCITS implementing Directive]

COLL 6 Annex 1 Particulars of the standard agreement between an EEA UCITS management company and a depositary

R

1This table belongs to COLL 6.6.4 R (7)(b) (General duties of the depositary) on the conclusion and prescribed minimum content of a standard agreement between an EEA UCITS management company (which is an authorised fund manager of a UCITS scheme) and the depositary of that scheme.

Contents of the standard agreement

(1)

Provisions related to the procedures to be followed by the parties to the agreement:

(a)

a description of the procedures, included those relating to the safekeeping, to be adopted for each type of asset of the UCITS scheme that is entrusted to the depositary;

(b)

a description of the procedures to be followed where the authorised fund manager envisages a modification of the instrument constituting the fund2 or the prospectus of the UCITS scheme, and identifying when the depositary should be informed, or where a prior agreement from the depositary is needed to proceed with the modification;

2

(c)

a description of the means and procedures by which the depositary will transmit to the authorised fund manager all relevant information that the authorised fund manager needs to perform its duties, including a description of the means and procedures related to the exercise of any rights attached to financial instruments, and the means and procedures applied in order to allow the authorised fund manager and the UCITS scheme to have timely and accurate access to information relating to the accounts of the UCITS scheme;

(d)

a description of the means and procedures by which the depositary will have access to all relevant information it needs to perform its duties;

(e)

a description of the procedures by which the depositary has the ability to enquire into the conduct of the authorised fund manager and to assess the quality of information transmitted, including by way of on-site visits; and

(f)

a description of the procedures by which the authorised fund manager can review the performance of the depositary in respect of the depositary's contractual obligations.

[Note: article 30 of the UCITS implementing Directive]

(2)

Provisions related to the exchange of information and to obligations on confidentiality and money laundering:

(a)

a list of all the information that needs to be exchanged between the UCITS scheme, its authorised fund manager and depositary related to the issue, cancellation, sale and redemption of units of the UCITS scheme;

(b)

the confidentiality obligations applicable to the parties to the agreement. These obligations must be drawn up so as not to impair the ability of either the FCA or the Home State regulator of the EEA UCITS management company to gain access to relevant documents and information; and

(c)

information on the duties and responsibilities of the parties to the agreement in respect of obligations relating to the prevention of money laundering and the financing of terrorism, where applicable.

[Note: article 31 of the UCITS implementing Directive]

(3)

Provisions related to the appointment of third parties:

In cases where the parties to the agreement envisage the appointment of third parties to carry out their duties, the following provisions:

(a)

an undertaking by both parties to provide details, on a regular basis, of any third parties appointed by the depositary or the authorised fund manager to carry out their respective duties;

(b)

an undertaking that on request by one of the parties, the other will provide information on the criteria used for selecting the third party and the steps taken to monitor the activities carried out by the selected third party; and

(c)

a statement that a depositary's liability as referred to at COLL 6.6.15 R (5) (Committees and delegation) will not be affected by the fact that it has entrusted to a third party all or some of the assets in its safekeeping.

[Note: article 32 of the UCITS implementing Directive]

(4)

Provisions related to potential amendments and the termination of the agreement:

(a)

the period of validity of the agreement;

(b)

the conditions under which the agreement may be amended or terminated; and

(c)

conditions which are necessary to facilitate transition to another depositary and, in the event of that transition, the procedure by which the depositary should send all relevant information to the other depositary.

[Note: article 33 of the UCITS implementing Directive]

(5)

Applicable law:

A provision specifying that the law of the United Kingdom applies to the agreement.

[Note: article 34 of the UCITS implementing Directive]

(6)

Electronic transmission of information:

In cases where the parties to the agreement agree to the use of electronic transmission for part or all of the information that is to flow between them, a provision ensuring that a record is kept of that information.

[Note: article 35 of the UCITS implementing Directive]

(7)

Scope of the agreement:

Where the agreement is to cover more than one UCITS scheme managed by the authorised fund manager, a provision listing the UCITS schemes covered by the agreement.

[Note: article 36 last sentence of the UCITS implementing Directive]

(8)

Service level agreement:

The parties to the agreement may include either in the agreement or in a separate written agreement the details of the means and procedures referred to in (1)(c) and (d).

[Note: article 37 of the UCITS implementing Directive]

COLL 6 Annex 2 UK UCITS management company of UCITS schemes and EEA UCITS schemes: Derivative Use Report (FSA042: UCITS)

R

1COLL 6 Annex 2RCOLL 6 Annex 2R

COLL 6 Annex 3 Guidance notes on UK UCITS management company of UCITS schemes and EEA UCITS schemes: Derivative Use Report (FSA042: UCITS)

G

1 Description

Guidance

Fund name

This is the name of the scheme or, where applicable, of the sub-fund as it appears on the FS Register or, for an EEA UCITS scheme, in the prospectus.

Fund authorisation

Whether the scheme is authorised and regulated in the United Kingdom or in another EEA State.

PRN or LEI

For a UCITS scheme, this is the product reference number of the scheme or, where applicable, of the sub-fund which appears on the FS Register.

EEA UCITS schemes are not assigned a PRN. Instead, the legal entity identifier (LEI) of the scheme or, where applicable, of the sub-fund, should be indicated. Where the LEI is not available, please leave the cell blank.

Derivative

A forward, a future, an option, a swap, a warrant or another type of derivative instrument.

Derivatives used for investment purposes

This means that derivatives are not being used solely in pursuit of efficient portfolio management.

Global exposure

Global exposure is calculated as either the incremental exposure and leverage generated through the use of derivatives, or the market risk of the scheme property, as set out in COLL 5.3.7R. Market risk is calculated using one of the stated risk measures.

Risk measures

For each scheme or, where applicable, sub-fund, information should be provided for only one of the risk measures (commitment approach, relative VaR or absolute VaR) indicated in the table.

Average leverage

In line with the CESR Guidelines (CESR/10-788), this is the mean of all leverage calculations over the past twelve months, leverage being calculated as the sum of the notionals of the derivatives used.

Leverage limit

In line with Box 24 of the CESR guidelines (CESR/10-788), the usually expected or maximum expected level of leverage should be provided. Where these are not applicable, please provide the maximum leverage limit approved internally by the authorised fund manager (or leave blank if appropriate and provide an explanation in the comments box).