CIS in the UK: establishing an investment venture

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CIS constitutes a significant investment vehicle that enables investors to pool their resources for the purpose of collectively investing in a diverse range of professionally managed assets. In the UK, as in many other jurisdictions, these schemes are subject to stringent regulatory controls to ensure the protection of participants' interests and the maintenance of financial system stability.

CIS definition

In the UK, CIS, or investment funds structured as collective investment schemes, are a mechanism for pooling capital from multiple investors into a single investment fund for the purpose of collectively investing in a diverse range of assets, including, but not limited to, shares, bonds, and real estate. The scheme is designed to enable investors of varying capital levels to access a wide array of professionally managed investments, thereby diversifying their investment portfolio and minimising risk.

In the context of investing in CIS, the investor is effectively acquiring a stake in an aggregated investment portfolio that is managed by qualified professionals. These managers make investment allocation decisions based on extensive analysis and strategic planning with the objective of maximising returns for shareholders.

Investing in UK collective investment schemes allows market participants to engage in investment opportunities that might not be available or economically feasible on an individual basis. As such, CISs are the vehicle of choice for investors seeking to expand their investment prospects without the necessity of directly managing a substantial portfolio of assets.

Overview of the modern UK's investment market

The UK investment market is regarded as one of the most developed and dynamic economic systems globally, attracting investors with its stability, transparency, and a diverse range of investment opportunities. The market is characterised by a high degree of regulation aimed at safeguarding the interests of investors and preserving financial stability.

Economic context

This is a leading global economy with a highly developed financial sector that plays a pivotal role in the global economic system. London, as one of the world's preeminent financial centres, offers a unique infrastructure for investment and trading, encompassing shares, bonds, derivatives, and currencies.

Regulatory environment

In the UK, various authorities oversee order in the investment market, with the FCA being the most prominent. This organisation is responsible for regulating financial markets, protecting the interests of consumers, monitoring the fairness of market transactions, and promoting competition. The FCA establishes the rules for financial institutions and investment products, including CIS in England, thereby ensuring a high level of protection for those who invest their capital.

Investment opportunities

With respect to investment proposals, the UK market presents a myriad of opportunities for investors of various scales, ranging from individual citizens to large organisations. The main areas include:

Equity: With one of the largest market capitalisations, the LSE offers shares of both domestic and international companies.
Debt market: this includes government bonds (gilts) and corporate bonds, providing investors with various options in terms of yield and maturity.
Derivative financial instruments: the UK derivatives market offers futures, options, swaps, and other risk management and speculative products.
Real estate: the UK boasts an active property market, including commercial, residential, and investment properties, with opportunities for direct and indirect investment.
Alternative investments: this encompasses investments in private equity, venture capital, infrastructure, commodities, and other non-standard assets.

Innovation and technology

The UK is actively developing the fintech sector, offering innovative approaches in the realms of payment systems, blockchain technology, robo-advisory services, and asset management. These technologies contribute to enhancing the efficiency and accessibility of investment services, opening up new prospects for investors.

CIS in the UK: brief overview

The table below provides a concise overview of AIFs and UUTs, including their types, benefits, regulatory requirements, subtypes, differences, and considerations for investors.

Category	Description
AIFs	AIFs are a crucial part of the UK collective investment market, providing a regulated environment for investors. Supervised by the Financial Conduct Authority (FCA), AIFs ensure governance, transparency, and investor protection.
Types
AUTs	AUTs divide assets into units bought and sold by investors, managed by a trustee following a predetermined strategy. FCA authorization ensures governance and investor protection.
OEICs	OEICs are structured as corporations with shares bought and redeemed by investors. They offer structural flexibility for market changes and are regulated by the FCA for high standards.
Benefits
Regulation and protection	FCA oversight ensures transparency and investor protection.
Diversification	Access to a wide range of assets enables portfolio diversification.
Professional management	Expert management provides access to knowledgeable strategies.
Accessibility	Investment opportunities are available to a broad range of investors.
Regulatory requirements
Capital requirements	Funds must maintain sufficient capital for operational risks.
Accountability and transparency	Regular reports on activities, financial condition, and results are mandatory.
Protection of investors' assets	Proper safekeeping and protection of investors' assets is required.
UUTs	UUTs are not directly regulated by the FCA, often involving higher risk and targeting professional or sophisticated investors.
Features
Target audience	Aimed at professional or institutional investors with experience.
Regulation	Subject to legal and operational requirements but not FCA regulation.
Investment strategies	May employ aggressive strategies including real estate and derivatives.
Structure and management	Assets divided into shares, managed by trustees or investment managers.
Subtypes
EUUTs	Tax-exempt funds appealing to specific investors such as pension funds.
NEUUTs	Not tax-exempt, subject to standard taxation.
MUUTs	Combine elements of exempt and non-exempt funds, offering flexibility.
Benefits
High profit potential	Allows for more aggressive strategies, potentially higher returns.
Flexibility	Offers flexibility in asset selection and management strategies.
Access to alternative assets	Provides access to alternative investments not available traditionally.
Differences with AIFs
Regulation	UUTs are not directly regulated by the FCA, allowing for more flexibility.
Tax treatment	Governed by the Taxation of Unauthorised Unit Trusts 2013, with varying tax regimes.
Considerations
Risk assessment	UUTs may pose higher risks and require experienced investors.
Due diligence	Careful assessment of risks is crucial before investing in UUTs.

Please note that the information provided below does not constitute legal advice or practical advice. For professional advice on CIS available in the UK market, please contact our specialists.

Restrictions for Foreigners During CIS Registration in the UK

While the UK investment market is generally open to foreign investors, there are certain restrictions and requirements that foreigners must adhere to when registering Collective Investment Schemes (CIS) in the United Kingdom. These restrictions are put in place to ensure the integrity of the financial system, prevent financial crimes, and protect the interests of investors.

Authorisation and Regulation

Foreign entities seeking to establish a CIS in the UK must obtain authorisation from the FCA. The FCA will assess the applicant's suitability, including their financial resources, management structure, and compliance with UK regulations. Foreign entities may be subject to additional scrutiny to ensure they meet the necessary standards.

Fit and Proper Persons

The FCA requires that all individuals involved in the management of a CIS, including foreign nationals, be “fit and proper” persons. This means they must possess the necessary integrity, competence, and financial soundness to carry out their roles. The FCA may request information on the background, qualifications, and experience of foreign individuals to assess their suitability.

AML/CTF Regulations

Foreign entities establishing a CIS in the UK must comply with the UK's AML and CTF regulations. This includes implementing appropriate due diligence measures, such as verifying the identity of investors and monitoring transactions for suspicious activities. Foreign entities may be required to provide additional information to demonstrate their compliance with these regulations.

Tax Considerations

Foreign investors in UK CIS may be subject to UK tax on their investment income and gains. The specific tax treatment will depend on factors such as the type of CIS, the investor's tax residency, and any applicable double taxation agreements. Foreign investors should seek professional tax advice to understand their tax obligations when investing in UK CIS.

Disclosure and Transparency

Foreign entities must ensure that they provide adequate disclosure and transparency to investors in their UK CIS. This includes providing clear and accurate information about the scheme's investment objectives, risks, fees, and performance. Foreign entities may be required to comply with additional disclosure requirements to ensure UK investors are fully informed.

Marketing Restrictions

There are restrictions on the marketing of CIS to UK investors, particularly to retail investors. Foreign entities must ensure that their marketing materials comply with FCA rules and do not mislead investors. In some cases, foreign CIS may only be marketed to certain categories of investors, such as professional or institutional investors.

Ongoing Compliance

Once a foreign entity has registered a CIS in the UK, it must ensure ongoing compliance with UK regulations. This includes submitting regular reports to the FCA, maintaining adequate financial resources, and adhering to the scheme's investment objectives and restrictions. Foreign entities may be subject to additional reporting requirements to ensure effective supervision by the FCA.

It is important to note that the specific restrictions and requirements for foreigners registering a CIS in the UK may vary depending on the type of scheme, the jurisdiction of the foreign entity, and the nature of the investments. Foreign entities should seek professional legal and compliance advice to ensure they fully understand and comply with the relevant UK regulations.

Furthermore, the UK's departure from the European Union (Brexit) may have implications for foreign entities seeking to establish CIS in the UK. Foreign entities should monitor any changes in the regulatory landscape and adapt their strategies accordingly.