Investment Entity: Platforms
Platforms and other Distributors of Funds
Fund distributors, which may include:
• Financial advisers,
• Fund platforms,
• Wealth managers,
• Brokers (including execution-only brokers),
• Building societies; and
• Members of an insurance group,
can all fall within the definition of Investment Entity because of their role in distributing a Collective Investment Scheme.
There are two different types of fund distributors:
• Those that act as an intermediary in holding the legal title to the Collective Investment Scheme (such as a nominee); and
• Those that act on an advisory only basis.
Where a customer appears on a Collective Investment Scheme’s register, the responsibility to report on that customer lies with the Scheme. As shown in the following example, if a customer invests in a Collective Investment Scheme via a fund platform, the responsibility to report on the customer may lie with the platform.
Fund platforms typically hold legal title to Collective Investment Scheme interests on behalf of their customers (the investors) as nominees. The customers access the platform in order to buy and sell investments and to manage their investment portfolio. The platform will back the customers’ orders with holdings in the Collective Investment Scheme, and possibly other assets. But only the platform will appear on the shareholders’ register of the Collective Investment Scheme. Where this is the case the platform will be responsible for reporting on its financial accounts.
Where financial advisers’ activities do not go beyond the provision of investment advice to their customers and/or acting as an intermediary between the Collective Investment Scheme, or fund platform and the customer, then they will not hold legal title to the assets and therefore are not in the chain of legal ownership of a Collective Investment Scheme. Such financial advisers will not be regarded as the Financial Institution that maintains the financial account in respect of the accounts they advise on. Financial advisers may nevertheless be asked by Financial Institutions to provide assistance in identifying Account Holders and obtaining self-certifications [see IEIM403140].
For example, financial advisers will often have the most in-depth knowledge of the investor and direct access to the customer so will be best placed to obtain self-certifications. However, as above, such advisory only distributors are not regarded as Financial Institutions and they will only have obligations pursuant to contractual agreements with those Financial Institutions where they act as a third party service provider in relation to those financial accounts.
In practice, reliance on third parties for account identification and self-certification should work in a similar manner to Regulation 17 of the Money Laundering Regulations 2007.
A platform may have a ‘mixed business’ i.e. it acts as an adviser or ‘pure intermediary’ between the investor and the underlying Financial Institution (such as a Collective Investment Scheme), on behalf of some customers. In addition, it also holds legal title to interests on behalf of other customers. In the case where legal title is held, the platform will be a Financial Institution with a reporting obligation in respect of those interests. .
From the platform’s perspective it will not be treated as maintaining those accounts where it acts as an adviser or pure intermediary. This is consistent with the treatment of a Central Securities Depository [see IEIM400680].
When a fund is closed but there remain residual debtors and recovery actions are being pursued, the fund will be not an Investment Entity for the purposes of this Agreement.