COLL 15.7 Powers and responsibilities of the authorised fund manager and the depositary

1This section applies to:

1. (1)

   an authorised fund manager of an AUT, ACS or an ICVC;

2. (2)

   any other director of an ICVC;

3. (3)

   the depositary of an AUT, ACS or an ICVC; and

4. (4)

   an ICVC,

   which is a long-term asset fund.

1. (1)

   1The authorised fund manager must manage the scheme in accordance with:

   1. (a)

      the instrument constituting the fund;

   2. (b)

      the applicable rules;

   3. (c)

      the most recently published prospectus; and

   4. (d)

      for an ICVC, the OEIC Regulations.

2. (2)

   1The authorised fund manager must carry out such functions as are necessary to ensure compliance with the rules that impose obligations on the authorised fund manager or ICVC, as appropriate.

3. (3)

   The authorised fund manager must:

   1. (a)

      make decisions as to the constituents of the scheme property in accordance with the investment objectives and policy of the scheme;

   2. (b)

      instruct the depositary how rights attaching to the ownership of scheme property are to be exercised;

   3. (c)

      take action immediately to rectify any breach of the pricing methodology set out in the prospectus, which must (unless the authorised fund manager determines on reasonable grounds that the breach is of minimal significance) extend to payment of money:

      1. (i)

         by the authorised fund manager to unitholders and former unitholders;

      2. (ii)

         by the ACD to the ICVC;

      3. (iii)

         by the ICVC to the ACD;

      4. (iv)

         by the authorised fund manager of the AUT or ACS to the depositary; or

      5. (v)

         by the depositary (for the account of the AUT or ACS) to the authorised fund manager;

   4. (d)

      ensure where relevant that the ICVC complies with the relevant obligations imposed by, and when appropriate exercises the relevant powers provided under, the OEIC Regulations;

   5. (e)

      maintain such records as are necessary to enable the authorised fund manager or the ICVC, as appropriate, to comply with and demonstrate compliance with the rules in this sourcebook and also in the case of an ICVC, the OEIC Regulations; and

   6. (f)

      maintain for a period of six years a daily record of the units held, acquired or disposed of by the authorised fund manager including the classes of such units, and of the balance of any acquisitions and disposals.

1. (1)

   1An authorised fund manager may give instructions to deal in the scheme property.

2. (2)

   An authorised fund manager must avoid the scheme property being used or invested contrary to any provision in COLL 15.6 (Investment and borrowing powers).

3. (3)

   An authorised fund manager must immediately on becoming aware of any breach of COLL 15.6 take action, at its own expense, to rectify that breach.

4. (4)

   An authorised fund manager must take the action in (3) immediately, except in circumstances where doing so would not be in the best interests of unitholders, in which case the action must be taken as soon as such circumstances cease to apply.

5. (5)

   An authorised fund manager must not postpone taking action in accordance with (3) unless the depositary has given its consent.

1Where reasonable grounds exist for an ACD of an ICVC, or an authorised contractual scheme manager of a co-ownership scheme which is an umbrella, to consider that a foreign law contract entered into by the ICVC or authorised contractual scheme manager on behalf of the co-ownership scheme may have become inconsistent with the principle of limited recourse stated in the instrument constituting the fund of the ICVC or co-ownership scheme (see COLL 15.3.6R(3)(5) and COLL 15.3.6R(3)(6)), the ACD or authorised contractual scheme manager of the co-ownership scheme must:

1. (1)

   promptly investigate whether there is an inconsistency; and

2. (2)

   if the inconsistency still appears to exist, take appropriate steps to remedy that inconsistency.

1. (1)

   1The depositary is responsible for the safekeeping of all the scheme property.

2. (2)

   The depositary must:

   1. (a)

      take all steps to ensure that transactions properly entered into for the account of the scheme are completed;

   2. (b)

      take all steps to ensure that instructions properly given by the authorised fund manager in respect of the exercise of rights related to scheme property are carried out;

   3. (c)

      ensure that any resulting benefit of a derivatives or forward transaction is received by itself in respect of the scheme;

   4. (d)

      hold and deal with any income received in respect of the scheme property in accordance with COLL 15.8.18R (Income);

   5. (e)

      take reasonable care to ensure that the scheme is managed by the authorised fund manager in accordance with:

      1. (i)

         the investment objectives, policy and strategy set out in the LTAF’s most recent prospectus;

      2. (ii)

         COLL 15.6 (Investment and borrowing powers);

      3. (iii)

         COLL 15.8.2R (Valuation, pricing and dealing);

      4. (iv)

         COLL 15.8.18 (Income); and

      5. (v)

         any provision of the instrument constituting the fund or the prospectus that relates to the provisions in (ii) to (iv);

   6. (f)

      where applicable, comply with its obligations under COLL 15.2.6R (Appointment of external valuer or authorised fund manager with knowledge, skills and experience of valuing long-term assets);

   7. (g)

      keep records so as to comply with the rules in this sourcebook and so as to demonstrate such compliance; and

   8. (h)

      be responsible for any other duties as set out in the instrument constituting the fund.

3. (3)

   If a relevant ICVC ceases to have any directors, the depositary may act in accordance with COLL 6.5.6R (ICVC without a director).

4. (4)

   This rule applies to the depositary of a long-term asset fund to the extent the provisions are consistent with the requirements of the AIFMD level 2 regulation.

   [Note: Articles 88 to 90 of the AIFMD level 2 regulation make provision relating to custody and safekeeping of scheme property. The AIFMD level 2 regulation applies to the depositary of a long-term asset fund because an LTAF must be managed by a full-scope UK AIFM.]

1The depositary must also:

1. (1)

   ensure that any scheme property in registered form is as soon as reasonably practicable registered in its name or that of its nominee or delegate, as appropriate; and

2. (2)

   take into its custody or control all documents of title of the scheme property other than in respect of derivatives or forward transactions.

1. (1)

   1The authorised fund manager and the depositary must ensure that any transaction in respect of the scheme property undertaken with an affected person is on terms at least as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm’s length with an independent third party.

2. (2)

   Paragraph (1) is subject to any provision in the instrument constituting the fund and the prospectus imposing a prohibition in relation to any type of transaction.

[Note: See articles 30 to 36 of the AIFMD level 2 regulation.]

1. (1)

   1The authorised fund manager or the depositary of an AUT or ACS (in accordance with their responsibilities as set out in the instrument constituting the fund) must maintain a register of unitholders as a document in accordance with this rule.

2. (2)

   The register must contain:

   1. (a)

      the name and address of each unitholder (for joint unitholders no more than four need to be registered);

   2. (b)

      the number of units (including fractions of a unit) of each class held by each unitholder; and

   3. (c)

      the date on which the unitholder was registered in the register for those units.

3. (3)

   The authorised fund manager or the depositary of an AUT or ACS (as appropriate) must take all reasonable steps and exercise all due diligence to ensure the register is kept complete and up to date.

4. (4)

   Where relevant, the authorised fund manager must immediately notify the depositary of an AUT or ACS of any information it receives which may affect the accuracy of any entry in the register.

5. (5)

   In the case of a limited partnership scheme, unregistered units may be held by the authorised contractual scheme manager as the agent for the scheme provided the authorised contractual scheme manager is not entered in the register as the new unitholder.

1Subject to any legal requirements which apply to the valuation of investments held or to be held in the scheme property of a long-term asset fund, the authorised fund manager of a long-term asset fund which carries on the valuation function itself must follow good market practice to value the investments held or to be held in the scheme property.

[Note: See FUND 3.9 (Valuation) and articles 67 to 71 of the AIFMD level 2 regulation.]

1Subject to any applicable legal requirements, the authorised fund manager of a long-term asset fund must use good market practice to:

1. (1)

   establish, implement and apply written policies and procedures on due diligence; and

2. (2)

   implement effective arrangements for ensuring that investment decisions on behalf of the long-term asset fund are carried out in compliance with the objectives, investment strategy and, where applicable, the risk limits of the scheme.

[Note: See articles 18 to 20 of the AIFMD level 2 regulation.]

1 COLL 15.7.17R to COLL 15.7.24R apply to an authorised fund manager of an AUT, ACS or ICVC.

1. (1)

   1An authorised fund manager must conduct an assessment at least annually for each scheme it manages of whether the payments out of scheme property set out in the prospectus are justified in the context of the overall value delivered to unitholders.

2. (2)

   In carrying out the assessment required by (1), the AFM must, separately for each class of units in a scheme, consider at least the matters set out in COLL 6.6.21R (Table: minimum considerations – assessment of value).

1Failure by an AFM to take sufficient steps to address any instance where a scheme’s charges are not justified in the context of the overall value delivered to unitholders may be relied on as tending to establish contravention of COBS 2.1.1R or COBS 2.1.4R as applicable.

1. (1)

   1An authorised fund manager of a long-term asset fund must conduct an assessment at least annually of how it has managed the LTAF in the best interests of the LTAF, the LTAF’s investors and the integrity of the market (see COBS 2.1.4R (AIFMs’ best interests rules)).

2. (2)

   In carrying out the assessment required by (1), the authorised fund manager must consider at least the matters set out in COLL 15.7.21R (Table: minimum considerations – valuation of investments, due diligence, conflicts of interest and liquidity management assessment).

1. (1)

   1An authorised fund manager must ensure that at least one quarter of the members of its governing body are independent natural persons. If the AFM’s governing body comprises fewer than eight members, the AFM must instead ensure that at least two of its members are independent natural persons.

2. (2)

   The authorised fund manager, in appointing an independent member of its governing body, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement.

3. (3)

   The authorised fund manager must take reasonable steps to ensure that independent members appointed to its governing body have sufficient expertise and experience to be able to make judgements on whether the AFM is managing each scheme in the best interests of unitholders.

4. (4)
   1. (a)

      Independent members of an AFM’s governing body must be appointed for terms of no longer than five years, with a cumulative maximum duration of ten years.

   2. (b)

      If an independent member is appointed to more than one governing body within an AFM’s group, the cumulative maximum duration of ten years referred to in (a) is calculated by adding the durations of each separate appointment and discounting periods during which appointments overlapped to avoid double counting.

   3. (c)

      In relation to a person who served as an independent director of an AFM’s governing body before 1 October 2019, the five-year term(s) and cumulative maximum duration of ten years run from that date.

5. (5)

   Independent members are not eligible for reappointment to an AFM’s governing body until five years have elapsed from the end of the ten-year period referred to in (4).

6. (6)

   The terms of employment on which independent members are appointed must be such as to secure their independence.

1. (1)

   1An AFM must allocate responsibility for ensuring its compliance with COLL 15.7.17R, COLL 15.7.20R, COLL 15.7.22R and COBS 2.1.4R (AIFMs’ best interests rules) to an approved person.

2. (2)

   Where the chair of the AFM’s governing body is an approved person, the AFM must allocate the responsibility set out in (1) to that person.

   [Note: See SYSC 24 (Senior managers and certification regime: Allocation of prescribed responsibilities).]