This chapter covers the processes of applying for authorisation and recognition of a collective investment scheme, and the notification to the FSA of the intention to market an overseas collective investment scheme in the United Kingdom. This chapter also includes guidance on the independence of depositaries of ICVCs and managers and trustees of AUTs and rules on notifying the FSA in its role as registrar of ICVCs. This chapter also implements Article 6 of the UCITS Directive.

1. (1)

   CIS 16.1.1 G, CIS 16.1.2 G and CIS 16.1.3 G apply to directors and proposed directors of an ICVC, depositaries and proposed depositaries of an ICVC, ICVCs and proposed ICVCs, managers and proposed managers of an AUT, trustees and proposed trustees of an AUT and operators of collective investment schemes seeking or applying for recognition under section 264, 270 or 272 of the Act.

2. (2)

   CIS 16.1.4 G and CIS 16.1.5 G apply to the proposed directors and proposed depositary of a new ICVC.

3. (3)

   CIS 16.1.6 G and CIS 16.1.7 G apply to the proposed manager and proposed trustee of a new AUT.

4. (4)

   CIS 16.1.8 G applies to the operator of a collective investment scheme seeking recognition under section 264 of the Act.

5. (5)

   CIS 16.1.9 G applies to the operator of a collective investment scheme seeking recognition under section 270 of the Act.

6. (6)

   CIS 16.1.10 G applies to the operator of a collective investment scheme applying for recognition under section 272 of the Act.

7. (7)

   CIS 16.1.11 G applies to the ICVC itself, when changes to the scheme are proposed.

8. (8)

   CIS 16.1.12 G applies to the manager and trustee of an AUT, when changes to the scheme are proposed.

9. (9)

   CIS 16.2.1 G to CIS 16.2.4 G apply to the depositary, or proposed depositary, of an ICVC, to the ICVC, or proposed ICVC, and to any corporate director, or proposed corporate director, of an ICVC.

10. (10)

    CIS 16.3.1 G to CIS 16.3.2 G apply to the trustee, or proposed trustee, and to the manager, or proposed manager, of an AUT.

11. (11)

    CIS 16.4.1 R applies to the directors of an ICVC.

12. (12)

    CIS 16.5 applies to the manager of an AUT which is a UCITS scheme

This chapter helps in achieving the regulatory objective of protecting consumers by ensuring that only regulated schemes, vetted and approved in accordance with the relevant law and rules, can be promoted to the general public. Guidance is provided on the various application and notification procedures for regulated collective investment schemes as set out in the Act and the OEIC regulations.

The CIS Team in the Collective Investment Schemes and Mutuals Department may be contacted:

1. (1)

   by telephoning on 020 7066 4540; or

2. (2)

   by writing to: The Individuals, CIS and Mutuals Department, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or

3. (3)

   by e-mailing the FSA at cis@fsa.gov.uk

1. (1)

   Regulation 12 of the OEIC regulations provides that any application for an authorisation order in respect of an ICVC must:

   1. (a)

      be made in such manner as the FSA directs;

   2. (b)

      include relevant details of all proposed directors of the ICVC (in accordance with regulation 13 of the OEIC regulations);

   3. (c)

      include details of the proposed depositary; and

   4. (d)

      contain or be accompanied by such other information as the FSA reasonably requires.

1. (1)

   Application forms and a separate guidance note, containing help on how to complete the form and describing the documents the FSA requires as part of the application, are available free of charge from the Collective Investment Schemes and Product Regulation Department of the FSA. An application fee will also be required.

2. (2)

   Under regulation 14 of the OEIC regulations, an application for a new ICVC must be determined by the FSA within six months of receipt. But within this statutory time frame, the FSA has set a higher service level standard. Except in exceptional circumstances, applicants can expect applications under regulation 12 to be resolved within six weeks of receipt by the FSA of all the relevant material.

1. (1)

   Section 242 of the Act provides that any application for an authorisation order in respect of an AUT must:

   1. (a)

      be made by the manager and trustee or the proposed manager and trustee of the AUT;

   2. (b)

      be made in such manner as the FSA directs; and

   3. (c)

      contain or be accompanied by such information as the FSA reasonably requires.

1. (1)

   As with ICVCs, application forms and a guidance note on how to apply are available free of charge from the FSA.

2. (2)

   Under section 244 of the Act, an application should be determined by the FSA within six months of receipt. As with ICVC applications, the FSA has set itself a higher service level standard. Except in exceptional circumstances, applicants can expect applications under section 242 to be resolved within six weeks of receipt of all relevant application material.

1. (1)

   Section 264 of the Act provides that a scheme which is constituted in another EEAState as a scheme meeting the requirements of the UCITS directive will become a recognised scheme two months after the operator notifies the FSA of its intention to market the scheme in the United Kingdom.

2. (2)

   The notification is required to include certain information, details of which are set out in CIS 17.2. As with the applications described above, a notification form and guidance note are available free from the FSA.

3. (3)

   Recognition is automatic, unless, within the two month period, the FSA notifies the operator that the manner in which it intends to market the scheme in the United Kingdom does not comply with United Kingdom law. However, the Act does not give the FSA any leeway to shorten the two month waiting period following notification before the scheme becomes recognised. Marketing activity in the United Kingdom can commence only once the scheme is recognised.

1. (1)

   Section 270 of the Act provides that a scheme authorised in another country or territory which has been designated by an order made by the Treasury can become a recognised scheme, subject to certain specified conditions. The scheme is required to be of a class specified in the designation order and the notification must include certain information, details of which are set out in CIS 17.3. As with EEA schemes, a notification form and guidance note are available free from the FSA.

2. (2)

   The scheme becomes recognised either when the FSA gives its written approval, or, in the absence of a notice from the FSA objecting to recognition, two months after notification by the operator. In practice, the FSA will normally contact the operator with its decision within the two month period.

1. (1)

   Section 272 of the Act provides that the operator of any other overseas collective investment scheme may apply for recognition, as long as certain criteria are met. These criteria are:

   1. (a)

      that the scheme is managed in a country or territory outside the United Kingdom;

   2. (b)

      that it does not satisfy the criteria to be recognised under section 264 of the Act (Schemes constituted in another EEA State);

   3. (c)

      that it does not satisfy the criteria to be recognised under section 270 of the Act (Schemes authorised in a designated countries or territories);

   4. (d)

      that adequate protection is afforded to participants in the scheme;

   5. (e)

      that there are adequate arrangements for the constitution and management of the scheme; and

   6. (f)

      that the powers and duties of the operator and, where there is one, the trustee or depositary, are adequate.

2. (2)

   The notification is required to include certain information, details of which are set out in CIS 17.3. Application forms and a guidance note are available free from the FSA.

3. (3)

   Under section 275 of the Act, the FSA is required to determine an application under section 272 within a period of six months from receipt of the completed application. Because of the wide variety of potential applications under this section of the Act, the FSA does not set a higher service level standard for completion of the application review.

4. (4)

   Under section 277 of the Act, the operator of a scheme which has been recognised under section 272 must give written notice to the FSA of any proposal to alter the scheme. Any proposal to replace the operator, trustee or depositary should be notified to the FSA by either the operator, trustee or depositary, or by its proposed replacement. As with proposed changes to AUTs and ICVCs, the FSA has one month to consider the proposal. If it does not respond within that time, the proposal automatically becomes effective. In practice, the FSA will always aim to respond within the one month period.

1. (1)

   Regulation 21 of the OEIC regulations provides that the ICVC must give written notice to the FSA of certain proposed changes to the ICVC (in practice the FSA would expect to receive any notification from the ACD). Any proposal involving a change to the instrument of incorporation must be accompanied by a signed solicitor's certificate.

2. (2)

   The FSA has one month to consider such proposals. In practice, the FSA will always aim to respond within the one month period.

1. (1)

   Section 251 of the Act provides that the manager of an AUT must give written notice to the FSA of any proposal to alter the scheme or replace the trustee. The FSA takes the view that only significant alterations need to be notified, but any alteration involving a change to the trust deed is considered significant. Alterations involving a change to the deed must be accompanied by a certificate signed by a solicitor, stating that the change will not affect the compliance of the deed with the rules in this sourcebook. Under the same section, the trustee of an AUT must give written notice of any proposal to replace the manager.

2. (2)

   The FSA has one month in which to consider the proposal. If it does not respond to the manager or trustee within that time, the proposal becomes effective. In practice, the FSA will always aim to respond within the one month period.

Revocation of authorisation or recognition is dealt with in separate chapters of this sourcebook. Revocation of authorisation of AUTs and voluntary winding up of ICVCs are dealt with in CIS 14 (Termination). Cessation of recognition is dealt with in CIS 17 (Recognised schemes).

1. (1)

   If the FSA proposes to refuse any application or object to a notification described in any of paragraphs CIS 16.1.4 G to CIS 16.1.7 G and CIS 16.1.9 G to CIS 16.1.12 G, it must give a warning notice. Where the FSA proposes to object to a notification under Section 264 of the Act (Schemes constituted in other EEA States); the FSA's notice will be similar to a warning notice.

2. (2)

   The Act provides that the warning notice must contain, amongst other matters, the FSA's reasons for proposing to refuse an application or object to a notification.

3. (3)

   Following receipt of the warning notice, the applicant will be given a specified period of not less than 28 days to make representations to the FSA.

4. (4)

   Further information on the procedure can be found in DEC 2.2 (Warning notice procedure).

1. (1)

   In certain circumstances, after having considered any written and oral representations made by the applicant, the FSA may decide to refuse the application or notification. If this happens, the FSA is required to give a decision notice.

2. (2)

   The Act provides that the decision notice must contain, amongst other matters, the FSA's reasons for its decision and the procedures for making a reference to the Financial Services and Markets Tribunal.

3. (3)

   Further information on the procedure can be found in DEC 2.3 (Decision notice procedure)

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.

Section 243(4) of the Act states that "The manager and the trustee must be persons who are independent of each other." As managers and trustees may have or develop corporate links, the FSA has given its view of the criteria against which independence, in the sense of this section of the Act, should be tested.

1. (1)

   There are at least three possible kinds of link between managers and trustees:

   1. (a)

      directors in common between the manager and the trustee;

   2. (b)

      cross-shareholdings;

   3. (c)

      a contractual commitment.

2. (2)

   If any of these links exist between a manager and a trustee, the FSA expects the following tests to be satisfied in order to ensure that independence is maintained.

3. (3)

   Influence by directors: independence would be lost if either company can control the action of the other by means of executive power. Accordingly, there should not be a majority of directors on the board of the trustee who simultaneously hold directorships on the board of the manager, or vice versa.

4. (4)

   Nor should there be any means by which one board could obtain effective, as opposed to legal, control of the other. So, for example, the FSA would not approve any arrangement, whether by means of quorum or of 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 of the other.

5. (5)

   In determining whether common directorships were curtailing independence, the FSA would interpret the concept of "common director" to include any directors of associates of the trustee who are simultaneously directors of the manager, and any directors of associates of the manager who are simultaneously directors of the trustee.

6. (6)

   Influence by shareholding: independence would be lost if either company can control the actions of the other by means of shareholders' votes. Accordingly, there should not be any shareholding in the trustee by the manager (or vice versa) which exceeds 15% of the other's share capital carrying voting rights - whether or not that share capital comprises a single or several classes of shares, however described. The FSA would be willing, however, to look at cases where cross-shareholding exceeds 15% on a case by case basis to see whether there were exceptional grounds for concluding that independence is nevertheless safeguarded by other means.

7. (7)

   In determining whether the 15% test was met, any shareholding held by an associate of the manager in the trustee, or by an associate of the trustee in the manager, would in each case be aggregated with shareholdings held directly by the manager or the trustee in the other.

8. (8)

   Independence: The FSA considers that independence will need to be specifically appraised in the event of a proposal by the trustee or manager (or any of either's associates) to enter into any arrangement with the other by which either party might agree to act on an exclusive (or near exclusive) basis in relation to the marketing of packaged products.1

9. (9)

   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.1

10. (10)

    Other commitments: the FSA also 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.

1. (1)

   Examples of the connected activities referred to in CIS 16.5.1 R(2) include management of group plans, as long as they are dedicated to investments in unit trusts and OEICS for which the firm acts as manager or ACD.

2. (2)

   The restrictions of business imposed by CIS 16.5.1 R reflect the position under Article 5 of the UCITS Directive. In accordance with recital (7) of the amending UCITS Management Directive (2001/107/EC) the activities referred to at CIS 16.5.1 R (3)(a) to (c) may be performed on behalf of EEA UCITS management companies.13