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REPORT ON THE OPEN-ENDED
INVESTMENT COMPANIES BILL
(NIA Bill 10/01)
SESSION 2001/2002 FIFTH REPORT

Ordered by The Committee for Enterprise, Trade and Investment to be printed 3 July 2002
Report: 5/01R (Committee for Enterprise, Trade and Investment)

COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT
TOGETHER WITH THE MINUTES OF PROCEEDINGS OF THE COMMITTEE RELATING
TO THE REPORT AND THE MINUTES OF EVIDENCE

COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT:
MEMBERSHIP AND POWERS

The Committee for Enterprise, Trade and Investment is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of Strand One of the Belfast Agreement and under Assembly Standing Order No 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Enterprise, Trade and Investment and has a role in the initiation of legislation.

The Committee has power to:

The Committee was established on 29 November 1999 with 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee is as follows:

Mr Pat Doherty (Chairperson)
Mr Sean Neeson (Deputy Chairperson)

Mr Billy Armstrong* Dr Alasdair McDonnell
Mr Wilson Clyde Ms Jane Morrice
Mrs Annie Courtney* Dr Dara O'Hagan
Mr David McClarty Mr Jim Wells*
Mr Eugene McMenamin*  

*Mr Wells replaced Mr Campbell with effect from 3 October 2000.
*Mrs Courtney replaced Ms Lewsley with effect from 29 January 2001.
*Mr Armstrong replaced Mr Shipley Dalton with effect from 24 October 2001.
*Mr McMenamin replaced Mr Attwood with effect from 18 February 2002.

The Report and Proceedings of the Committee are published by the Stationery Office by order of the Committee. All publications of the Committee are posted on the Northern Ireland Assembly website: archive.niassembly.gov.uk

All correspondence should be addressed to the Clerk to the Committee for Enterprise, Trade and Investment, Northern Ireland Assembly, Room 424, Parliament Buildings, Stormont, Belfast, BT4 3XX.

Tel: (028) 9052 1230; Fax: (028) 90521063; e-mail: committee.enterprise@niassembly.gov.uk

TABLE OF CONTENTS

REPORT
 Report on Open-Ended Investment Companies Bill

APPENDICES
Appendix 1 - Minutes of Proceedings of the Committee relating to the Report
Appendix 2 - Minutes of Evidence

REPORT ON THE OPEN-ENDED INVESTMENT COMPANIES BILL
(NIA Bill 10/01)

GENERAL

Introduction

1. The Committee for Enterprise, Trade and Investment met on the dates given below to consider the Open-Ended Investment Companies Bill. The Bill was referred to the Committee for consideration in accordance with Standing Order 31(1) of the Northern Ireland Assembly after completing its Second Stage on 28 May 2002.

2. The Committee had before it the Open-Ended Investment Companies Bill and the Explanatory and Financial Memorandum to the Bill (NIA Bill 10/01) as introduced.

3. The Minister of Enterprise, Trade and Investment made the following statement under section 9 of the Northern Ireland Act 1998:

"In my view the Open-Ended Investment Companies Bill would be within the legislative competence of the Northern Ireland Assembly".

Purpose of the Bill

4. The prime purpose of the Bill is to enable the Department to make regulations about Open-Ended Investment Companies (OEICs). The current legislation for OEICs in Northern Ireland provides only for the operation of the Undertakings for Collective Investment in Transferable Securities Council Directive 85/661 EEC (UCITS) type of OEIC. The Bill will extend the range of the authorised OEICs available in Northern Ireland. The regulations will contain detailed provisions about the formation, operation, disolutions and winding up of such companies. Regulations under the Bill may widen the role of the Financial Services Authority ("the Authority") to act as a single point of contact on OEICs. This would mean that as well as regulating OEICs for Northern Ireland, the Authority would also be responsible for registering OEICs and maintaining the register.

Meetings Held

5. The Committee met to consider the Bill on the following dates:

Evidence

6. The Minutes of Evidence for each of the meetings when the Bill was considered formally are given in Appendix 2.

7. The Committee wrote to 3 interested bodies on 22 April 2002 to seek their comments on the proposed Bill. No responses were received.

DELIBERATIONS OF THE COMMITTEE

8. The Committee gave detailed consideration to each part of the Open-Ended Investment Companies Bill over a number of meetings. The record of the Committee's deliberations can be found in Appendix 1 - Minutes of Proceedings and Appendix 2 - Minutes of Evidence.

9. The Committee carried out a clause-by-clause scrutiny on 26 June 2002 when the Bill was formally agreed.

10. The Committee considers that the provisions of the Bill, as introduced, are necessary to enable the Department to make regulations about Open-Ended Investment Companies (OEICs) and to extend the range of the authorised OEICs available in Northern Ireland.

11. The Committee considers that no amendments are necessary to the Open-Ended Investment Companies Bill.

PAT DOHERTY MP MLA
Chairperson

APPENDIX 1

PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT

WEDNESDAY, 26 JUNE 2002 AT 10.40AM IN
ROOM 144, PARLIAMENT BUILDINGS

Present: Mr S Neeson (Deputy Chairperson)
Mr B Armstrong
Mr W Clyde
Mrs A Courtney
Mr D McClarty
Dr A McDonnell
Dr D O'Hagan
Mr J Wells

Apologies: Mr P Doherty MP
Mr E McMenamin
Ms J Morrice

In attendance: Mrs C White (Committee Clerk)
Mr M Anderson (Assistant Committee Clerk)
Mr R Anderson (Clerical Supervisor)
Miss A Fowler (Clerical Officer)
Dr P Gilleece (Assembly Researcher)
Ms C McGivern (Assembly Legal Adviser)

In attendance for the public evidence session at 10.42am:

Mr M Bohill, Mr J Johnston and Ms J Bryans (Department of Enterprise, Trade and Investment (DETI)).

The Committee agreed to open the meeting in public at 10.40am.

Mr Neeson assumed the Chair in the absence of the Chairperson.

1. Open-Ended Investment Companies Bill

1.1 Departmental officials gave evidence to the Committee on the Bill. The officials outlined the reasons for the introduction of the Bill and answered a number of questions put by the Committee on the implications of the Bill in Northern Ireland.

1.2 The Committee carried out a detailed clause-by-clause scrutiny of the Open-Ended Investment Companies Bill. The clauses were read along with the related commentary in the Explanatory and Financial Memorandum.

The Long Title was considered.

Agreed: That the Committee is content with the long title as drafted.

Clause 1 was considered.

Agreed: That the Committee is content with the clause 1 as drafted.

Clause 2 was considered.

Agreed: That the Committee is content with the clause 2 as drafted.

Clause 3 was considered.

Agreed: That the Committee is content with the clause 3 as drafted.

Clause 4 was considered.

Agreed: That the Committee is content with the clause 4 as drafted.

Clause 5 was considered.

Agreed That the Committee is content with the clause 5 as drafted.

[EXTRACT]

WEDNESDAY 3 JULY 2002 AT 10.20AM IN
ROOM 144, PARLIAMENT BUILDINGS

Present: Mr P Doherty MP (Chairperson)
Mr S Neeson (Deputy Chairperson)
Mr B Armstrong
Mr W Clyde
Mrs A Courtney
Dr A McDonnell
Mr E McMenamin
Ms J Morrice
Dr D O'Hagan
Mr J Wells

Apologies: Mr D McClarty

In attendance: Mrs C White (Committee Clerk)
Mr M Anderson (Assistant Committee Clerk)
Mr R Anderson (Clerical Supervisor)
Miss A Fowler (Clerical Officer)
Mr S Ball (Clerical Officer)
Ms C McGivern (Assembly Legal Adviser)

In attendance for the public evidence session at 10.37am:

Mr M Bohill, Mr J Johnston and Ms A Aiken (Department of Enterprise, Trade and Investment).

The meeting went into public session at 10.35am.

1. Open-Ended Investment Companies Bill

1.1 The Committee discussed the content of the draft report on the Open-Ended Investment Companies Bill.

Agreed: That the report should include the oral evidence from the Department of Enterprise, Trade and Investment.

Agreed: The draft report on the Open-Ended Investment Companies Bill and ordered it to be printed.

[EXTRACT]

APPENDIX 2

MINUTES OF EVIDENCE

MINUTES OF EVIDENCE

Wednesday 26 June 2002

Members present:

Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr McClarty
Dr McDonnell
Dr O'Hagan
Mr Wells

Witnesses:

Mr M Bohill )Department of Enterprise, Ms J Bryans )Trade and Investment
Mr J Johnston )
Ms C McGivern )Assembly Legal Service

1.

The Deputy Chairperson: My apologies for the delay. Unfortunately the Chairperson's neighbour died suddenly last night, so that has caused a few problems. I welcome Mr Mike Bohill, Mr Jackie Johnston and Ms Joan Bryans from the Department. We also have Clare McGivern with us to provide advice to the Committee. Following your introduction on the Bill, we may have some questions.

2.

Mr Bohill: Thank you. Members have a copy of the memorandum outlining the purpose of the Bill, and I will not dwell too much upon it. The key point is that the Bill, though technical, is very important for the financial investment sector in Northern Ireland. It will ensure that Northern Ireland investment firms have the same opportunities in relation to open-ended investment companies (OEICs) as their competitors in Great Britain, thus removing any potential disadvantages to the local investment sector.

3.

The Bill largely replicates the relevant sections in the Financial Services and Markets Act 2000 and the Open-Ended Investment Companies Regulations 2001 but tailored to Northern Ireland requirements. The decision to register an OEIC will continue to be voluntary and based on commercial considerations. Although there are no OEICs registered in Northern Ireland, the Bill represents the Department's commitment to keep the legal framework for businesses at the forefront of international best practice. The Bill will achieve that by giving the Northern Ireland investment sector the opportunity to take advantage of the extended range of the OEIC investment vehicle.

4.

The start-up costs for OEICs are estimated at £1,200 and though the explanatory and financial memorandum states that annual recurring costs are £1,200, we have discovered through further discussions and enquiries with the Department of Trade and Industry that running costs are £600 per annum.

5.

There will be no further Northern Ireland exchequer or staffing costs arising from the proposals.

6.

The Deputy Chairperson: The explanatory and financial memorandum mentions the establishment of OEICs. Are they not already established in Northern Ireland?

7.

Mr Bohill: Clause 1, as the memorandum states, creates the legal framework within which the Department may make regulations relating to the establishment of OEICs. The Bill is enabling legislation. The Financial Services and Markets Act 2000 is limited to Great Britain. This Bill mirrors that Act and provides similar enabling provisions.

8.

Ms McGivern: The explanatory and financial memorandum is potentially misleading. It states that clause 1 allows the Department to make "regulations relating to the establishment" of OEICs. The word "establishment" has been used when, in fact, clause 1 states:

"1. -(1) The Department may by regulations make provision for
(a)facilitating the carrying on of collective investment by mean of open-ended investment companies;
(b) regulating such companies."

9.

The final two parts of the first sentence in the commentary on clause 1 are correct. However, the word "establishment" is misleading. This Bill deals with a different aspect of OEICs. It is not broadly about establishment.

10.

Mr Bohill: I agree. The Bill is about extending the range of OEICs available in Northern Ireland.

11.

The Deputy Chairperson: Therefore the word "establishment" does not truly reflect what you want to achieve.

12.

Mr Bohill:The word "establishment" relates to the extended range of OEICs.

13.

Ms McGivern: The explanatory and financial memorandum would be clearer if you explained that point.

14.

Mr Bohill:Yes.

15.

The Deputy Chairperson: Could that be clarified?

16.

Mr Bohill:Yes.

17.

Mr Wells: This has been on the stocks for several weeks. Have you had a deluge of Northern Ireland-based companies pleading with you for an opportunity to establish the Open-ended Investment Companies (OEICS) legislation, or is it going to sit there for years until someone comes along and asks to avail of it?

18.

Mr Johnston: We have had no additional enquiries from local investment firms to set up OEICS in Northern Ireland. Once the Bill is passed, we shall make it known through the press and the professional bodies that the extended vehicle is available. At the moment, however, they seem to be content to operate on the basis of the UK-wide OEICS provision under the auspices of the Financial Services Authority.

19.

Mr Wells: I am sure that having heard the news from the stock market this morning, you would advise people not to touch anything with a bargepole at the moment. A strong risk is attached to those investment vehicles.

20.

Mr Johnston: That is the case with all vehicles of that type. The fact that we are extending the range of OEICS to include property funds, for example, might encourage the creation of a particular property fund OEIC in Northern Ireland. The range of OEICS available might increase interest if the Bill is passed.

21.

The Deputy Chairperson: We will now carry out a detailed clause-by-clause scrutiny of the Bill. Members will have the opportunity to raise concerns or suggest amendments. Members should read the relevant clauses and paragraphs in the Bill along with the related commentary in the explanatory and financial memorandum.

22.

The Bill has five clauses and no schedules. Each clause, and any subsection, must be considered in turn. The Committee will have two options: to agree that the Committee is content with the clause as drafted; or to agree that the Committee recommend to the Assembly that a clause be amended.

23.

The purpose of the Bill is to ensure that local investment firms are provided with the opportunity to offer the same range of open-ended investment companies as their competitors in Great Britain. An open-ended investment company is one whose business is investment in securities such as shares of other companies. It issues shares to its investors and its capital may go up or down as shares are issued or cancelled. A fund manager manages the company's investments, and the assets of, or assets owned, must be held by a depository. The role of the fund manager and depository must be authorised by the Financial Services Authority.

24.

The current legislation in Northern Ireland provides only for the undertakings for collective investment in the transferable securities type of open-ended investment company. Through non-undertakings for collective investment in transferable securities, open-ended investment companies offer a wider range of investment schemes, including money market and property funds, and funds of funds.

25.

The Bill will provide the framework for the extended range of this type of company together with Regulations that set out detailed provisions for the setting up, regulation and dissolution of an open-ended investment company. The Regulations will also set out the role of the Financial Services Authority.

Long Title

26.

The Long Title of the Bill is:

"A Bill to make provision for facilitating the carrying on of collective investment by means of open-ended investment companies and for regulating such companies."

27.

Question, That the Committee is content with the Long Title, put and agreed to.

Clause 1 (Open-ended Investment Companies)

28.

The clause is dealt with on page 1 of the Bill and page 3 of the explanatory and financial memorandum. Subsection 1: the Department may, by Regulations, make provisions for (a) facilitating the carrying on of collective investment by means of open-ended investment companies, and (b) regulating such companies.

29.

Subsection 2 makes further provision for the setting up, registration, operation and dissolution of an open-ended investment company.

30.

Subsections 3 to 7 provide a wide-ranging and non-exhaustive list of matters for which the Regulations may provide. Those include imposing criminal liability; conferring functions on the authority, including rule-making powers; power to waive or modify rules; and power to modify or exclude any statute or rule of law. In particular, the Regulations may revoke the existing Regulations, which govern open-ended investment companies.

31.

Question, That the Committee is content with the clause, put and agreed to.

Clause 2 (Meaning of expressions used in section 1)

32.

The clause is dealt with on page 3 of the Bill and page 3 of the explanatory and financial memorandum. Clause 3 provides for the definition of certain terms used in clause 1.

33.

Question, That the Committee is content with the clause, put and agreed to.

Clause 3 (Amendment of Article 665 of the Companies (Northern Ireland) Order 1986)

34.

The clause is dealt with on page 3 of the Bill and page three of the explanatory and financial memorandum. The clause amends the Companies (Northern Ireland) Order 1986, so that the prohibition of the formation of companies with more than 20 members, other than under the Order, will not apply to open-ended investment companies incorporated by virtue of the Regulations made under clause 1.

35.

Question, That the Committee is content with the clause, put and agreed to.

Clause 4 (Commencement)

36.

The clause is dealt with on page 3 of the Bill and page three of the explanatory and financial memorandum. This clause provides for the Department to make an order bringing the Bill into operation.

37.

Question, That the Committee is content with the clause, put and agreed to.

Clause 5 (Short title)

38.

See page 3 of the Bill and page 3 of the explanatory and financial memorandum.

39.

Question, That the Committee is content with the clause, put and agreed to.