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UK Operator Services

October 2012 - Corporate & Commercial. Legal Developments by Ogier .

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Ogier Corporate Administration Limited (‚ÄúOCAL‚ÄĚ) is authorised by the UK Financial Services Authority (the ‚ÄúFSA‚ÄĚ) to act as an ‚ÄėOperator‚Äô to UK unregulated collective investment schemes (‚ÄúUCISs‚ÄĚ)

What is an Operator?

The FSA describes an operator as ‚Äėany entity which, under the constitution or founding arrangements of a UCIS (for example the trust deed for a unit trust or the limited partnership agreement for a limited partnership), is responsible for the management of the property held for or within the UCIS'.

The above definition of an operator is very wide but the important items to consider when determining who a UCIS's operator is and if an operator is required are:

1. If the scheme is a UK unregulated collective investment scheme as defined in the Financial Services and Markets Act 2000 (the "FSMA 2000") then it is required to have an FSA authorised operator.

2. The position of the operator and the operator services should be detailed in the UCIS establishment documentation and the operator services detailed should be sufficient for the operator to take responsibility for managing the property.

3. The entity who has been appointed the operator to the UCIS should actually be responsible for managing the property held for the UCIS. Although some of the operator services may be delegated to another entity the responsibility for these services must remain with the operator.

4. 'Property' means all the assets of the UCIS, including cash, shares and rights.

The operator of a UCIS must be FSA authorised to carry out this role, it is therefore important that the appointed operator fulfils its duty to be responsible for managing the property of the UCIS.

Where the operator has delegated certain of its services to another entity it must retain the responsibility for these functions and should be able to demonstrate that it is monitoring the service provided by the delegate on its behalf.

Should it be determined that the appointed operator is not responsible for managing the property, then another entity may be deemed to be the operator and if they are not themselves FSA authorised, the UCIS will be in breach of the relevant laws and regulations.

Regulation of Operator Services

Although UCISs are termed ‚Äėunregulated', this is a little misleading as UCISs are subject to certain regulation by the FSA under the FSMA 2000.

The term ‚Äėunregulated' actually refers to the fact that the management of a UCIS is not subject to detailed rules laid down by the FSA.  This is mainly due to the restricted investor classes required for UCISs which can not be promoted to the general public.

The regulatory requirements for a UCIS's documents are mainly detailed in section 18.5 of the FSA Conduct of Business Sourcebook ("COBS").  COBS 4.12 and an Order to the Financial Services & Markets Act regulate the way that a UCIS can be marketed.

Operator UCIS Setup Services

The following are the main UCIS setup services provided by the operator:

  • Assisting and advising on the establishment of a UCIS;
  • Approving scheme documentation as clear, fair and not misleading, including ensuring that it complies with the FSA COBS requirements;
  • Ensuring that investors are correctly classified and that disclosures are made in respect to the treatment of investors should their classification change; and
  • Ensuring that appropriate checks are carried out on investors and other parties in respect to the UCIS to maintain compliance with the relevant anti-money laundering regulations.

Operator UCIS On-Going Services

The on-going services provided by the operator to a UCIS include the following:

  • The provision of periodic statement to investors at least 6 monthly (or annually if approved by the investors) which detail information regarding the UCIS's property and performance in accordance with COBS 18.5;
  • Ensuring that all communications with investors are clear, fair and not misleading and that any required public notices are made;
  • To ensure that all statutory filings in respect to the UCIS are made;
  • Arranging the maintenance of the accounts, books and records of a UCIS, which properly reflect the activities the UCIS;
  • Approval of the annual accounts, including approving the appointment of the auditor if required, and any necessary tax returns;
  • Maintaining the register of investors of the UCIS;
  • Maintenance of statutory and non-statutory books and records, in particular minutes of meetings and statutory registers and the preparation and posting of all notices for any meetings of the UCIS;
  • Processing the subscriptions of new investors, including approving the new investors, updating the investor register and carrying out the necessary anti-money laundering checks;
  • To ensure the circulation of the notice, agenda and minutes relating to meetings of unit holders;
  • The approval and payment of distributions to investors and the withholding or payment of any taxes necessary on these distributions;
  • To open, operate and reconcile bank accounts in the name of a UCIS;
  • To approve the appointment of an asset manager to a UCIS;
  • Review and monitor the performance of activities carried out by other parties to the UCIS (for example, the trustee, the general partner and the asset manager) and entities to which the operator has delegated certain of its services; and
  • Review the make up and performance of the UCIS's property, including in respect to the scheme documentation.

Benefits of Using Ogier to Provide Operator Services

Engaging Ogier as the operator to a UCIS gives the investors additional comfort of independent oversight of the activities of the other principals of the UCIS and the management of the UCIS's property.

Typically the general partner or asset manager of a UCIS may hold the necessary FSA authorisation to act as operator but they may also have an interest in the performance of the property or an investment in the UCIS. In this circumstance it is often reassuring to the other investors to have an independent operator to ensure that their interests are being looked after.

An independent operator may also be desirable when investors in the UCIS are investing a significant proportion of their wealth or there is a public interest in the investor. In these circumstances the independent operator provides a further check on the management of the UCIS's property.

Cost Effectiveness and Efficiency
Obtaining the necessary FSA authorisation to act as operator can be an onerous process. In addition, implementing the on-going procedures and monitoring required to ensure compliance with the FSA requirements can be time consuming and require significant resources of a company, including the establishment and staffing of a compliance department.

The firm will be required to maintain a minimum level of liquid regulatory capital (usually ‚ā¨50,000 to ‚ā¨125,000, or 3 months expenditure).

It will also be necessary to have individuals within the firm who are also FSA approved, including the directors, who will be responsible for managing and controlling the operator services.

Given the cost and resources required to obtain and maintain the FSA authorisation for operator services it may be more cost effective and efficient to engage Ogier to provide this service.

Immediate Availability
Often a UCIS will be established to take advantage of an investment opportunity that has arisen and therefore it is necessary for the scheme to be established in a short period of time.

If the other principals to the UCIS do not currently have the necessary FSA authorisations to act as operator it can be a long process to apply for and obtain this and the investment opportunity may be lost.
In this circumstance, as Ogier already hold the necessary FSA authorisation, Ogier could be appointed operator to the UCIS and the investment could proceed. At a later date should the FSA authorisation be obtained by one of the other parties then they may replace Ogier as operator.

Integrated Service
Ogier are able to provide other services required by a UCIS, including acting as a trustee to a unit trust and the provision of registered office, administration services and directors to a general partner of a limited partnership. This will allow for the simplification of the management of the UCIS and allow for economies of scale in the service provision.

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