Funds – superseded legislation and guidance

Framework for collective investment schemes and businesses licensed PRE-1.8.08 to provide services to collective investment schemes

Funds/Collective Investment Schemes

The Collective Investment Schemes Act 2008 ("the CIS Act”), sets out the statutory framework for the regulation of Collective Investment Schemes (“schemes” or “funds”), more commonly known as unit trusts, mutual funds or open-ended investment companies. The CIS Act sets out 3 classes of scheme:-

• Authorised Schemes under Schedule 1 to the CIS Act;
• International Schemes (including full international schemes and other prescribed classes of scheme) under Schedule 2 to the CIS Act; and
• Recognised Schemes under Schedule 4 to the CIS Act.

Unless otherwise agreed with the Commission, all businesses licensed PRE-1.8.08 to provide services to funds or collective investment schemes will be expected to hold licences to conduct relevant activities in Class 3 - Services to Collective Investment Schemes with effect from 1st January 2009.

General Notes:

• The Collective Investment Schemes Act 2008 came into operation on 1st August 2008. It should be noted that subordinate legislation made under the Financial Supervision Act 1988 continues to have effect as if it was made under the relevant provisions of the CIS Act
• Throughout the existing subordinate legislation and guidance the term “trustee” should be read as “Trustee” if the scheme is a unit trust and “fiduciary custodian” for other types of scheme structure.

Notes about Schemes/funds

Authorised Schemes

Any scheme established in the Island which is promoted to the general public in the Island (or the UK by virtue of the Island's designated territory status) must be authorised by the Commission under Section 3 of the FSA. Authorised Schemes are subject to detailed regulation concerning their structure and operation.

The investors compensation scheme: Authorised Collective Investment Schemes (Compensation) Regulations 2008 only applies to investors in Authorised Schemes.

International Schemes

Any scheme established in the Isle of Man which is not an Authorised Scheme or an Exempt Scheme, is an International Scheme under Schedule 2 to the CIS Act. International Schemes may not be promoted to the general public in the Isle of Man.

• Full International Schemes - The Commission does not prescribe the types of schemes which can be full international schemes. The Commission aims to provide a flexible regulatory framework in which new innovative products, which meet the needs of the market place operators, can be developed. Full international schemes are not subject to any direct approval or authorisation process, however the manager of such a scheme must have the Commission’s permission to act, and persons comprising the Governing Body of the scheme must be fit and proper persons.

  The manager and trustee/fiduciary custodian of a full international scheme must be Authorised Persons. In granting permission for the manager to manage the scheme, the Commission reviews the constitutional documents of the scheme. The Commission does not, and is not required to, comment on the investment objectives or strategy of the scheme or its suitability for any investor or any class of investor. Investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure.

• Specialist Funds - The Specialist Fund (SF) is a sub-category of International scheme which is available only to specialist investors who are generally institutional investors and high net worth individuals. The minimum investment in a SF is US$100,000.
  A SF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure. The Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it.

• Qualifying Funds - The Qualifying Fund (QF) is a sub-category of International scheme which is available only to qualifying investors who are non retail investors.
  A QF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure. The Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it.

• Professional Investor Funds - The Professional Investor Fund (PIF) is a sub-category of International scheme which is available only to professional investors who are generally market professionals and who have net assets in excess of $1 million. The minimum investment in a PIF is $100,000.
  A PIF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure. The Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it.

• Experienced Investor Fund - The Experienced Investor Fund (EIF) is a further sub-category of international scheme and is subject to a form of regulation that is aimed at the “Experienced Investor”. An “Experienced Investor” is defined as “a person who, in relation to any EIF, is sufficiently experienced to understand the risks associated with an investment in that fund”.
  An EIF is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund’s failure. The Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it.

Exempt Schemes - Exempt schemes (as defined in Schedule 3 to the CIS Act) are Isle of Man schemes that must have less than 50 investors and their relevant constitutional documents must expressly prohibit the making of an invitation to the public to subscribe in any part of the world. Exempt International Schemes are regarded as private arrangements and are not subject to regulation.

Recognised Schemes

Collective Investment Schemes which are managed in or authorised under the law of another country or territory outside the Island may not be promoted to the general public in the Island unless they have been granted recognition by the Financial Supervision Commission under Schedule 4 to the CIS Act. Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.

Schemes established outside the Isle of Man but administered or managed in the Isle of Man –

Schemes that are established outside the Isle of Man and administered or managed in the Island are not subject to detailed Isle of Man regulations or approvals in the Isle of Man (but will be subject to the regulatory regime in their home jurisdiction) and investors in such funds are not protected by any Isle of Man statutory compensation arrangements in the event of the fund’s failure The Commission does not vouch for the financial soundness of such funds or for the correctness of any statements made or opinions expressed with regard to it. Schemes which were full international schemes, specialist funds, qualifying funds, professional investor funds, experienced investor funds or exempt schemes when the CIS Act came into operation can continue to be such schemes.

Further information about the regulation of collective investment schemes can be found in the Funds Handbook.

You may search our lists of licenceholders.

Until 31st December 2008, licenceholders providing services to funds or schemes are required to comply with the legislation as detailed in the Funds Handbook.

Please see Being Regulated for further information and for links to relevant legislation and guidance.

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