COLL 6.9 Independence, names and UCITS business restrictions

9Articles 20 to 24 of the UCITS level 2 regulation set out detailed provisions that must be read by the authorised fund manager and the depositary of a UCITS scheme alongside COLL 6.9.2G to COLL 6.9.5G.

1. (1)

   Regulation 15(8)(f) of the OEIC Regulations (Requirements for authorisation) requires independence between the depositary, the ICVC and the ICVC's directors, as does section 243(4) of the Act (Authorisation orders) for the trustee and manager of an AUT, and section 261D(4) of the Act (Authorisation orders) for the depositary and authorised fund manager of an ACS6. COLL 6.9.3 G to COLL 6.9.5 G give the6 FCA's view of the meaning of independence of these relationships. An ICVC, its directors and depositary or a manager and a trustee of an AUT or an authorised fund manager and depositary of an ACS6 are referred to as "relevant parties" in this guidance.

2. (2)

   There are at least three possible kinds of links between the relevant parties:

   1. (a)

      directors in common;

   2. (b)

      cross-shareholdings; and

   3. (c)

      contractual commitments.

3. (3)

   If any of these links exist between the relevant parties, the FCA will have regard to COLL 6.9.3 G to COLL 6.9.5 G in determining whether there is independence.

1. (1)

   Independence is likely to be lost if, by means of executive power, either relevant party could control the action of the other.

2. (2)

   The board of one relevant party should not be able to exercise effective control of the board of another relevant party. Arrangements which might indicate this situation include quorum provisions and reservations of decision-making capacity of certain directors.

3. (3)

   For an AUT or ACS6, the FCA would interpret the concept of directors in common to include any directors of associates of one relevant party who are simultaneously directors of the other relevant party.

4. (4)

   For an ICVC, independence would not be met if:

   1. (a)

      a director of the ICVC or any associate of the director is a director, an employee, or both of the depositary; or

   2. (b)

      a director of an ICVC:

      1. (i)

         has a direct or indirect shareholding for investment purposes of more than 0.5% of the votes at a general meeting or a meeting of holders of the class of share concerned of the depositary of that ICVC; or

      2. (ii)

         has any other relationship with the depositary which might reasonably be expected to give rise to a potential conflict of interest.

Independence is likely to be lost if either of the relevant parties could control the actions of the other by means of shareholders' votes. The FCA considers this would happen if any shareholding by one relevant party and their respective associates in the other exceeds 15% of the voting share capital, either in a single share class or several share classes. The FCA would be willing, however, to look at cross-shareholdings exceeding 15% on a case-by-case basis to consider if there were exceptional grounds for concluding that independence was safeguarded by other means.

The FCA would encourage relevant parties to consult it in advance about its view on the consequences of any intended contractual commitment or relationship which could affect independence, whether directly or indirectly.

1. (1)

   Regulation 15(9) of the OEIC Regulations, and sections 243(8) and 261D(10)6 of the Act require that an authorised fund's name must not be undesirable or misleading. This section contains guidance on some specific matters the FCA will consider in determining whether the name of an authorised fund is undesirable or misleading. It is in addition to the requirements of regulation 19 of the OEIC Regulations (Prohibition on certain names).

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2. (2)

   The FCA will take into account whether the name of the scheme:

   1. (a)

      is substantially similar to the name of another authorised fund;

   2. (b)

      implies that the authorised fund has merits which are not, or might not be, justified;

   3. (c)

      implies that the authorised fund manager has particular qualities, which may not be justified;

   4. (d)

      is inconsistent with the authorised fund's investment objectives or policy;

   5. (e)

      implies that the authorised fund is not an authorised fund (for example, describing the authorised fund as a "plan" or "account" are unlikely to be acceptable); and

   6. (f)

      might mislead investors into thinking that persons other than the authorised fund manager are responsible for the authorised fund.

3. (3)

   The FCA is unlikely to approve a name of an authorised fund that includes the word "guaranteed" unless:

   1. (a)

      the guarantee is given by:

      1. (i)

         an authorised person;

      2. (ii)

         a person which is established in an EEA State and equivalent to an authorised person12; or

      3. (iii)

         a person subject to prudential supervision in accordance with criteria defined by UK12 law or prudential rules at least as stringent as those laid down by UK12 law;

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      other than the authorised fund manager or the depositary.

   2. (b)

      the authorised fund manager can demonstrate that the guarantor has the authority and resources to honour the terms of the guarantee;

   3. (c)

      the guarantee covers all unitholders within the authorised fund and is legally enforceable by each Unitholder who is intended to benefit from it or by a person acting on that unitholder's behalf;

   4. (d)

      the guarantee relates to the total amount paid for a unit which includes any charge or other costs of buying or selling units in the authorised fund;

   5. (e)

      the guarantee provides for payment at a specified date or dates and is unconditional although reasonable commercial exclusions such as force majeure may be included; and

   6. (f)

      where the guarantee applies to different classes of unit, it is identical in its application to all classes except for the differences attributable to income already received or charges already suffered by the different classes of unit.

4. (4)

   The name of an authorised fund may indicate a guaranteed capital return or income return or both but only if the total amount paid for a unit is guaranteed in accordance with (3).

5. (5)

   The FCA is unlikely to approve a name of an authorised fund that includes words implying a degree of capital security (such as "capital protected" or anything with a similar meaning) unless the degree of capital security is apparent from the name and clearly stated in the prospectus, and:

   1. (a)

      the principles in (3) are satisfied except that, for the purposes of (3)(d), the guarantee may relate to an amount not materially less than the total amount paid for a unit; or

   2. (b)

      the investment objective and investment policy for the authorised fund are such as to show a clear intention to provide a material degree of security in respect of the total amount paid for a unit.

6. (6)

   When determining whether (5) is complied with, the FCA will take into account whether the degree of capital security implied by the name fairly reflects the nature of the arrangements for providing that security. This assessment will take place on a case-by-case basis.

When deciding whether COLL 6.9.7R is complied with, the FCA will take into account COLL 6.9.6G. COLL 6.9.7R applies generally and not just to the names that include the words "guaranteed" or "capital protected".

1. (1)

   8ESMA has issued guidelines on the use of the term ‘UCITS ETF’. A ‘UCITS ETF’ is a UCITS with at least one unit or share class which is traded throughout the day, on at least one regulated market or multilateral trading facility, with at least one market maker that takes action to ensure that the stock exchange value of its units or shares does not significantly vary from its net asset value and, where applicable, its indicative net asset value.

2. (2)

   A ‘UCITS ETF’ should use the identifier ‘UCITS ETF’ which identifies it as an exchange traded fund. This identifier should be used in its name, fund rules, instrument of incorporation, prospectus, key investor information document or marketing communications. 12

3. (3)

   A UCITS which is not a ‘UCITS ETF’ should not use the ‘UCITS ETF’ identifier, ‘ETF’ or ‘exchange traded fund’ in its name or in any of the documents or communications referred to in (2).

[Note: ESMA's Guidelines to competent authorities and UCITS management companies on ETFs and other UCITS issues (ESMA/2012/832)]

1. (1)

   Examples of the connected activities referred to in COLL 6.9.9 R (2) include management of group plans, as long as they are dedicated to investments in unit trust schemes, co-ownership schemes, limited partnership schemes6 and OEICs for which the firm acts as an authorised fund manager.

2. (2)

   The 12activities referred to at COLL 6.9.9R (3) (a) to COLL 6.9.9R (3) (c) may be performed on behalf of EEA UCITS management companies.

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