CIS 7.1 Introduction

This chapter assists in achieving the regulatory objective of protecting consumers as envisaged by section 2 and 5 of the Act, and supports, in their application to ICVCs and AUTs, Principles 3, 8 and 10, namely that a firm must:

1. (1)

   take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems;

2. (2)

   manage conflicts of interest fairly; and

3. (3)

   arrange adequate protection of clients' assets when it is responsible for them.

1. (1)

   This chapter includes rules:

   1. (a)

      to apportion responsibilities between the ACD, any other directors and the depositary of an ICVC;

   2. (b)

      to apportion responsibilities between the manager and trustee of an AUT;

   3. (c)

      to require the depositary of an ICVC to check that the ACD is carrying out certain of its functions in accordance with the rules in this sourcebook applicable to it;

   4. (d)

      to require the trustee of an AUT to check that the manager is carrying out certain of its functions in accordance with those rules;

   5. (e)

      relating to the depositary's duties in respect of the safe custody of the scheme property of an authorised fund;

   6. (f)

      to avoid conflicts of interest that could prejudice investors; and

   7. (g)

      to provide safeguards when the directors or depositary of an ICVC, or the manager or trustee of an AUT, have certain of their functions carried out by a third party.

2. (2)

   CIS 7.1.4 G to CIS 7.6.3 R concern the powers, duties and responsibilities of the directors, including the ACD, and the depositary of an ICVC. CIS 7.7 to CIS 7.11 and CIS 7 Annex 1 G concern the powers and duties of the manager and of the trustee of an AUT.

1. (1)

   The OEIC regulations require:

   1. (a)

      an ICVC to have at least one director; and

   2. (b)

      that if an ICVC has only one director, that director must be a body corporate which is an authorised person and has permission to act as a director of an ICVC;1

   3. (c)

      the business of an ICVC to be managed, where an ICVC has one director, by that director, or, where an ICVC has more than one director, by the directors, subject to the rules in this sourcebook as to the allocation between the directors of responsibilities for the management of the ICVC.

2. (2)

   This chapter includes the main rules that deal with the allocation mentioned in (1)(c), although other rules in this sourcebook also allocate responsibilities between directors. This chapter includes provisions concerning the appointment and termination of the appointment of an ACD.

3. (3)

   Each ICVC must have an ACD (or equivalent). Where an ICVC is formed with a sole director, that director will have to satisfy the requirements mentioned in (1)(b) and will be the ACD. In these circumstances the provisions that allocate responsibilities between directors do not apply. However, because under the OEIC regulations the ACD will then be responsible for the management of the ICVC, the disapplication will not result in a reduction in the ACD's responsibilities. 1

4. (4)

   Where there is more than one director, unless there is a vacancy in the position of ACD, no director other than the ACD is responsible for the exercise of any functions which, under this chapter, are to be exercised exclusively by the ACD. However, the board of directors is responsible for oversight of the ACD in the manner provided for in this chapter.

5. (5)

   The depositary is responsible for the safekeeping of scheme property entrusted to it. It has a number of other responsibilities and powers under this chapter and these responsibilities include ensuring that the ICVC is managed in accordance with the rules referred to in CIS 7.4.1 R (General duties of the depositary).

6. (6)

   It should be noted that the depositary and the directors are not only required to comply with the OEIC regulations and the rules in this sourcebook relevant to them, but, in accordance with paragraph 6(1) of schedule 2 to the OEIC regulations, they are also bound by the provisions of the ICVC's instrument of incorporation.

7. (7)

   The directors (including the ACD in its role as such) and the depositary may each, to the extent permitted by this chapter, retain the services of others to assist them to perform their respective functions. Where there is a vacancy in the position of an ACD, the directors must appoint one or more authorised persons to assist them in performing the functions that it would otherwise be the duty of the ACD to perform. Where there are no directors, the depositary's powers are extended, temporarily, to enable it to manage the scheme property.

8. (8)

   CIS 7.6.3 R (Conflicts of interest) also contains requirements relating to transactions entered into between the ICVC and certain persons directly or indirectly connected with it. A transaction which complies with that rule remains subject to regulation 44 of the OEIC regulations, under which certain transactions between an ICVC and a director of it, or an associate of any such director, may be voidable.