Pricing Controls in respect of Open-Ended Collective Investment Schemes (November 2021)

Summary

This Guidance Note sets out the pricing controls and checks that the Guernsey Financial Services Commission expects Managers and Trustees of open ended Collective Investment Schemes to apply, and the standards of conduct expected when incorrect pricing occurs. It also sets thresholds for reporting incorrect pricing and for compensating affected investors or schemes.

• Manager pricing controls: Managers must maintain demonstrable controls over pricing sources, outsourced pricing functions, valuation reconciliations, dealing cut offs, dividend and tax accruals, and investigation of price movement limits (paragraphs 2.1 to 2.14).
• Trustee oversight: Trustees must review and satisfy themselves of the adequacy of a Manager's pricing systems and controls on appointment and periodically thereafter, more frequently if controls are known or suspected to be weak.
• De minimis provision: Trustees have discretion to allow Managers to rely on a de minimis threshold below which compensation is not normally required, but only where an appropriate control environment is demonstrated; otherwise the de minimis provision cannot be used.
• Reporting incorrect pricing: All incorrect pricing of 0.1% or more of a share/unit price must be recorded, reported to the Trustee, and remedial action taken; incorrect pricing of 0.5% or more must be reported by the Trustee to the Commission using the information set out in the Appendix.
• Compensation thresholds: Pricing errors below 0.5% normally require no compensation (subject to Trustee discretion); errors of 0.5% or more normally require compensation to share/unit holders or the scheme, unless the Trustee decides otherwise and reports its reasoning to the Commission.
• Minimum compensation amount: Individual compensation sums under 30 pounds (or currency equivalent) are not normally required to be paid, though Managers may pay them voluntarily.

The Commission will take compliance with this guidance into account when assessing whether a Manager or Trustee meets the minimum criteria for licensing under the Protection of Investors (Bailiwick of Guernsey) Law, 2020, and will review Trustee pricing assessments as part of its risk based on site supervision.

Key obligations

• Managers must maintain demonstrable, documented controls over pricing sources, outsourced pricing functions, valuation reconciliations, dealing cut off procedures, dividend/tax accruals and investment/borrowing limit breaches.
• Managers relying on outsourced pricing must review the outsource provider's system outputs at least annually and after any significant system change.
• Managers must reconcile records with the Trustee's records of stocks and cash at least monthly, and reconcile shares/units in issue with the holder register at least monthly.
• Trustees must thoroughly review and periodically reassess a Manager's pricing systems and controls, on appointment and thereafter as appropriate, and more frequently where controls are known or suspected to be weak.
• All instances of incorrect pricing of 0.1% or more of a share/unit price must be recorded, reported to the Trustee, and corrective action taken and reported to the Trustee as soon as discovered.
• Trustees must report all instances of incorrect pricing of 0.5% or more of a share/unit price to the Commission, including the information set out in the Appendix.
• Where a Trustee determines a Manager's controls are inadequate to rely on de minimis provisions, or identifies a material issue, it must notify the Manager and, where material, notify the Commission.
• Where compensation is required for pricing errors of 0.5% or more, the Manager or scheme must pay compensation unless the Trustee exceptionally determines otherwise and reports its recommendation and justification to the Commission.
• Trustee assessments of Manager pricing controls should be documented in writing and kept under regular review.

Applies to

Managers of open ended Collective Investment Schemes (designated administrators/principal managers), Trustees (including designated trustees and designated custodians) of open ended Collective Investment Schemes