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This article was first produced in partnership with the Financial Services practice module of Lexis PSL.
An Authorised Unit Trust (AUT) is a type of investment fund and, pursuant to section 237(3) of the Financial Services and Markets Act 2000 (FSMA 2000), a unit trust scheme authorised by an order in force under section 243 of FSMA 2000.
FSMA 2000, ss 237(3), 243
An AUT may be an Undertaking for the Collective Investment of Transferable Securities (UCITS), a Non-UCITS Retail Scheme (NURS) or a Qualified Investor Scheme (QIS). In certain respects, the Financial Conduct Authority's (FCA) rules in relation to AUTs differ depending on its classification.
The FCA may, in limited situations, apply to the court for the removal of the trustee of an AUT and its replacement by a nominated person, under section 258 FSMA.
FSMA 2000, s 258
There may be circumstances where a change of trustee becomes necessary, for example where a change of the ownership structure of the trustee results in the eligibility criteria for the trustee no longer being met.
However, a change of trustee is usually driven by commercial decisions made by the AUT's manager. Section 251 FSMA 2000 allows the manager of the AUT to make any subsequent appointments of a trustee.
FSMA 2000, s 251
Although unlikely, the trust deed may contain provisions relating to the process of changing the trustee of the AUT. The trustee agreement is likely to contain such provisions, in particular with regard to any compensation for loss of office and notice periods.
Section 243 FSMA 2000 contains the criteria which trustees of an AUT must meet. This includes a requirement that the trustee is independent from the manager of the AUT, that it is a body corporate incorporated in the UK or another EEA state, that it has a place of business in the United Kingdom and that it is an authorised person for the purposes of being the trustee of an AUT.
In addition, FUND 3.11.10 of the FCA Handbook contains further eligibility criteria for the trustees of UCITS and NURS funds. The trustee must be either a credit institution, a MiFID investment firm which has own funds of not less than £4m and which provides safe-keeping and administration services or an institution which was a trustee prior to the introduction of the Alternative Investment Fund Managers Directive (AIFMD).
The manager must, therefore, ensure that the incoming trustee satisfies the above criteria. Moreover, pursuant to COLL 6.5.10R(1), the trustee must not retire voluntarily except on the appointment of a new trustee.
The trustee must obtain the FCA's prior approval of the proposed change of trustee under section 251 of FSMA 2000. This is done by providing notification using Form 251. Effectively Form 251 is a joint notification by the manager and the trustee, which sets out the proposed changes and reason for making the changes as well as how the change has been classified (see paragraph 3.5). Form 251 is submitted to the FCA along with: the draft supplemental deed of retirement and appointment; solicitor's certificate confirming the trust deed is compliant with the FCA rules; revised drafts of the prospectus; key investor information documents; and any proposed notification to unit holders. The FCA may approve or provide a warning notice (where approval is not granted) within one month of receipt of the notice of proposed change and if this period elapses, effect can be given to the proposal.
The retiring trustee of a UCITS or NURS is obliged by COLL 6.5.10R(2) to disclose to the incoming trustee any circumstances which it has informed to the FCA. This will include details it has been obliged to report to the FCA as part of its oversight and monitoring functions pursuant to the FCA's detailed notification rules.
Consideration must be given to whether the change of trustee is a 'fundamental', 'significant' or 'notifiable' change under COLL. Generally, a change of trustee will be considered a notifiable change, requiring a minimum notice period of 60 days to investors.
Processes in relation to the custody and registration of assets, settlement of transactions, income collection, exercise of voting rights and income distribution must be considered and put into effect on the change of trustee.
The deed of retirement and appointment (the 'deed') is supplemental to the trust deed which creates the AUT and is entered into between the retiring trustee, the new trustee and the manager. The deed will evidence the timing of the retirement and appointment; it will discharge the retiring trustee from its duties and obligations with effect from the designated effective time and confirm that the retiring trustee is entitled to receive remuneration up to the effective time.
In addition to the deed of retirement and appointment, there is usually a deed of indemnity between the retiring trustee, new trustee and the manager with mutual indemnities between the parties.
The new trustee will also enter into a trustee agreement with the manager.
The prospectus of the AUT will have to be updated to reflect the appointment of the new trustee and submitted to the FCA. The key investor information document must also be updated (and submitted to the FCA for UCITS) and any marketing information must also be updated. There may also be a separate Article 23 AIFMD disclosure document in respect of NURS and QIS funds.
There are a number of parties that will need to be informed of the change of trustee of the AUT.
The manager must confirm to the FCA on Form FN that the change of trustee has occurred. For UCITS and NURS, this must be done within 14 days of the change (COLL 6.9.11R(3)).
As discussed above, a change of trustee is most likely to be considered a notifiable change and notice should be given in an appropriate manner and within an appropriate time period (60 days for UCITS and NURS).
In addition, all of those involved with the operation of the AUT must be kept informed of the change of trustee.