CIS 16.2 Independence of depositaries of ICVCs

1. (1)

   Regulation 15(8)(f) of the OEIC regulations provides that the depositary of an ICVC must be independent of the ICVC and of the persons appointed as directors.

2. (2)

   References in this section (CIS 16.2) to a depositary or to a corporate director include any associate of the depositary or corporate director.

1. (1)

   In addition to the ACD, there is the possibility of other directors of the ICVC being corporations.

2. (2)

   There are at least three possible kinds of link between a depositary and an ICVC, or a corporate director of an ICVC:

   1. (a)

      directors in common;

   2. (b)

      cross-shareholdings;

   3. (c)

      a contractual commitment.

3. (3)

   If any of these links exists between a depositary and an ICVC or any corporate director of the ICVC, the FSA will expect the following tests to be satisfied before it could accept that independence is established.

4. (4)

   Influence by directors: independence would be lost if by means of executive power either the depositary could control the action of the ICVC or any corporate director of it, or the ICVC and its directors or both could control the actions of the depositary.

5. (5)

   Nor should there be any means by which one board could obtain effective, as opposed to legal, control of the other. The FSA would not approve any arrangement, such as quorum provisions or reservation of decision-making capacity to certain directors, which could result (even in exceptional circumstances) in loss of effective independence of one company's board from the other.

6. (6)

   Influence by shareholding: independence would be lost if either the depositary or the ICVC could control the actions of the other by means of shareholders' votes, or the depositary or a corporate director of the ICVC could control the actions of the other by means of shareholders' votes. Accordingly, there should not at any time be any shareholding in the depositary by the ICVC and its directors and their respective associates (taken together) which exceeds 15% of the depositary's share capital carrying voting rights whether or not that share capital comprises a single class or several classes of shares. Furthermore there should not be any such shareholding by a depositary and its associates in the ICVC or any of the directors of the ICVC.

The FSA will not consider a depositary to be independent of any individual who is a director of an ICVC in any of the following circumstances:

1. (1)

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

2. (2)

   the ICVC director has a direct or indirect shareholding in the depositary which might give rise to a potential conflict of interest for the director, for this purpose a holding by the director, for investment purposes, of shares in the depositary that are listed and carry less than 0.5 per cent of the votes at a general meeting or a meeting of the holders of the class of shares concerned will not be considered to give rise to a potential conflict of interests; or

3. (3)

   the ICVC director has any other relationship (contractual or otherwise) with the depositary which might reasonably be expected to give rise to a potential conflict of interest for the director.

1. (1)

   Independence: The FSA considers that independence will need to be specifically appraised in the event of a proposal by the depositary to enter into any arrangement with the ICVC or any corporate director of it by which the depositary might agree to act on an exclusive (or near exclusive) basis, or for a director to enter into a similar arrangement with the depositary.1

2. (2)

   If such a relationship should be contemplated, then arrangements may need to be put into place to satisfy the FSA that the necessary independence is preserved. The FSA would therefore expect to be consulted in advance about any such proposal.

3. (3)

   Other commitments: the FSA expects to be consulted in advance about its view on the consequences for independence of any other intended commitment or relationship which could affect independence, whether directly or indirectly.