Related provisions for PERG 6.5.2

PERG 2:

Authorisation and regulated activities

• an unauthorised person wishing to find out whether he needs to be authorised or exempt
• an authorised person wishing to know whether he needs to vary hisPart IV permission

• the regulatory scope of the Act
• the Regulated Activities Order
• the Exemption Order
• the Business Order

PERG 3A:8

Guidance on the scope of the Electronic Money Regulations8

a person who needs to know

• whether a particular electronic payment product is8electronic money8 and whether the person issuing it needs to be8 authorised or registered under the Electronic Money Regulations8

• the scope of the8Electronic Money Regulations8

PERG 4:

Regulated activities connected with mortgages

any person who needs to know whether the activities he conducts in relation to mortgages are subject to FSA regulation. This is likely to include:

• lenders
• administration service providers
• mortgage brokers and advisers

the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with mortgages

PERG 5:

Insurance

mediation

activities

any person who needs to know whether he carries on insurance mediation activities and is, thereby, subject to FSA regulation. This is likely to include:

• insurance brokers
• insurance advisers
• insurance undertakings
• other persons involved in the sale or administration of contracts of insurance, where these activities are secondary to their main business.

the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with the sale or administration of insurance

PERG 6:

Identification of contracts of insurance

any person who needs to know whether a contract with which he is involved is a contract of insurance

the general principles and range of specific factors that the FSA regards as relevant in deciding whether any arrangement is a contract of insurance

PERG 7:

Periodical publications, news services and broadcasts: application for certification

any person who needs to know whether he will be regulated for providing advice about investments through the medium of a periodical publication, a broadcast or a news service

• the circumstances in which such persons will be carrying on the regulated activities of advising on investments or advising on regulated mortgage contracts (including where a request for a certificate may be appropriate)
• how theFSA will exercise its power to grant certificates

PERG 8:

Financial promotion and related activities

any person who needs to know

• whether his communications are financial promotions or are subject to the restriction in section 21 of the Act or both
• whether his activities in making or helping others to make financial promotions are regulated activities.

• the scope of the restriction on financial promotion under section 21 of the Act and the main exemptions provided
• the circumstances in which persons who are primarily involved in making or helping others to make financial promotions may themselves be conducting regulated activities requiring authorisation or exemption

PERG 9:

Meaning of open-ended investment company

any person who needs to know whether a body corporate is an open-ended investment company as defined in section 236 of the Act (Open-ended investment companies) and is therefore a collective investment scheme.

the circumstances in which a body corporate will be an open-ended investment company

PERG 10:

Activities related to pension schemes

Any person who needs to know whether his activities in relation to pension schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.1

• the regulated activities that arise in connection with the establishment and operation of pension schemes and any exclusions that may be relevant
• the circumstances in which financial promotions about pension schemes may be exempt from the restriction in section 21 of the Act1

4PERG 11:

Property investment clubs and land investment schemes

Any person who needs to know whether his activities in relation to property investment clubs and land investment schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.

• the regulated activities that may arise in connection with the establishment and operation of property investment clubs and land investment schemes and any exclusions that may be relevant
• the extent to which the financial promotion restriction in section 21 of the Act applies

2PERG 12:

Running or advising on personal pension schemes

any person who needs to know whether his activities in relation to establishing, running, advising on or marketing personal pension schemes will amount to regulated activities

the regulated activities that arise in connection with establishing, running, advising on or marketing personal pension schemes and any exclusions that may be relevant

3PERG 13:

Guidance on the scope of the Markets in Financial Instruments Directive and the recast Capital Adequacy Directive

Any UK person who needs to know whether MiFID or the recast CADas implemented in the UK apply to him5

the scope of MiFID and the recast CAD5

3PERG 14:

Home reversion,7 home finance and regulated sale and rent back 7activities

Any person who needs to know whether his activities in relation to home reversion plans,7home purchase plans or regulated sale and rent back agreements7will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.

• the regulated activities that arise in connection with home reversion plans,7 home purchase plansand regulated sale and rent back agreements7and any exclusions that may be relevant
• the circumstances in which financial promotions about home reversion plans,7home purchase plansand regulated sale and rent back agreements7may be made without breaching the restriction in section 21 of the Act

6PERG 15: Guidance on the scope of the Payment Services Regulations 2009

Any person with an establishment in the UK who needs to know whether the Payment Services Directive, as transposed in UK legislation by the Payment Services Regulations 2009, applies to him.

Q46 applies specifically to persons providing payment services from an establishment outside the EEA to persons located in the UK.

the scope of the PSD Regulations 2009.

Correction of box management errors

1

Controls by authorised fund managers

An authorised fund manager needs to be able to demonstrate that it has effective controls over:

(1)

its calculations of what units are owned by it (its 'box'); and

(2)

compliance with COLL 6.2.8 R which is intended to prevent a negative box.

2

Controls by depositaries

(1)

Under COLL 6.6.4 (General duties of the depositary), a depositary should take reasonable care to ensure that a scheme2 is managed in accordance with COLL 6.2 (Dealing) and COLL 6.3 (Pricing and valuation).

(2)

A depositary should therefore make a regular assessment of the authorised fund manager's box management procedures (including supporting systems) and controls. This should include reviewing the authorised fund manager's controls and procedures when the depositary assumes office, on any significant change and on a regular basis, to ensure that a series of otherwise minor changes do not have a cumulative and a significant effect on the accuracy of the controls and procedures.

3

Recording and reporting of box management errors

(1)

An authorised fund manager should record all errors which result in a breach of COLL 6.2.8 R (Controls over the issue and cancellation of units) and as soon as an error is discovered, the authorised fund manager should report the fact to the depositary, together with details of the action taken, or to be taken, to avoid repetition of the error.

(2)

A depositary should report material box management errors to the FSA immediately. Materiality should be determined by taking into account a number of factors including:

• the implications of the error for the sufficiency of controls put into place by the authorised fund manager;
• the significance of any breakdown in the authorised fund manager's management controls or other checking procedures;
• the significance of any failure of systems or back-up arrangements;
• the duration of an error; and
• the level of compensation due to the scheme, and an authorised fund manager's ability (or otherwise) to meet claims for compensation in full.

(3)

A depositary should also make a return to the FSA (in the manner prescribed by SUP 16.6.8 R) on a quarterly basis.

1Introduction

1.

An accredited body is a body recognised by the FSA to act as an accredited body.

2.

Information on accredited bodies, including guidance on the process for including an applicant body in the list, is set out below and the obligation to pay the application fee is set out in FEES 3.2.

3.

The role of an accredited body relates to rules in TC which come into force on 31 December 2012.

Process for including a body in the list of accredited bodies

4.

In considering the compatibility of a proposed addition with the regulatory objectives, the FSA will determine whether the applicant will, if accredited, contribute to securing an appropriate degree of protection for consumers having regard in particular to:

(1)

the matters set out in paragraphs 10 to 20; and

(2)

the rules and practices of the applicant.

5.

An application to the FSA to be added to the list of accredited bodies should set out how the applicant will satisfy the criteria in paragraphs 10 to 20. The application should be accompanied by a report from a suitable auditor which sets out its independent assessment of the applicant's ability to meet these criteria. An application form is available from the FSA upon request.

6.

When considering an application for accredited body status the FSA may:

(1)

carry out any enquiries and request any further information that it considers appropriate, including consulting other regulators;

(2)

ask the applicant or its specified representative to answer questions and explain any matter the FSA considers relevant to the application;

(3)

take into account any information which the FSA considers appropriate to the application; and

(4)

request that any information provided by the applicant or its specified representative is verified in such a manner as the FSA may specify.

7.

The FSA will confirm its decision in writing to the applicant.

8.

The FSA will enter into an agreement with the applicant or accredited body which will specify the requirements that the accredited body must meet. These will include the matters set out in paragraphs 10 to 20. Approval as an accredited body becomes effective only when the name of the applicant is added to the Glossary definition of accredited body.

9.

Paragraphs 10 to 20 set out the criteria which an applicant should meet to become an accredited body and which an accredited body should meet at all times.

Acting in the public interest and furthering the development of the profession

10.

The FSA will expect an accredited body to act in the public interest, to contribute to raising consumer confidence and professional standards in the retail investment advice market and to promoting the profession.

Carrying out effective verification services

11.

If independent verification of a retail investment adviser's professional standards has been carried out by an accredited body, the FSA will expect the accredited body to provide the retail investment adviser with evidence of that verification in a durable medium and in a form agreed by the FSA. This is referred to in this Appendix and TC 2.1.28 R as a 'statement of professional standing'.

12.

The FSA will expect an accredited body to have in place effective procedures for carrying out its verification activities. These should include:

(1)

verifying that each retail investment adviser who is a member of or subscriber to the accredited body's verification service has made an annual declaration in writing that the retail investment adviser has, in the preceding 12 months, complied with APER and completed the continuing professional development required;

(2)

verifying annually the continuing professional development records of no less than 10% of the retail investment advisers who have used its service in the previous 12 months to ensure that the records are accurate and the continuing professional development completed by the retail investment advisers is appropriate; and

(3)

verifying that, if required by TC, the retail investment advisers who use its services have attained an appropriate qualification. This should include, where relevant, checking that appropriate qualification gap-fill records have been completed by the retail investment advisers.

13.

The FSA will not expect an accredited body to carry out the verification in paragraph 12(3) if a retail investment adviser provides the accredited body with evidence in a durable medium which demonstrates that another accredited body has previously verified the retail investment adviser's appropriate qualification, including, where relevant, appropriate qualification gap-fill.

14.

The FSA will expect an accredited body to make it a contractual condition of membership (where a retail investment adviser is a member of the accredited body) or of using its verification service (where a retail investment adviser is not a member of the accredited body) that, as a minimum, the accredited body will not continue to verify a retail investment adviser's standards and will withdraw its statement of professional standing if the accredited body is provided with false information in relation to a retail investment adviser's qualifications or continuing professional development or a false declaration in relation to a retail investment adviser's compliance with APER.

In this regard, an accredited body must have in place appropriate decision-making procedures with a suitable degree of independence and transparency.

Having appropriate systems and controls in place and providing evidence to the FSA of continuing effectiveness

15.

The FSA will expect an accredited body to ensure that it has adequate resources and systems and controls in place in relation to its role as an accredited body.

16.

The FSA will expect an accredited body to have effective procedures in place for the management of conflicts of interest and have a well-balanced governance structure with at least one member who is independent of the sector.

17.

The FSA will expect an accredited body to have a code of ethics and to ensure that its code of ethics and verification service terms and conditions do not contain any provisions that conflict with APER.

Ongoing cooperation with the FSA

18.

The FSA will expect an accredited body to provide the FSA with such documents and information as the FSA reasonably requires, and to cooperate with the FSA in an open and transparent manner.

19.

The FSA will expect an accredited body to share information with the FSA (subject to any legal constraints) in relation to the professional standards of the retail investment advisers who use its service as appropriate. Examples might include conduct issues, complaints, dishonestly obtaining or falsifying qualifications or continuing professional development or a failure to complete appropriate continuing professional development. The FSA will expect an accredited body to notify the firm if issues such as these arise.

20.

The FSA will expect an accredited body to submit to the FSA an annual report by a suitable independent auditor which sets out that auditor's assessment of the quality of the body's satisfaction of the criteria in paragraphs 10 to 19 in the preceding 12 months and whether, in the auditor's view, the body is capable of satisfying the criteria in the subsequent 12 months. The FSA will expect this annual report to be submitted to the FSA within three months of the anniversary of the date on which the accredited body was added to the Glossary definition of accredited body.

Withdrawal of accreditation

21.

If an accredited body fails or, in the FSA's view, is likely to fail to satisfy the criteria, the FSA will discuss this with the accredited body concerned. If, following a period of discussion, the accredited body has failed to take appropriate corrective action to ensure that it satisfies and will continue to satisfy the criteria, the FSA will withdraw the accredited body's accreditation by removing its name from the list of accredited bodies published in the Glossary. The FSA will expect the body to notify each retail investment adviser holding a current statement of professional standing of the FSA's decision. A statement of professional standing issued by the accredited body before the withdrawal of accreditation will continue to be valid until its expiration.

Valuation and pricing

1

The valuation of scheme property

(1)

Where possible, investments should be valued using a reputable source. The reliability of the source of prices should be kept under regular review.

(2)

For some or all of the investments comprising the scheme property, different prices may quoted according to whether they are being bought (offer prices) or sold (bid prices). The valuation of a single-priced authorised fund should reflect the mid-market value of such investments. In the case of a dual-priced authorised fund, the issue basis of the valuation will be carried out by reference to the offer prices of investments and the cancellation basis by reference to the bid prices of those same investments. The prospectus should explain how investments will be valued for which a single price is quoted for both buying and selling.1

3(2A)

Schemes investing in approved money-market instruments5should value such instruments on an amortised cost basis on condition that:5

• the approved money-market instrument has a residual maturity of less than three months and has no specific sensitivity to market parameters, including credit risk; or5
• the scheme is a qualifying money market fund.5

[Note:CESR's UCITS eligible assets guidelines with respect to article 4(2) of the UCITS eligible assets Directive]

(3)

Any part of the scheme property of an authorised fund that is not an investment should be valued at a fair value, but for immovables this is subject to COLL 5.6.20 R (3) (f) (Standing independent valuer and valuation).

(4)

For the purposes of (2) and (3), any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable on acquiring or disposing of the investment or other part of the scheme property should, in the case of a single-priced authorised fund,2 be excluded from the value of an investment or other part of the scheme property. In the case of a dual-priced authorised fund, any such payments should be added to the issue basis of the valuation, or subtracted from the cancellation basis of the valuation, as appropriate. Alternatively, the prospectus of a dual-priced authorised fund may prescribe any other method of calculating unitprices that ensures an equivalent treatment of the effect of these payments.2

(5)

Where the authorised fund manager has reasonable grounds to believe that:

• no reliable price exists for a security1 at a valuation point; or
• the most recent price available does not reflect the authorised fund manager's best estimate of the value of a security at the valuation point

(6)

The circumstances which may give rise to a fair value price being used include:

• no recent trade in the security concerned; or
• the occurrence of a significant event since the most recent closure of the market where the price of the security is taken.

(7)

In determining whether to use such a fair value price , the authorised fund manager should include in his consideration:

• the type of authorised fund concerned;
• the securities involved;
• the basis and reliability of the alternative price1 used; and
• the authorised fund manager's policy on the valuation of scheme property as disclosed in the prospectus.

4(7A)

Where the authorised fund manager, the depositary or the standing independent valuer have reasonable grounds to believe that the most recent valuation of an immovable does not reflect the current value of that immovable, the authorised fund manager should consult and agree with the standing independent valuer a fair and reasonable value for the immovable.

(8)

The authorised fund manager should document the basis of valuation (including any fair value pricing policy) and, where appropriate, the basis of any methodology and ensure that the procedures are applied consistently and fairly.

(9)

Where a unit price is determined using properly applied fair value prices in accordance with policies in (8), subsequent information that indicates the price should have been different from that calculated will not normally give rise to an instance of incorrect pricing.

2

The pricing controls of the authorised fund manager

(1)

An authorised fund manager needs to be able to demonstrate that it has effective controls over its calculations of unit prices.

(2)

The controls referred to in (1) should ensure that:

• asset prices are accurate and up to date;
• investment 1transactions are accurately and promptly reflected in valuations;
• the components of the valuation (including stock, cash, and units in issue1), are regularly reconciled to their source or prime records and any reconciling items resolved promptly and debtors reviewed for recoverability;
• the sources of prices not obtained from the main pricing source are recorded and regularly reviewed;
• compliance with the investment and borrowing powers is regularly reviewed;
• dividends are accounted for as soon as securities1 are quoted ex-dividend (unless it is prudent to account for them on receipt):
• fixed interest dividends, interest and expenses are accrued at each valuation point1;
• tax positions are regularly reviewed and adjusted, if necessary;
• reasonable tolerances are set for movements in the key elements of a valuation and movements outside these tolerances are investigated;5
• the fund manager regularly reviews the portfolio valuation for accuracy5; and5
• the valuation of OTC derivatives is accurate and up to date and in compliance with the methods agreed with the depositary.5

(3)

In exercising its pricing controls, the authorised fund manager may exercise reasonable discretion in determining the appropriate frequency of the operation of the controls and may choose a longer interval, if appropriate, given the level of activity on the authorised fund1or the materiality of any effect on the price.

(4)

Evidence of the exercise of the pricing controls should be retained.

(5)

Evidence of persistent or repetitive errors in relation to these matters, and in particular any evidence of a pattern of errors working in an authorised fund manager's favour, will make demonstrating effective controls more difficult.

(6)

Where the pricing1function is delegated to a third party, COLL 6.6.15 R (1) (Committees and delegation) will apply.

3

The depositary's review of the authorised fund manager's systems and controls

(1)

This section provides details of the types of checks a depositary should carry out to be satisfied that the authorised fund manager adopts systems and controls which are appropriate to ensure that prices of units are calculated in accordance with this section and to ensure that the likelihood of incorrect prices will be minimised. These checks also apply where an authorised fund manager has delegated all or some of its pricing1 functions to one or more third parties5.

(2)

A depositary should thoroughly review an authorised fund manager's systems and controls to confirm that they are satisfactory. The depositary's review should include an analysis of the controls in place to determine the extent to which reliance can be placed on them.

(3)

A review should be performed when the depositary is appointed and thereafter as it feels appropriate given its knowledge of the robustness and the stability of the systems and controls and their operation.

(4)

A review should be carried out more frequently where a depositary knows or suspects that an authorised fund manager's systems and controls are weak or are otherwise unsatisfactory.

(5)

Additionally, a depositary should from time to time review other aspects of the valuation of the scheme property of each authorised fund for which it is responsible, verifying, on a sample basis, if necessary, the assets, liabilities, accruals, units in issue1, securities prices (and in particular the prices of OTC derivatives,5unapproved securities and the basis for the valuation of unquoted securities) and any other relevant matters, for example an accumulation factor or a currency conversion factor.

(6)

A depositary should ensure that any issues, which are identified in any such review, are properly followed up and resolved.

4

The recording and reporting of instances of incorrect pricing

(1)

An authorised fund manager should record each instance where the price of a unit is incorrect as soon as the error is discovered, and report the fact to the depositary together with details of the action taken, or to be taken, to avoid repetition as soon as practicable.

(2)

In accordance with COLL 6.6.11 G (Duty to inform the FSA), the depositary should report any breach of the rules in COLL 6.3 immediately to the FSA. However, notification should relate to instances which the depositary considers material only.

(3)

A depositary should also report to the FSA immediately any instance of incorrect pricing1where the error is 0.5% or more of the price of a unit, where a depositary believes that reimbursement or payment is inappropriate and should not be paid by an authorised fund manager.

(4)

In accordance with SUP 16.6.8 R, a depositary should also make a return to the FSA on a quarterly basis which summarises the number of instances of incorrect pricing1 during a particular period.

5

The rectification of pricing breaches

(1)

COLL 6.6.3 R (1) (Functions of the authorised fund manager) places a duty on the authorised fund manager to take action to reimburse affected unitholders, former unitholders, and the scheme itself, for instances of incorrect pricing1, except if it appears to the depositary that the breach is of minimal significance.

(2)

A depositary may consider that the instance of incorrect pricing1is of minimal significance if:

• the authorised fund manager and depositary meet the standards of control set out in Section 2 and Section 3 of this Table; and
• the error in pricing1 of a unit is less than 0.5% of the correct price.

(3)

In determining (2), if the instance of incorrect pricing1 is due to one or more factors or exists over a period of time, each price should be considered separately.

(4)

If a depositary deems it appropriate, it may, in spite of the circumstances outlined in (2), require a payment from the authorised fund manager or from the authorised fund to the unitholders, former unitholders, the authorised fund or the authorised fund manager (where appropriate).

(5)

The depositary should satisfy itself that any payments required following an instance of incorrect pricing1 are accurately and promptly calculated and paid.

(6)

If a depositary considers that reimbursement or payment is inappropriate, it should report the matter to the FSA, together with its recommendation and justification. The depositary should take into account the need to avoid prejudice to the rights of unitholders, or the rights of unitholders in a class of units.

(7)

It may not be practicable, or in some cases legally permissible, for the authorised fund manager to obtain reimbursement from unitholders, where the unitholders have benefited from the incorrect price.

(8)

In all cases where reimbursement or payment is required, amounts due to be reimbursed to unitholders for individual sums which are reasonably considered by the authorised fund manager and depositary to be immaterial, need not normally be paid.