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COLL 8.5 Powers and responsibilities

Application

COLL 8.5.1R

This section applies to an ICVC which is a qualified investor scheme and the authorised fund manager any other directors of an ICVC and the depositary of a qualified investor scheme.

Functions of the authorised fund manager

COLL 8.5.2R
  1. (1)

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

    1. (a)

      the instrument constituting the fund;12

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    2. (b)

      The applicable rules13;

    3. (c)

      the most recently published prospectus; and

    4. (d)

      for an ICVC, the OEIC Regulations.

  2. (2)

    The authorised fund manager must carry out such functions as are necessary to ensure compliance with the rules 13that impose obligations on the authorised fund manager or ICVC, as appropriate.

  3. (3)

    The authorised fund manager must:

    1. (a)

      make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy of the scheme;

    2. (b)

      instruct the depositary how rights attaching to the ownership of scheme property are to be exercised;

    3. (c)

      take action immediately to rectify any breach of the pricing methodology set out in the prospectus, which must (unless the authorised fund manager determines on reasonable grounds that the breach is of minimal significance) extend to payment of money:

      1. (i)

        by the authorised fund manager to Unitholders and former Unitholders;

      2. (ii)

        by the ACD to the ICVC;

      3. (iii)

        by the ICVC to the ACD;

      4. (iv)

        by the authorised fund manager of the AUT or ACS10 to the depositary;10 or

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      5. (v)

        by the depositary;10 (for the account of the AUT or ACS10) to the authorised fund manager;10

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    4. (d)

      ensure where relevant that the ICVC complies with the relevant obligations imposed by, and when appropriate, exercises the relevant powers provided under, the OEIC Regulations;

    5. (e)

      maintain such records as are necessary to enable the authorised fund manager or the ICVC, as appropriate, to comply with and demonstrate compliance with the rules in this sourcebook and also in the case of an ICVC, the OEIC Regulations; and

    6. (f)

      maintain for a period of six years a daily record of the units held, acquired or disposed of by the authorised fund manager including the classes of such units, and of the balance of any acquisitions and disposals.

Duties of the authorised fund manager: investment and borrowing powers

COLL 8.5.3R
  1. (1)

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

  2. (2)

    An authorised fund manager must avoid the scheme property being used or invested contrary to any provision in COLL 8.4 (Investment and borrowing powers).

  3. (3)

    An authorised fund manager must immediately on becoming aware of any breach of COLL 8.4 take action, at its own expense, to rectify that breach.

  4. (4)

    An authorised fund manager must take the action in (3) immediately, except in circumstances where doing so would not be in the best interests of Unitholders, in which case the action must be taken as soon as such circumstances cease to apply.

  5. (5)

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

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

COLL 8.5.3AR

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,10 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 fund12 of the ICVC or co-ownership scheme10 (see COLL 8.2.6 R(2)(4A) and COLL 8.2.6 R(2)(4B)10),10 the ACD or authorised contractual scheme manager of the co-ownership scheme10 must:

1012
  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 8.5.3BG

9In deciding what steps are appropriate to remedy the inconsistency, the ACD or authorised contractual scheme manager of the 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 scheme10 to exit the foreign law contract.

Duties of the depositary

COLL 8.5.4R
  1. (1)

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

  2. (2)

    The depositary must:

    1. (a)

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

    2. (b)

      take all steps to ensure that instructions properly given by the authorised fund manager in respect of the exercise of rights related to scheme property are carried out;

    3. (c)

      ensure that any scheme property in registered form is as soon as reasonably practicable registered in its name or that of its nominee or delegate, as appropriate;

    4. (d)

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

    5. (e)

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

    6. (f)

      hold and deal with any income received in respect of the scheme property in accordance with COLL 8.5.15 R (Income);

    7. (g)

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

      1. (i)

        COLL 8.4 (Investment and borrowing powers);

      2. (ii)

        COLL 8.5.9 R (Valuation, pricing and dealing); and

      3. (iii)

        COLL 8.5.15 R (Income);

    8. (h)

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

    9. (i)

      be responsible for any other duties as set out in the instrument constituting the fund.12

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  3. (3)

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

Delegation

COLL 8.5.5R
  1. (1)

    A small authorised UK AIFM 13(or in addition any other director in the case of an ICVC managed by a small authorised UK AIFM)13 may delegate any function to any person.

  2. (2)
    1. (a)

      13The depositary of a scheme managed by a small authorised UK AIFM has the power to delegate any function to anyone, including in the case of an ICVC a director, to assist the depositary to perform its functions.

    2. (b)

      13However, it must not retain the services of the authorised fund manager or, in the case of an ICVC, any other director to perform any part of its functions of safe custody of the scheme property.

  3. (3)

    Subject to any provisions of the OEIC Regulations, the delegator in (1) and (2) will not be responsible under the rules in COLL for any act or omission of the delegate provided that the delegator can show:

    1. (a)

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

    2. (b)

      that the delegate was and remained competent to provide that assistance; and

    3. (c)

      that the delegator took reasonable care to ensure that the assistance was provided in a competent manner.

Delegation and responsibility for regulatory obligations

COLL 8.5.6G

Directors of an ICVC, authorised fund managers and depositaries should also have regard to 6SYSC 8 5 (Outsourcing).6SYSC 8.1.6 R 5states that a firm remains fully responsible for discharging all of its obligations under the regulatory system if it outsources crucial or important operational functions or any relevant services and activities. 5

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Conflicts of interest

COLL 8.5.7R
  1. (1)

    The authorised fund manager and the depositary must ensure that any transaction in respect of the scheme property undertaken with an affected person is on terms at least as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm's length with an independent third party.

  2. (2)

    Paragraph (1) is subject to any provision in the instrument constituting the fund12 and the prospectus imposing a prohibition in relation to any type of transaction.

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The register of Unitholders: AUTs or ACSs

COLL 8.5.8R
  1. (1)

    The authorised fund manager10 or the depositary of an AUT or ACS10 (in accordance with their responsibilities as set out in the instrument constituting the fund12) must maintain a register of Unitholders as a document in accordance with this rule.

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  2. (2)

    The register must contain:

    1. (a)

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

    2. (b)

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

    3. (c)

      the date on which the Unitholder was registered in the register for the units standing in his name.

  3. (3)

    The authorised fund manager10 or the depositary of an AUT or ACS10 (as appropriate) must take all reasonable steps and exercise all due diligence to ensure the register is kept complete and up to date.

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  4. (4)

    Where relevant, the authorised fund manager10 must immediately notify the depositary of an AUT or ACS10 of any information he receives which may affect the accuracy of any entry in the register.

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  5. (5)

    10In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager as the agent for the scheme provided the authorised contractual scheme manager is not entered in the register as the new Unitholder.

Valuation, pricing and dealing

COLL 8.5.9R
  1. (1)

    The value of the scheme property is the net value of the scheme property after deducting any outstanding borrowings (including any capital outstanding on a mortgage of an immovable).

  2. (2)

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

  3. (3)

    For the purposes of (2), any charges that were paid, or would be payable, on acquiring or disposing of the asset must be excluded from the value of that asset.

  4. (4)

    The value of the scheme property of an authorised fund must, save as otherwise provided in this section, be determined in accordance with the provisions of the

    12

    instrument constituting the fund12 and the prospectus, as appropriate.

  5. (4A)

    Where a scheme operates as a short-term money market fund, the value of the scheme property must be determined either on an amortised cost or mark to market basis.8

  6. (4B)

    Where a scheme operates as a money market fund, the value of the scheme property must be determined on a mark to market basis.8

  7. (5)

    Subject to (5A), the8 scheme must have a valuation point on each dealing day.

    8
  8. (5A)

    Where a scheme operates as a money market fund or a short-term money market fund which is marketed solely through employee savings schemes or to a specific category of investors that are subject to redemption restrictions, the scheme may have at least one valuation point every week.8

  9. (6)

    The authorised fund manager must prepare a valuation in accordance with (4) for each relevant type of unit at each relevant valuation point.

  10. (7)

    The price of a unit must be calculated on the basis of the valuation in (6) in a manner that is fair and reasonable as between Unitholders.

  11. (8)

    [deleted]2

  12. (9)

    The authorised fund manager must publish in an appropriate manner the price2of any type of unit based on the valuation carried out in accordance with (6)2.

  13. (10)

    The authorised fund manager must also provide on request to any Unitholder at any time an estimated price for any type of unit in the scheme.

  14. (11)

    The period of any initial offer and how it should end must be set out in the prospectus and must not be of unreasonable length.

Maintaining the value of a short-term money market fund

COLL 8.5.9AR

8The authorised fund manager of a short-term money market fund which values scheme property on an amortised cost basis must:

  1. (1)

    carry out a valuation of the scheme property on a mark to market basis at least once a 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 8.5.9BG

8The authorised fund manager should advise the depositary when the mark to market value of a short-term money market fund valuing scheme property on an amortised cost basis varies from its amortised cost value by 0.1%, 0.2% and 0.3% respectively. The authorised fund manager of a short-term money market fund should agree procedures with the depositary designed to stabilise the value of the scheme in these events.

Issues and cancellations of units

COLL 8.5.10R
  1. (1)

    The authorised fund manager must:

    1. (a)

      ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to Unitholders of that class; and

    2. (b)

      not do, or omit anything that would, or might confer on itself a benefit or advantage at the expense of a Unitholder or potential Unitholder.

  2. (2)

    For the purposes of (1) the authorised fund manager may take into account sales and redemptions after the valuation point, provided it has systems and controls to ensure compliance with (1).

  3. (3)

    The authorised fund manager must arrange for the issue and cancellation of units and pay money or assets to or from the depositary for the account of the scheme as required by the prospectus.

  4. (4)

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

  5. (5)

    The authorised fund manager may arrange for the ICVC, or instruct the depositary of the AUT or ACS10 to issue or cancel units where the authorised fund manager would otherwise be obliged to sell or redeem the units in the manner set out in the prospectus.

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  6. (6)

    Where the authorised fund manager has not complied with (1), it must correct the error as soon as possible and must reimburse the scheme any costs it may have incurred in correcting the position, subject to any reasonable minimum level for such reimbursement as set out in the prospectus.

Issue and cancellation of units in multiple classes

COLL 8.5.10AR

3If a qualified investor scheme has two or more classes of unit in issue, the authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:

  1. (1)

    the depositary gives its prior agreement; and

  2. (2)

    the relevant classes:

    1. (a)

      have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or

    2. (b)

      differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property.

Transfer of units in an ACS

COLL 8.5.10BR
  1. (1)

    10Where transfer of units in an ACS is allowed by its contractual scheme deed and prospectus in accordance with the conditions specified by FCA rules, the authorised contractual scheme manager of the ACS must take reasonable care to ensure that units are only transferred if the conditions specified by the FCA under (2) are met.

  2. (2)

    The FCA specifies that for the purposes of (1), and for the purposes of COLL 8.2.6R(2)(6)(a)(vii)(B) (Table: contents of the instrument constituting the fund12) and COLL 8.3.4R(5B)(2) (Table: contents of qualified investor scheme prospectus), units in the ACS may only be transferred to a person :

    1211
    1. (a)

      who 11is a:

      1. (i)

        professional ACS investor; or

      2. (ii)

        large ACS investor; or

      3. (iii)

        person who already holds units in the scheme; and

    2. (b)

      to whom units in a qualified investor scheme may be promoted under COBS 4.12.4 R.11

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COLL 8.5.10CG

10The 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 8.5.10E R (Redemption of ACS units in a QIS by an authorised contractual scheme manager) in those cases by redeeming those units.

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

COLL 8.5.10DR
  1. (1)

    10The authorised contractual scheme manager of an authorised contractual scheme which is a qualified investor 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 in a qualified investor scheme, unless:

    11
    1. (a)

      that person 11is a:

      1. (i)

        professional ACS investor; or

      2. (ii)

        large ACS investor; or

      3. (iii)

        person who already holds units in the scheme; and

    2. (b)

      units in a qualified investor scheme may be promoted to that person under COBS 4.12.4 R.11

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  2. (2)

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

Redemption of ACS units in a QIS by an authorised contractual scheme manager

COLL 8.5.10ER

10The authorised contractual scheme manager of a qualified investor scheme which is an ACS must redeem units 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 8 Annex 2(1) and (2) (ACS Qualified Investor Schemes: eligible investors).

Sale and redemption

COLL 8.5.11R
  1. (1)

    The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units to any eligible investor (within any conditions in the instrument constituting the fund12 and the prospectus which must be fair and reasonable as between all Unitholders and potential Unitholders) for whom the authorised fund manager does not have reasonable grounds to refuse such sale.

    12
  2. (2)

    The authorised fund manager must, at all times during the dealing day, effect a redemption on the request of any eligible Unitholder (within any conditions in the instrument constituting the fund12 and the prospectus) of units owned by that Unitholder, unless the authorised fund manager has reasonable grounds to refuse such redemption.

    12
  3. (3)

    On agreeing to a redemption of units within (2), the authorised fund manager must pay the full proceeds of the redemption to the Unitholder within any reasonable period specified in the instrument constituting the fund12 or the prospectus, unless it has reasonable grounds for withholding payment.

    12
  4. (4)

    Payment of proceeds on redemption must be made by the authorised fund manager in any manner provided for in the prospectus which must be fair and reasonable as between redeeming Unitholders and continuing Unitholders.

Limited redemption periods

COLL 8.5.12G

The maximum period between dealing days for a qualified investor scheme will depend on the reasonable expectations of the target investor group and the particular investment objectives and policy of the scheme. For instance, for a scheme aiming to invest in large property developments, the expectation would be that it is reasonable to have a much longer period between dealing days for liquidity reasons than for a scheme investing predominantly in listed securities.

Property Authorised Investment Funds

COLL 8.5.12AR
  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 8.5.12BG

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.

Payments

COLL 8.5.13R
  1. (1)

    An ICVC must not incur any expense in respect of the use of any movable or immovable property unless the scheme is dedicated to such investment or such property is necessary for the direct pursuit of its business.

  2. (2)

    Payments out of the scheme property may be made from capital property rather than from income, provided the basis for this is set out in the prospectus.

Exemption from liability to account for profits

COLL 8.5.14G

An affected person is not liable to account to another affected person or to the Unitholders of the scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:

  1. (1)

    dealings in the units of a scheme; or

  2. (2)

    any transaction in scheme property; or

  3. (3)

    the supply of services to the scheme;

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

Income

COLL 8.5.15R
  1. (1)

    A qualified investor scheme must have:

    1. (a)

      an annual accounting period;

    2. (b)

      a half-yearly accounting period; and

    3. (c)

      an accounting reference date;

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

  2. (1A)

    COLL 6.8.2 R (2) to COLL 6.8.2 R (7) (Accounting periods) also apply to the half-yearly accounting period and annual accounting period of a qualified investor scheme.1

  3. (2)

    A qualified investor scheme must have an annual income allocation date, which must be within four months of the accounting reference date.

  4. (3)

    A qualified investor scheme may have an interim income allocation date and interim accounting periods and if it does, the interim income allocation date must be within a reasonable period of the end of the relevant interim accounting period as set out in the prospectus.

  5. (3A)

    COLL 6.8.3 R (3) (Income allocation and distribution) to COLL 6.8.3A G (Allocation of income to difference classes of unit) also apply to a qualified investor scheme.

  6. (4)

    [deleted]7

    7
  7. (5)

    [deleted]7

    1. (a)

      [deleted]7

    2. (b)

      [deleted]7

    3. (c)

      [deleted]7