UK regulation
Although the UK regulatory regime for fund structures remains complex, it is in the main presented in a simple way. Most funds marketed in the UK are authorised by the Financial Conduct Authority , in accordance with the European Ucits Directive. It is these funds on which we will concentrate.
We have two main legal structures in the UK: open-ended investment companies and unit trusts. Both follow a very specific set of rules, laid down in the FCA’s Specialist Sourcebook on Collective Investment Schemes.
Lovingly referred to as COLL, this covers operational requirements, investment and borrowing powers for collective investment schemes and the official names and labels for funds in the UK.
In a unit trust, assets are held – not surprisingly – in a trust. They are controlled on behalf of investors by the trustee who legally owns the assets for the direct benefit of those investors. As such it has a trust deed, entered into by the asset manager and the trustee. Importantly, the asset manager and the trustee must be completely independent of each other.
The trustee has a fiduciary duty to oversee the activities of the manager. This provides an additional consumer protection to the Financial Services Compensation Scheme.
Unit trusts may be structured as single funds or as umbrella funds with several sub-funds. The sub-funds are individually managed, charged, accounted for and assessed for tax.
Oeics on the other hand are structured not as a trust but as a company. Therefore they don’t have trustees. In their place they typically have one director who is referred to as the authorised corporate director (ACD). Although Oeics are allowed to have other directors, in practice, they usually appoint only one ACD.
An independent depositary looks after assets and ensures the operation of the fund by the manager is performed correctly. Investors have an indirect beneficial interest in the fund assets through their shareholdings.
Oeics may be structured as single funds or have a number of sub-funds. Again, the sub-funds are separately managed, charged, accounted for and assessed for tax.
Some prefer using authorised unit trusts, but in the main there is very little difference, in practice, in using either of these structures. Nowadays there are more Oeics than unit trusts in the market, mainly because they are cheaper to set up and to run.
New European rules
With the advent of European rules on funds, the main distinction between authorised funds today is whether they are a Ucits or Nurs.
Ucits stands for Undertakings for Collective Investments in Transferable Securities. They are funds that have been manufactured and are run in accordance with European law. So, if a Ucits has been authorised in one EU member state, it can be freely marketed throughout the European Economic Area.
