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COLL 3.1 Introduction

Application

COLL 3.1.1 R RP

This chapter applies to:

  1. (1)

    an authorised fund manager of an AUT, ACS1 or an ICVC;

  2. (2)

    any other director of an ICVC;

  3. (3)

    a depositary of an AUT, ACS1 or an ICVC; and

  4. (4)

    an ICVC,

where the AUT, ACS1 or ICVC is a UCITS scheme or a non-UCITS retail scheme.

Purpose

COLL 3.1.2 G RP

This chapter assists in achieving the statutory objective of protecting consumers. In particular:

  1. (1)

    COLL 3.2 (The instrument constituting the fund2) contains requirements about provisions which must be included in the instrument constituting the fund2 to give a similar degree of protection for investors in an ICVC, AUT or ACS;1 and

    221
  2. (2)

    COLL 3.3 (Units) provides rules and guidance which deal with the classes of units to ensure that investors in each class are treated equally.

COLL 3.2 The instrument constituting the fund14

Application

COLL 3.2.1 R RP

This section applies to:

  1. (1)

    an authorised fund manager of an AUT, ACS12 or ICVC;

  2. (2)

    any other director of an ICVC;

  3. (3)

    a depositary of an AUT, ACS12 or an ICVC;

    12
  4. (4)

    an ICVC; and12

  5. (5)

    a nominated partner;12

except COLL 3.2.8 R(UCITS obligations), which applies only to an ICVC or to the authorised fund manager of an AUT or ACS where the ICVC, AUT or ACS is a UCITS scheme.12

12

Relationship between the instrument constituting the fund and the rules14

COLL 3.2.2 R RP
  1. (1)

    The instrument constituting the fund14 must not contain any provision that:

    14
    1. (a)

      conflicts with any applicable rule15;

    2. (b)

      prevents units in the scheme being marketed in the United Kingdom; or

    3. (c)

      is unfairly prejudicial to the interests of unitholders generally or to the unitholders of any class of units.

  2. (2)

    Any power conferred by the rules on the ICVC, the authorised fund manager, any other director of the ICVC, or the depositary, whether in a sole or joint capacity, is subject to any restriction in the instrument constituting the fund.14

    14

The trust deed for AUTs

COLL 3.2.3 R RP

An AUT must be constituted by a trust deed made between the manager and the trustee.

The contractual scheme deed for ACSs

COLL 3.2.3A R RP

12An ACS must be constituted by a contractual scheme deed made between the authorised contractual scheme manager and:

  1. (1)

    the depositary, in the case of a co-ownership scheme; or

  2. (2)

    the nominated partner, in the case of a limited partnership scheme.

Matters which must be included in the instrument constituting the fund14

COLL 3.2.4 R RP

The statements and provisions required by COLL 3.2.6 R (Table: contents of the instrument constituting the fund14) must be included in the instrument constituting the fund,14 where appropriate.

14 14

The instrument constituting the fund: OEIC Regulations, Contractual Scheme Regulations and trust law requirements14

COLL 3.2.5 G RP
  1. (1)

    Several of the matters set out in COLL 3.2.6 R are required to be included in the instrument constituting the fund14 under the OEIC Regulations, Contractual Scheme Regulations12 or as a consequence of relevant trust law. In addition, further statements are required if the scheme or the authorised fund manager are to take advantage of the powers under the rules in this sourcebook.

    14
  2. (2)

    Additional matters which are not contained in COLL 3.2.6 R may be required to be included in the instrument constituting the fund14 in order to comply with the OEIC Regulations, (particularly Schedule 2 - Instrument of Incorporation), Contractual Scheme Regulations12 and for the purposes of making the scheme eligible under relevant tax, pensions, or charities legislation.

    14

Table: contents of the instrument constituting the fund14

COLL 3.2.6 R RP

This table belongs to COLL 3.2.4 R (Matters which must be included in the instrument constituting the fund14).17

14

Name of scheme

1

A statement of:

(1)

the name of the authorised fund; and

(2)

whether the authorised fund is a UCITS scheme or a non-UCITS retail scheme.

Investment powers in eligible markets

2

A statement that, subject to any restriction in the rules in this sourcebook or the instrument constituting the fund14, the scheme has the power to invest in any eligible securities market or deal on any eligible derivatives market to the extent that power to do so is conferred by COLL 5 (Investment and borrowing powers).

14

Unitholder's liability to pay

3

A provision that a unitholder in an AUT, ICVC or co-ownership scheme12 is not liable to make any further payment after he has paid the price of his units and that no further liability can be imposed on him in respect of the units which he holds.

3A

A provision that a unitholder in a limited partnership scheme is not liable for the debts or obligations of the limited partnership scheme beyond the amount of the scheme property which is available to the authorised contractual scheme manager to meet such debts or obligations, provided that the unitholder does not take part in the management of the partnership business.12

3B

A provision that the exercise of rights conferred on limited partners by FCArules does not constitute taking part in the management of the partnership business.12

Base currency

4

A statement of the base currency of the scheme.

Valuation and pricing

5

A statement setting out the basis for the valuation and pricing of the scheme.

Duration of the scheme

6

If the scheme is to be wound up after a particular period expires, a statement to that effect.

Object of the scheme

7

A statement:

(1)

as to the object of the scheme, in particular the types of investments and assets in which it and each sub-fund (where applicable) may invest; and

(2)

that the object of the scheme is to invest in property of that kind with the aim of spreading investment risk and giving unitholders the benefits of the results of the management of that property.

27A

Where the authorised fund is a qualifying money market fund, a statement to that effect and a statement that the authorised fund's investment objectives and policies will meet the conditions specified in the definition of qualifying money market fund.

[deleted]13

13

Government and public securities: investment in one issuer

8

Where relevant, for a UCITS scheme, a statement in accordance with COLL 5.2.12 R (Spread: government and public securities) with the names of 15the individual states, local authorities 15or public international bodies issuing or guaranteeing the transferable securities or approved money-market instruments15in which more than 35% in value of the scheme property may be invested15.

Classes of unit

9

A statement:

(1)

specifying the classes of unit that may be issued, and for a scheme which is an umbrella, the classes that may be issued in respect of each sub-fund; and

(2)

if the rights of any class of unit differ, a statement describing those differences in relation to the differing classes.

Authorised fund manager's charges and expenses

10

A statement setting out the basis on which the authorised fund manager may make a charge and recover expenses out of the scheme property.

Issue or cancellation directly through the ICVC or depositary of an AUT or ACS 12

11

Where relevant, a statement authorising the issue or cancellation of units to take place through the ICVC or depositary of an AUT or ACS directly.12

12

In specie issue and cancellation

12

Where relevant, a statement authorising payment for the issue or cancellation of units to be made by the transfer of assets other than cash.

Restrictions on sale and redemption

13

Where relevant, the restrictions which will apply in relation to the sale and redemption of units under COLL 6.2.16 R (Sale and redemption).

Voting at meetings

14

The manner in which votes may be given at a meeting of unitholders under COLL 4.4.8 R (Voting rights).

Certificates

15

A statement authorising the person responsible for the register to charge for issuing any document recording, or for amending, an entry on the register, other than on the issue or sale of units.16
15 12

Income

16

A statement setting out the basis for the distribution or re-investment of income.

Income equalisation

17

Where relevant, a provision for income equalisation.

Redemption or cancellation of units on breach of law or rules

18

A statement that where any holding of units by a unitholder is (or is reasonably considered by the authorised fund manager to be) an infringement of any law, governmental regulation or rule, those units must be redeemed or cancelled.

ICVCs: larger and smaller denomination shares

19

A statement of the proportion of a larger denomination share represented by a smaller denomination share for any relevant unit class.

ICVCs: resolution to remove a director

20

A statement that the ICVC may (without prejudice to the requirements of regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company), by a resolution passed by a simple majority of the votes validly cast for and against the resolution at a general meeting of unitholders, remove a director before his period of office expires, despite anything else in the ICVC's instrument of incorporation or in any agreement between the ICVC and that director.

ICVCs: unit transfers

21

A statement that the person designated for the purposes of paragraph 4 of Schedule 4 to the OEIC Regulations (Share transfers) is the person who, for the time being, is the ACD of the ICVC.1

7

ICVCs and ACSs: Charges and expenses12

22

A statement that charges or expenses of the ICVCor ACS12 may be taken out of the scheme property.10

10 ICVCs: Umbrella schemes - principle of limited recourse

1022A

For an ICVC which is an umbrella, a statement that the assets of a sub-fund belong exclusively to that sub-fund and shall not be used to discharge directly or indirectly the liabilities of, or claims against, any other person or body, including the umbrella, or any other sub-fund, and shall not be available for any such purpose.

Co-ownership schemes: umbrella schemes - principle of limited recourse

22B

For a co-ownership scheme which is an umbrella, a statement that the property subject to a sub-fund is beneficially owned by the participants in that sub-fund as tenants in common (or, in Scotland, is the common property of the participants in that sub-fund) and must not be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund.12

AUTs: governing law for a trust deed

23

A statement that the trust deed is made under and governed by the law of England and Wales, Wales or Scotland or Northern Ireland.

AUTs: trust deed to be binding and authoritative

24

A statement that the trust deed:

(1)

is binding on each unitholder as if it had been a party to it and that it is bound by its provisions; and

(2)

authorises and requires the trustee and the manager to do the things required or permitted of them by its terms.

AUTs: declaration of trust

25

A declaration that, subject to the provisions of the trust deed and all rules made under section 247 of the Act (Trust scheme rules) and for the time being in force:

(1)

the scheme property (other than sums standing to the credit of the distribution account) is held by the trustee on trust for the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of undivided shares in the scheme property represented by the units held by each unitholder; and

(2)

the sums standing to the credit of the distribution account are held by the trustee on trust to distribute or apply them in accordance with COLL 6.8 (Income: accounting, allocation and distribution).

AUTs: trustee's remuneration

26

Where relevant, a statement authorising payments to the trustee by way of remuneration for its services to be paid (in whole or in part) out of the scheme property.

AUTs: responsibility for the register

27

A statement identifying the person responsible under the rules for the maintenance of the register.

ACSs: governing law for a contractual scheme deed

1227A

A statement that the contractual scheme deed is made under and governed by the law of England and Wales, or Scotland or Northern Ireland.

ACSs: contractual scheme deed to be binding and authoritative

1227B

A statement that the contractual scheme deed:

(1)

is binding on each unitholder as if it had been a party to it and that it is bound by its provisions; and

(2)

authorises and requires the depositary and the authorised contractual manager to do the things required or permitted of them by its terms.

ACSs: ownership of scheme property

1227C

A statement that, subject to the provisions of the contractual scheme deed and all rules made under section 261I of the Act (Contractual scheme rules) and for the time being in force:

(1)

the scheme property (other than sums standing to the credit of the distribution account) is held by, or to the order of, the depositary for and on behalf of the unitholders according to the number of units held by each unitholder or, where relevant, according to the number of undivided shares in the scheme property represented by the units held by each unitholder;

(2)

the sums standing to the credit of the distribution account are held by the depositary to distribute or apply them in accordance with COLL 6.8 (Income: accounting, allocation and distribution); and

(3)

the scheme property of a co-ownership scheme is beneficially owned by the participants as tenants in common (or, in Scotland, is the common property of the participants).

ACSs: responsibility for the register

1227D

A statement identifying the person responsible under the rules for the maintenance of the register.

ACSs: UCITS and NURS eligible investors

1227E

For an ACS which is a UCITS scheme or a non-UCITS retail scheme, a statement that units may not be issued to a person other than a:

(1)

professional ACS investor;

(2)

large ACS investor; or

(3)

person who already holds units in the scheme.

1227F

A statement that the authorised contractual scheme manager must redeemunits as soon as practicable after becoming aware that those units are vested in anyone (whether as a result of subscription or transfer of units) other than a person meeting the criteria in paragraph 27E.

ACSs: UCITS and NURS transfer of units

1227G

(1)

A statement whether the transfer of units in the ACSscheme is either:

(a) prohibited; or

(b) allowed

(2)

Where transfer of units is allowed in accordance with (1)(b), a statement that units may only be transferred in accordance with the conditions specified by FCArules, including that units may not be transferred to a person other than a:

(a) professional ACS investor;

(b) large ACS investor; or

(c) person who already holds units in the scheme.

(3)

For a co-ownership scheme which is an umbrella, a statement in accordance with (1)(a) or (1)(b) and, where appropriate, a statement in accordance with (2), must also be made for the sub-funds. Where individual sub-funds have differing policies in relation to transfer of units, separate statements are required.

Co-ownership schemes: constitution

1227H

For a co-ownership scheme, a statement that the arrangements constituting the scheme are intended to constitute a co-ownership scheme as defined in section 235A(2) of the Act.

Co-ownership schemes: operator's powers

1227I

A statement that the operator of a co-ownership scheme is authorised to:

(1)

acquire, manage and dispose of the scheme property; and

(2)

enter into contracts which are binding on unitholders for the purposes of, or in connection with, the acquisition, management or disposal of scheme property.

Co-ownership schemes: winding-up

1227J

A statement that the operator and depositary of a co-ownership scheme are required to wind up the scheme if directed to do so by the FCA in exercise of its power under section 261X (Directions) or section 261Z (Winding up or merger of master UCITS) of the Act.

Limited partnership schemes: participants

1227K

A statement that the limited partners, other than the nominated partner, are to be the participants in the scheme.

Limited partnership schemes: resignation of limited partners

1227L

A statement that the scheme is not dissolved on any person ceasing to be a limited partner or nominated partner provided that there remains at least one limited partner.

Limited partnership schemes: inability to operate as an umbrella

1227M

A statement that the limited partnership scheme prohibits pooling as is mentioned in section 235(3)(a) of the Act in relation to separate parts of the scheme property, with the effect that the scheme cannot be an umbrella.

3 Investment in overseas 4 property through an intermediate holding vehicle

328

3If investment in an overseas4 immovable is to be made through an intermediate holding vehicle or a series of intermediate holding vehicles, a statement that the purpose of that intermediate holding vehicle or series of intermediate holding vehicles will be to enable the holding of overseas4 immovables by the scheme.

17 Transfers to a dormant asset fund operator

1729

(1)

Where relevant, a statement that the authorised fund manager and (if applicable) the depositary may transfer an eligible CIS amount which is a dormant asset to a dormant asset fund operator, specifying the particular types of eligible CIS amounts which may be so transferred.

(2)

Where relevant, a statement detailing the power of the authorised fund manager and (if applicable) the depositary to convert one or more units into a right to payment of an amount for transfer to a dormant asset fund operator, and a description of a person’s right to make a repayment claim in relation to the amount transferred.

(3)

Where relevant, a statement that the authorised fund manager and (if applicable) the depositary may transfer unwanted asset money to a dormant asset fund operator, and a description of the circumstances in which such money may be transferred.

[Note: In relation to transfers to a dormant asset fund operator, see COLL 3.2.6AR.]

Transfers to a dormant asset fund operator

COLL 3.2.6A R

17If the authorised fund manager or (where relevant) the depositary intends to make transfers of eligible CIS amounts that are dormant assets or unwanted asset money to a dormant asset fund operator, or intends to take a power of the type referred to in COLL 3.2.6R(29)(2), the applicable statements in COLL 3.2.6R(29)(1), (2) and (3) must be included.

COLL 3.2.7 R

[deleted]

UCITS obligations

COLL 3.2.8 R RP

  1. (1)

    The instrument constituting a UCITS scheme may not be amended in such a way that it ceases to be a UCITS scheme.

  2. (2)

    [deleted]9

    9
  3. (3)

    [deleted]9

    9

COLL 3.3 Units

Application

COLL 3.3.1 R RP

This section applies to an authorised fund manager, an ICVC and the depositary4 of an AUT or ACS.4

4

Classes of units

COLL 3.3.2 G RP
  1. (1)

    The instrument constituting the fund5 may provide for different classes of unit to be issued in an authorised fund and, for a scheme which is an umbrella, provide that classes of units may be issued for each sub-fund.

    5
  2. (2)

    In order to be satisfied that COLL 3.2.2 R (Relationship between the Instrument constituting the fund5and the rules) is complied with, the FCA will take into account the principles in (a) to (c) when considering proposals for unit classes:

    5
    1. (a)

      a unit class should not provide any advantage for that class if that would result in prejudice to unitholders of any other class;

    2. (b)

      the nature, operation and effect of the new unit class should be capable of being explained clearly to prospective investors in the prospectus; and

    3. (c)

      the effect of the new unit class should not appear to be contrary to the purpose of any part of this sourcebook.

Currency class units

COLL 3.3.3 G RP

A currency class unit differs from other units mainly in that its price, having been calculated initially in the base currency, will be quoted, and normally paid for, in the currency of the designation of the class. Income distributions will also be paid in the currency of designation of the class.

Currency class units: requirements

COLL 3.3.4 R RP

For a currency class unit:

  1. (1)

    the currency of the class concerned must not be the base currency (or, in the case of a sub-fund which, in accordance with a statement in the prospectus, is to be valued in some other currency, the currency of the class may be in the base currency, but must not be in that other currency);

  2. (2)

    the price must be expressed in the currency of the class concerned;

  3. (3)

    any distribution must be paid in the currency of the class concerned; and

  4. (4)

    statements of amounts of money or values included in statements and in tax certificates must be given in the currency of the class concerned (whether or not also given in the base currency).

Rights of unit classes

COLL 3.3.5 R RP
  1. (1)

    If any class of units in an authorised fund has different rights from another class of units in that fund, the instrument constituting the fund5 must provide how the proportion of the value of the scheme property and the proportion of income available for allocation attributable to each such class must be calculated.

    5
  2. (2)

    For an authorised fund which is not an umbrella, the instrument constituting the fund5 must not provide for any class of units in respect of which:

    5
    1. (a)

      the extent of the rights to participate in the capital property, income property or distribution account would be determined differently from the extent of the corresponding rights for any other class of units; or

    2. (b)

      payments or accumulation of income or capital would differ in source or form from those of any other class of units.

  3. (3)

    For a scheme which is an umbrella, the provisions in (2)(a) apply to classes of units in respect of each sub-fund as if each sub-fund were a separate scheme.

  4. (4)

    Paragraphs (2) and (3) do not prohibit a difference between the rights attached to one class of units and to another class of units that relates solely to:

    1. (a)

      the accumulation of income by way of periodical credit to capital rather than distribution; or

    2. (b)

      charges and expenses that may be taken out of the scheme property or payable by the unitholders; or

    3. (c)

      the currency in which prices or values are expressed or payments made; or1

      1
    4. (d)

      the use of derivatives and forward transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between the currency of a class of units2

      22

      and either the base currency of the scheme or any currency in which all or part of the scheme property is denominated or valued (in this section referred to as a "

      2

      class hedging transaction").1

Hedging of unit classes2

COLL 3.3.5A R RP

1A class hedging transaction must:

2
  1. (1)

    be undertaken in accordance with the requirements of COLL 5 (Investment and borrowing powers); and

  2. (2)

    (for the purposes of valuing scheme property and calculating the price of units in accordance with COLL 6.3 (Valuation and pricing)) be attributed only to the class of units2for which it is undertaken.

Guidance on hedging of unit2 classes

COLL 3.3.5B G RP
  1. (1)

    1Before undertaking a class hedging transaction for a class of units, the authorised fund manager should:

    2
    1. (a)

      ensure that the relevant prospectus clearly:

      1. (i)

        states that such a transaction may be undertaken for the relevant class of units2; and

      2. (ii)

        explains the nature of the risks that such a transaction may pose to investors in all classes;

    2. (b)

      consult the depositary about the adequacy of the systems and controls it uses to ensure compliance with COLL 3.3.5A R (Hedging of unit classes2); and

      2
    3. (c)

      consult the schemeauditor and, where appropriate, depositary to determine how:

      1. (i)

        the transaction will be treated in the scheme's accounts; and

      2. (ii)

        any consequential tax liability will be met;

      (in each case) without prejudice to unitholders of classes other than the relevant hedged 2class.

      2
  2. (2)

    Class2 hedging transactions should be entered into for the purpose of reducing risk by limiting the effect of movements in exchange rates on the value of a unit. Such transactions are not limited to currency class units.2 The authorised fund manager should ensure that the total value of the hedged position does not exceed the value of the relevant class of units 2unless there is adequate cover and it is reasonable for it to do so on a temporary basis for reasons of efficiency (for example, to avoid the need to make small and frequent adjusting transactions). In such cases, the difference between the value of the hedged position and the value of the class of units2should not be so large as to be speculative or to constitute an investment strategy.

    222

Requirement: larger and smaller denomination shares in an ICVC

COLL 3.3.6 R RP
  1. (1)

    This rule applies whenever the instrument of incorporation of an ICVC provides, in relation to any class, for smaller denomination shares and larger denomination shares.

  2. (2)

    Whenever a registered holding includes a number of smaller denomination shares that can be consolidated into a larger denomination share of the same class, the ACD must consolidate the relevant number of those smaller denomination shares into a larger denomination share.

  3. (3)

    The ACD may, to effect a transaction in shares, substitute for a larger denomination share the relevant number of smaller denomination shares, in which case (2) does not apply to the resulting smaller denomination shareholding or holdings until immediately after the completion of the transaction.

Characteristics of larger and smaller denomination shares in an ICVC

COLL 3.3.7 G RP

Regulation 45 of the OEIC Regulations (Shares) allows the rights attached to a share in an ICVC of any class to be expressed in two denominations, in which case the 'smaller' denomination must be such proportion of the 'larger' denomination (a standard share) as is fixed by the ICVC's instrument of incorporation as described in COLL 3.2.6R (19). This will enable holdings to consist of more or less than a complete number of larger denomination shares.

Sub-division and consolidation of units

COLL 3.3.8 R RP

  1. (1)

    The directors of an ICVC or the authorised fund manager4 of an AUT or ACS4 may, unless expressly forbidden to do so by the instrument constituting the fund,5 determine that:

    45
    1. (a)

      each unit of any class is to be subdivided into two or more units; or

    2. (b)

      units of any class are to be consolidated.

  2. (2)

    The ICVC or theauthorised fund manager of an AUT or ACS4 must (unless it has done so before the sub-division or consolidation became effective) immediately give notice to each unitholder (or the first named of joint unitholders) of any sub-division or consolidation under (1).

    4

Guarantees and capital protection

COLL 3.3.9 R RP

If there is any arrangement intended to result in a particular capital or income return from a holding of units in an authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding:

  1. (1)

    that arrangement or protection must not be such as to cause the possibility of a conflict of interest as between:

    1. (a)

      unitholders and the authorised fund manager or depositary; or

    2. (b)

      unitholders intended and not intended to benefit from the arrangement; and

  2. (2)

    where, in accordance with any statement required by COLL 4.2.5R (27)(c)(iv) (Table: contents of the prospectus), action is required by the unitholders to obtain the benefit of any guarantee, the authorised fund manager must provide reasonable notice in writing to unitholders before such action is required.

Switching rights: umbrella schemes

COLL 3.3.10 G RP
  1. (1)

    In accordance with section 235(4) of the Act (Collective investment schemes), the participants in a scheme which is an umbrella are entitled to exchange rights in one sub-fund for rights in another sub-fund of the umbrella.

  2. (2)

    To satisfy (1), where any sub-fund in a scheme which is an umbrella has provisions in its prospectus limiting the issue of units in that sub-fund, the authorised fund manager should ensure that at least two sub-funds are able to issue units at any time. In the case of an umbrella consisting of a single sub-fund that limits the issue of units, where the ICVC or the authorised fund manager of an AUT or co-ownership scheme4 of such an umbrella intends to offer additional sub-funds, it should ensure that unitholders will have the right to switch at all times between two or more sub-funds in that umbrella.3

    4