This sourcebook applies to investment companies with variable capital (ICVCs), directors and depositaries of ICVCs and managers and trustees of authorised unittrusts (AUTs), except for CIS 16 which includes provisions that also apply to operators of collective investment schemes and CIS 17 which applies only to operators of collective investment schemes which are recognised schemes. CIS 10 also applies to auditors of ICVCs and AUTs.

The general purpose of this sourcebook is to contribute to the FSA meeting its regulatory objective of the protection of consumers (see section 2 and 5 of the Act) by providing a regime of product regulation for ICVCs and AUTs. This regime is intended to ensure a high and uniform standard of protection for investors in those products by specifying a number of features of those products and how they are to be operated. More specific purpose statements covering how the requirements meet the FSA's regulatory objective of the protection of consumers are, where appropriate, given in subsequent chapters.

Under section 238 of the Act only certain collective investment schemes may be promoted to the public. These are:

1. (1)

   ICVCs and AUTs: these are constituted in the United Kingdom and are described in more detail in CIS 1.1.4 G to CIS 1.1.6 G; and

2. (2)

   collective investment schemes constituted outside the United Kingdom and recognised by the FSA under:

   1. (a)

      section 264 of the Act (Schemes constituted in other EEA States): these are schemes that qualify under the UCITS directive;

   2. (b)

      section 270 of the Act (Schemes authorised in designated countries or territories); and

   3. (c)

      section 272 of the Act (Individually recognised overseas schemes).

Section 262 of the Act empowers the Government to make provisions relating to open-ended investment companies (as defined by section 236 of the Act) and they have made the OEIC regulations to permit establishment of ICVCs in Great Britain. Schedule 5.1(3) of the Act states that authorised open-ended investment companies are authorised persons, hence an ICVC is an authorised person.

The ICVC is constituted by an instrument of incorporation, drawn up by its directors. At least one director must be an authorised corporate director ('ACD'). A depositary is also required which is responsible for the safekeeping of the scheme property. In order to comply with section 19 of the Act, the ACD and the depositary must each be authorised persons. The FSA has the power under regulation 14 of the OEIC regulations to authorise the ICVC by making an authorisation order. CIS 16 provides additional guidance on the process of applying to the FSA for authorisation of an ICVC.

Under section 237 of the Act, an AUT is a collective investment scheme under which the property is held on trust for the participants by the trustee and which is authorised by an authorisation order (made by the FSA) in force under section 243 of the Act. The AUT will be constituted by a trust deed, entered into by the manager and trustee, both of whom must, under section 243(7) of the Act, be authorised persons and have permission to act in their respective capacities. CIS 16 provides more detail on the process of applying to the FSA for the authorisation of an AUT.

For collective investment schemes constituted outside the United Kingdom and referred to in CIS 1.1.3 G (2), this sourcebook brings together the material relating to the admission to marketing in the United Kingdom of such schemes, complementing material in Chapter V of Part XVII of the Act (Recognised overseas schemes).

The sourcebook performs three main functions in respect of ICVCs and AUTs, by providing material:

1. (1)

   relating to their constitution and management (including rules and guidance on pricing arrangements, investment powers and on certain information to be provided to investors);

2. (2)

   relating to the process of authorising them; and

3. (3)

   which satisfies the requirements of the UCITS directive (which sets minimum standards for schemes on a basis agreed by all EEA States) thereby enabling ICVCs and AUTs which meet those standards to market elsewhere in the EEA.

Together, the material in Chapters 2 to 15 forms a major part of the product regulation regime for ICVCs and AUTs, complementing material in the OEIC regulations and Chapter III of Part XVII of the Act (for Authorised unit trust schemes).

Some of this sourcebook relates only to ICVCs and some only to AUTs. However, parts of this sourcebook cover both ICVCs and AUTs (in particular in CIS 3, CIS 4, CIS 5 and CIS 9). Accordingly, some of the defined terms included relate equally to both ICVCs and AUTs (together called "authorised funds"). Other key examples of these terms are:

1. (1)

   "authorised fund manager": covers both the ACD of an ICVC and the manager of an AUT. (The term "ACD" is used only in relation to an ICVC and the term "manager" is used only in relation to an AUT);

2. (2)

   "depositary": where used in relation to an authorised fund, covers both the depositary of an ICVC and the trustee of an AUT;

3. (3)

   "holder": covers both a "shareholder" of an ICVC and a "Unitholder" of an "AUT";

4. (4)

   "unit": according to the context, can cover both a "share" in an "ICVC", a "unit" in an AUT and the rights or interests of participants in other types of collective investment scheme;

5. (5)

   "prospectus": covers the prospectus of an ICVC and the "scheme particulars" of an AUT, but there is no objection to the use of the latter term as an alternative to "prospectus".

CIS 2 (Constitution) sets out provisions on the contents of the documents required to form authorised funds, and other matters relating to their constitutional features, such as classes of shares (in ICVCs) and units (in AUTs) and the types of authorised fund (for example, UCITS schemes) that may be established.2

CIS 3 (Prospectus) includes requirements on the preparation, content, availability of, and changes to, an authorised fund'sprospectus.

CIS 4 (Single-pricing and dealing) covers the valuation and pricing of authorised funds that are single-priced. In addition, it includes rules on the sale and redemption of units in such funds. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

CIS 5 and CIS 5A (Investment and borrowing powers) require authorised funds to comply with the rules on investments to ensure funds operate under the principles of risk spreading. The chapter is split in two because of the implementation of the UCITS Amending Directive relating to investment powers and the transitional provisions that Directive allows. Transitional provision 14 provides precise details on the operation but generally speaking:

1. (1)

   UCITS qualifying schemes existing on or before 13 February 2002 and which now qualify as UCITS schemes may operate under the rules in CIS 5A and may switch to operate under CIS 5 at any time before 13 February 2007, at which time they must operate under CIS 5; and

2. (2)

   UCITS qualifying schemes authorised after 13 February 2002 but before 13 February 2004 may operate under the rules in CIS 5A or CIS 5 but must operate under the rules in CIS 5 by 13 February 2004.2

CIS 6 (Title, transfer and plan registers) includes requirements relating to the register of Unitholders in an AUT. (Provisions concerning the register of an ICVC are in the OEIC regulations.) It also deals with plan registers of ICVCs and AUTs.

CIS 7 (Powers and duties) apportions responsibilities between the directors (including the ACD) and depositary of an ICVC and the manager and trustee of an AUT, to the extent that these are not covered in other chapters.

CIS 8 (Charges and expenses) lays down conditions concerning charges when investors buy or sellunits and payments that can be made out of the scheme property.

CIS 9 (Income) deals with the calculation and distribution of income.

CIS 10 (Reports and accounts) concerns the content and publication of annual and half-yearly reports and accounts of authorised funds.

CIS 11 (Meetings of holders, amendments to the scheme and service of notices) deals with a variety of matters relating to meetings of holders and includes requirements concerning the conditions under which the instrument constituting the scheme may be changed and how the scheme property of an authorised fund may become the property of another scheme (a scheme of arrangement). It also provides for the use of electronic media in respect of any notice, document or information that is required by CIS to be sent to any person.

CIS 12 (Special provisions for certain categories of scheme) provides some special rules for certain categories of authorised fund, in particular for umbrella schemes.

CIS 13 (Suspension and resumption of dealings) includes requirements for the suspension of dealings in the units of authorised funds.

CIS 14 (Termination of schemes) includes requirements relating to the winding-up of authorised funds and the termination of a sub-fund of an ICVC.

CIS 15 (Dual-pricing and dealing) sets out rules and guidance on the valuation and pricing of units in a dual-priced AUT. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

CIS 16 (Application and notification) outlines the application and notification procedures for authorised funds and schemes from other countries or territories which may be recognised by the FSA for marketing in the United Kingdom.

CIS 17 (Recognised schemes) sets out the information that the FSA requires so as to consider whether schemes under sections 264, 270 and 272 of the Act should be permitted to market in the United Kingdom.1

set out the application and periodic fees payable for the authorisation or recognition of regulated schemes.1

There are a number of other parts of the FSA's Handbook that are relevant to those having a responsibility in relation to authorised funds. These include:

1. (1)

   PRIN (The Principles for Businesses);

2. (2)

   SYSC (Senior management arrangements, systems and controls);

3. (3)

   APER (The Statements of principle and Code of Practice for approved persons) ;

4. (4)

   COB (The Conduct of Business sourcebook);

5. (5)

   SUP (The Supervision manual);

6. (6)

   DEC (the Decision making manual); and

7. (7)

   CASS (The Client Assets sourcebook).3

ENF 16 sets out the FSA's policies and procedures concerning the use of its enforcement powers in relation to ICVCs, AUTs and recognised schemes.

Due regard should be given to compliance with the Joint Money Laundering Steering Group Guidance Notes for the Financial Sector in determining compliance with the Money Laundering Regulations.

Establishing, operating or winding up a collective investment scheme is a regulated activity. No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person (or an exempt person). This prohibition is also known as the general prohibition. Guidance for persons considering carrying on regulated activities in the United Kingdom can be found in AUTH. AUTH 3 (Applications for Part IV permission) gives guidance on how to apply to the FSA for a Part IV permission. This authorisation is different to the authorisation of a scheme under Part XVII of the Act, guidance on which is provided in this sourcebook.2