International Advanced Wealth Management (Level 4)

Correct: The AFM acts as a principal when dealing through the manager’s box. By using surplus units already held in the box to meet new purchase orders, the AFM facilitates efficient dealing and avoids the unnecessary administrative costs and processes associated with the Depositary issuing new units. This practice is a standard function of the manager’s box, provided the AFM ensures that investors are treated fairly and deals are executed at the correct price determined at the valuation point.

Incorrect: The strategy of automatically cancelling all units at the next valuation point ignores the box’s role in providing liquidity and managing small imbalances in investor demand. Choosing to value units based on acquisition costs rather than the regulatory valuation rules would lead to incorrect pricing and a breach of COLL requirements. Opting to transfer the box management to the Depositary is incorrect because the Depositary’s role is oversight and safekeeping, whereas the AFM is legally responsible for the dealing and issuance of units as the scheme’s manager.

Takeaway: The manager’s box allows the AFM to act as principal to facilitate investor transactions efficiently without constant unit issuance or cancellation.

Correct: Under FCA Conduct of Business rules, specifically COBS 10, firms providing non-advised services (execution-only) for complex instruments must perform an appropriateness assessment. Since a Non-UCITS Retail Scheme (NURS) is generally classified as a complex instrument, the firm must verify that the client has the knowledge and experience to understand the risks before the transaction can proceed.

Incorrect: The strategy of proceeding immediately fails to recognize that NURS do not benefit from the same ‘non-complex’ presumption as standard UCITS schemes. Providing a suitability report is a requirement for investment advice, which is not applicable in an execution-only scenario. Choosing to reject the order outright is an overreaction, as retail clients are permitted to trade complex instruments provided the firm has satisfied the appropriateness requirements.

Takeaway: Firms must conduct an appropriateness assessment when retail clients trade complex instruments, such as NURS, on a non-advised basis.

Correct: According to the FCA’s COLL sourcebook, AFMs must use forward pricing for transactions, meaning the 12:00 PM valuation point is the correct price for an instruction received at 10:00 AM. When dealing via a regulated intermediary, the AFM processes the instruction and looks to that firm to settle the transaction within the standard settlement cycle, as the intermediary is the primary point of contact for the trade execution and settlement.

Incorrect: The strategy of requiring the AFM to conduct its own due diligence on every underlying client of a regulated intermediary ignores the standard practice of reliance or the use of nominee structures common in the UK. Opting for historic pricing is generally prohibited under COLL rules to prevent market timing and ensure all participants deal at a price that reflects the current value of the fund’s assets. Choosing to send contract notes directly to the investor’s home address instead of the intermediary firm contradicts standard operational procedures where the intermediary manages the client’s reporting and administration.

Takeaway: AFMs process intermediary instructions using forward pricing and rely on the firm to settle the transaction within standard regulatory timeframes.

Correct: Under the FCA’s COLL rules, a Non-UCITS Retail Scheme (NURS) has greater flexibility than a UCITS and is permitted to invest up to 20% of the value of the scheme property in unapproved securities.

Incorrect: Applying a 10% limit incorrectly identifies the threshold used for physical gold investments or the maximum temporary borrowing limit allowed for these schemes. Setting the cap at 5% mistakenly applies the standard concentration limit for a single issuer often found in more restrictive UCITS frameworks. Selecting a 15% threshold represents an arbitrary figure that does not align with the specific regulatory ceiling established by the FCA for unapproved assets.

Takeaway: Non-UCITS Retail Schemes are permitted to invest up to 20% of their scheme property in unapproved securities under FCA regulations.

Correct: Under FCA rules, specifically COBS 15, retail investors are generally entitled to a 14-day cancellation period when they enter into an agreement to purchase units in a regulated collective investment scheme following a personal recommendation. This ‘cooling-off’ period allows the investor to withdraw from the contract if they change their mind about the advice received.

Incorrect: The strategy of assuming all execution-only transactions trigger cancellation rights is incorrect, as these rights are primarily linked to the provision of advice to protect retail consumers. Opting to extend these protections to professional clients is inaccurate because cancellation rights are a specific retail protection not usually afforded to professional investors. Focusing on market volatility or changes in the Net Asset Value as a trigger for cancellation is a misconception, as the right is based on the nature of the sales process rather than the performance of the underlying assets.

Takeaway: Cancellation rights for collective investment schemes are primarily triggered when a retail investor receives a personal recommendation to invest.

Correct: Under FCA rules, a guaranteed scheme must have a legally binding agreement where a third party (the guarantor) undertakes to provide a specific return or capital repayment at a certain date. In contrast, a protected scheme has an investment objective designed to provide a specific level of protection for the capital, but this is achieved through the fund’s management strategy and does not involve a formal third-party guarantee.

Incorrect: The strategy of restricting assets to cash or government bonds for guaranteed schemes is incorrect as these funds often use derivatives and other instruments to meet their obligations. Relying on the Financial Services Compensation Scheme for market losses is a misunderstanding of the scheme’s purpose, as it covers firm failure rather than investment performance. Focusing only on constant Net Asset Value or asset ring-fencing confuses specific fund types like Money Market Funds or general depositary duties with the specific marketing characteristics of guaranteed and protected funds.

Takeaway: A guaranteed scheme involves a formal third-party contractual obligation, while a protected scheme relies on investment management techniques to preserve capital.

Correct: According to the Financial Services and Markets Act 2000 and the OEIC Regulations, the FCA will only authorise a scheme if it is satisfied that the depositary is independent of the authorised fund manager (AFM). The depositary must also be a fit and proper person and possess the necessary regulatory permissions to oversee the scheme’s assets.

Incorrect: The strategy of requiring a specific number of shareholders before application is incorrect as shareholder recruitment typically occurs after or during the initial offer period following authorisation. Focusing only on performance guarantees is a violation of regulatory standards, as AFMs cannot guarantee investment outcomes in this manner. Opting for back-tested performance audits is not a regulatory requirement for the establishment of a new scheme, as the focus of authorisation is on the constitutional documents and the fitness of the key roles.

Takeaway: FCA authorisation requires the scheme’s depositary to be independent of the manager and appropriately authorised to perform its oversight role.

Correct: Under the FCA’s PROD sourcebook, firms that manufacture financial instruments, such as an AFM, must identify a target market of end clients for each product. They are also required to ensure that their distribution strategy is consistent with the identified target market’s needs, characteristics, and objectives. This governance process is designed to ensure that products are designed to meet the needs of a specific group and are distributed accordingly.

Incorrect: The strategy of limiting governance reviews only to complex or non-UCITS schemes is incorrect because PROD requirements apply to all financial instruments manufactured by firms. Opting for a process where the FCA formally approves every product design before launch misrepresents the regulatory framework, as the responsibility for product governance rests with the firm’s management. Relying solely on independent financial advisers as a mandatory distribution channel is not a regulatory requirement, as firms can use various channels provided they are compatible with the target market.

Takeaway: AFMs must define a target market and ensure their distribution strategy aligns with the needs and risks of those specific investors.

Correct: Under COLL 6.4, the register of holders for an authorised fund must be made available for inspection by any holder or their authorised representative. This inspection must be provided free of charge during ordinary business hours at a place notified to the FCA.

Incorrect: The strategy of limiting access only to the Depositary or the FCA is incorrect because shareholders have a specific regulatory right to inspect the register. Opting to impose a 5% holding threshold or an administrative fee contradicts the rule that any holder is entitled to free inspection regardless of the size of their investment. Providing a redacted version that excludes names and addresses would fail to meet the requirement of providing the actual register, which must contain the names and addresses of all holders.

Takeaway: Any shareholder in a UK authorised fund is entitled to inspect the register of holders free of charge during business hours.

Correct: Under the FCA’s COLL sourcebook, the AFM and its associates are not entitled to vote at any meeting of unitholders if they have an interest in the resolution, except when acting as a proxy for a person who is entitled to vote. This rule ensures that the AFM cannot use its own corporate holdings or seed capital to unfairly influence the outcome of a vote that should be decided by the independent investors in the scheme.

Incorrect: The strategy of allowing a vote based on disclosure to the Depositary is incorrect because the regulatory prohibition on voting by interested parties is absolute and cannot be waived by disclosure. Relying on a percentage threshold, such as a 25% limit, is a misunderstanding of the rules as the restriction applies to the AFM regardless of the size of their holding. Choosing to exclude the AFM from attending the meeting entirely is an unnecessary measure, as the regulations allow them to be present and participate in the discussion even though they are barred from casting a vote.

Takeaway: The AFM and its associates are prohibited from voting their own units on resolutions in which they have a material interest.

Correct: Under the FCA’s Collective Investment Schemes sourcebook (COLL), an AFM must conduct an assessment of value for each of its authorised funds at least annually. This assessment must consider at least seven criteria, including quality of service, performance, and economies of scale. The findings must be published in a report made available to the public within four months of the fund’s annual accounting date, ensuring investors can assess whether the costs of the fund are justified.

Incorrect: The strategy of treating the assessment as a confidential regulatory return fails to meet the FCA’s requirement for public transparency and investor accountability. Focusing only on funds that fail to meet objectives ignores the rule that all authorised funds must be assessed annually regardless of performance. Choosing to view the report as a voluntary disclosure recommended by an industry body is incorrect, as the Assessment of Value is a mandatory regulatory requirement under COLL.

Takeaway: AFMs must publish an annual Assessment of Value report for all authorised funds within four months of the accounting date.

Correct: Under the FCA’s Collective Investment Schemes sourcebook (COLL), a Non-UCITS Retail Scheme (NURS) is permitted to invest up to 20% of its scheme property in unapproved securities, which are those not traded on an eligible market. This provides NURS with greater investment flexibility compared to UCITS schemes, reflecting their different regulatory standing while still maintaining a cap to protect retail investors.

Incorrect: Adopting a 10% limit is incorrect as this threshold specifically applies to UCITS schemes under COLL 5.2 rather than the more flexible NURS framework. Limiting the exposure to 5% represents an overly conservative approach that likely confuses aggregate unapproved security limits with individual issuer concentration rules. The strategy of capping the investment at 15% is also incorrect as it does not reflect the actual maximum regulatory allowance provided by the FCA for this specific scheme type.

Takeaway: Under FCA COLL rules, a Non-UCITS Retail Scheme (NURS) may invest a maximum of 20% of its property in unapproved securities.

Correct: Under the FCA’s COLL sourcebook, a change to the investment objective or policy that materially alters the risk profile of a scheme is classified as a fundamental change. Fundamental changes require the AFM to obtain prior approval from unit holders through an extraordinary resolution, which requires a 75% majority of the votes cast at a meeting.

Incorrect: Providing 60 days’ prior written notice is the regulatory requirement for significant changes, which are important but do not fundamentally alter the nature of the investment. Informing shareholders via the next annual or half-yearly report is the procedure for notifiable changes, which are minor and do not significantly impact the investor’s decision-making. Seeking approval from the Financial Ombudsman Service is an incorrect regulatory path because that body is responsible for resolving individual consumer complaints rather than overseeing scheme modifications.

Takeaway: Fundamental changes to a UK authorised scheme, such as altering the investment objective, require prior shareholder approval via an extraordinary resolution.

Correct: In the UK, under FCA rules and industry standards, a pricing error is generally deemed material if it reaches or exceeds 0.5% of the unit price. When this threshold is met, the AFM is responsible for ensuring that neither the fund nor the individual investors are disadvantaged, which typically involves making compensation payments and formally notifying the Depositary of the breach and the corrective measures taken.

Incorrect: The strategy of using a 1.0% threshold is incorrect as it exceeds the standard 0.5% materiality limit established for retail schemes in the UK. Focusing only on notifying the Financial Conduct Authority for minor 0.1% fluctuations ignores the primary operational requirement to rectify the financial impact on the fund and its holders. Opting to offset errors against future capital gains is not a permitted method of remediation, as it fails to provide immediate and fair restitution to those who transacted at the incorrect price. Relying on a fixed pound-sterling loss limit for individuals is secondary to the percentage-based materiality test used to define a reportable pricing error.

Takeaway: A pricing error of 0.5% or more requires the AFM to compensate affected parties and notify the Depositary.

Correct: In the UK, while the FCA does not set a hard numerical limit in the COLL sourcebook, industry practice and regulatory expectations established by the Investment Association (IA) define a material pricing error as 0.5% or more of the unit price. When an error reaches this threshold, the AFM is responsible for ensuring that the fund and its investors are not disadvantaged, typically by paying compensation to ‘put them back’ in the position they would have been in had the error not occurred.

Incorrect: Focusing only on a 1% threshold of total assets under management is incorrect because materiality is assessed relative to the unit price to ensure individual investors are protected. The strategy of voiding or cancelling all previous transactions is not the standard regulatory remedy and would cause significant operational disruption compared to financial restitution. Opting to compensate for every single error regardless of size is not required, as de minimis limits are applied to prevent the administrative costs of correction from exceeding the actual value of the error for the investor.

Takeaway: Pricing errors of 0.5% or more are considered material and require the AFM to compensate the fund or investors for losses incurred.

Correct: Under the Data Protection Act 2018 and UK GDPR, the AFM acts as the data controller for the fund’s investors. Even when outsourcing functions to a data processor, such as a third-party administrator, the controller is legally responsible for ensuring the processor implements appropriate security measures and adheres to data protection principles.

Incorrect: The strategy of transferring all legal liability to a third party is not permitted under UK law, as the data controller retains primary accountability for the protection of holder data. Relying solely on an initial audit at the start of a contract fails to meet the regulatory requirement for ongoing oversight and periodic monitoring of the processor’s activities. Focusing only on notifying the FCA about server locations misidentifies the Information Commissioner’s Office as the primary data regulator and overstates the specific reporting requirements for routine infrastructure changes.

Takeaway: As the data controller, an AFM remains legally responsible for ensuring third-party processors maintain robust data security and compliance standards.

Correct: The FCA requires firms to adopt a risk-based approach to financial crime prevention. This involves identifying the specific money laundering and terrorist financing risks the firm faces and tailoring its customer due diligence (CDD) and monitoring processes accordingly. By assessing investor types and distribution channels, the AFM can apply more stringent controls where risks are higher and simplified measures where risks are lower, ensuring a proportionate and effective compliance framework.

Incorrect: The strategy of applying uniform enhanced due diligence to every investor is incorrect because it ignores the principle of proportionality and the risk-based approach mandated by the FCA. Choosing to transfer all legal responsibility to the depositary is a misunderstanding of regulatory roles, as the AFM remains primarily responsible for the fund’s operational compliance and AML controls. Focusing only on the initial subscription fails to meet the requirement for ongoing monitoring, which is essential to identify suspicious activity that may occur during the life of the investment relationship.

Takeaway: AFMs must implement a proportionate, risk-based approach to AML that includes both initial due diligence and ongoing monitoring of investors and transactions.

Correct: In the United Kingdom, authorised Collective Investment Schemes are subject to the Corporation Tax Self-Assessment (CTSA) regime. While the Company Tax Return is generally due twelve months after the end of the accounting period, the actual payment of the tax liability is required earlier, specifically nine months and one day after the accounting period ends.

Incorrect: Linking the tax payment to a six-month deadline incorrectly assumes alignment with the regulatory requirement for the AFM to publish the fund’s annual report and accounts. Proposing a fourteen-day quarterly deadline confuses the settlement of Corporation Tax with the specific reporting and payment cycles associated with Form CT61 for interest distributions. Suggesting a twelve-month deadline fails to distinguish between the date the tax return must be filed and the earlier date by which the tax payment must actually be received by HMRC.

Takeaway: UK authorised funds must settle their Corporation Tax liabilities within nine months and one day of the accounting period end.

Correct: Under the FCA’s COLL sourcebook, UCITS schemes are designed to be highly liquid and are restricted to specific eligible assets like transferable securities, money market instruments, and derivatives. In contrast, a Non-UCITS Retail Scheme (NURS) has wider investment powers, most notably the ability to invest directly in physical real estate (immovable property), which is not a permitted direct investment for a UCITS.

Incorrect: The suggestion that UCITS have higher limits for unapproved securities is incorrect as UCITS are generally subject to stricter ‘trash ratio’ limits to ensure liquidity. Claiming that specific legal structures like OEICs or AUTs are exclusive to one regulatory type is inaccurate because both UCITS and NURS can be structured as either. The idea that a UCITS could be exempt from appointing a depositary based on asset size is false, as the appointment of an independent depositary or trustee is a fundamental regulatory requirement for all UK authorised retail schemes.

Takeaway: UCITS focus on liquid transferable securities, while NURS allow broader investment powers including direct holdings in physical immovable property.

Correct: The Qualified Investor Scheme (QIS) is the regulatory category specifically designed for professional and sophisticated investors. Under the FCA’s COLL sourcebook, a QIS offers the greatest degree of investment flexibility, allowing for significantly higher borrowing limits (up to 100%) and a wider range of eligible assets and derivative strategies than those permitted for retail-oriented schemes.

Incorrect: The strategy of using a Non-UCITS Retail Scheme is incorrect because, while more flexible than UCITS, it is still a retail-facing product subject to stricter borrowing limits and diversification requirements to protect ordinary investors. Opting for a UCITS structure is unsuitable as these funds are highly regulated for mass-market retail distribution and are restricted to liquid, transferable securities with very limited borrowing powers. Choosing a Long-Term Asset Fund is inappropriate in this context because, although it targets professional investors, it is a specialized vehicle specifically designed for long-term illiquid assets like infrastructure and private equity rather than general high-leverage derivative strategies.

Takeaway: The Qualified Investor Scheme (QIS) provides the maximum regulatory flexibility for funds restricted to professional and sophisticated investors in the UK.

Correct: Under the FCA’s regulatory framework, the AFM carries the primary responsibility for maintaining comprehensive records. These records must provide a clear audit trail showing that the fund is managed according to its constitutional documents (such as the Trust Deed or Instrument of Incorporation) and the COLL sourcebook. This includes documentation of valuations, pricing, and all investor transactions to ensure transparency and regulatory accountability.

Incorrect: Relying solely on monetary thresholds for record-keeping is a failure of compliance, as the FCA requires a complete history of all transactions to ensure scheme integrity. The strategy of assuming the Depositary takes over all record-keeping duties is incorrect; while the Depositary has oversight and its own record-keeping duties, the AFM remains responsible for the administration and register maintenance. Opting for a two-year retention period is insufficient, as UK regulatory standards typically require records to be kept for much longer periods, often five or six years, to support long-term oversight and the fair treatment of customers.

Takeaway: AFMs must maintain comprehensive records to demonstrate that fund management complies with both the scheme’s constitution and FCA regulatory requirements.

Correct: Under the FCA’s COLL sourcebook, when a sub-register is used for savings plans or ISAs, the AFM remains responsible for ensuring it is maintained to the same high standards as the main register. This includes ensuring the records are accurate, up-to-date, and accessible to the Depositary or Trustee for oversight and inspection purposes to protect the interests of the beneficial owners.

Incorrect: Treating the sub-register as an informal document overlooks the regulatory necessity for robust record-keeping to protect beneficial owners. The strategy of shifting all legal responsibility to a plan manager is incorrect because the AFM retains ultimate regulatory accountability for scheme administration under UK rules. Focusing only on annual updates is insufficient as records must accurately reflect current holdings to facilitate redemptions, transfers, and income allocations throughout the year.

Takeaway: Sub-registers for savings plans must be maintained to the same regulatory standards as the main register and remain accessible to the Depositary.

Correct: Under the FCA Conduct of Business Sourcebook (COBS), retail clients are typically entitled to a 14-day cancellation period when they enter into a contract for a collective investment scheme following a personal recommendation. This protection ensures that retail investors have a cooling-off period to reconsider the suitability of the investment advice they received before the commitment becomes final.

Incorrect: Granting cancellation rights to professional clients is not a regulatory requirement because these investors are deemed to have the necessary expertise to make firm commitments without a cooling-off period. The strategy of applying these rights to execution-only deals is incorrect, as the right to cancel is specifically linked to the protections surrounding advised sales or distance marketing. Treating mandatory conversions as new sales is also a misconception, as administrative changes to share classes do not constitute a new investment decision that would trigger statutory cancellation rights.

Correct: Under the FCA’s Conduct of Business Sourcebook (COBS 4), financial promotions must be fair, clear, and not misleading. When performance data is included, firms are required to provide a prominent warning stating that past or simulated performance is not a reliable indicator of future results. Furthermore, the rules dictate that the potential benefits of an investment must not be presented more prominently than the risks or the required warnings.

Incorrect: The strategy of seeking formal pre-approval from the Financial Conduct Authority for individual advertisements is incorrect as the regulator does not provide a clearing service for marketing materials; the responsibility for compliance lies solely with the authorised firm. Relying on the Depositary to certify marketing content is a misunderstanding of their role, which focuses on asset safekeeping and oversight of fund pricing rather than promotional compliance. Opting to bypass risk disclosures based on an investor’s previous experience is a violation of the rules, as the requirement for promotions to be fair and balanced applies regardless of the recipient’s prior investment history.

Takeaway: Financial promotions must be fair, clear, and not misleading, ensuring risk warnings are as prominent as potential return information.

Correct: Section 235 of the Financial Services and Markets Act 2000 (FSMA) provides the statutory definition of a Collective Investment Scheme. It defines a CIS as any arrangement with respect to property where the participants do not have day-to-day control over the management of the property and the contributions of the participants and the profits or income are pooled.

Incorrect: Relying on the General Prohibition involves Section 19, which prevents any person from carrying on a regulated activity in the UK unless they are authorised or exempt, but it does not define the scheme itself. The strategy of focusing on Section 21 is incorrect as this section governs the restriction on financial promotions and the communication of invitations to engage in investment activity. Opting for Section 138A is misplaced because this section relates to the Financial Conduct Authority’s power to waive or modify specific rules for a firm rather than establishing the legal definition of an investment structure.

Takeaway: Section 235 of FSMA 2000 defines a Collective Investment Scheme based on pooling and lack of participant control over management.

Correct: According to FCA rules in the COLL sourcebook, if there is a large market movement (typically exceeding 2%) during the initial offer period, the AFM should consider ending the period early. This action prevents new investors from subscribing at a price that no longer reflects the underlying value of the scheme property, thereby protecting the interests of the fund and its participants.

Incorrect: The strategy of maintaining a fixed price regardless of significant market shifts risks disadvantaging the fund by allowing new participants to buy in at an undervalued rate. Simply applying a dilution adjustment is incorrect because that mechanism is designed to offset transaction costs rather than address fundamental price discrepancies during an initial offer. Opting to cancel all existing subscriptions is an extreme measure that is not required by regulation and would unfairly penalise investors who committed capital early in the period.

Takeaway: AFMs should consider ending an initial offer period early if a large market movement makes the fixed price unfair.

Correct: According to FCA rules regarding cancellation rights, if the market value of an investment falls before the cancellation right is exercised, the Authorised Fund Manager (AFM) is entitled to deduct the ‘shortfall’ from the original investment. This means the investor receives the original sum minus the amount by which the investment has fallen in value, ensuring the investor still bears the market risk during the period the units were held.

Incorrect: The strategy of returning the full original investment regardless of market movement is incorrect because it ignores the regulatory allowance for shortfall deductions when prices drop. Simply refunding the current market value plus initial charges fails to correctly apply the shortfall calculation logic defined in the COLL sourcebook. Opting to deduct a fixed administrative fee is not the standard regulatory approach for calculating cancellation proceeds, as the deduction must specifically relate to the actual market value reduction.

Takeaway: When exercising cancellation rights, UK investors may receive less than their original investment if the market value has fallen (the shortfall).

Correct: According to the FCA’s COLL sourcebook, the amount of available income for a distribution period is calculated by taking the total income property received or receivable for the account of the scheme and deducting the aggregate of the income expenses and the amount of any tax charges.

Incorrect: The strategy of adding realized capital gains is incorrect because capital growth is generally treated as capital property rather than distributable income property. Relying solely on the deduction of the AFM’s periodic charge is insufficient as it fails to account for other mandatory scheme expenses such as audit, depositary, and regulatory fees. Opting to distribute gross income without tax adjustments ignores the requirement to account for corporation tax or irrecoverable withholding tax before determining the final net distributable amount.

Takeaway: Available income is the net income property remaining after all allowable expenses and tax liabilities have been deducted.

Correct: According to the FCA’s COLL sourcebook, the annual report of an authorised fund must include a report from the depositary. This report must state whether, in the depositary’s opinion, the AFM has managed the scheme in accordance with the COLL rules and the scheme’s instrument of incorporation or trust deed, providing a vital layer of independent oversight for investors.

Incorrect: Relying on a formal statement from the Financial Conduct Authority is incorrect because the regulator does not provide individual compliance certifications for inclusion in annual reports. The strategy of including a summary from the Financial Ombudsman Service is misplaced as the FOS handles external dispute resolution rather than mandatory fund reporting. Focusing on the personal account dealing records of senior management is wrong because, while these are monitored internally under the Senior Managers and Certification Regime, they are not a required component of the public annual report for a collective investment scheme.

Takeaway: The depositary’s report is a mandatory annual disclosure that confirms the AFM’s compliance with regulatory and constitutional requirements.

Correct: Under the FCA Collective Investment Schemes sourcebook (COLL), Authorised Fund Managers must process unit deals using forward pricing to prevent arbitrage and ensure fairness. This means the transaction price is determined at the next valuation point after the instruction is received. The AFM may also apply a dilution adjustment or levy to ensure that the costs of buying or selling underlying assets are borne by the transacting investor rather than the remaining unitholders.

Incorrect: Relying on historic pricing is generally prohibited for UK authorised funds because it allows investors to trade on known price movements. The strategy of using mid-market prices without accounting for transaction costs fails to protect the fund from dilution. Choosing to delay redemptions by a fixed five-day period violates the regulatory requirement to deal at the next available valuation point. Opting to absorb transaction costs into the annual management charge unfairly penalizes long-term holders for the activity of a single large investor.

Takeaway: UK authorised funds must use forward pricing and may apply dilution adjustments to ensure equitable treatment for all investors.