PERG 9.10 Significance of being an open-ended investment company

A number of controls apply under the Act to the promotion of shares or securities that are issued by any body corporate. These controls differ according to whether the person making the promotion is an unauthorised person (see PERG 9.10.2 G) or an authorised person (see PERG 9.10.3 G to PERG 9.10.6 G). In addition, where a body corporate is not an open-ended investment company:

1. (1)

   the requirements of Prospectus Rules relating to the publication of an approved prospectus may1 apply if its securities are offered to the public in the United Kingdom; and

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2. (2)

   the listing requirements under Part VI of the Act (Official listing) will apply if its securities are to be listed.

The controls under the Act that apply to promotions of shares or securities by unauthorised persons are in section 21 of the Act (Restrictions on financial promotion). These controls apply where an unauthorised person makes a financial promotion in, or from, the United Kingdom that relates to the shares in or securities of any body corporate. The same controls apply regardless of whether the shares or securities being promoted are issued by a body corporate that is an open-ended investment company or one that is not. There are a number of exemptions from the restriction in section 21 of the Act. These are explained in PERG 8 (Financial promotion and related activities).

Promotions made by authorised persons in the United Kingdom are generally subject to the controls inCOBS 4 (Communicating with clients, including financial promotions).3 However, in the case of shares in, or securities of, a body corporate which is an open-ended investment company, additional controls are imposed by Chapter II of Part XVII of the Act (Restrictions on promotion of collective investment schemes) (see PERG 8.20). Section 238 of the Act (Restrictions on promotion) prevents an authorised person communicating any invitation or inducement to buy shares or securities issued by an open-ended investment company. Section 240 of the Act (Restriction on approval of promotion) prevents an authorised person approving a financial promotion to be communicated by an unauthorised person. This is if the authorised person would not be able to promote the share or security himself.

The restrictions mentioned in PERG 9.10.3 G are subject to a number of exemptions. For example, the controls in sections 238 and 240 do not apply to financial promotions about certain kinds of collective investment scheme. These are:

1. (1)

   open-ended investment companies formed in Great Britain and authorised by the FCA under the Open-ended Investment Companies Regulations 2001;

2. (2)

   authorised unit trust schemes;

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3. (2A)

   authorised contractual schemes; and6

4. (3)

   collective investment schemes that are recognised schemes (see COLL 9 (Recognised schemes)).

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There are a number of other exemptions in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). In general terms, these exemptions are equivalent to the exemptions from section 21 of the Act that apply to units. There is guidance on those exemptions in PERG 8.20.3 G (Additional restriction on the promotion of collective investment schemes).

The FCA has also made rules under section 238(5) which allow authorised persons to communicate or approve a financial promotion for an open-ended investment company that is an unregulated collective investment scheme (that is, one that does not fall within PERG 9.10.4 G). The circumstances in which such a communication or approval is allowed are explained in COBS 4.12.4 R5

In the Regulated Activities Order, shares in or securities of an open-ended investment company are treated differently from shares in other bodies corporate. They are treated as units in a collective investment scheme under article 81 of the Regulated Activities Order (Units in a collective investment scheme) rather than shares under article 76 (Shares etc).

A person who carries on in the United Kingdom the business of engaging in any regulated activity that relates to units or shares will need to be an authorised person (see PERG 2.7 and PERG 2.8 (Authorisation and regulated activities)).

In order to be authorised, a person must have permission to carry on the regulated activities in question. What the permission needs to cover may differ according to whether the regulated activity being carried on relates to units or shares. So, for example, a body corporate that is an open-ended investment company will need permission if it carries on the regulated activity of dealing as principal or agent, arranging (bringing about) or making arrangements with a view to transactions in its own shares or securities in the United Kingdom. This applies also to a body corporate that is not an open-ended investment company except that it will not need permission to issue or arrange for the issue of its own shares or securities.

1. (1)

   A person carrying on the regulated activity of establishing, operating or winding up a collective investment scheme that is constituted as an open-ended investment company will need permission for those activities. In line with section 237(2) of the Act (Other definitions), the operator of a collective investment scheme that is an open-ended investment company is the company itself and therefore the starting point for an open-ended investment company that is incorporated in the United Kingdom is that it needs permission to operate itself. However, where an open-ended investment company is managed by a firm with a Part 4A permission to manage an AIF or manage a UK UCITS8the exclusion described in PERG 2.8.10 G (2)(b) means that the open-ended investment company would not carry on the regulated activity of establishing, operating or winding up a collective investment scheme.7

2. (2)

   If an open-ended investment company is authorised by the FCA under the OEIC Regulations it is an authorised person under Schedule 5 of the Act. As a result of paragraph 2(2) of Schedule 5 of the Act the company has permission, in so far as it is a regulated activity (other than managing an AIF), to carry on the operation of the scheme and any regulated activity in connection with or for the purposes of the operation of the scheme. As explained in (1) the company may not need the permission of establishing, operating or winding up a collective investment scheme in any event. However, as a result of article 18 of the Regulated Activities Order it would otherwise need permission to deal as principal because an open-ended investment company is excluded from the definition of a "company" for the purposes of that article.7

3. (3)

   If an open-ended investment company is authorised by the FCA under the OEIC Regulations and has only one director, the OEIC regulations require that director to be a body corporate which is an authorised person and which has a Part 4A permission to carry on the regulated activity of managing a UK UCITS8 or managing an AIF. This reflects the fact that, in those circumstances, the director is a separate legal person who is responsible for overseeing compliance by the company with requirements implementing the UCITS Directive or AIFMD.7