Authorised investment funds
UK authorised funds are authorised by the Financial Conduct Authority (FCA) and are subject to its regulations.
UK authorised funds - The legal and regulatory definitions
Funds are regulated in the interest of the investor and follow different legal structures. There are two possible legal structures for UK funds - unit trusts and Open-Ended Investment Companies (OEICs). They can be categorised either as a Undertaking for Collective Investment in Transferable Securities (UCITS) or a Non-UCITS Retail Schemes (NURS).
- What is an authorised unit trust?
- What is an OEIC?
- Does it matter whether I choose a unit trust or an OEIC?
- What are UCITS?
- What are NURS?
A unit trust is a fund in which the fund assets (known as the scheme property) are held in trust for investors by the trustee who legally owns the scheme property (i.e. looks after the fund assets).
The investors have a direct beneficial economic interest in the scheme property and are the owners of the fund units. An Authorised Unit Trust (AUT) is constituted by a Trust Deed, entered into by the fund manager and the trustee, who must be completely independent of each other. The trustee has a duty to oversee the activities of the manager. The manager operates the fund. This offers a layer of protection over and above the Financial Services Compensation Scheme and the Financial Ombudsman (FSCS) – something which is not present in other areas of financial services.
Unit trusts may be structured as single funds or as umbrella funds with several sub-funds. The sub-funds are separately managed, charged, accounted for and assessed for tax.
OEICs are funds structured as companies. Another name for them is Investment Company with Variable Capital (ICVC). OEICs normally have one director (manager of the fund) which is itself an authorised company and is referred to as the Authorised Corporate Director (ACD). Although OEICs are allowed to have other directors, in practice, they usually have only one director, the ACD.
An independent depositary safeguards the fund's assets and oversees the operation of the fund by the manager. Investors in an OEIC have an indirect beneficial interest in the fund assets through their shareholdings in the OEIC.
Similar to unit trusts, OEICs may be structured as single funds or as several sub-funds. The sub-funds are separately managed, charged, accounted for and assessed for tax.
No, the regulations governing unit trusts and OEICs are identical except for a small number of technical areas. The manager of a unit trust and the ACD of an OEIC are subject to identical requirements and obligations, as are trustees and depositaries. Indeed, in practice, the same companies act both as trustee and depositary, and a number of managers run both unit trusts and OEICs. Importantly, the same level of investor protection applies to both types of funds.
Undertakings for Collective Investments in Transferable Securities (UCITS) are investment funds that have been established in accordance with European Law. A fund that has been authorised in one EU Member State can be freely marketed in any other Member State.
There are rules on what UCITS can invest in, how much they can borrow and how much of the fund can be exposed to any one counterparty.
Non-UCITS Retail Schemes (NURS) are UK funds that do not comply with all the UCITS rules and, therefore, cannot be promoted across the EU. They can, however, be sold to UK retail investors. NURS can invest in a wider range of eligible investments than UCITS.