March 2003

80.14 Collective Investment Schemes

Collective investment schemes are regulated by the FSA and are defined in section 235(1) as ‘any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or the sums paid out of such profits or income’. The participants of the scheme must not have day-to-day control over the management of the property.

The arrangements must also have one or both of the following characteristics:

• The contributions of the participants, and the profits or income out of which payments are to be made to them, are pooled.
• Someone else manages the property as a whole.

Collective investment schemes can involve items that are individually owned. An example of such a scheme dealt with by the official receiver is that of an ostrich farm where the ostriches were owned individually but several ostriches were kept in one pen. Any eggs that were produced became the collective property of the owners of the ostriches in that particular pen, thus making the business a collective investment scheme.

The ‘property’ in the collective investment scheme need not be an actual investment, e.g. it could be a car or a racehorse.

Notes: [s235(1)] [s235(2)] [s235(3)]

80.15 Unit trust schemes 

A unit trust scheme is defined as a collective investment scheme under which the property in question is held on trust for the participants. A unit trust scheme must be authorised by the FSA (see Part 4). The manager and the trustee of the scheme must be different persons and independent of each other.

The manager and the trustee must both be a body corporate incorporated in the United Kingdom or another EEA state and have a place of business in the United Kingdom. Both the manager and the trustee must be authorised by the FSA to carry on an investment business. The manager must have permission to act as a manager and the trustee must have permission to act as trustee. The scheme must also provide for participants to redeem their units at a price related to the net value of the property to which they relate.

Notes: [s242] [s243(4)] [s243(5)] [s243(7)] [s243(10)]

80.16 Open-ended investment companies 

An Investment Company with Variable Capital is a company that under the Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 2001 can issue new shares when required and redeem existing shares on request at any time by any shareholder. Registration of ICVCs is the responsibility of the FSA.

Notes: [The Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 2001]

 

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