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Timeline guidance

COLL 6.7 Payments

Application

COLL 6.7.1R

This section applies in accordance with COLL 6.7.2 R (Table of application).

Table of application

COLL 6.7.2RRP

Table of Application. This table belongs to COLL 6.7.1 R.

Rule

ICVC8

8

ACD8

8

Depositary of an ICVC, AUT or ACS8

Authorised fund manager of an AUT or ACS8

 8

6.7.1R to 6.7.5G

x

x

x

x

 8

6.7.6G

x

x

x

6.7.7R

x

x

6.7.8G

x

x

6.7.9R

x

x

6.7.10R

x

x

x

 8

6.7.11G

x

x

x

 8

6.7.12R

x

x

x

6.7.13G

x

x

x

6.7.14R

x

6.7.15R

x

x

x

x

 8

6.7.16G

x

x

x

 8

6.7.17R

x

x

x

Note: "x" means "applies", but not every paragraph in every rule will necessarily apply.

Purpose

COLL 6.7.3GRP
  1. (1)

    This section assists in securing the statutory objective of protecting consumers through requirements which govern the payments out of scheme property and charges imposed on investors when buying or selling units.

  2. (2)

    The requirements clarify the nature of permitted charges and payments and ensure the disclosure for unitholders of any increases in charges and payments to the authorised fund manager.

  3. (3)

    The prospectus should make adequate provision for payments from an authorised fund. This section:

    1. (a)

      prohibits, or stipulates the conditions on which, the payments out of the scheme property can be made;

    2. (b)

      requires certain payments to be conditional on disclosure in the prospectus; and

    3. (c)

      governs the allocation of payments between capital and income.

Payments out of scheme property

COLL 6.7.4RRP
  1. (1)

    The only payments which may be recovered from the scheme property of an authorised fund are those in respect of:

    1. (a)

      remunerating the parties operating the authorised fund;

    2. (b)

      the administration of the authorised fund;

    3. (c)

      the investment or safekeeping of the scheme property; or15

    4. (d)

      15subject to (1A), donations to one or more registered charities for Sharia compliance purposes (in this rule, ‘purification’), as set out in and authorised by the prospectus of the scheme.

  2. (1A)

    Payments relating to (1)(d) may only be made from the income property of the scheme where they represent the required percentage of the income property recognised for purification as advised by a person with appropriate knowledge of finance and Islamic law.

  3. (2)

    No payment under this rule can be made from scheme property if it is unfair to (or materially prejudices the interests of) any class of unitholders or potential unitholders.

  4. (3)

    Paragraphs (1) and (2) do not apply to any payments in relation to any taxation payable by the authorised fund.

  5. (4)

    Paragraphs (1) and (2) do not permit payments to third parties for the safekeeping or administration of units on behalf of unitholders rather than on behalf of the authorised fund.4

Payments out of scheme property: guidance

COLL 6.7.5GRP
  1. (1)

    Details of permissible types of payments out of scheme property are to be set out in full in the prospectus in accordance with COLL 4.2.5R (13) and COLL 4.2.5R (14) (Table: contents of the prospectus).

  2. (2)

    An authorised fund manager should consider whether a payment to an affected person is unfair because of its amount or because it confers a disproportionate benefit on the affected person.

    3
  3. (3)

    COLL 6.7.4 R (2) (Payments out of scheme property) does not invalidate a payment that gives rise to a difference between the rights of separate classes of unit that relates solely to the payments that may be taken out of scheme property.

  4. (4)

    Payments to third parties as referred to in COLL 6.7.4 R (4) include payments to platform service providers7 and other similar platform services.4

    7
  5. (5)

    15The person referred to in COLL 6.7.4R(1A) should be independent of the authorised fund manager and any registered charity to which payments may be made.

Performance fees

COLL 6.7.6GRP
  1. (1)

    For the authorised fund manager's periodic charge or for payments out of scheme property to the investment adviser, the prospectus may permit a payment based on a comparison of one or more aspects of the scheme property or price in comparison with fluctuations in the value or price of property of any description or index or other factor designated for the purpose (a "performance fee").

  2. (2)

    Any performance fee should be specified in the appropriate manner in the prospectus and should be consistent with COLL 6.7.4 R. In determining whether the performance fee is consistent the authorised fund manager should have regard to factors such as:

    1. (a)

      [deleted]14

    2. (b)

      where it is made on the basis of performance of the authorised fund against any index or any other factor, that benchmark must be reasonable given the investment objectives of the authorised fund and must be consistently applied;

    3. (c)

      it may be based on performance above a defined positive rate of return (the "hurdle rate"), which may be fixed or variable;

    4. (d)

      where (b) or (c) applies, the benchmark or hurdle rate may be carried forward to future accrual periods;

    5. (e)

      the period over which it accrues and the frequency with which it crystallises should be reasonable; and

    6. (f)

      except where allowed by COLL 6.7.4 R (1), there are to be no arrangements to adjust the price or value of sale or repurchase transactions in respect of performance fees accrued or paid if the transactions occur within the accrual period of the charge.

  3. (3)

    In accordance with COLL 4.2.5R (13) (Table: contents of prospectus) the prospectus should contain the maximum amount or percentage of scheme property that the performance fee might represent in an annual accounting period. This disclosure should be given in plain language together with examples of the operation of the performance fee.

COLL 6.7.6AR

14Any performance fee specified in the prospectus must be calculated on the basis of the scheme’s performance after deduction of all other payments out of scheme property.

Charges on buying and selling units

COLL 6.7.7RRP
  1. (1)

    No person other than the authorised fund manager may impose charges on unitholders or potential unitholders when they buy or sell units.

  2. (2)

    An authorised fund manager must not make any charge or levy in connection with:

    1. (a)

      the issue or sale of units except where a preliminary charge is made in accordance with the prospectus of the scheme which must be:10

      1. (i)

        10a fixed amount; or

      2. (ii)

        10calculated as a percentage of the price of a unit; or

      3. (iii)

        10calculated as a percentage of the amount being subscribed; or

    2. (b)

      the redemption or cancellation of units, except a redemption charge made in accordance with the prospectus current at the time the relevant units were purchased by the unitholder.

  3. (3)

    This rule is subject to 10 COLL 6.3.8 R (Dilution) and COLL 11.3.11 R (Obligations of the master UCITS).6

    6

Charges on buying and selling units: guidance

COLL 6.7.8GRP
  1. (1)

    To introduce a new charge for the sale or redemption of units, or any new category of remuneration for its services or increase the rate stated in the prospectus, the authorised fund manager will need to comply with COLL 4.2.5 R (Table: contents of prospectus) and COLL 4.3 (Approvals and notifications).

  2. (2)

    A redemption charge may be expressed in terms of amount or percentage. It may also be expressed as diminishing over the time during which the unitholder has held the units or be calculated on the basis of the unit price performance of the units. However any redemption charge should not be such that it could be reasonably regarded as restricting any right of redemption.

  3. (3)

    The prospectus should contain a statement as to the determination of the order in which units which have been acquired at different times by a unitholder are to be taken to be redeemed or cancelled for the purpose of the imposition of the redemption charge.

  4. (4)
    1. (a)

      10For a UCITS scheme, article 10(2)(a) of the KII Regulation requires the key investor information document to disclose the maximum percentage that might be deducted as an entry charge from the investor’s capital commitment.

    2. (b)

      10Where a preliminary charge is charged as a fixed amount or is calculated as a percentage of the price of a unit, the AFM should ensure that the actual amount charged, if it were expressed as a percentage of the amount being subscribed, does not exceed the maximum percentage stated as the entry charge in the key investor information document.

  5. (5)

    10When a preliminary charge is calculated as a percentage of the price of a unit, the percentage amount should be added to:

    1. (a)

      10the price of a unit (for a single-priced authorised fund); or

    2. (b)

      10the issue price (for a dual-priced authorised fund).

  6. (6)

    In relation to a regulated money market fund, any charges for the sale or redemption of units, and any change to such charges, should reflect the restrictions of the Money Market Funds Regulation.13

Charges for the exchange of units in an umbrella

COLL 6.7.9RRP

For a scheme which is an umbrella, an authorised fund manager must not make a charge on an exchange of units in one sub-fund for units in another sub-fund unless the amount of the charge is not more than the amount stated in the current prospectus.

Allocation of payments to income or capital

COLL 6.7.10RRP
  1. (1)

    The authorised fund manager must determine whether a payment is to be made from the income property or capital property of an authorised fund, and in doing so the authorised fund manager must:

    1. (a)

      pay due regard to whether the nature of the cost is income related or capital related and the objective of the scheme; and

    2. (b)

      agree the treatment of any payment with the depositary.

  2. (1A)

    15Where there is at least one class of units that distributes income and one class of units that accumulates income in the same authorised fund, the authorised fund manager can determine that a payment be made from:

    1. (a)

      the capital property of the authorised fund for the classes of units that distribute income; and

    2. (b)

      the income property of the authorised fund for classes of units that accumulate income,

      if this is set out in and authorised by the prospectus of the scheme.

  3. (2)

    Where, for any class of units5 for any annual accounting period, the amount of the income property is less than the income distributed, the shortfall must, as from the end of that period, be charged to the capital account and must not subsequently be transferred to the income account.

Allocation of payments to income or capital: guidance

COLL 6.7.11GRP
  1. (1)

    Any payment as a result of effecting transactions for the authorised fund should be made from the capital property of the scheme.

  2. (2)

    Other than the payments in (1), all other payments should be made from income property in the first instance but may be transferred to the capital account in accordance with COLL 6.7.10 R (1) (Allocation of payments to income or capital).

  3. (3)

    For payments transferred to the capital property of the scheme in accordance with (2), the prospectus should disclose the matters in COLL 4.2.5R (14).

  4. (4)

    If the authorised fund manager wishes to make a change in relation to the allocation of payments, the procedures in COLL 4.3 (Approvals and notifications) will be relevant.

Prohibition on promotional payments

COLL 6.7.12RRP
2
  1. (1)

    No payment may be made from scheme property to any person, other than a payment to the authorised fund manager permitted by the rules in COLL, for the acquisition or promotion of the sale of units in an authorised fund.2

  2. (2)

    2Paragraph (1) does3 not apply to the costs an authorised fund incurs3 preparing and printing the11 key investor information document6, NURS-KII document or key information document11, provided the prospectus states, in accordance with COLL 4.2.5 R (13) and (14) (Table: contents of the prospectus), that these costs are properly payable to the authorised fund manager from scheme property.

    3333

Prohibition on promotional payments: guidance

COLL 6.7.13GRP

Examples of payments which are not permitted by COLL 6.7.12 R include:

  1. (1)

    commission payable to intermediaries (such payments should normally be borne by the authorised fund manager);

  2. (2)

    payments or costs in relation to the preparation or dissemination of financial promotions (other than costs allowed under COLL 6.7.12 R (2)2).4

    2
  3. (3)

    [deleted]4

Movable or immovable property

COLL 6.7.14RRP

An ICVC must not incur any expense for the use by it of any movable or immovable property except to the extent that such property is necessary for the direct pursuit of its business or held in accordance with its investment objectives.

Payment of liabilities on transfer of assets

COLL 6.7.15RRP
  1. (1)

    Where the property of an authorised fund is transferred to a second authorised fund (or to the depositary for the account of the authorised fund) in consideration of the issue of units in the second authorised fund to unitholders in the first scheme, (2) applies.

  2. (2)

    The ICVC or the depositary of the ICVC, ACS or8 AUT as the successor in title to the property transferred, may pay out of the scheme property any liability arising after the transfer which, had it arisen before the transfer, could properly have been paid out of the property transferred, but only if:

    8
    1. (a)

      there is nothing in the instrument constituting the fund9 of the authorised fund expressly forbidding the payment; and

      9
    2. (b)

      the authorised fund manager is of the opinion that proper provision was made for meeting such liabilities as were known or could reasonably have been anticipated at the time of the transfer.

Exemptions from liability to account for profits

COLL 6.7.16GRP

Except as provided in COLL 6.3.5DR, an12 affected person is not liable to account to another affected person or to the unitholders of any scheme for any profits or benefits it makes or receives that are made or derived from or in connection with:

  1. (1)

    dealings in the units of a scheme; or

  2. (2)

    any transaction in scheme property; or

  3. (3)

    the supply of services to the scheme;

where disclosure of the non-accountability has been made in the prospectus of the scheme.

Allocation of scheme property

COLL 6.7.17RRP

For a scheme which is an umbrella, any assets to be received into, or any payments out of, the scheme property which are not attributable to one sub-fund only, must be allocated by the authorised fund manager between the sub-funds in a manner which is fair to the unitholders of the umbrella generally.