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PERG 9.11.1GRP

Table There are some frequently asked questions about the application of the definition of an open-ended investment company in the following table. This table belongs to PERG 9.2.4 G (Introduction).

Question

Answer

1

Can a body corporate be both open-ended and closed-ended at the same time?

In the FSA's view, the answer to this question is 'no'. The fact that the investment condition is applied to BC (rather than to particular shares in, or securities of, BC) means that a body corporate is either an open-ended investment company as defined in section 236 of the Act or it is not. Where BC is an open-ended investment company, all of its securities would be treated as units of a collective investment scheme for the purpose of the Act. A body corporate formed in another jurisdiction may, however, be regarded as open-ended under the laws of that jurisdiction but not come within the definition of an open-ended investment company in section 236 (and vice versa).

2

Can an open-ended investment company become closed-ended (or a closed-ended body become open-ended)?

In the FSA's view, the answer to this question is 'yes'. A body corporate may change from open-ended to closed-ended (and vice versa) if, taking an overall view, circumstances change so that a hypothetical reasonable investor would consider that the investment condition is no longer met (or vice versa). This might happen where, for example, an open-ended investment company stops its policy of redeeming shares or securities at regular intervals (so removing the expectation that a reasonable investor would be able to realise his investment within a period appearing to him to be reasonable). See also PERG 9.7.5 G.

3

Does the liquidation of a body corporate affect the assessment of whether or not the body is an open-ended investment company?

The FSA considers that the possibility that a body corporate that would otherwise be regarded as closed-ended may be wound up has no effect at all on the nature of the body corporate before the winding up. The fact that, on a winding up, the shares or securities of any investor in the body corporate may be converted into cash or money on the winding up (and so 'realised') would not, in the FSA's view, affect the outcome of applying the expectation test to the body corporate when looked at as a whole. The answer to Question 4 explains that investment in a closed-ended fixed term company shortly before its winding up does not, in the FSA's view, change the closed-ended nature of the company. For companies with no fixed term, the theoretical possibility of a winding up at some uncertain future point is not, in the FSA's view, a matter that would generally carry weight with a reasonable investor in assessing whether he could expect to be able to realise his investment within a reasonable period.

4

Does a fixed term closed-ended investment company become an open-ended investment company simply because the fixed term will expire?

In the FSA's view, the answer to this is 'no'. The termination of the body corporate is an event that has always been contemplated (and it will appear in the company's constitution). Even as the date of the expiry of the fixed term approaches, there is nothing about the body corporate itself that changes so as to cause a fundamental reassessment of its nature as something other than closed-ended. Addressing this very point in parliamentary debate, the Economic Secretary to the Treasury stated that the "aim and effect [of the definition] is to cover companies that look, to a reasonable investor, like open-ended investment companies". The Minister added that "A reasonable investor's overall expectations of potential investment in a company when its status with respect to the definition is being judged will determine whether it meets the definition. The matter is therefore, definitional rather than one of proximity to liquidation". (Hansard HC, 5 June 2000 col 124).

5

In what circumstances will a body corporate that issues a mixture of redeemable and non-redeemable shares or securities be an open-ended investment company?

In the FSA's view, the existence of non-redeemable shares or securities will not, of itself, rule out the possibility of a body corporate falling within the definition of an open-ended investment company. All the relevant circumstances will need to be considered (see PERG 9.6.4 G, PERG 9.2.8.8G and PERG 9.8.9 G). So the following points need to be taken into account.

  • The precise terms of the issue of all the shares or securities will be relevant to the question whether the investment condition is met, as will any arrangements that may exist to allow the investor to realise his investment by other means.
  • The proportions of the different share classes will be relevant to the impression the reasonable investor forms of the body corporate. A body corporate that issues only a minimal amount of redeemable shares or securities will not, in theFSA's view, be an open-ended investment company. A body corporate that issues a minimal amount of non-redeemable shares or securities will be likely to be an open-ended investment company. A body corporate that falls within the definition of an open-ended investment company is likely to have (and to be marketed as having) mainly redeemable shares or securities. However, whether or not the body corporate does fall within the definition in any particular case will be subject to any contrary indications there may be in its constitutional documents or otherwise.
  • Where shares or securities are only redeemable after the end of a stated period, this factor will make it more likely that the body corporate is open-ended than if the shares or securities are never redeemable.

6

Does "realised on a basis calculated wholly or mainly by reference to..." in section 236(3)(b) apply to an investor buying investment trust company shares traded on a recognised investment exchange because of usual market practice that the shares trade at a discount to asset value?

In the FSA's view, the answer is 'no' (for the reasons set out in PERG 9.9.4 G to PERG 9.9.6 G).

7

Does the practice of UK investment trust companies buying back shares result in them becoming open-ended investment companies?

In the FSA's view, it does not, because its actions will comply with company law: see section 236(4) of the Act and PERG 9.6.5 G.

8

Would a body corporate holding out redemption or repurchase of its shares or securities every six months be an open-ended investment company?

In the FSA's view a period of six months would generally be too long to be a reasonable period for a liquid securities fund. A shorter period affording more scope for an investor to take advantage of any profits caused by fluctuations in the market would be more likely to be a reasonable period for the purpose of the realisation of the investment (in the context of the 'expectation' test, see PERG 9.8 and, in particular, PERG 9.8.9 G which sets out the kind of factors that may need to be considered in applying the test).

9

Would an initial period during which it is not possible to realise investment in a body corporate mean that the body corporate could not satisfy the investment condition?

In the FSA's view, the answer to that question is 'no'. In applying the investment condition, the body corporate must be considered as a whole (see PERG 9.6.3 G). At the time that the shares or securities in a body corporate are issued, a reasonable investor may expect that he will be able to realise his investment within a reasonable period notwithstanding that there will first be a short-term delay before he can do so. Whether or not the 'expectation test' is satisfied will depend on all the circumstances (see PERG 9.8.9 G).
DISP 1.6.8GRP
When assessing a respondent's response to a complaint, the FSA may have regard to a number of factors, including, the quality of response, as against the complaints resolution rules, as well as the speed with which it was made.
PERG 4.3.3GRP
A person will only need authorisation or exemption if he is carrying on a regulated activity 'by way of business' (see section 22 of the Act (Regulated activities)). There are, in fact, three different forms of business test applied to the regulated mortgage activities. In the FSA's view, however, the difference in the business tests should have little practical effect.
REC 2.11.3GRP
In determining whether a UK recognised body has made satisfactory arrangements for the safeguarding and administration of assets belonging to the users of its facilities, the FSA may have regard to: (1) the level of protection which the arrangements provide against the risk of theft or other types or causes of loss;(2) whether the arrangements ensure that assets are only used or transferred in accordance with the instructions of the owner of those assets or in accordance with
COLL 9.3.2RRP
An operator of a scheme recognised under section 272 of the Act must ensure the prospectus:(1) contains a statement that "Complaints about the operation of the scheme may be made to the FSA."; and(2) states whether or not investors in the scheme would be covered by the compensation scheme, and if so, it must state how they are covered and who they would need to contact for further information.
SUP 4.2.1GRP
Section 340 of the Act gives the FSA power to make rules requiring an authorised person, or an authorised person falling into a specified class, to appoint an actuary3. Section 340 further empowers the FSA to make rules governing the manner, timing and notification to the FSA of such an appointment and, where an appointment is not made, for the FSA to make an appointment on the firm's behalf. The FSA's rule-making powers under section 340 of the Act also extend to an actuary's3
SYSC 10.2.3GRP
SYSC 10.2.2 R is made under section 147 of the Act (Control of information rules). It has the following effect:(1) acting in conformity with SYSC 10.2.2 R (1) provides a defence against proceedings brought under section 397(2) or (3) of the Act (Misleading statements and practices) - see sections 397(4) and (5)(c);(2) behaviour in conformity with SYSC 10.2.2 R (1) does not amount to market abuse (see SYSC 10.2.2 R (4)); and(3) acting in conformity with SYSC 10.2.2 R (1) provides
MCOB 9.5.4RRP
The illustration provided as part of the offer document in accordance with MCOB 6.4.1 R(1) must meet the requirements of MCOB 9.4, with the following modifications:(1) the illustration must be suitably adapted and revised to reflect the fact that the firm is making an offer to a customer and updated to reflect changes to, for example, for a lifetime mortgage3 the interest rate, charges, the exchange rate or the APR required by MCOB 10 (Annual Percentage Rate) at the date the illustration
COLL 4.3.2GRP
(1) The diagram in COLL 4.3.3 G explains how an authorised fund manager should treat changes it is proposing to a scheme and provides an overview of the rules and guidance in this section.(2) Regulation 21 of the OEIC Regulations (The Authority's approval for certain changes in respect of a company) and section 251 of the Act (Alteration of schemes and changes of manager or trustee) require the prior approval of the FSA for certain proposed changes to an authorised fund, including
PERG 4.2.3GRP
A person who is concerned to know whether his proposed activities may require authorisation will need to consider the following questions (these questions are a summary of the issues to be considered and have been reproduced, in slightly fuller form, in the flowchart in PERG 4.18):(1) will I be carrying on my activities by way of business (see PERG 4.3.3 G (The business test))?(2) if so, will my activities relate to regulated mortgage contracts (see PERG 4.4 (What is a regulated
PERG 5.9.1GRP
Under article 64 of the Regulated Activities Order (Agreeing to carry on specified kinds of activity), in addition to the regulated activities of:(1) dealing in investments as agent;(2) arranging (bringing about) deals in investments;(3) making arrangements with a view to transactions in investments;(4) assisting in the administration and performance of a contract of insurance; and(5) advising on investments;agreeing to do any of these things is itself a regulated activity. In
APER 1.2.3GRP
The Code of Practice for Approved Persons sets out descriptions of conduct which, in the opinion of the FSA, do not comply with a Statement of Principle and, in the case of Statement of Principle 3, conduct which tends to show compliance within that statement. The Code of Practice for Approved Persons also sets out, in certain cases, factors which, in the opinion of the FSA, are to be taken into account in determining whether or not an approved person's conduct complies with
PERG 8.8.3GRP
Where communications by persons in another EEA State are made to or directed at persons in the United Kingdom account must be taken of the effect of any relevant EU Directives. For example, the E-Commerce Directive will, with limited exceptions, prevent the United Kingdom from imposing restrictions on incoming financial promotions in information society services. The Treasury has given effect to this through the Financial Promotion Order (see1PERG 8.12.38 G). Other potentially
SUP 11.1.2RRP

Applicable sections (see SUP 11.1.1 R)

Category of firm

Applicable sections

(1)

A UK domestic firm other than a building society, a non-directive friendly society or a UK insurance intermediary3

All except SUP 11.3, SUP 11.4.2A RandSUP 11.4.4 R3

(1A)

A building society

(a) In the case of an exempt change in control (see Note), SUP 11.1, SUP 11.2andSUP 11.9

(b) In any other case, all except SUP 11.3, RandSUP 11.4.4 R3

(2)

A non-directive friendly society

SUP 11.1, SUP 11.2, andSUP 11.9

(2A) 3

A UK insurance intermediary3

all exceptSUP 11.3, SUP 11.4.2 R, SUP 11.4.3 GandSUP 11.4.4 R3

(3)

An overseas firm

All except SUP 11.3, SUP 11.4.2 R, SUP 11.4.2A R, SUP 11.4.3 G, SUP 11.4.9 G, SUP 11.5.8 G to SUP 11.5.10 G, SUP 11.6.2 R, SUP 11.6.3 R, SUP 11.6.6 G, SUP 11.73

Note

In row (1A), a change in control is exempt if the controller or proposed controller is exempt from any obligation to notify the FSA under Part XII of the Act (Control over Authorised Persons) because of The Financial Services and Markets Act 2000 (Controllers) (Exemption) (No 2) Order 2001 (SI 2001/3338). (See SUP 11.3.2A G).21
PERG 5.12.13GRP
The effect of the IMD is that any EEA-based insurance intermediaries must first be registered in their home EEA State before carrying on insurance mediation in that EEA State or other EEA States. For these purposes, an EEA-based insurance intermediary is either:(1) a legal person with its registered office or head office in an EEA State other than the United Kingdom; or(2) a natural person resident in an EEA State other than the United Kingdom.Registered EEA-based insurance intermediaries
LR 18.4.4RRP
Prior to any change of the depositary of certificates representing certain securities, the new depositary must satisfy the FSA that it meets the requirements of LR 18.2.11 R to LR 18.2.14 R.