Clause 203: Ombudsman's power to require information

385.     The efficient settlement of complaints under the compulsory jurisdiction will sometimes require the scheme to obtain information from the parties to the dispute. This clause provides the scheme operator with powers to require parties to the complaint to provide specified information which it considers necessary for the fair determination of the complaint. It is not expected that these powers will be used on a routine basis. The Authority will also have powers to make rules requiring authorised persons to cooperate with the scheme. It will be in the interests of the complainant to cooperate.

Clause 204: Powers of court where information required

386.     This clause provides that a failure to comply with a requirement to provide information made under clause 203 may be dealt with as if it were a contempt of court.

Clause 205: Industry funding

387.     This clause provides for the Authority to be able to levy fees on authorised persons to meet both the costs of establishing the scheme, and the costs of running the compulsory jurisdiction. The costs of the voluntary jurisdiction will be met by fees set as part of the voluntary jurisdiction rules.

PART XVI: COLLECTIVE INVESTMENT SCHEMES

388.     This Part comprises six chapters concerning collective investment schemes, including unit trusts, open-ended investment companies and overseas schemes. It includes provisions relating to the authorisation of schemes, their trustees, managers and operators and also to the rules applicable to them. The Part also makes provision for overseas collective investment schemes which may be promoted in the UK:

• Chapter I provides the relevant definitions for this Part. It also gives the Treasury the power to specify by order that certain arrangements will not constitute a collective investment scheme. A draft of an order proposed to be made under this clause was published by the Treasury for consultation in February 1999 (Financial Services and Markets Bill: Regulated Activities - A Consultation Document).

• Chapter II prohibits authorised persons from promoting participation in a collective investment scheme unless an exemption applies. Whilst the provisions broadly continue the basic prohibition on authorised persons promoting collective investment schemes contained in the FS Act 1986, changes have been made to reflect the new financial promotion regime set out in clause 19. Unauthorised persons are generally prohibited from promoting collective investment schemes by virtue of that clause.

• Chapter III contains the provisions relating to authorised unit trust schemes. These broadly follow the provisions of the FS Act 1986, although the Authority is to be given the power to approve changes to an authorised unit trust's investment and borrowing powers. New provisions are also included to deal with rule waivers and modifications, and to grant operators and trustees of authorised unit trust schemes the right to refer matters to the Tribunal in certain circumstances.

• Chapter IV contains provisions which not only enable the Treasury broadly to continue the current regime concerning oeics, but also to make regulations concerning the establishment and regulation of other forms of oeic in the UK. At present, oeics which are incorporated and authorised in the UK must invest solely in transferable securities. The new provisions in the Bill will allow the Treasury to make regulations concerning the creation and operation of a wider range of authorised oeics, so that they can invest in assets other than simply transferable securities. Should the demand exist, the Treasury may also, under the new provisions, make regulations concerning the incorporation of unauthorised oeics. This might, for example, be done in order to allow the formation of common investment funds for charitable purposes, or in the context of ethical investments.

• Chapter V broadly carries forward the existing provisions of the Financial Services Act and allows three kinds of overseas scheme to be "recognised" and marketed in the UK. First, schemes constituted in other member states which meet particular requirements, second, schemes authorised in designated territories, and third, schemes constituted in other territories, but which are individually recognised.

• Chapter VI sets out the powers of investigation which will apply in relation to authorised unit trust and overseas schemes. It is intended that the principal provisions concerning investigations of oeics will be set out in the proposed Treasury regulations under Chapter IV.

Chapter II: Restrictions on promotion

389.     This clause contains the basic marketing prohibition and some exemptions from it. The main exemption is for schemes which are marketed other than to the general public. Other exemptions include promotions made in respect of authorised unit trust schemes, authorised oeics and recognised overseas schemes. The marketing prohibition applies to communications which originate outside the UK if the communication is capable of having an effect in the UK.

390.     The term "promotion otherwise than to the general public" is amplified in subsection (6) and includes promotions which are designed, so far as possible, to reduce the risk of participation by persons for whom it would be unsuitable. The prohibition on marketing to the general public will not therefore necessarily be breached if a promotion is inadvertently received by a member of the general public.

Clause 209: Single property schemes

391.     A single property scheme is, broadly, a collective investment scheme which relates to a single building or a group of buildings managed as a single enterprise. The clause gives the Treasury power to make regulations exempting the promotion of participation in single property schemes to the general public. If the Treasury make regulations under this clause, the Authority may then make rules imposing duties on the operator and trustee or depositary of schemes exempted under the regulations.

Clause 210: Restriction on approval of promotion

392.     This is a new provision designed to prevent an authorised person from approving a financial promotion under clause 19 if the authorised person would not himself be permitted to make the communication under clause208.

Clause 211: Actions for damages

393.     If an authorised person contravenes a requirement under clause208 or 210, a private person who suffers loss as a result may claim damages.

Chapter III: Authorised unit trust schemes

Clause 212: Applications for authorisation of unit trust schemes

394.     Applications for an order declaring a unit trust scheme to be authorised must be made to the Authority by the manager and trustee of the scheme. The manager and trustee must be different persons. The clause gives the Authority broad scope to determine the form and content of the application, including further information to be contained in it.

Clause 213: Authorisation orders

395.     If the conditions referred to in the clause are met, the Authority may make an authorisation order declaring a unit trust scheme to be authorised. The conditions reflect certain requirements specified UCITS Directive which establishes a passporting regime whereby certain types of authorised collective investment scheme established in one EEA State may generally be entitled to equivalent authorisation in others. The clauses include requirements that:

• the manager and trustee must be bodies corporate which are independent of each other and incorporated in the UK or another EEA State;

• if the manager and trustee are incorporated in the UK, they must be authorised persons holding the appropriate permissions;

• the scheme must comply with the requirements of the trust scheme rules (referred to at clause 217, below); and

• participants must be able to have their units redeemed at a price related to net asset value of the scheme property or be able to sell their units on an exchange at a similar price.

Clause 214: Determination of applications

396.     This clause sets out the time limits within which applications should be determined (and specifies that completed applications shall be determined within six months). Applicants may withdraw their application at any time before the Authority makes a determination.

Clause 215: Procedure when refusing an application

397.     If the Authority wishes to refuse an application, it must issue each of the manager and trustee with a warning notice. The warning and decision notice procedures contained in clauses 338 and 339 will then apply. Either of the manager or the trustee may refer a refusal to the Tribunal.

Clause 216: Certificates

398.     If an authorised unit trust scheme meets with the requirements of the UCITS Directive, the manager or trustee of the scheme can request the Authority to issue a certificate to that effect. The certificate will be needed if the authorised unit trust scheme is to "passport" into other European jurisdictions.

Clause 217: Rules

399.     This clause permits the Authority to make rules (known as the "trust scheme rules") concerning the constitution, management and operation of authorised unit trust schemes. These cover broadly the same matters as constitution and management regulations under section 81 of the FS Act 1986, although the arrangements under the present legislation whereby the Treasury retain a degree of control over certain constitution and management matters (such as the investment and borrowing powers of authorised unit trusts) are to be departed from, so that the Authority now has direct responsibility for these matters.

400.     The trust scheme rules are binding on the manager, trustee and participants independently of any provisions contained in the trust deed. Participants can seek to enforce the trust scheme rules against the manager or trustee as if the rules were provisions contained directly in the trust deed.

401.     The Treasury have power to modify the Authority's rule-making powers if there is a change in the company law relating to the rights of beneficial, but not legal, owners of shares. This would enable the rights of nominee holders in authorised unit trusts to be aligned to those of shareholders in companies should the need arise.

Clause 218: Scheme particulars rules

402.     These are rules which the Authority may make requiring the manager of an authorised unit trust scheme to give details of the scheme to the Authority and to publish or make available to the public on request certain particulars, including changes, concerning the scheme.

403.     The scheme particulars rules can provide for compensation to be paid to certain people (described as "qualifying persons") if they have suffered loss because of an untrue or misleading statement in the particulars or because of an omission from them. Qualifying persons include people who may have a beneficial, but not legal, interest in the scheme (for example, beneficiaries of a trust where the trustees hold units in the scheme).

Clause 219: Disqualification of auditor for breach of constitution and management rules

404.     The Authority may disqualify an auditor from auditing authorised unit trust schemes or authorised oeics if the auditor does not comply with the trust scheme rules. Warning and decision notice procedures will apply, as well as rights to refer a decision to the Tribunal.

Clause 220: Modification or waiver of rules

405.     This allows the Authority to modify or waive the application of any of the trust scheme rules or scheme particulars rules in respect of authorised unit trusts. If there is a modification or waiver of rules under this clause, certain of the provisions of clause118 (relating to the modification or waiver of various other of the Authority's rules and providing for the circumstances in which waivers or modifications will be granted) will apply.

Clause 221: Alteration of schemes and changes of manager or trustee

406.     Alterations to an authorised unit trust scheme or a change in the manager or trustee may not take place without the Authority's approval, or the Authority not notifying its disapproval. If the Authority proposes to refuse to approve changes to the scheme, warning and decision notice procedures will apply and the matter can be referred to the Tribunal. New managers or trustees must satisfy the requirements specified in clause 213.

Clause 222: Procedure when refusing approval or change of manager or trustee

407.     If the Authority proposes to refuse to approve the replacement of the trustee or manager, a warning notice must be given. The clause then makes provision for decision notices to be given and for reference to the Tribunal.

Clause 223: Avoidance of exclusion clauses

408.     This clause means that if a trust deed for an authorised unit trust scheme seeks to avoid the manager's or trustee's duty to exercise due care, the deed will be ineffective.

Clause 224: Revocation of authorisation order otherwise than by consent

409.     The Authority may revoke an order authorising a unit trust in the circumstances specified in the clause. These include any of the following situations:

• the manager or trustee has contravened a requirement imposed by the Bill or the Authority's rules;

• either of them has given the Authority misleading information;

• the requirements for making an authorisation order (referred to in clause 213) are no longer met;

• the scheme has been inactive for 12 months or more; or

• it is desirable in the interests of participants to revoke the scheme's authorisation.

Clause 225: Procedure

410.     If the Authority wishes to revoke an authorisation order, it must go through the warning and decision notice procedure, giving notice to both the manager and trustee. Either of them may refer the decision to the Tribunal.

Clause 226: Requests for revocation of authorisation order

411.     The Authority can revoke an authorisation order where the manager or trustee requests it to, but it can also refuse to revoke authorisation where it considers that refusal would be in the interests of participants, or that the public interest requires an investigation before authorisation is revoked. Warning and decision notice procedures will apply as well and the decision may be referred to the Tribunal.

Clause 227: Directions

412.     The Authority may give directions requiring the manager of the scheme to cease the issue or redemption of units, or to require the manager and trustee of the scheme to wind it up by a particular date in the circumstances specified in the clause (which are broadly similar to those specified as grounds for revoking a scheme's authorisation under clause 224). If a person contravenes a direction under this clause, private persons who suffer loss as a result may be able to bring an action. Once a direction has been given, the Authority may revoke or vary that direction, either of its own accord, or on the application of the manager or trustee.

Clause 228: Applications to the court

413.     If the Authority is able to give a direction under clause227, it may apply to the court for an order removing and replacing the manager or the trustee, or simply removing them and appointing an authorised person to wind up the scheme.

Clause 229: Procedure: giving directions and varying them otherwise than as requested

414.     If the Authority wishes to give a direction under clause 227, or to vary that direction other than in accordance with an application from the manager or trustee, or in the case of urgency, it must first go through the warning and decision notice procedure, giving notice to each of the manager and the trustee. Either the manager or the trustee of the scheme may refer a decision to give a direction or to vary it to the Tribunal.

Clause 230: Procedure: refusal to revoke or vary direction

415.     If the manager or trustee applies to the Authority for it to revoke or vary a direction given under clause 227, but the Authority proposes to refuse to do so, the warning and decision notice procedures will apply. The decision may be referred to the Tribunal.

Clause 231: Procedure: revocation of direction and grant of request for variation

416.     If the Authority decides to revoke a direction under clause 227, or to vary a direction in accordance with a request, it must give written notice of that fact. The Authority may publish information about the revocation or variation of the direction.

Clause 232: Procedure in cases of urgency

417.     This clause gives the Authority an emergency intervention power to issue or vary directions. It avoids the requirement for a warning notice and provides simply for a decision notice to be issued instead (the decision notice can take immediate, but not retrospective, effect). The person to whom the decision notice has been issued may make representations to the Authority, following which the Authority must decide its course of action.

418.     If the Authority confirms or rescinds its original decision, it must give written notice to the manager and the trustee. If, however, the Authority decides to give a different direction or make a different variation, it must give a further decision notice. The recipient of the notice may then refer the decision to the Tribunal.

Chapter IV: Open-ended investment companies

Clause 233: Open-ended investment companies

419.     This clause creates the broad framework for Treasury regulations relating to the establishment, carrying on, and regulation, of oeics. It provides a wide-ranging and non-exhaustive list of matters which the regulations may provide for. These include imposing criminal liability, conferring functions on the Authority (including rule-making powers and power to waive or modify rules) and power to modify or exclude any statute or rule of law. In particular, the regulations may revoke the current regulations governing oeics and provide for transitional arrangements for "grandfathering" under those regulations.

Clause 234: Amendment of section 716 Companies Act 1985

420.     This clause amends the Companies Act 1985 ("Companies Act"), so that the prohibition on formation of companies with more than 20members other than under the Companies Act will not apply to oeics incorporated by virtue of the proposed Treasury regulations.

Chapter V: Recognised overseas schemes

Clause 235: Schemes constituted in other EEA States

421.     This clause relates to the ability of collective investment schemes constituted in other EEA States to "passport" into the UK. EEA schemes will be recognised if:

• they satisfy requirements prescribed by Treasury regulations;

• the operator of the scheme gives notice to the Authority of the proposal to invite UK persons to participate in the scheme; and

• the Authority does not give notice that the way in which the invitation is to be made does not comply with the relevant UK law.

Clause 236: Representations and references to the Tribunal

422.     This clause sets out the procedure if the Authority gives notice that it does not consider that the proposed invitations will comply with UK law, and representations are made to the Authority in response. The procedures allow for rights of reference to the Tribunal where the Authority issues a decision notice confirming that the way in which the proposed invitations are to be made does not comply with UK law.

Clause 237: Disapplication of rules

423.     Rules made by the Authority will not generally apply to the operator, trustee or depositary of a recognised scheme under clause 235. The exceptions are financial promotion rules, and rules relating to the maintenance of facilities in the UK (under clause 254(1)).

Clause 238: Power of authority to suspend promotion of scheme

424.     Although it cannot suspend an EEA scheme's recognition, the Authority can suspend its promotion to the public if it appears that the operator has contravened financial promotion rules. Warning and decision notice procedures will apply and the Authority will be required to notify the scheme's home State authority if it decides to make a direction under this clause. The operator will have a right to refer the decision to the Tribunal. If a direction is given under this clause, the Authority must publish it.

Clause 239: Schemes authorised in designated countries or territories

425.     Schemes managed in, and authorised under, the law of non-EEA territories can be recognised under this clause. In order to be recognised, the relevant territory needs to be designated by an order made by the Treasury, and the Authority must give its approval to the scheme being recognised. The Treasury may not make an order designating a territory unless it is satisfied that the relevant overseas law under which the scheme is authorised and supervised affords at least equivalent protection to that provided by the UK law on collective investment schemes.

426.     In considering whether to make an order designating a country or territory under this clause, the Treasury must ask the Authority for a report on the law in question.

Clause 240: Procedure

427.     If the Authority proposes to refuse to approve a scheme under clause 239, it must give the operator a warning notice. The decision notice procedure will apply, and the decision may be referred to the Tribunal.

Clause 241: Individually recognised overseas schemes

428.     This clause allows the Authority to recognise schemes which are not managed in an EEA country or a designated territory.

429.     In order to be recognised, the scheme must meet various conditions, including affording adequate protection to the participants, the constitution and management and the powers and duties of the operator, trustee and depositary (if any) must be adequate, and those persons must also be either authorised (with appropriate permissions) or, if not authorised, fit and proper persons. In addition, overseas schemes will only be recognised under this clause if they are oeics or schemes where the operator is a body corporate.

Clause 242: Matters that may be taken into account

430.     This clause specifies criteria which the Authority can take into account when considering whether the operator, trustee or depository of an individually recognised scheme are fit and proper.

Clause 243: Applications for recognition of individual schemes

431.     The Authority has broad scope to specify the form and content of applications (which must be made by the operator) and to seek additional information before determining an application.

Clause 244: Determination of applications

432.     This clause sets out the time periods which will apply for the determination of an application. Completed applications are to be determined within six months.

Clause 245: Procedure when refusing an application

433.     The Authority must go through the warning and decision notice procedure if it proposes to refuse an application. The applicant may refer the refusal to the Tribunal.

Clause 246: Alteration of schemes and changes of operator, trustee or depository

434.     Changes to the scheme itself cannot be made unless the operator has given notice to the Authority, and the Authority has either approved the proposal, or not notified its disapproval. As for the replacement of the operator, trustee or depositary, at least one month's notice must be given to the Authority either by the person being replaced, or the person proposing to replace him, but there is no express provision for the Authority to approve or disapprove the replacements.

Clause 247: Rules as to scheme particulars

435.     The Authority may make rules imposing duties on the operators of recognised schemes which are constituted in designated territories under 240 or which are individually recognised under clause 241. These rules broadly correlate to scheme particulars rules for authorised unit trusts.

Clause 248: Power to require information

436.     The effect of this clause is that the Authority's general information-gathering powers under clause 135 extend to the operator, trustee or depository of schemes recognised under clauses 239 or 241.

Clause 249: Revocation of recognition

437.     Recognition of schemes authorised in designated territories or individually recognised schemes can be revoked in the circumstances set out in this clause. These are broadly similar to the grounds for revocation under clause 224.

Clause 250: Procedure

438.     If the Authority proposes to revoke recognition under clause 249, the warning and decision notice procedure will apply. Notice must be given to the operator, and if any, the trustee and depositary. The decision may be referred to the Tribunal.

Clause 251: Directions

439.     Instead of proposing to revoke recognition under clause 249, the Authority can effectively direct that a scheme's recognition will be suspended.

Clause 252: Procedure

440.     Where the Authority proposes to give a direction under clause 251, the warning notice and decision notice procedure will apply. The notices will need to be given to the operator and, if any, the trustee or depositary. Decisions can be referred to the Tribunal.

Clause 253: Procedure in cases of urgency

441.     If the Authority considers that it should give a direction to suspend recognition under clause 251 as a matter of urgency, it may do so by giving a decision notice. The recipients of the decision notice can then make representations to the Authority. Procedures broadly similar to those set out in clause 232 (concerning urgent suspension of authorised unit trusts) will apply.

Clause 254: Facilities and information in the UK

442.     The Authority may make rules requiring operators of all recognised schemes to maintain facilities in the UK. It may also require the operator of a recognised scheme to include explanatory information in financial promotions which name the scheme.