Content Options

EG 14.1 1Exercise of the powers in respect of Authorised Unit Trust Schemes (AUT) and authorised contractual schemes (ACS): sections 254 (Revocation of authorisation order otherwise than by consent), 257 (Directions), 258 (Applications to the court), 261U (Revocation of authorisation order otherwise than by consent), 261X (Directions) and 261Y (Applications to the court) of the Act

EG 14.1.1

1The FCA will consider all the relevant circumstances of each case and may take a number of factors into account when it decides whether to use these powers. The following list is not exhaustive; not all these factors may be relevant in a particular case and there may be other factors that are relevant.

  1. (1)

    The seriousness of the breach or likely breach by an authorised fund manager or depositary of a requirement imposed by or under the Act. The following may be relevant:

    1. (a)

      the extent to which the breach was deliberate or reckless;

    2. (b)

      the extent of loss, or risk of loss, caused to existing, past or potential participants in the AUT or ACS as a result of the breach;

    3. (c)

      whether the breach highlights serious or systemic weaknesses in the management or control of either the AUT, ACS or schemeproperty;

    4. (d)

      whether there are grounds for believing a breach is likely to be continued or repeated;

    5. (e)

      the length of time over which the breach happened; and

    6. (f)

      whether existing and/or past participants in the AUT or ACS have been misled in a material way, for example about the investment objectives or policy of the scheme or the level of investment risk.

  2. (2)

    The consequences of a failure to satisfy a requirement for the making of an order authorising an AUT or ACS. The FCA will expect the non-compliance to be resolved as soon as possible. Important factors are likely to be whether existing and/or past participants have suffered loss due to the non-compliance and whether remedial steps will be taken to satisfy all the requirements of the order.

  3. (3)

    Whether it is necessary to suspend the issue and redemption of units to protect the interests of existing or potential participants in the AUT or ACS. For example, this may be necessary if:

    1. (a)

      information suggests the current price of units under the AUT or ACS may not accurately reflect the value of scheme property; or

    2. (b)

      the scheme property cannot be valued accurately.

  4. (4)

    The effect on the interests of participants within the scheme of the use of any of its powers under sections 254, 257, 261U and 261X. However, the FCA will also consider the interests of past and potential participants.

  5. (5)

    Whether the FCA's concerns can be resolved by taking enforcement action against the authorised fund manager and/or depositary of the AUT or ACS. In some instances, the FCA may consider it appropriate to deal with a breach by an authorised fund manager or depositary by taking direct enforcement action against the authorised fund manager and/or depositary without using its powers under sections 254, 257, 258, 261U, 261X or 261Y. In other instances, the FCA may combine direct enforcement action against a depositary and/or authorised fund manager with the use of one or more of the powers under sections 254, 257, 258, 261U, 261X or 261Y.

  6. (6)

    Whether there is information to suggest that a depositary or authorised fund manager has knowingly or recklessly given the FCA false information. Giving false information is likely to cause very serious concerns, particularly if it shows there is a risk of loss to the scheme property or that participants' interests have been or may be affected in some other way.

  7. (7)

    The conduct of the authorised fund manager or depositary in relation to, and following the identification of, the issue, for example:

    1. (a)

      whether the authorised fund manager or depositary discovered the issue or problem affecting the AUT or ACS and brought it to the FCA's attention promptly;

    2. (b)

      the degree to which the authorised fund manager or depositary is willing to cooperate with the FCA's investigation and to take protective steps, for example by suspending the issue and redemption of units in the AUT or ACS;

    3. (c)

      whether the authorised fund manager or depositary has compensated past and existing participants who have suffered loss.

  8. (8)

    The compliance history of the depositary or authorised fund manager, including whether the FCA has previously taken disciplinary action against the depositary or authorised fund manager in relation to the AUT, ACS or any other collective investment scheme.

  9. (9)

    Whether there is information to suggest that the AUT or ACS is being used for criminal purposes and/or that the authorised fund manager or depositary is itself involved in financial crime.

EG 14.2 1Choice of powers

EG 14.2.1

1The FCA may use its powers under sections 254, 257 and 258 (in the case of AUTs) and sections 261U, 261X and 261Y (in the case of ACSs) individually, together, and as well as direct enforcement action against a depositary or authorised fund manager in their capacity as firms.

EG 14.2.2

1Where the FCA has a concern about an AUT or ACS that must be dealt with urgently, it will generally use its power to give directions under section 257 (in the case of an AUT) or section 261X (in the case of an ACS) in the first instance.

EG 14.2.3

1The following are examples of situations where the FCA may consider it appropriate to seek a court order under section 258 (in the case of an AUT) or section 261Y (in the case of an ACS) to remove the authorised fund manager or depositary:

  1. (1)

    Where there are grounds for concern over the behaviour of the authorised fund manager or depositary in respect of the management of the scheme or of its assets.

  2. (2)

    Where an authorised fund manager or depositary has breached a requirement imposed on him under the Act or has knowingly or recklessly given the FCA false information.

EG 14.2.4

1The FCA recognises that participants in an AUT or ACS have a direct financial interest in the scheme property. It follows that in cases where it considers it appropriate to use its section 254 power (in the case of an AUT) or its section 261U power (in the case of an ACS) to revoke an authorisation order, the FCA will generally first require the authorised fund manager or depositary to wind up the AUT or ACS (or seek a court order for the appointment of a firm to wind up the AUT or ACS).

EG 14.2.5

1[deleted]

EG 14.3 1Exercise of the powers in respect of recognised schemes: section 267 of the Act - power to suspend promotion of a scheme recognised under section 264: the FCA’s policy

EG 14.3.1

1When it decides whether a suspension order under section 267 is appropriate, the FCA will consider all the relevant circumstances. General factors that the FCA may consider include, but are not limited to:

  1. (1)

    the seriousness of the breach of financial promotionrules by the operator (the matters listed at paragraph 14.1.1 (a) to (f) may be relevant in this context); and

  2. (2)

    the conduct of the operator after the breach was discovered including whether the operator has compensated past and existing participants who have suffered loss.

EG 14.3.2

1In addition to or instead of suspending the promotion of a scheme recognised under section 264, the FCA may ask the competent authorities of the EEA State in which the scheme is constituted who are responsible for the authorisation of collective investment schemes, to take such action in respect of the scheme and/or its operator as will resolve the FCA's concerns. Also, Schedule 5 to the Act states that a person who for the time being is an operator, trustee or depositary of a scheme recognised under section 264 of the Act is an authorised person. So, it will also be open to the FCA to take direct enforcement action against those persons.

EG 14.4 1Exercise of the powers in respect of recognised schemes: sections 279 and 281 of the Act – powers to revoke recognition of schemes recognised under section 272: the FCA's policy

EG 14.4.1

1The FCA will consider all the relevant circumstances of each case. The general factors which the FCA may consider include, but are not limited to, those set out in paragraph 14.1.1 (1) to (9) (the conduct of the operator of the scheme and of the trustee or depositary will also, of course, be taken into account in relation to each of these factors).

EG 14.4.2

1As well as or instead of using these powers, the FCA may ask the relevant regulatory body of the country or territory in which the scheme is authorised to take such action in respect of the scheme and/or its operator, trustee or depositary as will resolve the FCA's concerns.

EG 14.4.3

1Decisions about whether to apply to the civil courts for collective investment scheme related orders under the Act will be made by the RDC Chairman or, in an urgent case and if the Chairman is not available, by an RDC Deputy Chairman. In an exceptionally urgent case the matter will be decided by the director of Enforcement or, in his or her absence, another member of the FCA's executive of at least director of division level.

EG 14.4.4

1An exceptionally urgent case in these circumstances is one where the FCA staff believe that a decision to begin proceedings

  1. (1)

    should be taken before it is possible to follow the procedure described in paragraph 14.4.3; and

  2. (2)

    it is necessary to protect the interests of consumers or potential consumers.