Related provisions for SUP 16.22.7
- (1)
In order to provide adequate information to describe how the fund6 is governed, a small authorised UK AIFM of an unauthorised AIF or a residual CIS operator6 should include in the fund6 documents a provision about each of the items of relevant information set out in the following table (Content of fund6 documents).
666 - (2)
Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.
- (3)
Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.
Table: Content of fund6 documents
Content of fund documents6
66Thefund6 documents should include provision about: 6 |
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(1) |
Regulator The firm statutory status in accordance with GEN 4 Annex 1 R (Statutory status disclosure); |
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(2) |
Services the nature of the services that the firm will provide6; 6 |
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(3) |
Payments for services details of any payment for services payable by the fund or from the property of the fund6 or investors in the fund to the firm6, including where appropriate: 66 |
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(a) |
the basis of calculation; |
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(b) |
how it is to be paid and collected; |
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(c) |
how frequently it is to be paid; and |
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(d) |
whether or not any other payment is receivable by the firm6 (or to its knowledge by any of its associates) in connection with any transactions effected by the firm6 with or for the fund6, in addition to or in lieu of any fees; 666 |
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(4) |
Commencement when and how the firm6 is appointed; 6 |
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(5) |
Accounting the arrangements for accounting to the fund or investors in the fund6 for any transaction effected; 6 |
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(6) |
Termination method how the appointment of the firm6 may be terminated; 6 |
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(7) |
Complaints procedure how to complain to the firm6 and a statement that the investors in the fund6 may subsequently complain direct to the Financial Ombudsman Service; 66 |
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(8) |
Compensation whether or not compensation may be available from the compensation scheme should the firm6 be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable compensation6 scheme, the extent and level of cover and how further information can be obtained; 6 |
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(9) |
Investment objectives the investment objectives for the portfolio of the fund6; 6 |
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(10) |
Restrictions |
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(a) |
any restrictions on: |
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(i) |
the types of investments or property which may be included in the portfolio of the fund6; 6 |
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(ii) |
the markets on which investments or property may be acquired for the portfolio of the fund6; 6 |
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(iii) |
the amount or value of any one investment or asset, or on the proportion of the portfolio of the fund6 which any one investment or asset or any particular kind of investment or asset may constitute; or 6 |
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(b) |
that there are no such restrictions; |
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(11) |
Holding fund6 assets 6 |
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(a) |
if it is the case, that the firm6 will: 6 |
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(i) |
hold money on behalf of the fund6 or be the custodian of investments or other property of the fund6; or 66 |
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(ii) |
arrange for some other person to act in either capacity and, if so, whether that person is an associate of the firm6 identifying that person and describing the nature of any association; and 6 |
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(b) |
in either case: |
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(i) |
how any money is to be deposited; |
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(ii) |
the arrangements for recording and separately identifying registrable investments of the fund6 and, where the registered holder is the firm's6 own nominee, that the firm6 will be responsible for the acts and omissions of that person; 666 |
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(iii) |
the extent to which the firm6 accepts liability for any loss of the investment of the fund6; 66 |
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(iv) |
the extent to which the firm6 or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the fund6; 66 |
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(v) |
where investments of the fund6 will be registered collectively in the same name, a statement that the entitlements of the fund6 may not be identifiable by separate certificates or other physical documents of title, and that, should the firm6 default, any shortfall in investments of the fund6 registered in that name may be shared proportionately among all fund6 and any other customers of the firm6 whose investments are so registered; 666666 |
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(vi) |
whether or not investments or other property of the fund6 can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on behalf of the fund6 against the security of those investments or property and, if so, the terms upon which they may be lent or deposited; 66 |
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(vii) |
the arrangements for accounting to the fund6 for investments of the fund6, for income received (including any interest on money and any income earned by lending investments or other property) of the fund6, and for rights conferred in respect of investments or other property of the fund6; 666 |
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(viii) |
the arrangements for determining the exercise of any voting rights conferred by investments of the fund6; and 6 |
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(ix) |
where investments of the fund6 may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply; 6 |
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(12) |
Clients' money outside the United Kingdom if it is the case, that the firm6 may hold the money of the fund6 in a client bank account outside the United Kingdom; 66 |
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(13) |
Exchange rates if a liability of the fund6 in one currency is to be matched by an asset in a different currency, or if the services to be provided to the firm for the fund6 may relate to an investment denominated in a currency other than the currency in which the investments of the fund6 are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the fund6; 6666 |
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(14) |
Stabilised investments if it is the case, that the firm6 is to have the right under the fund6documents to effect transactions in investments the prices of which may be the subject of stabilisation; 66 |
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(15) |
Conflict of interest and material interest if it is the case, that the firm6 is to have the right under the agreement or instrument constituting the fund6 to effect transactions on behalf of the fund6 in which the firm6 has directly or indirectly a material interest (except for an interest arising solely from the investment of the firm6 as agent for the fund6), or a relationship of any description with another party which may involve a conflict with the firm6 duty to the fund6, together with a disclosure of the nature of the interest or relationship; 66666666 |
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(16) |
Use of dealing commission if the firm6 receives goods or services in addition to the execution of its customer orders in accordance with the section on the use of dealing commission, the prior disclosure required by the rule on prior disclosure (see COBS 11.6.2 R); 6 |
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(17) |
Acting as principal if it is the case, that the firm6 may act as principal in a transaction with the fund6; 66 |
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(18) |
Stock lending if it is the case, that the firm6 may undertake stock lending activity with or for the fund6 specifying the type of assets of the fund6 to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the fund6 in respect of the lending; 6666 |
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(19) |
Transactions involving contingent liability investments |
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(a) |
if it is the case, that the agreement orinstrument constituting the fund6 allows the firm6 to effect transactions involving contingent liability investments for the account of the portfolio of the fund6; 666 |
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(b) |
if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and |
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(c) |
if applicable, that the firm6 has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange and in a contract traded thereon; 68 |
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(20) |
Periodic statements |
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(a) |
the frequency of any periodic statement (this should not be less than once every 12 months) except where a periodic statement is not required (see COBS 18.5.13R); and |
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(b) |
whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be; |
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(21) |
Valuation the bases on which assets comprised in the portfolio of the fund6 are to be valued; 6 |
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(22) |
Borrowings if it is the case, that the firm6 may supplement the funds in the portfolio of the fund6 and, if it may do so: 66 |
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(a) |
the circumstances in which the firm6 may do so; 6 |
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(b) |
whether there are any limits on the extent to which the firm6 may do so and, if so, what those limits are; and 6 |
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(c) |
any circumstances in which such limits may be exceeded; |
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(23) |
Underwriting commitments if it is the case, that the firm6 may for the account of the portfolio of the fund6 underwrite or sub-underwrite any issue or offer for sale of securities, and: 66 |
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(a) |
whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and |
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(b) |
whether there are any financial limits on the extent of the underwriting and, if so, what these limits are; |
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(24) |
Investments in other funds6 whether or not the portfolio may invest in fund either managed or advised by the firm6 or by an associate of the firm or in a fund6 which is not a regulated collective investment scheme; 666 |
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(25) |
Investments in securities underwritten by the firm6 whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the firm6 or by an associate of the firm6 during the preceding 12 months. 666 |
Table: Examples of how the other local responsibility function applies
Example |
Comments |
(1) ‘A’ is allocated local responsibility for one of a branch’s main business lines. A is also appointed to perform a PRA-designated senior management function for the same branch. |
A only needs approval to perform the PRA-designated senior management function. |
(2) ‘A’ is outside the branch’s management structure and A’s responsibilities for the branch are limited to setting overall strategy for the branch. A does not have responsibility for implementing that strategy. |
A is not performing the other local responsibility function. The reason for this is explained in SYSC 4.8.27G. SUP 10C.8.1R(2) is irrelevant to this example. |
(3) A small branch undertakes two business lines (wholesale lending and corporate investments). ‘A’ is head of wholesale lending and is also an executive director of the branch. ‘B’ is head of corporate investments and does not sit on the branch management committee but reports to it on corporate investments. The branch allocates local responsibility for these functions to A and B. Neither A nor B performs any other PRA or FCA-designated senior management functions. |
A only needs approval to perform the executive director function3. B needs approval to perform the other local responsibility function. |
(4) A branch does not have a Head of Internal Audit. ‘P’ is allocated local responsibility for internal audit in relation to that branch. |
P needs approval to perform the other local responsibility function. However, if P has already been approved to perform another PRA or FCA designated senior management function, then P will not be performing the other local responsibility function. |
(5) ‘A’ is appointed to perform the executive3director function. The same branch also allocates local responsibility for some branch functions to A. |
A only needs approval to perform the executive3director function. |
(6) ‘A’ is approved to perform the other local responsibility function. Later, A is appointed to perform the executive3director function for the same firm. |
A requires approval for the other local responsibility function when A is first appointed. When A is later approved to perform the executive3director function, A stops performing the other local responsibility function. The firm should use Form E to apply for approval for A to perform the executive3director function. |
(7) ‘A’ is appointed to perform: (a) the compliance oversight function for one firm (Firm X) in a group (which may or may not be a relevant authorised person); and (b) a function coming within the scope of the other local responsibility function for another firm (which is a third-country relevant authorised person) in the same group (Firm Y). |
A needs approval to perform the compliance oversight function for Firm X and the other local responsibility function for Firm Y. |
(8) ‘A’ is appointed to take on some functions that come within the other local responsibility function. Later, A is appointed as chief risk officer. |
On A’s first appointment, A will need to be approved to perform the other local responsibility function. On being approved as chief risk officer, A stops performing the other local responsibility function as being chief risk officer is a PRA designated senior management function. |
(9) ‘A’ is appointed as an executive director. A then resigns and takes up a job with the same firm coming within the other overall responsibility function. |
On A’s first appointment, A will need to be approved to perform the executive3director function. A will need to get approval to perform the other overall responsibility function before A gives up being a director. |
Note: Local responsibility is explained in SYSC 4.8.10R (Third-country relevant authorised persons: Allocation of responsibilities) |
Explanatory table: This table belongs to COLL 6.2.2 G (4) (Purpose).
Correction of box management errors |
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1 |
Controls by authorised fund managers |
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An authorised fund manager needs to be able to demonstrate that it has effective controls over: |
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(1) |
its calculations of what units are owned by it (its 'box'); and |
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(2) |
compliance with COLL 6.2.8 R which is intended to prevent a negative box. |
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2 |
Controls by depositaries |
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(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). |
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(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. |
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3 |
Recording and reporting of box management errors |
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(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. |
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(2) |
A depositary should report material box management errors to the FCA immediately. Materiality should be determined by taking into account a number of factors including:
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(3) |
A depositary should also make a return to the FCA (in the manner prescribed by SUP 16.6.8 R) on a quarterly basis. |
Module |
Relevance to Credit Unions |
The Principles for Businesses (PRIN) |
The Principles for Businesses (PRIN) set out 3high-level requirements 3imposed by the FCA3. They provide a general statement of regulatory requirements. The Principles apply to all12credit unions. In applying the Principles to credit unions, the FCA3 will be mindful of proportionality. In practice, the implications are likely to vary according to the size and complexity 3of the credit union. 1212121212 |
Senior Management Arrangements, Systems and Controls (SYSC) |
SYSC 1,3SYSC 4 to 10 and SYSC 213 apply to all credit unions in respect of the carrying on of their regulated activities and unregulated activities in a prudential context. SYSC 4.5 (Management responsibilities maps for relevant authorised persons), SYSC 4.7 (Senior management responsibilities for relevant authorised persons: allocation of responsibilities), SYSC 4.9 (Handover procedures and material), SYSC 5.2 (Certification regime) and SYSC 18 apply3 to all credit unions in respect of both their regulated activities and their unregulated activities3. |
This contains rules and guidance that are directly applicable to a credit union’sSMF managers, certification employees and (from 2017) other conduct rules staff. There is also guidance for credit unions on giving their staff training about COCON. |
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Threshold Conditions (COND) |
In order to become authorised under the Act all firms must meet the threshold conditions. The threshold conditions must be met on a continuing basis by credit unions. Failure to meet one of the conditions is sufficient grounds for the exercise by the FCA3 of its powers. 121212 |
12312 | |
The Fit and Proper test for Approved Persons (FIT) |
The purpose of FIT is to set out and describe the criteria that a firm should3 consider when assessing the fitness and propriety of a person (1)3 in respect of whom an application is being made for approval to undertake a controlled function under the approved persons regime, (2)3 who has already been approved, (3) who is a certification employee or (4) whom a firm is considering appointing to be a certification employee3. It also sets out and describes criteria that the FCA will consider when assessing the fitness and propriety of a candidate for a controlled function position and that it may consider when assessing the continuing fitness and propriety of approved persons.3 12312 |
General Provisions (GEN) |
GEN contains rules and guidance on general matters, including interpreting the Handbook, statutory status disclosure, the FCA's3 logo and insurance against financial penalties. 12 |
Fees manual (FEES) |
This manual sets out the fees applying to credit unions. |
3Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries (MIPRU) |
MIPRU applies to any credit union carrying out insurance mediation activity or home finance mediation activity, or using these services. In particular, it sets out requirements for allocation of responsibility for the credit union’sinsurance mediation activity (MIPRU 2), for the use of home finance intermediaries (MIPRU 5) and for professional indemnity insurance (MIPRU 3). |
Conduct of Business sourcebook (COBS) |
A credit union which acts as a CTF provider or provides a cash-deposit ISA will need to be aware of the relevant requirements in COBS. COBS 4.6 (Past, simulated past and future performance), COBS 4.7.1 R (Direct offer financial promotions), COBS 4.10 (Systems and controls and approving and communicating financial promotions), COBS 13 (Preparing product information) and COBS 14 (Providing product information to clients) apply with respect to accepting deposits as set out in those provisions, COBS 4.1 and BCOBS. |
ICOBS applies to any credit union carrying on non-investment insurance activities, such as arranging or advising on general insurance contracts to be taken out by members. But ICOBS does not apply to a credit union taking out an insurance policy for itself, such as a policy against default by members on their loans where the credit union is the beneficiary of the policy, since in this circumstance the credit union would not be acting as an insurance intermediary, but would itself be the customer. Credit unions are reminded that they are subject to the requirements of the appropriate legislation, including the Credit Unions Act 1979, relating to activities a credit union may carry on. |
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3Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) |
MCOB applies to any credit union that engages in any home finance activity. MCOB rules cover advising and selling standards, responsible lending (including affordability assessment), charges, and the fair treatment of customers in payment difficulties. |
Banking: Conduct of Business sourcebook (BCOBS) |
BCOBS sets out rules and guidance for credit unions on how they should conduct their business with their customers. In particular there are rules and guidance relating to communications with banking customers3and financial promotions (BCOBS 2), distance communications (BCOBS 3), information to be communicated to banking customers3(BCOBS 4), post sale requirements (BCOBS 5), and cancellation (BCOBS 6). 3The rules in BCOBS 3.1 that relate to distance contracts may apply 3to a credit union. This is because the Distance Marketing Directive3applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)), i.e. if the credit union routinely sells any of its services by post, telephone, fax or the internet3. |
Supervision manual (SUP) |
The following provisions of SUP are relevant to credit unions: 13SUP 1A13 (The FCA’s 3 approach to supervision), SUP 2 (Information gathering by the FCA or PRA 3 on its own initiative), SUP 3.1 to SUP 3.8 (Auditors), SUP 5 (Skilled persons), SUP 6 (Applications to vary or cancel Part 4A12permission), SUP 7 (Individual requirements), SUP 8 (Waiver and modification of rules), SUP 9 (Individual guidance), 13SUP 10C (FCA senior management regime for approved persons in relevant authorised persons),3SUP 11 (Controllers and Close links), SUP 15 (Notifications to the FCA or PRA 3) and SUP 16 (Reporting Requirements). Credit unions are reminded that they are subject to the requirements of the Act and SUP 11 on close links, and are bound to notify the FCA3 of changes. It may be unlikely, in practice, that credit unions will develop such relationships. It is possible, however, that a person may acquire close links with a 3credit union3 within the meaning of the Act by reason of holding the prescribed proportion of deferred shares in the credit union. In relation to SUP 16, credit unions are exempted from the requirement to submit annual reports of 3close links. 12121212121312121212 |
CONC contains rules that apply to firms carrying on credit-related regulated activities. PERG 2.7.19IG provides guidance on relevant exemptions. Most credit union lending is therefore outside the scope of CONC. However, subject to the constraints in the Credit Unions Act 1979 or the Credit Unions (Northern Ireland) Order 1985 (as relevant), credit unions may undertake credit-related regulated activities to which CONC does apply if the activity is carried out by way of business. This could include lending under a borrower-lender-supplier agreement, or debt adjusting or debt counselling where the credit union is not the lender. A credit union carrying on such activities should consider whether it requires permission to do so. Further information can be found on the FCA’s website. |
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Decision, Procedure and Penalties manual (DEPP) |
DEPP is relevant to credit unions because it sets out: (1) the FCA's12 decision-making procedure for giving statutory notices. These are warning notices, decision notices and supervisory notices (DEPP 1.2 to DEPP 5); and (2) the FCA's12 policy with respect to the imposition and amount of penalties under the Act (see DEPP 6). 1212 |
Dispute Resolution: Complaints (DISP) |
DISP sets out rules and guidance in relation to treating complainants fairly and the Financial Ombudsman Service. |
Compensation (COMP) |
COMP sets out rules relating to the scheme for compensating consumers when authorised firms are unable, or likely to be unable, to satisfy claims against them.12 |
The Enforcement Guide (EG) |
The Enforcement Guide (EG) describes the FCA's12 approach to exercising the main enforcement powers given to it by the Act and by other legislation.2 12 |
Financial crime: a guide for firms (FC) |
FC provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime. |