• COLL Part 4.2 COLL Part 4.2 The Independent Entity—QFC Schemes

    • COLL Division 4.2.A COLL Division 4.2.A Independent Entity Generally—QFC Schemes

      • COLL 4.2.1 Requirements for Independent Entity—All QFC Schemes

        (1) The independent entity of a QFC scheme must be—
        (a) appointed by the operator; and
        (b) either—
        (i) an authorised firm that—
        (A) has an authorisation for providing custody services and operating collective investment schemes; and
        (B) is permitted under the scope of its authorisation to be the independent entity of the scheme, QFC schemes of that kind or any QFC scheme; and
        (C) is a corporation; or

        Note Authorised firm, authorisation, corporation and the regulated activities mentioned in para (i) (A) are defined in the glossary.
        (ii) a corporation that is not an authorised firm or another QFC licensed firm if the operator has certified in writing that, after performing due diligence, it is satisfied that—
        (A) the corporation is an appropriate person to be the independent entity of the scheme; and
        (B) the corporation can effectively exercise the independent entity's functions under these rules; and
        (C) the appointment of the corporation as independent entity of the scheme is in the interest of participants and potential participants in the scheme; and

        Note QFC licensed firm, exercise and function are defined in the glossary. Participant is defined in r 1.2.2.
        (c) a different person from the operator and, if the scheme is a CIC or CIP, the scheme; and

        Note CIC and CIP are defined in r 1.3.7 and r 1.3.8 respectively.
        (d) independent of—
        (i) the operator; and
        (ii) if the scheme is a CIC or CIP—the scheme; and
        (iii) a member (however described) of the governing body of the operator or, for a CIC or CIP, the scheme; and

        Note 1 Governing body is defined in the glossary.

        Note 2 See r (4) on the meaning of 'independent'.
        (e) for a CIT—the trustee of the trust.

        Note CIT is defined in r 1.3.9.
        (2) In deciding whether to give a certificate under subrule (1) (b) (ii) in relation to a corporation, the operator must consider each of the following matters:
        (a) anything the Regulatory Authority could consider in assessing the corporation's corporation's fitness and propriety (within the meaning given by FSR, article 29) if the corporation were an applicant for an authorisation, including the following:
        (i) the corporation's expertise and market reputation;
        (ii) the corporation's credit rating, capital and financial resources;
        (iii) the corporation's regulatory status and history;
        (iv) the other members of the corporation's group and their activities;

        Note Group is defined in the glossary.
        (b) the need to ensure that the corporation provides protection for unitholders at least equivalent to the protection that would be provided by an independent entity that is an authorised firm;
        (c) the regulatory regimes and legal systems (including insolvency laws) to which the corporation is subject;
        (d) the regulatory authorisations (however described) held by the corporation;
        (e) whether the corporation has entered into an agreement with the operator and, if so, the terms of the agreement;
        (f) the corporation's arrangements for safeguarding the scheme property and its use of agents and service providers;
        (g) the obligations applying to the corporation, and the recourse available against the corporation by the operator, the Regulatory Authority and participants, under those regulatory regimes and legal systems in relation to anything done or not done by the corporation in relation to the scheme;
        (h) whether the corporation has submitted to the jurisdiction of the Regulatory Authority, the QFC Court or both.
        (3) Subrule (2) does not limit the matters the operator may consider.
        (4) Without limiting subrule (1) (d), the independent entity is not independent of another person if—
        (a) the independent entity has at any time during the last 2 years been involved in material business dealings with the person (otherwise than in the exercise of their respective functions as holders of positions in relation to a scheme); or
        (b) the person has a material interest in the independent entity or the independent entity has a material interest in the person.
        Amended by QFCRA RM/2014-6 (as from 1st January 2015)

      • COLL 4.2.2 Independent Entity Must Comply with Legal and Regulatory Requirements—All QFC Schemes

        (1) The independent entity of a QFC scheme must comply with every legal and regulatory requirement applying to the independent entity—
        (a) in relation to the scheme; or
        (b) as the independent entity of a QFC scheme; or
        (c) if the independent entity is an authorised firm—as an authorised firm.
        (2) Without limiting subrule (1), the independent entity must act in accordance with the following:
        (a) these rules;
        (b) any regulations under which the QFC scheme is established, including any law applied by, or that supplements, those regulations;
        (c) the other provisions of the law applying in the QFC in relation to—
        (i) the scheme; or
        (ii) the independent entity as the independent entity of a QFC scheme; or
        (iii) if the independent entity is an authorised firm—the independent entity as an authorised firm;
        (d) if the independent entity is an authorised firm—the scope of the independent entity's authorisation, including any conditions, restrictions or requirements;

        Note Authorisation is defined in the glossary.
        (e) the scope of the scheme's registration, including any conditions, restrictions or requirements;
        (f) the constitutional document;
        (g) the latest filed prospectus.

        Note Latest filed prospectus is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.3 Oversight Functions of Independent Entity—All QFC Schemes

        (1) The independent entity of a QFC scheme must take reasonable care to ensure that the scheme is managed by the operator in accordance with—
        (a) the following provisions of these rules (as far as they apply to the scheme):
        •   part 5.1 (Transactions with affected persons—QFC schemes)
        •   rule 5.6.6 (Operator's reports—QFC qualified investor schemes)
        •   rule 5.6.13 (Operator's reports—QFC retail schemes)
        •   chapter 6 (Investment and borrowing—QFC qualified investor schemes)
        •   chapter 7 (Investment and borrowing—QFC retail schemes)
        •   part 8.1 (Dealing—QFC schemes)
        •   part 8.2 (Valuation and pricing—QFC schemes)
        •   part 8.7 (Accounting periods—QFC schemes)
        •   part 8.8 (Income allocation and distribution—QFC schemes); and
        (b) the provisions of the constitutional document, and the latest filed prospectus, that relate to any of the following matters:
        (i) transactions with affected persons;
        (ii) reports of the operator about the scheme;
        (iii) investment and borrowing by the scheme;
        (iv) dealing in units;
        (v) valuation of the scheme property and pricing of units;
        (vi) income and capital of the scheme, including their distribution.
        (2) Without limiting subrule (1), the independent entity must take reasonable care to ensure on a continuing basis that—
        (a) the operator is adopting appropriate procedures to ensure that the scheme's net asset value, and the price per unit in each class, are calculated for each valuation point in accordance with these rules; and
        (b) the operator has made and kept sufficient records to show that the scheme's net asset value, and the price per unit in each class, have been calculated for each valuation point in accordance with these rules.

        Note Net asset value, class, price and valuation point are defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.4 Duty of Independent Entity to Report Certain Breaches of Law etc—All QFC Schemes

        (1) This rule applies if the independent entity of a QFC scheme becomes aware that the operator or any other person has breached, or suspects on reasonable grounds that the operator or any other person may have breached or may be about to breach, in relation to the scheme any provision of these rules, any other law of the QFC or the law of any other jurisdiction.

        Note Breach and jurisdiction are defined in the glossary.
        (2) The independent entity must immediately tell the operator in writing about the breach.
        (3) Subrule (4) applies if—
        (a) the independent entity is of the opinion that the operator has not taken, or does not propose to take, appropriate action in relation to the breach; and
        (b) the breach—
        (i) is of a provision mentioned in rule 4.2.3 (1) (Oversight functions of independent entity—all QFC schemes); or
        (ii) has had, or is likely to have, a material adverse effect on the scheme or the interests of unitholders.
        (4) If this subrule applies, the independent entity must tell the Regulatory Authority about the breach immediately, but within 1 business day.

        Examples

        See examples to rule 4.1.4 (2) on the meaning of 'within 1 business day'.
        (5) The independent entity must give the Regulatory Authority any information about the breach that the authority reasonably requires.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.5 Particular Duties of Independent Entity—All QFC Schemes

        The independent entity of a QFC scheme must—

        (a) act honestly; and
        (b) exercise the degree of care and diligence that a reasonable person would exercise in the independent entity's position; and
        (c) be independent of the operator; and
        (d) act as independent entity solely in the interests of the unitholders; and
        (e) treat unitholders who hold units in the same class equally and unitholders who hold units in different classes fairly; and

        Note Class is defined in the glossary.
        (f) not make improper use of information acquired as a result of being the independent entity—
        (i) to gain, directly or indirectly, a personal advantage or an advantage for another person; or
        (ii) to cause detriment to the unitholders; and
        (g) not make improper use of the position of independent entity—
        (i) to gain, directly or indirectly, a personal advantage or an advantage for another person; or
        (ii) to cause detriment to the unitholders.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.6 Property Safeguarding Functions of Independent Entity—All QFC Schemes

        (1) The independent entity of a QFC scheme is responsible for safeguarding all the scheme property.

        Note For the exceptions to this rule, see rule 4.2.6 (6).
        (2) Without limiting subrule (1), the independent entity must—
        (a) ensure that all the scheme property is properly accounted for; and
        (b) ensure that all the scheme property is—
        (i) clearly identified as scheme property; and
        (ii) held separately from the independent entity's own property, the operator's own property and the property of any other person; and
        (c) take all steps and complete all documents needed to ensure completion of transactions properly entered into for the scheme; and
        (d) ensure that instructions properly given by the operator about the exercise of rights in relation to the scheme property are carried out; and
        (e) ensure that any scheme property in registrable form is registered as soon as practicable in its own name or in the name of its nominee or delegate, as appropriate; and
        (f) take into its custody or control all documents evidencing title to the scheme property, other than in relation to derivatives and forward positions; and

        Note Document evidencing title and derivative are defined in the glossary.
        (g) ensure that any resulting benefit of a derivative or forward transaction is received by it for the scheme property; and
        (h) collect, hold and deal with income in relation to the scheme property.
        (3) If the scheme property includes units in any other scheme operated by the operator or an associate of the operator, the independent entity must exercise any voting rights given by the units in accordance with what the independent entity reasonably believes to be in the interest of the unitholders of the QFC scheme.

        Note Associate is defined in the glossary.
        (4) If the independent entity is of the opinion that a deal in property in relation to the scheme breaches these rules or the constitutional document, the independent entity may require the operator—
        (a) to cancel the transaction or make a disposal or acquisition to restore the previous situation; and
        (b) to meet any resulting loss or expense.

        Note Deal and breach is defined in the glossary.
        (5) If the independent entity is of the opinion that—
        (a) an acquisition of property necessarily involves documents evidencing title being kept in the custody of a person other than the independent entity; and
        (b) the independent entity cannot reasonably be expected to accept the responsibility that would otherwise be placed on it if it were to permit custody by the other person;
        the operator must either cancel the transaction or make a corresponding disposal if the independent entity asks it to take action under this subrule.
        (6) This rule does not apply in relation to an immovable that is part of the scheme property if:
        (a) the operator of the fund has made adequate alternative arrangements for the immovable in accordance with rule 12.3.1; or
        (b) the fund is a REIT and the operator of the fund holds the immovable as custodian in accordance with rule 12.6.9.

        Note The operator of the fund is responsible for safeguarding an immovable described in rule 4.2.6 (6).
        Amended by QFCRA RM/2016-1 (as from 19th September 2016)

      • COLL 4.2.7 Records of Independent Entity—All QFC Schemes

        (1) The independent entity of a QFC scheme must make the records necessary—
        (a) to enable the independent entity to comply with—
        (i) these rules; and
        (ii) the other provisions of the law applying in the QFC in relation to—
        (A) the scheme; or
        (B) the independent entity as the independent entity of a QFC scheme or, if the independent entity is an authorised firm, as an authorised firm; and
        (b) to demonstrate at all times whether it has complied with these rules.
        (2) The independent entity must keep records made for this rule for at least 6 years after the day they are made.
        (3) The independent entity must, at the request of the Regulatory Authority, operator or auditor—
        (a) make records kept under this rule available for inspection within a reasonable period of not longer than 3 days; and
        (b) provide a copy of any of the records, in the requested form (if any), within a reasonable period of not longer than 3 days.
        (4) The independent entity must not charge for making records available, or providing a copy of any records, under subrule (3).

        Note GENE, ch 6 also contains provisions about record-keeping by independent entities that are authorised firms.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.8 Independent Entity Must Give Information etc to Operator and Auditor—All QFC Schemes

        The independent entity of a QFC scheme must, on request, immediately give the operator or auditor of the scheme the information and explanations in relation to the scheme that the operator or auditor reasonably requires.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Division 4.2.B COLL Division 4.2.B Non-QFC Independent Entities—QFC Schemes

      • COLL 4.2.9 Non-QFC Independent Entities—Criteria for Regulatory Authority Action

        (1) This rule applies in relation to the making of a decision by the Regulatory Authority under these rules about whether a corporation that is not an authorised firm or another QFC licensed firm is an appropriate person to be the independent entity of a QFC scheme (or a scheme established in the QFC that is proposed to become a QFC scheme).

        Note This rule applies to decisions under the following provisions:
        •   r 2.1.3 (2) (d) (ii) (Decision on application for registration of scheme established in QFC)
        •   r 4.2.13 (2) (a) (Non-QFC independent entities—removal by Regulatory Authority).
        (2) The Regulatory Authority may consider all or any of the matters mentioned in rule 4.2.1 (2) (a) to (h) (Requirements for independent entity—all QFC schemes).
        (3) Subrule (2) does not limit the matters the Regulatory Authority may consider.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.10 Non-QFC Independent Entities—Annual Compliance Certificate

        (1) This rule applies to the independent entity of a QFC scheme if the independent entity is not an authorised firm.
        (2) Not later than 1 February in each year, the independent entity must give the operator a written certificate about its compliance with the following provisions in relation to the QFC scheme during the previous year (the reporting year):
        •   rule 4.2.3 (Oversight functions of independent entity—all QFC schemes)
        •   rule 4.2.6 (Property safeguarding functions of independent entity—all QFC schemes).
        (3) The certificate must—
        (a) name the QFC scheme; and
        (b) state whether the independent entity complied fully with all relevant provisions in relation to its functions under rule 4.2.3 and rule 4.2.6 and, if it did not fully comply with all relevant provisions, the details of any material non-compliance.

        Note Function is defined in the glossary.
        (3A) If the QFC scheme is a property fund and the exception in rule 4.2.6 (6) (a) or (b) applies, the certificate must include a description of the immovable for which the independent entity is not responsible.
        (4) In this rule:

        relevant provisions means the provisions of—
        (a) these rules; and
        (b) any other law of the QFC applying in relation to the scheme; and
        (c) the law of any other jurisdiction (if any) applying in relation to the scheme.

        Note Jurisdiction is defined in the glossary.
        Amended by QFCRA RM/2016-1 (as from 19th September 2016)

      • COLL 4.2.11 Non-QFC Independent Entities—Oversight of Property Safeguarding Functions by Operators

        (1) This rule applies in relation to the independent entity of a QFC scheme if the independent entity is not an authorised firm.
        (2) The operator must take reasonable care to ensure that the independent entity exercises its functions under rule 4.2.6 (Property safeguarding functions of independent entity—all QFC schemes) in accordance with the provisions of—
        (a) these rules; and
        (b) any other law of the QFC applying in relation to the scheme; and
        (c) the law of any other jurisdiction (if any) applying in relation to the scheme.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.12 Non-QFC Independent Entities—Removal by Operators

        (1) This rule applies in relation to the independent entity of a QFC scheme if—
        (a) the independent entity is not an authorised firm; and
        (b) the operator considers that the independent entity is not, or is no longer, an appropriate person to be the independent entity of the scheme.
        (2) In making a decision for subrule (1) (b), the operator must consider the matters mentioned in rule 4.2.1 (2) (a) to (h) (Requirements for independent entity—all QFC schemes).
        (3) Subrule (2) does not limit the matters the operator may consider.
        (4) If this rule applies, the operator must—
        (a) by written notice given to the independent entity, remove the independent entity; and
        (b) appoint another person as the independent entity of the scheme.
        (5) The person appointed must be eligible to be the independent entity of the scheme under rule 4.2.1.
        (6) If the independent entity is removed under this rule, the operator must tell the Regulatory Authority about the removal immediately, but within 1 business day after the day the independent entity is removed.
        (7) If another person is appointed as the independent entity under this rule, the operator must tell the Regulatory Authority about the appointment immediately, but within 1 business day after the day the appointment is made.

        Examples for r (6) and r (7)

        See examples to rule 4.1.4 (2) on the meaning of 'within 1 business day'.
        (8) This rule is additional to, and does not limit, part 8.4 (Operator and independent entity appointment and removal—QFC schemes).
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 4.2.13 Non-QFC Independent Entities—Removal by Regulatory Authority

        (1) The rule applies in relation to the independent entity of a QFC scheme if the independent entity is not an authorised firm.
        (2) The Regulatory Authority may, by written notice given to the operator, require the operator to remove the independent entity and appoint another person as the independent entity if satisfied that—
        (a) the independent entity is not, or is no longer, an appropriate person to be the independent entity of the scheme; or

        Note See r 4.2.9 (Non-QFC independent entities—criteria for Regulatory Authority action)).
        (b) it is desirable to remove the independent entity to protect participants or potential participants in the scheme or the financial system operating in or from the QFC; or
        (c) the independent entity is in breach of, or has been in breach of, these rules, any other law of the QFC or the law of any other jurisdiction; or
        (d) a request has been received under the Financial Services Regulations, article 20 (International relations and cooperation) in relation to the independent entity.
        (3) The Regulatory Authority may give a notice under subrule (2) only if it has—
        (a) given the independent entity and the operator prior notice of its intention to give the notice; and
        (b) given the independent entity and the operator a reasonable opportunity to make representations; and
        (c) considered any representations made.
        (4) However, subrule (3) does not apply if—
        (a) the Regulatory Authority considers that any delay likely to arise because of the application of the subrule would be prejudicial to participants or potential participants in the QFC scheme or the financial system operating in or from the QFC; or
        (b) the power is to be exercised following a decision by the Regulatory Authority under the Financial Services Regulations, part 9 (Disciplinary and enforcement powers), or by the Regulatory Tribunal or the QFC Court, in relation to the independent entity.
        (5) If subrule (4) (a) applies, the Regulatory Authority must—
        (a) give the independent entity and the operator an opportunity to make representations promptly after the notice under subrule (2) has been given; and
        (b) consider any representations made.
        (6) If the Regulatory Authority gives a notice under subrule (2), it must give the independent entity a written notice—
        (a) stating that it has given the notice under subrule (2); and
        (b) giving reasons for the notice; and
        (c) tell the independent entity that the independent entity may appeal to the Regulatory Tribunal against the decision.
        (7) The operator must give effect to a notice under subrule (2).
        (8) The person appointed by the operator as the replacement independent entity must be eligible to be the independent entity of the scheme under rule 4.2.1 (Requirements for independent entity— all QFC schemes).
        (9) This rule is additional to, and does not limit, any other powers of the Regulatory Authority to remove the independent entity of a QFC scheme.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)