INTRODUCTION

Why are we issuing this Consultation Paper (CP)?

The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to seek suggestions from the market on proposed amendments to the AIFC Asset Management framework. The development of these proposals is based on the AFSA’s supervisory experience and feedback from the Call for Evidence published in February 2026.

Who should read this CP?

The proposals in this paper will be of interest to AIFC asset managers and fund managers; applicants and potential applicants considering establishing asset management activities in the AIFC; fund administrators, custodians, depositaries, and other service providers; legal, compliance, and regulatory advisers; investors and other stakeholders interested in the development of the AIFC asset management sector.

Terminology

Defined terms have the initial letter of the word capitalised, or of each word in a phrase. Definitions are set out in AIFC Glossary. Unless the context otherwise requires, where capitalisation of the initial letter is not used, the expression has its natural meaning.

What are the next steps?

We invite comments from relevant stakeholders on the proposed framework. All comments should be in writing and sent to the email specified below. When sending your comments by email, please use “Consultation Paper AFSA-PSRD-CSP-2026-0001” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. AFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise. Comments supported by reasoning and evidence will be given more weight by AFSA.

The deadline for providing comments on the proposed framework is 15 September 2026. Once we receive your comments, we shall consider if any refinements are required to this proposal.

Following the public consultation, we may proceed with making relevant changes to the AIFC Acts as appropriate to reflect the points raised in the consultation. You should not act on the proposals until the framework is enacted.

AFSA prefers to receive comments by email at consultation@afsa.kz

Structure of this CP

Part I – Background

Part II – Proposals

Chapter 1. Enhancements to Specialist Funds regime

Chapter 2. Introduction of Investment Trusts

Chapter 3. Regulatory treatment of units

Chapter 4. Miscellaneous amendments

Part III – Public Consultation Questions

Part IV – Feedback from Call for Evidence not incorporated into the policy proposals

Annex 1 – Proposed amendments to the AIFC Collective Investment Scheme Rules

Annex 2 – Proposed Consequential amendments to the AIFC Rules

PART I – BACKGROUND

1.          Asset and fund management remain a strategic priority for the AIFC and one of its fastest-growing sectors. Over the past few years, assets under management have increased more than twenty-fivefold, from USD 115 million in early 2021 to over USD 6.1 billion by the end of Q1-2025. Similarly, the number of funds registered in the AIFC rose from 6 in 2021 to 196 in 2025, managed by 75 fund and asset managers. Market activity reflects a broad and evolving range of fund types and investment strategies, including private equity and venture capital funds, as well as real estate, fixed income, commodities, digital assets, credit and umbrella structures.

2.          This growth has been supported by AFSA’s market-driven approach to regulatory development and close engagement with industry participants. In recent years, AFSA has delivered a number of material enhancements to the asset management regime, including refinements to Specialist Funds regime, the introduction of new Specialist Fund categories, an expanded range of permissible legal vehicles for fund establishment, and clarifying regulatory provisions.

3.          As the AIFC continues to develop as an international financial centre, it is important that the asset management framework remains responsive to market needs, supports sustainable growth, addresses emerging risks, and reinforces the AIFC’s competitiveness as a jurisdiction for fund and asset management activities.

4.          Against this background, the AFSA proposes targeted amendments to the AIFC Asset Management Framework, specifically to the AIFC Collective Investment Scheme Rules, AIFC General Rules and AIFC Glossary. The areas covered include enhancements to the Specialist Funds regime (Part 2), introduction of Investment Trusts (Part 3), regulatory treatment of units (Part 4) and miscellaneous amendments aimed at addressing practical issues affecting operational arrangements and investor protection (Part 5). Market proposals received during the Call for Evidence, but which were not included in these amendments are also addressed in this Paper (Part 6).

PART II – PROPOSALS

Chapter 3. Regulatory treatment of units

Policy issue

80.       Article 6(7) of the Constitutional Statute provides tax exemptions for income derived from the capital gains and dividends from the sale of “shares” or “participation interests” in the capital of AIFC Participants that are legal persons registered under the Acting Law of the AIFC.

81.       During the Call for Evidence, market participants sought clarification regarding the legal character of units issued by Funds constituted as Investment Companies, particularly whether such units qualify as "shares" for the purposes of the AIFC legislative framework and the application of the relevant tax exemptions. Some respondents also proposed aligning the treatment of Units and Shares across the framework by removing the exclusion of Units from the definition of "Share" in the AIFC Glossary and introducing a concept of "Participating Shares".

82.       These questions arise because units are treated differently across the AIFC legislative framework. Within the financial services framework, units are defined as a unit in or a share representing the rights or interests of a unitholder in a Fund and are explicitly excluded from the definition of “Share.” The term “Security” includes units only for the purposes of Article 6 of the Constitutional Statute, reflecting that this inclusion is intended solely for tax interpretation.

83.       By contrast, within legal entities framework, units are accommodated within the broad definition of “Security” in the Companies Regulations. “Shares” are broadly defined as shares in the share capital of a Company of any class. Within the Companies Rules, units issued by Umbrella Funds are treated functionally as equivalent to Shares of a Sub-Fund, and unitholders as equivalent to Shareholders.

AFSA’s assessment  

84.       AFSA considers that further clarification of the regulatory treatment of Units would support greater legal certainty and promote consistent understanding among market participants.

85.       An Investment Company is both a company incorporated under the Companies Regulations and a Collective Investment Scheme regulated under the CIS Rules. Accordingly, it operates under a dual regulatory framework. The Companies Regulations govern its legal form and corporate governance, while the CIS Rules regulate the operational aspects of the Fund, including the issue, redemption, transfer and valuation of Units and investor protection.

86.       Investors in an Investment Company therefore hold shares in the company from a corporate law perspective, but those shares operate as Units for the purposes of the collective investment framework. The rights attached to those Units are designed to reflect the economic characteristics of collective investment, including subscriptions, redemptions and participation in Fund assets, rather than conventional shareholder governance rights.

87.       AFSA considers that the exclusion of Units from the definition of "Share" in the AIFC Glossary is a deliberate feature of the financial services framework. It enables Units to be regulated under the bespoke collective investment regime without automatically attracting provisions elsewhere in the financial services framework that are intended to apply to conventional corporate shares.

88.       This exclusion does not alter the corporate law character of Units issued by an Investment Company. Rather, it reflects the distinction between the financial services regime governing Funds and the corporate law regime governing companies. AFSA notes that a similar distinction is adopted in a number of comparable jurisdictions.

89.       Having considered the feedback received during the Call for Evidence, AFSA is of the view that removing the exclusion of Units from the definition of “Share” and introducing a concept of “Participating Shares” may create unnecessary interpretative uncertainty and unintended regulatory consequences. In particular, it may result in provisions intended for conventional corporate shares being applied to collective investment interests in circumstances where such application may not be appropriate.

Policy proposal

90.       In light of the above, AFSA does not propose to amend the current definitions and introduce the concept of “Participating Shares”. However, to enhance clarity and support consistent understanding by market participants, AFSA, similar to QFC’s approach[1], will consider refining the definition of “Unit” in the AIFC Glossary to clarify that a unit represents the rights or interests (however described) of a unitholder in a Fund, and that the nature of those rights or interests depends on the legal form of the Fund. In the case of an Investment Company, units constitute shares in the Company, while in Limited Partnerships, they represent participation interests.

See proposed amendments to the definition of “Unit” in the AIFC Glossary, in Annex 2.

Chapter 4. Miscellaneous amendments

Audit and periodic reporting requirements

Policy issue

91.       Under the current CIS Rules, the requirement to appoint an external auditor and to produce audited annual financial statements applies only to Non-Exempt Funds and Real Estate Investment Trusts (REITs), as set out in Rule 10.4. These Funds are subject to detailed obligations relating to auditor appointment, independence, audit standards (IAASB), and ongoing cooperation with the auditor.

92.       Other categories of Funds, including Exempt Funds and certain Specialist Funds, are not subject to an express mandatory audit requirement under the CIS Rules. In such cases, financial reporting obligations are primarily addressed through periodic reporting requirements under Rule 10.5 and through the general obligation to ensure that financial information is clear, complete, and not misleading.

93.       This results in different levels of independent financial assurance across Fund types. While investors in Non-Exempt Funds and REITs benefit from external audit assurance, investors in other Fund categories may rely primarily on internal controls, governance arrangements, and financial reporting processes.

94.       AFSA considers that a consistent minimum standard of independent financial assurance across Domestic Funds would enhance transparency, strengthen investor protection, and improve confidence in Fund financial reporting, particularly in relation to valuation, expenses, and financial statement accuracy.

95.       AFSA also notes that certain Fund structures may already be subject to audit requirements under the AIFC Companies Regulations or Limited Liability Partnership Regulations where applicable thresholds are met. However, these entity-level requirements do not provide a consistent audit framework across all Fund structures regulated under the CIS Rules.

96.       In addition, CIS Rule 10.5 requires Non-Exempt Funds to produce interim reports; however, the term “interim” is not defined. This creates uncertainty as to the intended reporting frequency (for example, whether reports should be prepared on a quarterly, semi-annual, or other basis), resulting in potential inconsistency in market practice and supervisory interpretation. Supervisory experience indicates that clarification of reporting frequency would support greater consistency and predictability for both Fund Managers and investors.

Policy proposal

97.       AFSA proposes to extend the existing CIS audit requirement to all Domestic Funds, requiring each Fund to appoint an external auditor and prepare audited annual financial statements regardless of its classification. This would establish a consistent baseline standard of independent verification across all Fund structures, strengthen investor protection through third-party assurance of financial reporting and valuation integrity, and enhance transparency and comparability within the Domestic Funds regime.

98.       The proposed approach would establish a consistent baseline standard of independent assurance across the Domestic Funds regime and align the AIFC framework with international practice. Comparable fund regimes, including those of the ADGM, DIFC, and QFC, generally apply annual audit requirements across regulated collective investment schemes as a core investor protection measure.

99.       AFSA also proposes to clarify the frequency of interim reporting by replacing the term “interim reports” in Rule 10.5 with “semi-annual reports”. This amendment would establish a six-month reporting cycle, remove interpretative uncertainty, and promote consistent application across the market. This approach is consistent with international practice, including the DIFC framework where interim reporting requirements are based on a six-month reporting period.

100.    In addition, minor technical amendments were also made to rule 10.5 (g) to clarify the reporting requirements applicable to Umbrella Funds, in particular to ensure that the annual report of an Umbrella Fund expressly provides both Sub-Fund level financial statements and an aggregated set of financial statements across all Sub-Funds, thereby confirming that Sub-Fund reporting remains the primary basis of financial disclosure while ensuring overall financial information is presented on a consolidated basis for completeness and comparability.

See proposed amendments to rules 10.1, 10.4 and 10.5 of the CIS Rules, in Annex 1.

Constitution and Offering Materials

101.    Under the current CIS framework, Fund Managers are required to prepare both a Fund Constitution and Offering Materials. While these documents serve different purposes with the Constitution establishing the legal framework of the Fund and the rights and obligations of Unitholders, and Offering Materials providing investment disclosure, there may be overlap in the information required to be included in each document.

102.    This issue is particularly relevant for Exempt Funds. Under the current framework, detailed and prescriptive content requirements apply to Offering Materials for all Fund types, while mandatory content requirements for the Fund Constitution under Schedule 1 apply only to Non-Exempt Funds.

103.    As a result, certain key Fund terms for Exempt Funds may be primarily reflected in Offering Materials rather than in the Constitution, despite the Constitution being the legally binding document governing the Fund structure and investor rights. AFSA considers that this allocation does not fully reflect the distinct legal and disclosure roles of these documents and may contribute to duplication, increased administrative burden, and reduced clarity in the overall documentation framework.

104.    During the Call for Evidence, stakeholders, mainly Fund Managers of Exempt Funds, highlighted that the current framework may increase administrative complexity and compliance costs by requiring similar information to be prepared across multiple documents. Stakeholders also noted that prescriptive Offering Materials requirements may not always be proportionate for Exempt Funds, which are offered only to Professional Clients. Given the nature and sophistication of these investors, respondents suggested that a more principles-based disclosure approach may be appropriate. Some stakeholders proposed consolidating the Constitution and Offering Materials into a single document. Others supported retaining the existing two-document structure, provided that the regulatory requirements better reflect the different purposes of each document.

105.    AFSA has also considered approaches adopted in comparable jurisdictions. In jurisdictions such as the DIFC and ADGM, mandatory requirements are generally focused on ensuring that the Fund Constitution contains key structural and governance provisions, while disclosure requirements for professional investor funds are typically applied on a more principles-based basis.

Policy Proposal

106.    Having considered stakeholder feedback and international practice, AFSA proposes to retain the existing requirement for Funds to prepare both a Fund Constitution and Offering Materials. AFSA considers that these documents serve distinct purposes and that the regulatory framework should better reflect their respective legal and disclosure functions.

Fund Constitution content requirements

107.    AFSA proposes to extend the application of Fund Constitution content requirements to all Fund types, while applying those requirements proportionately depending on the nature of the Fund and its investors.

108.    Under the proposed approach, the Constitution of a Non-Exempt Fund would continue to be subject to the existing detailed content requirements. The Constitution of an Exempt Fund would be required to include a core set of provisions necessary to establish the legal framework of the Fund and define the rights and obligations of Unitholders.

109.    For Exempt Funds, the mandatory Constitution requirements would focus on key matters including:

·     the identity and legal status of the Fund and its governing law;

·     the Fund Manager and, where applicable, Trustee and key service providers;

·     the legal structure and nature of the Fund;

·     core investment objectives and restrictions;

·     fundamental Unitholder rights and protections; and

·     key operational and governance provisions, including distribution, suspension, and winding-up.

110.    Certain detailed procedural and administrative matters would no longer be mandatory Constitution requirements for Exempt Funds where they are not essential to establish the legal relationship between the Fund and Unitholders and may appropriately be addressed through contractual arrangements or disclosure materials.

Offering Materials content requirements

111.    AFSA proposes to revise the Offering Materials requirements to introduce a more proportionate disclosure framework based on the nature of the Fund and its target investors.

112.    The existing detailed Offering Materials requirements would continue to apply to Non-Exempt Funds, reflecting the need for enhanced disclosure for Funds offered to retail investors and a broader investor base. For Exempt Funds, which are offered exclusively to Professional Clients, Offering Materials would instead be subject to a principles-based requirement to include information that Professional Clients would reasonably require to make an informed investment decision, together with the existing obligation that the materials are clear, fair, and not misleading.

Access to Fund Documentation

113.    To support transparency and ensure effective access to the Fund’s governing documents, AFSA also proposes targeted amendments to Rule 5.2(c) and the Offering Materials content requirements.

114.    A new paragraph (ii) to rule 5.2(c) would require all Funds, regardless of classification, to make their Fund Constitution and most recent Offering Materials available free of charge to existing and prospective Unitholders.

115.    In addition, new paragraph (ea) of Schedule 1-1 would require Offering Materials to specify where a copy of the Fund Constitution may be obtained. This would ensure that investors are able to navigate clearly between the Fund’s disclosure materials and its legally binding constitutional document.

116.    Taken together, the proposed amendments are intended to clarify the respective roles of the Fund Constitution and Offering Materials, introduce a proportionate approach for Exempt Funds, and enhance investor access to key Fund documentation.

See proposed amendments to rules 5.2(c), 5.4, 6.2.(a)(i), Schedule 1, and new rules 5.5, 5.6, 6.2-1, 7.10-1, new paragraph (ea) in the new Schedule 1-1, Schedule 2-1 of the CIS Rules, in Annex 1.

Side-letter arrangements

Policy Issue

117.    Side-letter arrangements are used in practice within the AIFC market as a mechanism for Fund Managers to agree investor-specific arrangements with certain investors. Such arrangements may address specific commercial or economic terms, including negotiated fee arrangements, liquidity terms, reporting arrangements, or other investor-specific concessions.

118.    The CIS Rules do not currently contain specific provisions defining or regulating side-letter arrangements as a distinct category of investor agreement. However, certain aspects of such arrangements are addressed through existing requirements, including the obligation to disclose preferential treatment under Rule 5.3(b)(ix) and the requirement to ensure equal treatment of Unitholders within the same class under Rule 7.2(b)(iv).

119.    As the use of side-letter arrangements is not expressly addressed in the CIS Rules, there may be uncertainty regarding the scope of permissible arrangements, the level of disclosure expected, and the safeguards required to ensure that such arrangements do not adversely affect other investors.

120.    During the Call for Evidence, stakeholders supported providing greater regulatory clarity regarding side-letter arrangements. Respondents noted that such arrangements can provide useful flexibility for Fund Managers when engaging with larger or strategic investors and may reduce the need to establish separate Funds, Sub-Funds, or additional Unit classes, provided that appropriate transparency and investor protection safeguards are maintained.

Policy proposal

121.    AFSA proposes to introduce specific provisions in the CIS Rules to clarify the regulatory treatment of side-letter arrangements and establish consistent disclosure expectations.

122.    AFSA considers that side-letter arrangements can provide legitimate commercial flexibility for Fund Managers, particularly in accommodating the requirements of larger or strategic investors. However, such arrangements should operate within an appropriate transparency and investor protection framework to ensure that they do not undermine the fair treatment of other investors.

123.    AFSA has considered international approaches to the regulation of side-letter arrangements. While jurisdictions adopt different approaches, a common regulatory approach is to address side letters through disclosure requirements and safeguards relating to fair treatment of investors. For example, the ADGM requires disclosure of the Fund Manager’s ability to enter into side-letter arrangements, the mechanisms used to ensure fair treatment, and material benefits or concessions provided. The QFC similarly adopts a disclosure-based approach, requiring disclosure where side letters may provide preferential treatment, enhanced redemption rights, or otherwise materially affect other investors. The DIFC relies primarily on general obligations relating to disclosure, fair treatment, and Fund Manager conduct.

124.    Taking into account these approaches and AIFC market practice, AFSA proposes to introduce a new Rule 7.6-1 in Chapter 7 of the CIS Rules to expressly address disclosure requirements relating to side-letter arrangements. The proposed provision requires Fund Managers to disclose in the Offering Materials both (i) their ability to enter into side-letter arrangements and (ii) the nature of any fair treatment mechanisms applied to investors. In the case of Non-Exempt Funds, additional disclosure of material benefits or concessions granted under side letters will be required, together with the relevant investor categories.

125.    The proposed amendments are intended to provide greater regulatory certainty, enhance transparency for investors, and preserve appropriate flexibility for Fund Managers to enter into legitimate investor-specific arrangements.

See the proposed new rule 7.6-1 and paragraph (i) of new Schedule 2-1 of the CIS Rules, in Annex 1.

Alterations to Domestic Fund (Unitholder approvals and notifications)

Policy issue

126.    The CIS Rules require that the Fund Constitution (Schedule 1) sets out the manner in which amendments may be made. However, the CIS Rules do not currently provide a standardised classification framework for determining investor approval requirements applicable to different categories of amendments. In particular, there is no express distinction between material amendments requiring unitholder consent, and administrative or non-material amendments that may be implemented without a unitholder meeting.

127.    In the absence of such a framework, market participants may adopt differing interpretations of amendment procedures. This may lead to inconsistent practice across Fund Managers, increased legal and operational complexity, and potential uncertainty in investor communications and governance processes.

128.    During the Call for Evidence, stakeholders suggested the introduction of a standardised framework, either in the CIS Rules or accompanying guidance, to establish categories of amendments and corresponding approval or notification requirements, including material changes requiring Unitholder approval; significant changes requiring prior notification to Unitholders; and administrative or technical changes that may be implemented with appropriate disclosure.

Policy proposal

129.    AFSA proposes to introduce a structured framework for categorising amendments to Fund documents and determining the appropriate level of Unitholder involvement.

130.    The proposed framework would distinguish between three broad categories of amendments:

(a) Fundamental changes

131.    Fundamental changes would be amendments that may materially affect the nature of the Fund, the rights of Unitholders, or the risk profile of the investment. Examples of fundamental changes may include changes affecting the nature, purpose, investment objective or policy of the Fund, changes materially affecting the risk profile of the Fund, introduction of new types of payments out of Fund property, change of Fund Manager, Trustee or Eligible Custodian, or other changes which may materially prejudice unitholders. Such changes would require prior approval by Unitholders through a special resolution. Determination of whether a change is fundamental would also depend on its degree of materiality and effect on the Fund and its investors.

(b) Significant changes

132.    Significant changes would include amendments that do not constitute fundamental changes but may reasonably influence an investor’s decision to remain invested or affect Unitholder rights. Examples may include changes to operational policies, valuation methodologies, dilution policies, pricing publication methods, or changes in fees or dealing arrangements that do not constitute a fundamental change. Such changes would generally require prior written notification to Unitholders within a reasonable period (typically not less than 60 days) before implementation. Determination of whether a change is significant would also depend on its degree of materiality and effect on the Fund and its investors.

(c) Notifiable changes

133.    Notifiable changes would include amendments that do not materially affect the Fund, its risk profile, or Unitholder rights, but should nevertheless be disclosed to investors for transparency purposes. Examples may include administrative updates, changes to service providers that do not materially affect the Fund, changes to reporting arrangements, or other operational matters. Such changes would generally be subject to notification to unitholders within an appropriate timeframe and may be implemented without requiring a unitholder meeting.

134.    The proposed approach is intended to provide greater certainty regarding amendment procedures, promote consistent market practice, and align the AIFC CIS framework with approaches adopted in comparable international financial centres, including the DIFC, ADGM, and QFC.

See the proposed new rule 7.10-2 and Schedule 2-2 of the CIS Rules, in Annex 1.

Notice of increase in Fund Manager’s remuneration

Policy issue

135.    CIS Rule 7.14(e) requires a Fund Manager to give Unitholders not less than 90 days’ written notice of any proposed increase in its remuneration, reimbursement of expenses, or other payments in respect of a Fund. In addition, CIS Rule 7.14(f) requires a Fund Manager to give not less than 90 days’ written notice of the introduction of a new category of remuneration or an increase in the current rate or amount of remuneration. Such changes are also subject to Unitholder approval, with the applicable voting threshold determined by the Fund’s Constitution.

136.    Accordingly, the current framework applies a uniform 90-day notice period to both (i) incremental increases in existing remuneration and (ii) structural changes involving the introduction of new categories of remuneration, notwithstanding that these changes may differ in nature, complexity, and investor impact.

137.    During the Call for Evidence, stakeholders noted that the 90-day notice period may be operationally burdensome in practice. In particular, it may limit the ability of Fund Managers to respond in a timely manner to changes in market conditions, cost structures, or service provider arrangements. Respondents proposed reducing the notice period to 30 calendar days for both Rule 7.14(e) and Rule 7.14(f), on the basis that investor protection would remain adequately supported through existing disclosure obligations and, where applicable, Unitholder approval requirements.

Policy proposal

138.    AFSA has considered the stakeholder feedback alongside international regulatory approaches. Comparable regulatory frameworks, including the DIFC and ADGM, generally recognise the need for prior notice and appropriate governance safeguards where changes to Fund remuneration arrangements may affect investors. However, these frameworks do not necessarily apply identical procedures to all types of remuneration changes and generally distinguish between changes affecting investor economics and broader structural changes to Fund arrangements.

139.    Having considered these approaches, AFSA proposes to adopt a differentiated framework based on the nature of the remuneration change.

140.    AFSA considers that increases in existing remuneration, reimbursement of expenses, or other payments under Rule 7.14(e) should continue to be subject to the existing 90-day notice requirement. Such changes have a continuous impact on performance expectations, and therefore Unitholders should be afforded sufficient time to assess their implications and, where appropriate, adjust their investment position or exercise redemption rights within applicable dealing cycles.

141.    In relation to Rule 7.14(f), AFSA considers that the introduction of a new category of remuneration is different in nature from an increase in existing charges. Such changes represent a structural amendment to the Fund’s remuneration framework and are already subject to Unitholder approval by Special Resolution.

142.    Accordingly, AFSA proposes to remove the fixed 90-day notice requirement for changes falling within Rule 7.14(f) and instead rely on the notice period applicable to Unitholder resolutions under the Fund Constitution and applicable meeting procedures, while retaining the requirement for Unitholder approval by Special Resolution.

143.    This approach is intended to maintain appropriate investor protection for changes directly affecting investor returns while providing greater flexibility for structural remuneration changes subject to existing governance safeguards. It also aligns the AIFC framework with international approaches that apply proportionate requirements depending on the nature and impact of the proposed change.

See the proposed amendments to rule 7.14(f) of the CIS Rules, in Annex 1.

Other miscellaneous amendments

144.    AFSA proposes a number of consequential and clarificatory amendments to improve the coherence of the CIS framework, clarify the scope of regulatory obligations, and ensure that requirements relating to Fund establishment, registration, and marketing are appropriately allocated.

Clarification of CIS regulatory perimeter

145.    The CIS Rules have been amended to clarify that their application extends to all relevant parties involved in the operation and oversight of Collective Investment Schemes, including Trustees of Domestic Funds structured as Investment Trusts. The amendments also clarify that the CIS Rules apply to Funds irrespective of whether they have separate legal personality. This is intended to ensure consistent application of the CIS framework across different fund structures, including corporate, partnership, and trust-based arrangements.

Separation of fund registration and marketing requirements

146.    AFSA proposes to further distinguish between requirements relating to Fund registration and requirements relating to the marketing of Funds. Chapter 4 of the CIS Rules has been streamlined to focus on registration and notification obligations relating to the establishment and operation of Funds.

147.    Requirements relating to marketing activities have been relocated and clarified under Chapter 5 to provide a clearer regulatory framework for Authorised Firms undertaking marketing activities.

148.    In this regard, AFSA proposes to introduce a provision requiring an Authorised Firm to notify AFSA before commencing the marketing of a Fund in the AIFC. The notification requirement is intended to enhance supervisory visibility of marketing activities without duplicating the Fund registration process.

Clarification of marketing requirements

149.    AFSA also proposes amendments to clarify the requirements applicable to the marketing of Foreign Funds, including relevant jurisdictional eligibility criteria, client classification requirements, minimum subscription thresholds, and restrictions applicable to retail offerings. Additional record-keeping requirements relating to Offering Materials would also be introduced to support effective supervision of marketing activities.

Removal of redundant or unclear provisions

150.    CIS Rule 4.4(c), which provides for a referral to AFSA for review following a refusal to register a Collective Investment Scheme, is proposed to be omitted. AFSA notes that the AIFC regulatory framework already provides general mechanisms for the review and challenge of regulatory decisions under the Financial Services Framework Regulations (FSFR).

151.    The removal of this provision is intended to align the CIS Rules with the general AIFC framework for regulatory decisions and avoid establishing a separate CIS-specific process. This amendment does not affect any applicable rights of applicants to seek review or challenge regulatory decisions under the FSFR.

152.    AFSA also proposes to restructure the existing prohibition relating to the establishment, promotion, and marketing of Collective Investment Schemes to reflect the distinct regulatory treatment of these activities. Establishment and registration requirements will be addressed under Chapter 4, while marketing activities will be governed under Chapter 5.

153.    These amendments are technical in nature and are intended to improve the clarity, consistency, and operational effectiveness of the CIS framework without changing the fundamental regulatory approach to Collective Investment Schemes.

See the proposed amendments to rules 1.1, 4.2, 4.4, 4.7 and new rules 5.1-1, 5.1-2, 5.1-3, 7.10-2 of the CIS Rules, in Annex 1.

PART III – PUBLIC CONSULTATION QUESTIONS

Question 1: Enhancements to the Specialist Funds regime

Do you have any comments on the proposed amendments to the Specialist Funds regime? In particular, do you consider that the proposals achieve an appropriate balance between regulatory flexibility, supervisory clarity and investor protection? Please provide reasons for your views and any alternative proposals.

Question 2: Introduction of Investment Trusts

Do you have any comments on the proposed framework for Investment Trusts as a distinct legal form of Collective Investment Scheme under the AIFC? In particular, do you consider that the proposed framework appropriately facilitates the use of trust-based fund structures while providing an appropriate level of legal certainty, governance, and investor protection?

Question 3: Regulatory treatment of units

Do you have any comments on AFSA's proposed approach to enhancing legal certainty regarding the treatment of Units across different Fund structures while maintaining the existing regulatory framework?

Question 4: Financial reporting and governance

Do you have any comments on the proposed amendments relating to audit requirements, periodic reporting, and governance of Funds? In particular, do you agree with the proposal to extend mandatory annual audit requirements to all Domestic Funds and to clarify the frequency of interim reporting?

Question 5: Fund documentation and investor disclosures

Do you have any comments on the proposed amendments relating to Fund Constitutions, Offering Materials, side-letter arrangements, and amendments to Fund documentation? In particular, do you agree that the proposed approach appropriately balances investor protection, proportionality, and operational flexibility, particularly for Exempt Funds?

Question 6: Fund remuneration and other miscellaneous amendments

Do you have any comments on the proposed amendments relating to changes in Fund Manager remuneration and the other miscellaneous amendments to the CIS Rules? Do you consider that these amendments improve the clarity and operation of the framework without imposing unnecessary regulatory burden?

PART IV – FEEDBACK FROM CALL FOR EVIDENCE NOT INCORPORATED IN POLICY PROPOSALS

Algorithmic Funds

158.          During the Call for Evidence, stakeholders sought greater regulatory clarity on the treatment of algorithmic and model-driven investment strategies under the CIS Rules. While respondents generally agreed that such strategies should not be recognised as a separate category of Collective Investment Scheme, they suggested that AFSA provide further guidance on governance, model oversight, operational controls and investor disclosure.

159.          AFSA notes that the existing CIS framework is principles-based and technology-neutral, and does not distinguish funds by reference to the investment technology or methodology employed. Internationally, comparable jurisdictions similarly regulate algorithmic investment strategies through existing governance, risk management and operational requirements rather than through a separate fund regime.

160.          AFSA notes the feedback and agrees that a separate regulatory regime for algorithmic or model-driven funds is not necessary. The existing framework is sufficiently flexible to accommodate such strategies without imposing additional rule-based requirements. AFSA also notes that algorithmic and model-driven trading is not limited to funds, but is a broader market practice spanning multiple types of market participants, and therefore should not be addressed in a fund-specific regime in isolation.

161.          AFSA considers that the appropriate regulatory approach is to maintain a principles-based, technology-neutral framework, under which regulatory emphasis is placed on governance, risk management, and operational controls rather than on the underlying model architecture or investment methodology. This ensures that the framework remains proportionate, adaptable, and capable of accommodating diverse and evolving investment strategies.

162.          At the same time, AFSA recognises that certain aspects, particularly governance, model oversight, risk management and operational controls, may benefit from further clarification. Rather than introducing prescriptive rules or standardised disclosure templates, AFSA considers that these matters are more appropriately addressed through supervisory expectations and engagement, ensuring a proportionate approach that supports innovation while maintaining investor protection and market integrity.

Endowment Funds

163.          During the Call for Evidence, stakeholders sought greater clarity on the treatment of endowment-type structures within the AIFC framework. Most respondents considered that existing AIFC structures may be capable of accommodating such arrangements, although they noted that endowment funds have distinct characteristics, including long-term or perpetual investment horizons, capital preservation objectives, donor-based capital formation and the absence of redemption rights. At the same time, respondents suggested that greater legal and regulatory clarity would be beneficial regarding the treatment of endowment-type arrangements within the existing AIFC framework. A minority of respondents proposed introducing a dedicated endowment fund category or greater coordination with the national framework for endowment funds.

164.          AFSA notes that endowment funds are widely used internationally to support long-term institutional, educational and charitable objectives. However, unlike traditional collective investment schemes, they are generally structured around the preservation and growth of capital to support a defined institutional purpose, rather than primarily to provide investment returns to investors.

165.          AFSA considers that it is not necessary at this stage to introduce a separate regulatory category for endowment funds within the AIFC. The existing regulatory framework provides sufficient flexibility to accommodate endowment-type structures through existing fund and asset management vehicles. Existing AIFC structures, such as Foundations, may be capable of accommodating endowment-type arrangements.

166.          AFSA acknowledges that greater clarity on structuring endowment-type arrangements may be beneficial as market practice develops and will continue to monitor developments in this area. AFSA also notes stakeholder views regarding coordination with broader national initiatives relating to endowment funds. While such matters fall outside the scope of the current CIS amendments, AFSA will continue to engage with relevant stakeholders where appropriate.

Lending by Investment Funds

167.       During the Call for Evidence, stakeholders sought greater clarity on the treatment of lending activities and private credit strategies under the CIS framework. While respondents noted that certain fund structures may invest in debt instruments, they considered that the absence of an explicit and consolidated framework addressing lending strategies may create uncertainty regarding the ability of funds to engage in activities such as private credit, loan origination and other debt financing strategies.

168.       Stakeholders also referred to international approaches, including Luxembourg, Ireland and ADGM, where private credit strategies are expressly accommodated within fund regimes, and noted the potential role of such strategies in supporting infrastructure and SME financing.

169.       AFSA considers that the existing CIS framework already provides mechanisms through which funds may undertake lending-related activities. In particular, the Credit Fund regime under CIS 2.4-1(f) permits investment in Credit Facilities through origination, purchase or participation, while CIS 6.8 provides a framework for securities lending activities. Taken together, these provisions already enable funds to engage in lending-related and private credit strategies within defined parameters, subject to fund classification and applicable CIS requirements.

170.       At this stage, AFSA does not propose to expand the scope of permissible lending activities beyond these existing mechanisms as part of the current amendments. The existing framework is considered to provide a clear and proportionate regulatory basis for such activities within the CIS regime. AFSA will continue to monitor market developments and supervisory experience in this area and may, in due course, consider whether further refinements to the framework would be appropriate. Such considerations would be undertaken separately from the present amendments.

Removal of Mandatory Requirement to Appoint an External Fund Administrator

171.       During the Call for Evidence, stakeholders noted that Rule 8.2(a) requires a Fund to appoint a Fund Administrator and suggested clarifying that a Fund Manager appropriately licensed to provide fund administration services may perform this function internally without appointing a separate third-party administrator.

172.       AFSA considers that the requirement to appoint a Fund Administrator is an important structural safeguard within the CIS framework. Fund administration involves key operational functions, including the maintenance of Unitholder records, processing of fund transactions, and supporting valuation, pricing and fund accounting processes. Maintaining these functions within a regulated framework supports appropriate oversight, operational resilience and investor protection.

173.       AFSA notes that the existing framework already provides flexibility for Fund Managers that are appropriately authorised to perform fund administration activities in-house, subject to compliance with the applicable regulatory requirements. In addition, Rule 8.2(e) allows AFSA to waive the requirement to appoint a Fund Administrator on a case-by-case basis where appropriate.

174.       Accordingly, AFSA considers that the existing framework provides sufficient flexibility and does not propose amendments to Rule 8.2(a).

Simplification of the Regime for Exempt Funds

175.       Stakeholders observed that the registration of certain Exempt Funds currently requires reference to specific notices or waivers confirming that the fund will have fewer than 15 investors. It was suggested that the conditions set out in the Notice could instead be incorporated directly into the CIS Rules, introducing an automatic exemption mechanism for Exempt Funds below the relevant investor threshold and removing the need for repeated waiver applications.

176.       AFSA has assessed the proposal and considers that it cannot be taken forward within the CIS Rules alone, as it would require corresponding amendments to the AIFC Companies Rules. The issue will therefore be considered as part of a broader future review of the Companies Rules.

Procedure for change of Fund Manager

177.       Stakeholders noted that the CIS Rules do not provide a detailed procedural framework for the change of a Fund Manager. It was suggested that, in practice, such changes may occur under different scenarios (including at the initiative of unitholders, the incumbent Fund Manager, or on supervisory grounds), and that the absence of a standardised approach may create operational uncertainty and execution risks.

178.       To address this, stakeholders suggested introducing a baseline procedural framework, either in the CIS Rules or through Guidance, covering key elements such as defined triggers for a change of manager, a structured transition plan, reconciliation of assets and registers, formal documentation, onboarding and migration processes, and allocation of responsibilities between outgoing and incoming managers.

179.       AFSA does not propose to introduce amendments to the CIS Rules in this regard. Benchmarking indicates that comparable jurisdictions do not prescribe a detailed, standardised procedure for the change of a Fund Manager in their rulebooks. Instead, such matters are typically addressed through fund documentation and supervisory engagement. In the AIFC framework, the terms and conditions governing a change of Fund Manager are expected to be set out in the Constitution or Offering Materials. In addition, a change of Fund Manager would generally constitute a fundamental amendment, requiring approval by special resolution of unitholders. Such situations can also be addressed through the authorisation process of the incoming Fund Manager, during which AFSA may require appropriate documentation and safeguards on a case-by-case basis.

Outsourcing: Differentiation Between “Material” and “Non-Material” Outsourcing

180.       Stakeholders noted that the current regulatory framework does not clearly distinguish between critical, risk-bearing outsourced functions and auxiliary services. As a result, similar regulatory requirements may be applied to both key functions (such as valuation, dealing, registry, core IT, and AML/KYC) and less significant services (such as secondary IT support or marketing), potentially leading to disproportionate compliance burdens.

181.       To address this, stakeholders suggested introducing, in the CIS Rules or related Guidance, a distinction between material outsourcing (functions directly affecting investor rights, pricing, unit accounting, data integrity, or operational resilience) and non-material outsourcing (auxiliary functions with limited impact on investor protection or market integrity). This could allow for a more proportionate, risk-based approach, with lighter requirements for non-material outsourcing.

182.       AFSA does not propose to introduce amendments to the CIS Rules in this regard. Benchmarking indicates that comparable jurisdictions do not typically introduce a formal, prescriptive distinction between “material” and “non-material” outsourcing within fund rulebooks. The existing framework is intended to apply a consistent standard to outsourcing arrangements, ensuring that all outsourced functions are subject to appropriate oversight and risk management. Introducing formal categorisation may create interpretative uncertainty and risks of regulatory arbitrage, where firms could seek to classify critical functions as non-material.

Regulation of Switching Rights Between Sub-Funds within an Umbrella Fund

183.       Stakeholders noted that while the CIS Rules permit switching of Units between Sub-Funds within an umbrella structure, the current framework (including Guidance to Rule 2.4-1) may be interpreted as allowing switching without sufficiently clear substantive limitations. It was suggested that this could result in investors switching between Sub-Funds with materially different investment mandates, risk profiles, or liquidity characteristics, creating operational pressures for Fund Managers and potential investor protection concerns, including the risk of circumventing Sub-Fund-level investment and liquidity constraints. Accordingly, it was proposed that the CIS Rules and/or Guidance be clarified to confirm that switching rights are subject to conditions set out in the Offering Materials, and that Fund Managers may restrict or refuse switches where justified by differences in Sub-Fund characteristics or liquidity considerations.

184.       AFSA does not propose to introduce amendments to the CIS Rules in this regard. The CIS framework is designed to operate on the basis that switching mechanics and any related conditions are set out in the Offering Materials, with Fund Managers responsible for designing appropriate liquidity and dealing arrangements at product level. Introducing additional rule-level limitations or codified grounds for refusal may reduce flexibility in fund structuring and result in unnecessary prescription in the design and operation of umbrella fund arrangements.

Valuation of Funds (independent valuer requirement)

185.       CIS Rule 10.6(d) requires a Fund Manager to appoint an independent third-party valuer where required by the CIS Rules. Currently, mandatory independent valuation requirements apply only in specific circumstances, including under Rule 6.10(b) for Non-Exempt Funds and REITs in relation to the acquisition or disposal of Real Property. Other asset classes remain subject primarily to the Fund Manager’s valuation policies and procedures.

186.       During the Call for Evidence, stakeholders noted that the CIS framework does not contain a general requirement for independent valuation of illiquid or complex assets. Some respondents suggested that broader independent valuation requirements could improve consistency and provide additional assurance where valuations involve significant judgement or limited observable market inputs.

187.       AFSA’s review of comparable international frameworks indicates that regulators generally adopt a targeted or principles-based approach rather than requiring independent valuation across all asset classes. Mandatory independent valuation requirements are typically focused on specific areas, such as real estate or other assets where valuation risks are considered heightened.

188.       Having considered the feedback received and international practice, AFSA does not propose to introduce additional mandatory independent valuation requirements at this stage. AFSA considers that the existing principles-based framework remains appropriate and proportionate, taking into account the diversity of Fund structures, investment strategies and asset classes.

189.       The existing framework allows Fund Managers to appoint independent valuers where appropriate, having regard to the nature, complexity and liquidity profile of the relevant assets, while requiring Fund Managers to maintain appropriate valuation policies, methodologies and controls. AFSA will continue to monitor market developments and supervisory experience in this area.

Other feedback not incorporated

190.       AFSA received feedback seeking further clarification and structural refinement of the CIS Rules, including in relation to fund classification, definitions and the overall organisation of the framework. Respondents suggested, among other things, clarifying the application of Specialist Fund categories, distinguishing between different fund structures and strategies, refining certain definitions, and restructuring relevant provisions to improve the readability and coherence of the Rules.

191.       AFSA has considered this feedback but does not propose amendments at this stage. While further structural refinements may improve the accessibility of the CIS framework, AFSA considers that the existing Rules, together with supervisory and authorisation practices, provide sufficient clarity and flexibility in practice. AFSA will continue to monitor developments and may revisit these matters as part of any future comprehensive review of the CIS framework.

192.       AFSA also received feedback on operational matters, including the submission of Unitholder registers for AIX-listed funds, the introduction of a single electronic submission process for fund applications and notifications, and the use of electronic disclosure forms for Offering Materials.

193.       AFSA considers that these matters primarily relate to supervisory processes and operational infrastructure rather than the substance of the CIS Rules. Accordingly, no amendments are proposed as part of the current review. AFSA will continue to consider opportunities to enhance supervisory processes and digital solutions separately.

Annex 1

PROPOSED AMENDMENTS TO THE AIFC COLLECTIVE INVESTMENT SCHEME RULES

In these amendments, underlining indicates a new text and strikethrough indicates a removed text.

1.                 INTRODUCTION

1.1.             Application of these Rules

These Rules apply to:

(a)      a Domestic Fund Manager which manages:

(i)         a Domestic Fund; or

(ii)        a Foreign Fund; or

(b)      a Foreign Fund Manager which manages a Domestic Fund; and

(ba)    a Trustee of a Domestic Fund which is an Investment Trust; and

(c)      a Centre Participant an Authorised Firm which markets a Collective Investment Scheme in or from the AIFC.

(d)     a Fund whether or not it has a separate legal personality.  

Guidance

The term "Centre Participant" refers to a Person authorised by the AFSA to carry on one or more relevant Regulated Activities.

In these Rules, a reference to a “Fund” is a reference to a Collective Investment Scheme as defined in section 92 of the FSFR. The definition under section 92 is very wide. However, Chapter 3 sets out certain excluded arrangements which do not fall within a definition of a Fund.

Funds that do not have a separate legal personality include Investment Trusts. They are regulated by these Rules and fall out of scope of the AIFC Trust Regulations.

1.2.             [intentionally omitted]

1.3.             Waivers and modification of these Rules

A Person may apply to the AFSA to waive or modify any specific requirement of these Rules in respect of a Fund Manager or a Fund.

1.4.             Interrelationship with the laws of Kazakhstan

The general laws of Kazakhstan will not apply to the management or marketing of a Fund in the AIFC in accordance with these Rules.  However, the general laws of Kazakhstan will apply to the management or marketing of a Fund in Kazakhstan outside the AIFC notwithstanding compliance with these Rules in the AIFC.

1.5.             Foreign Fund Managers

A Foreign Fund Manager is permitted to manage a Domestic Fund in accordance with these Rules, and if the Units of such Fund are Offered in the AIFC, then it must be an Exempt Fund as defined in Rule 2.2(a).

Guidance

A Foreign Fund Manager is not permitted to manage a Non-Exempt Fund where it offers the Units of a Fund in the AIFC. If a Foreign Fund Manager markets the Units of a Domestic Fund in jurisdictions other than the AIFC, the marketing of that Domestic Fund will be subject to the rules of the relevant non-AIFC jurisdiction.

1.6.             When a Fund invests in Digital Assets indirectly

For the purposes of these Rules, a Fund invests in Digital Assets indirectly if:

(a)       it has a derivative exposure to Digital Assets;

(b)       it tracks an index that includes Digital Assets; or

(c)        it invests in another Fund or entity which:

(i)              has property that includes Digital Assets;

(ii)             has a derivative exposure to Digital Assets; or

(iii)           tracks an index that includes Digital Assets.

Guidance

For the avoidance of doubt, a Fund investing in Digital Assets indirectly should be treated in the same way as a Digital Asset Fund.

 

1.7.             When a Fund is a Tokenised Fund

For the purposes of these Rules, a Tokenised Fund is an unlisted Fund with Units represented as Security Tokens.

2.                 CLASSIFICATION OF FUNDS AND APPLICATION OF THE RULES

2.1.             Prohibition on establishment, promotion and marketing of Collective Investment Schemes

(a)      Any Collective Investment Scheme established, promoted or marketed in the AIFC must comply with these Rules. 

(b)      A Collective Investment Scheme may only be established, promoted or marketed in the AIFC by a Person which is:

(i)        a Domestic Fund Manager;

(ii)       a Foreign Fund Manager; or

(iii)       another Centre Participant. [intentionally omitted]

2.1-2.     Types of Domestic Funds

(a)      A Domestic Fund shall be one of the following types of Fund:

(i)       an Exempt Fund; or

(ii)      a Non-Exempt Fund.

(b)      The AFSA may treat any type of Domestic Fund as a specialist class of a Domestic Fund pursuant to rule 2.4. 

2.2.             Exempt Funds and Non-Exempt Funds

(a)      An Exempt Fund is a Collective Investment Scheme the Units of which are Offered in the AIFC only by way of a private placement:

(i)        to Persons who are Professional Clients; and

(ii)       in minimum initial subscription amounts of US$ 50,000.

(b)     A Non-Exempt Fund is any Collective Investment Scheme:

(i)        the Units of which are Offered in the AIFC; and

(ii)       which is not an Exempt Fund.

2.3.             [intentionally omitted]

2.4.             Specialist Funds

2.4.1.        Specialist classes of Funds

(a)      A Domestic Fund (whether a Non-Exempt Fund or an Exempt Fund) may be a Specialist Fund that falls within one or more of the criteria specified in rules 2.4.2 to 2.4.18 is hereby prescribed to be a Domestic Fund of that specialist class or classes.

(aa)    A Foreign Fund that falls within one or more of the criteria specified in rules 2.4.2 to 2.4.16 is hereby prescribed to be a Foreign Fund of that specialist class or classes for the purposes of:

(i)        marketing of the Units of that Fund in or from the AIFC; or

(ii)        determining whether a Domestic Fund investing in such a Fund continues to meet any criteria or other requirements applicable to that Domestic Fund.

(b)      The following types of Funds are Specialist Funds:

(i)        an Islamic Investment Fund, which is a Fund whose entire operations are conducted, or held out as being conducted, in a Shari’ah-compliant manner;

(ii)       a Private Equity Fund, which is an Exempt Fund that:

(A)      is closed-ended (unless otherwise approved by the AFSA); and

(B)      primarily invests in unlisted businesses, by means of shares, convertible debt or other equity-related investments;

(iii)      a Venture Capital Fund, which is an Exempt Fund that:

(A)      primarily invests in the Securities and Units of unlisted businesses which are at an early stage of development, either:

(1)        directly; or

(2)          indirectly as a Feeder Fund holding units of a Master Fund;

(B)      is closed-ended; and

(C)      limits total subscriptions to an amount not to exceed US$100 million (or currency equivalent) or a higher amount approved by the AFSA.

Guidance

A Venture Capital Fund may consist of a Master Fund and Feeder Fund structure in which:

(a)   the Master Fund meets the requirements in (iii)(A)(1), (B) and (C); and

(b)   each Feeder Fund meets the requirements in (iii)(A)(2) and (B).

A Venture Capital Fund may not be a Credit Fund.

(iv)      a Real Estate Investment Trust (or REIT), which is a Fund which:

(A)      invests at least 80% of its assets in investments in income-generating Real Property, with the remainder invested in cash or other securities;

(B)      derives at least 50% of its net income from the rental of Real Property; and

(C)      distributes to the Unitholders [each year] at least 80% of its audited annual net income; and

(v)       any other Fund which complies with any specific rules or guidelines that may be published by the AFSA from time to time regarding the requirements for specific types of Specialist Funds.

Guidance

IFR contains the additional requirements that apply to a Domestic Fund by virtue of it being an Islamic Investment Fund.  [intentionally omitted]

(c)      A Fund which does not comply with any requirements applicable to specific types of Specialist Funds may not describe itself as a Specialist Fund. 

Guidance

(1)     A Domestic Fund may attract more than one definition of a specialist class of Funds. For example, a Domestic Fund may be an Islamic Hedge Fund, Islamic Private Equity Fund or an Islamic REIT. However, due to the definition of Private Equity Fund, a Fund cannot be both a Private Equity Fund and a Venture Capital Fund.

(2)     Rule 5.1-2 that an Authorised Firm may offer Units of a Foreign Fund under the specified conditions. For example, the offer is required to be by private placement to Professional Clients who invest at least US$ 50,000. Such marketing activities are also subject to additional requirements that are prescribed in Chapter 5. An Authorised Firm marketing Units of a Foreign Fund should take reasonable steps to ensure that the Fund meets the applicable requirements including the relevant criteria for being a specialist class of Fund.

2.4.2.        Islamic Investment Fund

A Fund is an Islamic Investment Fund, if its entire operations are conducted, or held out as being conducted, in a Shari’ah-compliant manner.

Guidance

IFR contains the additional requirements that apply to a Domestic Fund by virtue of it being an Islamic Investment Fund.

2.4.3.        Private Equity Fund

A Fund is a Private Equity Fund if it is an Exempt Fund that:

(a)     primarily invests in unlisted businesses, by means of shares, convertible debt or other equity-related investments; and

(b)     does not meet the criteria in CIS 2.4.3 to be a Venture Capital Fund.

2.4.4.        Venture Capital Fund

A Fund is a Venture Capital Fund if it is an Exempt Fund that:

(a)     primarily invests in the Securities and Units of unlisted businesses which are at an early stage of development, either:

(i)      directly; or

(ii)      indirectly as a Feeder Fund holding units of a Master Fund;

(b)     is closed-ended; and

(c)     limits total subscriptions to an amount not to exceed US$100 million (or currency equivalent) or a higher amount approved by the AFSA.

Guidance

A Venture Capital Fund may consist of a Master Fund and Feeder Fund structure in which:

(a)     the Master Fund meets the requirements in (a)(i), (b) and (c); and

(b)     each Feeder Fund meets the requirements in (a)(ii) and (b).

A Venture Capital Fund may not be a Credit Fund.

2.4.5.        Real Estate Investment Trust

A Fund is a Real Estate Investment Trust (or REIT) if it:

(a)     invests at least 80% of its assets in investments in income-generating Real Property, with the remainder invested in cash or other securities;

(b)     derives at least 50% of its net income from the rental of Real Property; and

(c)     distributes to the Unitholders [each year] at least 80% of its audited annual net income.

2.4.6.        Umbrella Fund

A Fund is an Umbrella Fund if contributions of Unitholders in the Fund and the profits or income out of which payments are to be made to the Unitholders are pooled separately in a number of Sub-Funds constituting separate parts of the Fund Property.

2.4.7.        Fund of Funds

A Fund is a Fund of Funds if it restricts its investment activities to investing in the Units or Debentures of only two or more other Funds or sub-Funds of Umbrella Funds. 

Guidance

A Fund of Funds does not cease to be a Fund of Funds merely because it holds some investments in cash or transferable securities to meet its on-going obligations such as for redemption purposes.

2.4.8.        Feeder Fund

A Fund is a Feeder Fund if it is dedicated to investing in the Units or Debentures of a single other Fund (Master Fund).

Guidance

A Domestic Feeder Fund may have as its Master Fund a Foreign Fund.

A Sub-Fund of an Umbrella Fund is not a Feeder Fund.

2.4.9.        Master Fund

A Fund is a Master Fund if it issues its Units or Debentures only to other Funds which are dedicated to investing in that Master Fund.

Guidance

A Domestic Master Fund may have Foreign Funds as its Feeder Funds.

2.4.10.      ESG Fund

A Fund is an ESG Fund if:

(a)        its main investment focus incorporates ESG factors; and

(b)        at least 70 % of NAV of the Fund Property is invested in accordance with the investment strategy.

2.4.11.      Credit Fund

A Fund is Credit Fund if it is an Exempt Fund that:

(a)     is closed-ended; and

(b)     has its activities limited:

(i)      primarily to investment in Credit Facilities, whether by origination, purchase or participation;

(ii)      to activities related to (i), including investment in the equity of a legal entity to which the Credit Fund lends or the Group to which it belongs; and

(iii)     to the holding of Investments (other than a Digital Asset) for the purposes of cash management or hedging.

Guidance

A Credit Fund may hold other assets (except Digital Assets) when held in conjunction with a Credit Facility the Credit Fund has invested in, such as assets over which the Credit Fund has enforced collateral security it holds.

A Fund which holds Investments for the purposes of investment, cash management or hedging which does not enter into Credit Facilities for the purpose of extending Credit is not a Credit Fund.

2.4.12.      Digital Asset Fund

A Fund is a Digital Asset Fund if it:

(a)        invests in Digital Assets that have been admitted to trading on an AFSA licensed Digital Asset Trading Facility; and

(b)        can invest in Digital Assets mentioned in (i) even if they are not traded on AFSA licensed Digital Asset Trading Facility; provided that the trading facility on which the Digital Assets are traded is regulated by a Financial Services Regulator in a jurisdiction that:

(i)         is listed as a Compliant Country or Territory by the Financial Action Task Force;

(ii)        complies with OECD standards for the exchange of tax information, including adherence to multilateral agreements in respect of the exchange of information; and

(iii)       has appropriate co-operation arrangements in place with the AFSA to ensure co-operation including the exchange of information between regulatory authorities.

2.4.13.      Investment Token Fund

An Investment Token Fund or Qualified Investment Token Fund, which is a Fund whose main purpose is investing in Investment Tokens or Qualified Investment Tokens respectively.

2.4.14.      Exchange Traded Fund

A Fund is an Exchange Traded Fund (or ETF) if it:

(a)        is constituted as an open-ended Non-Exempt Fund;

(b)        has its Units available for trading throughout the day on an exchange that meets the criteria in (iii)(B); and

(c)        has at least one market maker (Authorised Participant) who:

(i)         purchases and redeems ‘creation Units’ of the Fund from the Fund Manager; and

(ii)        is prepared to buy and sell Units of the Fund throughout the day on the exchange, but only if the exchange is operated by an Authorised Market Institution or regulated by a Financial Services Regulator in a jurisdiction that has appropriate co-operation arrangements in place with the AFSA to ensure co-operation (including the exchange of information between regulatory authorities).

Guidance

For the purposes of ETF structures, the Authorised Participant and market maker perform distinct but complementary functions: the Authorised Participant primarily facilitates primary market creation and redemption of Units directly with the Fund Manager through creation and redemption baskets, while the market maker provides continuous secondary market liquidity by quoting bid and offer prices on the relevant exchange; these roles may be performed by the same entity or by separate entities, provided that the ETF’s arrangements ensure the effective functioning of both primary and secondary markets and are appropriately disclosed in the Fund’s Offering Materials (see CIS 5.6.7).

2.4.15.      Money Market Fund

A Fund is a Money Market Fund if the Funds investment objectives are to preserve the capital of the Fund and provide daily liquidity, while achieving returns that are in line with money market rates.

2.4.16.      Single Family Office Fund

A Fund is a Single Family Office Fund if it is an Exempt Fund that: 

(a)        is constituted as an Investment Company;

(c)        all investors in the Fund are exclusively Family Clients who qualify as Professional Clients;

(d)        it has minimum investable assets under management of USD 1 million, assessed by fair market or book value; and 

(e)        it is managed by a Single Family Office authorised to carry on the Regulated Activity of Managing a Collective Investment Scheme that is also a Director of the Fund.

Guidance

CIS 3.17(b) provides that, where an arrangement involves participants who are all members of a Single Family, those participants may elect to treat the arrangement as a Collective Investment Scheme by notifying the AFSA of their intention to do so. Such arrangements may be classified as a Single Family Office Fund where they meet the requirements set out in rule 2.4.16.  Where so classified, the Fund and its Fund Manager may benefit from certain regulatory exemptions and modifications (including a lower Base Capital Requirement, exemption from the requirement to appoint an Eligible Custodian, and exemptions from the requirement to establish a Governing Body or appoint a Finance Officer and Compliance Officer for the Fund Manager) reflecting the closed, family-only nature of the structure. Where these requirements are not satisfied, the arrangement will not be treated as a Specialist Fund and will instead be subject to the general regime under these Rules.

2.4.17.      Corporate Treasury Centre Fund

A Fund is a Corporate Treasury Centre Fund if it is an Exempt Fund that: 

(a)     is a Group arrangement that was elected pursuant to CIS 3.7(b) to be treated as a Collective Investment Scheme; and

(b)     is managed by a Domestic Fund Manager that is a Director of the Fund.

Guidance

(1)     A Corporate Treasury Centre Fund (CTC Fund) represents a classification of a Collective Investment Scheme applied to intra-group treasury arrangements that would otherwise fall outside the scope of CIS regulation but have been voluntarily brought within the regime pursuant to CIS 3.7(b). For the purposes of this classification, corporate treasury activities typically include the establishment of cash pooling arrangements within a group, centralised liquidity management, allocation of funding across group entities, and the investment of surplus funds to enhance overall group liquidity efficiency.

(2)     Given that such arrangements relate exclusively to intra-Group activities and do not involve the pooling of assets from external investors, but rather the management of assets within a corporate group, a proportionate regulatory approach is applied. Accordingly, certain requirements applicable to Fund Managers under the CIS framework are disapplied or modified. In particular, the Fund Manager of a CTC Fund is not required to maintain Base Capital, appoint a Finance Officer or Compliance Officer, or prepare a Fund Constitution or Offering Materials. The standard Fund Manager reporting requirements under CIS 10.5 also do not apply. Instead, the Fund Manager is required to submit periodic reporting to the AFSA on the treasury activities of the Fund, including the Fund’s annual return, audited financial statements, and any additional information as may be required by the AFSA.

2.4.18.      Hedge Fund

A Fund is a Hedge Fund if it is an Exempt Fund that:

(a)     has a broad mandate giving its Fund Manager flexibility to shift strategy;

(b)     is aimed at achieving absolute returns rather than returns relative to the market;

(c)     employs at least one of the following techniques:

(i)         the pursuit of absolute returns or "alpha" rather than measuring their investment performance relative to the market;

(ii)        the use of short selling;

(iii)       the use of Derivatives for investment purposes;

(iv)       the use of economic or debt leverage as well as leverage embedded in financial instruments such as Derivatives;

(v)        the acquisition of distressed debt with a view to its realisation at a profit; or

(vi)       the acquisition of "high yield" debt Securities.

2.4-1.    Other Specialist Funds

The following types of Funds are considered as other Specialist Funds for purposes of CIS 2.4.(b)(v):

(a)      Umbrella Fund, which is a Fund where:

(i)        may be formed as a Protected Cell Company (PCC) and must be an open-ended Fund if formed as a PCC.

(ii)        contributions of Unitholders in the Fund and the profits or income out of which payments are to be made to the Unitholders are pooled separately in a number of Sub-Funds constituting separate parts of the Fund Property; and

(iii)       a Fund Manager of an Umbrella Fund must ensure that none of its Sub-Funds invests in another of its Sub-Funds.

Guidance

An Umbrella Fund may be a Company constituted as a Protected Cell Company (PCC) or Investment Company. An Umbrella Fund may also be a Limited Partnership;

Unitholders of an Umbrella Fund are entitled to exchange rights they have in one Sub-Fund for rights in another Sub-Fund of the same Umbrella Fund;

A Sub-Fund of an Umbrella Fund is not a feeder fund (a Fund dedicated to investing in the Units or Debentures of a single other fund – master fund) or any other form of a discrete Fund;

A PCC is a form of a  Company which needs to be registered as a PCC under the Companies Regulations. An Umbrella Fund using the PCC structure has the benefit of legal segregation of Fund Property forming part of each individual cell. Accordingly, Fund Property of one cell of a PCC is not available to pay any obligations arising in relation to another cell of that PCC.

It is not mandatory for an Umbrella Fund to be constituted as a PCC. Instead, such Funds may be formed as a conventional Investment Company or Limited Partnership. However, the legal segregation available to each cell of a PCC is not available to Sub-Funds of Umbrella Funds not formed as a PCC.

(b)      A Fund of Funds, which is a Fund where:

(i)        A Fund Manager of a Fund of Funds may not invest in:

(A)       another Fund of Funds; and

(B)       a Feeder Fund; and

(B)       any Fund which is dedicated to investment in a number of Funds; and

(D)       any Fund which is dedicated to investment in a single Fund or in a single investment trusts; and

(E)       any Sub-Fund of an Umbrella Fund or Sub-Fund of any other Fund which is equivalent to a Fund within (A) to (E); and

(ii)        not more than 25% in value of the Fund Property is to consist of Units in any other Fund; and

(iii)       for the purposes of (i) and (ii), each Sub-Fund of an Umbrella Fund and of an equivalent Fund is to be treated as if it were a separate Fund.

Guidance

A Fund of Funds does not cease to be a Fund of Funds merely because it holds some investments in cash or transferable securities to meet its on-going obligations such as for redemption purposes.

(c)      A Feeder Fund, which is a Fund where:

(i)        a Fund Manager of a Feeder Fund must ensure that the Fund Property of a Feeder Fund, except where otherwise provided in CIS, only consists of:

(A)       Units or Debentures of a single Master Fund; or

(B)       in the case of a Feeder Fund which is a Public Fund, Units or Debentures of an eligible Master Fund;

(ii)        a Master Fund is eligible for the purposes of (i)(B) only if:

(A)       the borrowing of the Master Fund does not exceed 200% of the NAV of the Master Fund or the market value of the Units of the Master Fund at the mid-value share price; and

(B)       the Units in or Debentures of the Master Fund are regularly Offered for purchase and sale by at least three market makers who are recognised or registered as members of an Authorised Market Institution or an exchange regulated by a Financial Services Regulator; and

(C)       the Feeder Fund owns not more than 20% of the Units (or of any class of Units in or of the Debentures or of any class of Debentures) of the Master Fund; and

(D)       the Master Fund has no limits on its duration;

(iii)       a Fund Manager of a Feeder Fund must also ensure that the Feeder Fund invests in a Master Fund only if:

(A)       the Fund Manager of the Master Fund is regulated by a Financial Services Regulator; and

(B)       the Master Fund is itself registered or authorised by a Financial Services Regulator and is itself subject to independent oversight; and

(C)       the investment objectives of the Master Fund have been disclosed in detail in the Offering Materials of the Feeder Fund;

(D)       it has made available to prospective Unitholders in the Feeder Fund copies of the Offering Materials and the last audited annual reports and accounts of the Master Fund; and

(E)       the Fund Manager of the Master Fund has waived any initial charges which it is otherwise entitled to make in relation to the acquisition of Units in its Fund;

(iv)       where the Feeder Fund invests in a Master Fund managed by the same Fund Manager or by an associated or related company, the Fund Manager of the Feeder Fund must ensure that the Master Fund in which the investment is being made does not charge subscription or redemption fees on account of the investment; and commission or rebates received by the Fund Manager of the Feeder Fund, by virtue of the investment into the Master Fund, must be paid into the property of the Feeder Fund;

(v)       a Fund Manager of a Feeder Fund must ensure that the Fund’s Offering Materials  disclose:

(A)      a prominent risk warning to alert prospective Unitholders to the fact that they will be subject to higher fees arising from the layered investment structure;

(B)      the fees arising at the level of:

(1)      the Feeder Fund itself; and

(2)      if applicable, the Master Fund of the Feeder Fund; and

(3)      if applicable, any underlying Funds into which the Master Fund invests, to the extent known.

Guidance

A Domestic Feeder Fund may have as its Master Fund a Foreign Fund.

A Sub-Fund of an Umbrella Fund is not a Feeder Fund.

(d)      A Master Fund, which is a Fund which issues its Units or Debentures only to other Funds which are dedicated to investing in that Master Fund.

Guidance

A Domestic Master Fund may have Foreign Funds as its Feeder Funds.

 

(e)      An ESG Fund, which is a Fund where:

(i)             its main investment focus incorporates ESG factors; and

(ii)            at least 70 % of NAV of the Fund Property is invested in accordance with the investment strategy.

(f)       A Credit Fund, which is an Exempt Fund and a Domestic Fund that:

(i)           is closed-ended; and

(ii)            has its activities limited:

(A)           primarily to investment in Credit Facilities, whether by origination, purchase or participation;

(B)           to activities related to (A), including investment in the equity of a legal entity to which the Credit Fund lends or the Group to which it belongs; and

(C)           to the holding of Investments (other than a Digital Asset) for the purposes of cash management or hedging.

Guidance

A Credit Fund may hold other assets (except Digital Assets) when held in conjunction with a Credit Facility the Credit Fund has invested in, such as assets over which the Credit Fund has enforced collateral security it holds.

A Fund which holds Investments for the purposes of investment, cash management or hedging which does not enter into Credit Facilities for the purpose of extending Credit is not a Credit Fund.

(g)      A Digital Asset Fund, which is a Fund that:

(i)           invests in Digital Assets that have been admitted to trading on an AFSA licensed Digital Asset Trading Facility; and

(ii)          can invest in Digital Assets mentioned in (i) even if they are not traded on AFSA licensed Digital Asset Trading Facility; provided that the trading facility on which the Digital Assets are traded is regulated by a Financial Services Regulator in a jurisdiction that:

(A)           is listed as a Compliant Country or Territory by the Financial Action Task Force;

(B)           complies with OECD standards for the exchange of tax information, including adherence to multilateral agreements in respect of the exchange of information; and

(C)           has appropriate co-operation arrangements in place with the AFSA to ensure co-operation including the exchange of information between regulatory authorities.

(h)      An Investment Token Fund or Qualified Investment Token Fund, which is a Fund whose main purpose is investing in Investment Tokens or Qualified Investment Tokens respectively.

(j)       An Exchange Traded Fund (or ETF), which is a Fund that:

(i)           is constituted as an open-ended Public Fund;

(ii)          has its Units available for trading throughout the day on an exchange that meets the criteria in (iii)(B); and

(iii)         has at least one market maker (Authorised Participant) who:

(A)           purchases and redeems ‘creation Units’ of the Fund from the Fund Manager; and

(B)           is prepared to buy and sell Units of the Fund throughout the day on the exchange, but only if the exchange is operated by an Authorised Market Institution or regulated by a Financial Services Regulator in a jurisdiction that has appropriate co-operation arrangements in place with the AFSA to ensure co-operation (including the exchange of information between regulatory authorities).

(k)        A Money Market Fund, which is a Fund:

(i)           whose investment objectives are to preserve the capital of the Fund and provide daily liquidity, while achieving returns that are in line with money market rates; and

(ii)          whose NAV must be maintained:

(A)           constant at par (net of earnings); or

(B)           at the value of a Unitholder’s initial capital plus earnings. [intentionally omitted]

2.5.             Secondary transactions and excluded Offers

A Person does not market a Collective Investment Scheme in the AIFC for the purposes of these Rules by Offering to sell or transfer a Unit that is owned by that Person if the Offer to sell or transfer is capable of acceptance only by the Person to whom that Offer is made.

Guidance

Rule 2.5 is intended to exclude personal sales or transfers of Units from being subject to the requirements in CIS relating to the marketing of Collective Investment Schemes. As a result, an offer to sell Units that is made by a Unitholder to a sole other Person will not be caught by the rules on requirements (for example, the seller is not required to be a Domestic Fund Manager, Foreign Fund Manager or Centre Participant in accordance with Rule 2.1 merely in order to sell the Units that it owns). However, depending on the nature of the transaction, the seller may be subject to the rules in financial promotion and may need to be licensed for another Regulated Activity, such as Dealing in Investments as Principal.

3.                 ARRANGEMENTS NOT AMOUNTING TO A COLLECTIVE INVESTMENT SCHEME

3.1.             Application

This chapter sets out arrangements that do not amount to a Collective Investment Scheme in specified circumstances and specific categories of arrangements that do not constitute Collective Investment Schemes. 

3.2.             Exclusions

An arrangement is not a Collective Investment Scheme if it falls within one or more of the circumstances or categories of arrangement specified in this chapter.

3.3.             Schemes not operated by way of business

An arrangement is not a Collective Investment Scheme if it is not operated by way of business.

Guidance     

For the purposes of Rule 3.3, a person shall be treated as operating an arrangement by way of business if that person:

(a)      operates the arrangement in a manner which in itself constitutes the carrying on of a business;

(b)      holds himself out as willing and able to engage in the business of operating a Collective Investment Scheme; or

(c)      regularly solicits other persons to engage with him in transactions related to that activity.

3.4.             Deposits

An arrangement is not a Collective Investment Scheme if the whole amount of each participant's contribution is a deposit which is accepted by a Person who is licensed to accept deposits. 

3.5.             Common accounts

An arrangement is not a Collective Investment Scheme if:

(a)      the rights or interests of each participant in the arrangement are rights or interests in money held in a common account; and

(b)      the money is held in the account on the understanding that an amount representing the contribution of each participant is to be applied in making payments to him or in satisfaction of sums owed by him or in the acquisition of property for him or the provision of services to him.

Guidance    

The exclusion in Rule 3.5 is intended to apply to an arrangement where each participant has a right or interest to an amount of money in a common account. For example, this will apply where a firm has a general client account that receives money from the firm's clients that is used to pay for services or is set off against amounts owed by those clients.

3.6.             Commercial activities unrelated to Regulated Activities

An arrangement is not a Collective Investment Scheme if each of the participants in the arrangement:

(a)      carries on a business which does not involve the carrying on of any Regulated Activity or an activity which would be such an activity were it not for any applicable exclusion; and

(b)      enters into the arrangement for commercial purposes related to that business where that participant carries on that business by virtue of being a participant in the arrangement.

3.7.             Group arrangements

(a)      Subject to (b), an arrangement is not a Collective Investment Scheme if each of the participants is a Body Corporate in the same Group as the Person undertaking the Collective Investment Scheme management function in relation to the arrangement.

(b)      Prior to setting up the arrangement, the participants may elect to treat the arrangement as a Collective Investment Scheme by notifying the AFSA of their intention to do so.

3.8.             Franchise arrangements

An arrangement is not a Collective Investment Scheme if the arrangement is a franchise arrangement.

3.9.             Clearing services

An arrangement is not a Collective Investment Scheme if the purpose of the arrangement is the provision of clearing services and the services are operated by an Authorised Market Institution.

3.10.          Certificates or Options

An arrangement is not a Collective Investment Scheme if the rights or interests of the participants in the arrangement are Certificates or Options.

3.11.          Time‐share and other 'property‐enjoyment' related arrangements

An arrangement is not a Collective Investment Scheme:

(a)      if the rights or interests of each of the participants in the arrangement are time share rights; or

(b)      if:

(i)        the predominant purpose of the arrangement is to enable the participants to share in the use or enjoyment of property or to make its use or enjoyment available gratuitously to others; and

(ii)       the property to which the arrangement relates does not consist of or include Investments of the currency of any country or territory or which would be Investments if not for any applicable exclusion.

3.12.          Bodies corporate not undertaking investment management

An arrangement is not a Collective Investment Scheme if the arrangement comprises a closed-ended Body Corporate, unless on reasonable grounds the purpose or effect of such an arrangement appears to be the investment management, in the exercise of discretion for a collective purpose, of investments, for the benefit of the shareholders or partners.

3.13.          Debentures and Warrants of a single issuer

(a)      An arrangement is not a Collective Investment Scheme if the rights or interests of the participants in the arrangement are represented by a Debenture or Warrant:

(i)        where the issuer of the Debenture or Warrant is a single issuer, and if that issuer is:

(1)      a Body Corporate, it is neither an open‐ended investment company nor a closed‐ended investment company the intent or purpose of which is investment management; or

(2)      not a Body Corporate, the rights and interests of the Debenture or Warrant holder are guaranteed by the government of any country or territory; and

(ii)       which, if it is a convertible Security, the underlying Securities to which the Debenture or Warrant holder is entitled are Shares or Debentures issued, or to be issued, by the same issuer as the issuer of the Debenture or Warrant or single other issuer.

(b)      An arrangement that is not a Collective Investment Scheme by virtue of Rule 3.13(a) does not become a Collective Investment Scheme merely because one of the participants in the arrangement is a person:

(i)        whose ordinary business involves him engaging in an activity that is a Regulated Activity or that would fall within an applicable exclusion from a Regulated Activity; and

(ii)       whose rights or interests in the arrangement are, or include, rights or interests in a swap arrangement under which he facilitates the making of payments to participants whether in a particular amount or currency or at a particular time or rate of interest or all or any combination of those things in settlement of the rights and interests of the other participants in the arrangement.

3.14.          Insurance

An arrangement is not a Collective Investment Scheme if it is a contract of insurance.

3.15.          Profit Sharing Investment Accounts (PSIAs)

An arrangement is not a Collective Investment Scheme if it is an account or portfolio which is either an Unrestricted or Restricted Profit Sharing Investment Account offered by an Authorised Firm licensed by the AFSA to manage such PSIAs.

3.16.          Discretionary Portfolio Accounts

An arrangement is not a Collective Investment Scheme if it is a portfolio or account managed under a discretionary portfolio management agreement.

3.17.          Single Family accounts

(a)      Subject to (b), an arrangement is not a Collective Investment Scheme if every participant in the arrangement is a member of a Single Family. 

(b)      Prior to setting up the arrangement, the participants may elect to treat the arrangement as a Collective Investment Scheme by notifying the AFSA of their intention to do so.

(c)      For the avoidance of doubt, where an arrangement is treated as a Collective Investment Scheme pursuant to subrule (2), the exclusion in GEN 1.1.17 shall not apply in respect of the Regulated Activity of Managing a Collective Investment Scheme or any other Regulated Activity to the extent it is carried on in connection with the management or operation of that Collective Investment Scheme.

3.18.          Sukuk

An arrangement is not a Collective Investment Scheme if the rights or interests of the participants are evidenced by sukuk certificates where the holders of the certificates are entitled to rely on the credit worthiness of:

(a)      the issuer of the sukuk certificates; or

(b)      any other Person who has assumed obligations under the sukuk certificates,

for obtaining their rights and benefits arising under the certificates.

3.19.          Employee reward schemes

An arrangement is not a Collective Investment Scheme if the arrangement is for the purposes of enabling or facilitating the operation of an employee compensation or reward scheme where the arrangement:

(a)      makes securities available only to:

(i)        an Employee or former Employee of the Issuer or of another member of the same Group as the issuer of such securities; or

(ii)       a Close Relative of any such Employee; and

(b)      is operated by the issuer of the securities or by a member of the same Group as the issuer or by a trustee who, in pursuance of the arrangements, holds the securities issued by the issuer for the benefit of any eligible Persons referred to in Rule 3.19(a)(i) or (ii).

3.20.          Carried interest vehicles

An arrangement is not a Collective Investment Scheme if it is a carried interest vehicle which is established solely for the purposes of enabling any officers, directors or employees of a Fund Manager or their related persons, to participate in carried interest or similar profit generated by one or more Collective Investment Schemes or other investment management arrangements.

3.21.          Other circumstances

The AFSA may determine that a specific form of arrangements is not a Collective Investment Scheme on the application of any Person with an interest in those arrangements.  Any such determination by the AFSA may apply in the case of individual arrangements or generally in respect of arrangements that share similar characteristics. 

4.                 REGISTRATION AND NOTIFICATION REQUIREMENTS

4.1.             Application and requirement for registration and notification

This chapter applies to:

(a)     any Domestic Fund that is managed by a Domestic Fund Manager;

(b)     any Domestic Fund that is managed by a Foreign Fund Manager;

(c)     any Foreign Fund managed by a Domestic Fund Manager; and

(d)     any Centre Participant that wishes to market a Fund in the AIFC. [intentionally omitted]

4.2.             Application for registration

(a)      The following entities must apply to the AFSA to register the following types of Fund:

(i)         a Domestic Fund Manager that intends to manage a Non-Exempt Fund; and

(ii)        a Centre Participant that wishes to market a Non-Exempt Fund in the AIFC; and [intentionally omitted]

(iii)       a Foreign Fund Manager that intends to manage an Exempt Fund.

(aa)    If the Fund is an Investment Trust, then the Trustee and Fund Manager must jointly apply.

(b)      The Fund Manager or Centre Participant, and if applicable, the Trustee must complete and submit the appropriate registration form or forms to the AFSA (which registration form(s) must be in such form as the AFSA may from time to time prescribe).

(c)      The Fund Manager or Centre Participant, and if applicable, the Trustee must specify in the registration form if the Fund is to be registered as a Specialist Fund.

(d)     The registration form must be accompanied by:

(i)         copies of the Fund's Constitution and Offering Materials, unless the Fund is a Corporate Treasury Centre Fund; and

(ii)        certification by the Fund Manager and (where applicable) the Trustee that the Constitution and Offering Materials comply with any relevant requirements prescribed under these Rules and any other applicable regulations of the AFSA; and

(iii)       such other information as the AFSA may from time to time request.

(e)     If, at any time between the filing of an application for registration and the grant of a registration, the Fund Manager or Centre Participant or, if appointed, the Trustee becomes aware of any material change, error, or omission reasonably likely to be relevant to the application under consideration, it must inform the AFSA in writing of such change without delay.

(f)      In assessing an application for registration, the AFSA may:

(i)         make any enquiries which it considers appropriate, including enquiries independent of the relevant Fund Manager or Centre Participant and Trustee; and

(ii)        require the relevant Fund Manager or Centre Participant and Trustee to provide further information in support of the application for registration.

4.3.             Requirements for registration

The AFSA will register a Fund only if:

(a)      the incorporation or other legal formalities relating to the formation of the Fund are completed; and

(b)      the fund manager is either:

(i)        authorised as a Fund Manager by the AFSA; or

(ii)        a Foreign Fund Manager that is authorised by a Financial Services Regulator:

(1)       in a Recognised Jurisdiction; or

(2)        in a jurisdiction that is otherwise acceptable to the AFSA pursuant to Schedule 3; and

(ba)    the Fund, if it is an Investment Trust, has a Trustee which meets the requirements in these Rules;

(bb)    the Fund, if it is a Domestic Fund, is constituted as an Investment Company, Limited Partnership or Investment Trust;

(c)      the Fund has arrangements satisfactory to the AFSA in relation to the administration of the Fund and custody and valuation of the Fund's property; and

(d)      the Fund has appointed an auditor satisfactory to the AFSA; and

(e)      the name and purpose of the Fund is not, in the opinion of the AFSA, undesirable or misleading and the purpose of the Fund is reasonably capable of being successfully carried into effect; and

(f)       if the Fund Manager is a Foreign Fund Manager, the Foreign Fund Manager has:

(i)         appointed a Fund Administrator, a Trustee (if the Fund is structured as an Investment Trust) and Eligible Custodian in accordance with the requirements of CIS 8;

(ii)        included in its application for registration a declaration stating that it is subject to regulation by a Financial Services Regulator:

(A)       in a Recognised Jurisdiction; or

(B)       in a jurisdiction that is not recognised by the AFSA; and

(iii)       submitted to the AFSA a copy of its licence to manage funds granted by its home state Financial Services Regulator.

4.4.             Rejection of an application

(a)      The AFSA may refuse to grant an application for the registration of a Fund if it is not satisfied that the requirements referred to in these Rules have been met or if it otherwise considers that registration of the Fund is undesirable. 

(b)      The AFSA will provide notice of any refusal to register a Collective Investment Scheme to the relevant Fund Manager or Centre Participant. 

(c)      A Fund Manager or Centre Participant may refer the refusal to register any Collective Investment Scheme to the AFSA for review.

4.5.             Granting registration

(a)      The AFSA will provide notice of the grant and effective date of registration of a Fund to the relevant Fund Manager or Centre Participant.  [intentionally omitted]

(aa)    The AFSA may grant an application for registration of a Fund either without conditions, restrictions or requirements or with such conditions, restrictions or requirements as it considers appropriate.

(ab)    Where the AFSA grants an application for registration of a Fund, it will provide notice of the grant and effective date of registration of a Fund to the Fund Manager and, if relevant,  the Trustee.  

(b)      The AFSA will maintain publicly available lists of all Funds which have been registered with the AFSA as:

(i)        Non-Exempt Funds; or

(ii)       Exempt Funds managed by a Foreign Fund Manager.

4.6.             Withdrawal of registration

(a)      The AFSA may withdraw the registration of a Fund in the circumstances specified in section 94 of the Framework Regulations. 

(b)      The Fund Manager of a registered Fund or relevant Centre Participant may request that the AFSA withdraws the registration of that Fund.  The AFSA may withdraw the registration of a Fund if the AFSA is satisfied that to do so would not prejudice the interests of participants in that Fund.

4.7.             Requirements for notification

(a)      A The following Fund Managers must notify the AFSA, of its intention to manage a Fund as soon as reasonably practicable before launch, of their intention to manage the following types of Funds if that Fund is not required to be registered in accordance with Rule 4.2.

(i)         a Domestic Fund Manager that intends to manage an Exempt Fund; and

(ii)        a Domestic Fund Manager that intends to manage a Foreign Fund.

(b)      The AFSA may prescribe the form of the notification, which must include the following information:

(i)         the Constitution of the Fund;

(ii)       the Offering Materials relating to the Fund; and

(iii)       such other information as the AFSA may prescribe.

Guidance

For the purposes of Rule 4.7(a), "as soon as reasonably practicable before launch" will require a minimum of at least seven days' notice before the launch of the Fund.

4-1.      RECOGNITION OF FOREIGN FUND MANAGERS

4-1.1.   Application procedure

A Foreign Fund Manager may apply to the AFSA for recognition by the AFSA for the purposes of managing a Fund by:

(a)          completing the form prescribed in Schedule 4 and filing the form with the AFSA accompanied by such documents as are specified in the form;

(b)          providing such further information as the AFSA may require; and

(c)          paying the fee prescribed in the Fees Rules to the AFSA.

4-1.2.   Recognition requirements

An applicant for recognition as a Foreign Fund Manager must satisfy the AFSA that the requirements of CIS 4.3 (b)(ii) and (f) are met. 

5.                MARKETING REQUIREMENTS

5.1.             Application

(a)        Rules 5.1-1, 5.1-3, 5.2(c) and 5.3 (excluding 5.3(b)(i) and (j)) apply to all Funds (whether Exempt or Non-Exempt Funds) that are Offered to investors in the AIFC.

(b)        Rules 5.2(b) and 5.3(b)(i) and (j) apply to Exempt Funds only.

(c)        Rule 5.2(a) applies to Non-Exempt Funds only.

(d)        Rule 5.1-2 applies to Foreign Funds only.

5.1-1.     Marketing prohibition

A Person shall not Offer a Unit of a Fund to a prospective or existing investor in the AIFC unless:

(a)        the Person making the Offer is either the Fund Manager of the Fund or an Authorised Firm whose Licence authorises it to do so; and

(b)        the Offer is made in accordance with the requirements in these Rules.

5.1-2.     Requirements for marketing of Foreign Funds

(a)     An Authorised Firm may only Offer a Unit of a Foreign Fund if:

(i)         the Foreign Fund is established:

(A)       in a Recognised Jurisdiction; or

(B)       in a jurisdiction that is otherwise acceptable to the AFSA pursuant to Schedule 3;

(ii)        the Authorised Firm has a reasonable basis for recommending the Unit of the Foreign Fund as suitable for the particular Client to whom the Offer is made; or

(iii)       the Foreign Fund is a type of Fund that:

(A)       has its Units offered to persons only by way of a private placement;

(B)       has its Units offered to persons who meet the criteria to be classified as Professional Clients; and

(C)       requires an initial subscription of at least US$50,000 to be paid by a person to become a Unitholder in the Fund.

(iv)       it complies with these Rules.

(c)                 An Authorised Firm which makes an Offer of a Unit of a Foreign Fund must maintain at its place of business or other designated location in the AIFC copies of the relevant Offering Materials for inspection by Clients and by the AFSA during normal business hours.

5.1-3.     Notification requirement

(a)        An Authorised Firm, within 30 days prior commencing marketing of any Fund in the AIFC, notify the AFSA of certain details relating to the Fund, being:

(i) the name of the Fund;

(ii) the structure and type of vehicle of the Fund; and

(iii) the investment policy and strategy of the Fund.

(b)        The AFSA may require such notification to contain, and be accompanied by, such other information as the AFSA may reasonably require.

(c)        Subrule (a) does not require a Fund Manager to make any notification to the AFSA in respect of a Fund where a registration or notification has already been made in respect of that Fund under Chapter 4.

5.2.             General requirements

The following requirements apply:

(a)     In respect of Non-Exempt Funds:

(i)         The Units or other securities of a Non-Exempt Fund may not be Offered prior to the effective date of registration of that Non-Exempt Fund under these Rules.

(ii)        Copies of any Offering Materials relating to a Non-Exempt Fund must be filed with the AFSA prior to their use (including any amendments to those Offering Materials) and must comply with the content requirements for Offering Materials specified by these Rules. 

(b)      In respect of Exempt Funds:

(i)         The Units or other securities of an Exempt Fund managed by a Foreign Fund Manager may not be Offered prior to the date of registration of that Exempt Fund to the AFSA under these Rules.

(ii)        A Fund Manager or other Centre Participant which Offers Units or other securities of an Exempt Fund is responsible for ensuring that the requirements of this chapter are complied with in respect of that Fund before commencing the Offering of that Fund and must maintain appropriate written records verifying that compliance which must be made available to the AFSA on request.

(iii)       The Fund Manager must notify the AFSA of any amendments to the Offering Materials of an Exempt Fund.

(c)     In respect of all Funds (Exempt and Non-Exempt Funds):

(i)         Any person Offering Units or other securities of a Fund must comply with the Rules regarding Financial Promotions. 

(ii)        A Fund Manager must make the Fund’s Constitution and most recent Offering Materials available free of charge to a Unitholder or a prospective Unitholder, and must do so:

(A)     in the case of an existing Unitholder, before the Unitholder acquires, or enters into an agreement to acquire, an additional Unit in the Fund; and at any other time, on the Unitholder’s request; and

(B)     in the case of a prospective Unitholder, before that person acquires, or enters into an agreement to acquire, a Unit in the Fund.

5.3.             Content requirements for Offering Materials

(a)      All Offering Materials relating to a Fund must be clear, fair and not misleading.

(b)      A Fund Manager (other than the Fund Manager of a Corporate Treasury Fund) must give to a potential investor Offering Materials and other documentation that contain all the information which a person and his professional advisers would reasonably require and expect to be able to make an informed decision to become a Unitholder of the Fund, including the following:

(i)        a description of the investment objective, policy and strategy of the Fund, information on where any master fund is established and where the underlying funds are established if the Fund is a fund of funds, a description of the types of assets in which the Fund may invest, the techniques it may employ and all associated risks, any applicable investment restrictions, the circumstances in which the Fund may use leverage, the types and sources of leverage permitted and the associated risks, any restrictions on the use of leverage and any collateral and asset reuse arrangements, and the maximum level of leverage which the Fund may utilise; and

(ii)       a description of the procedures by which the Fund may change its investment strategy or investment policy, or both; and

(iii)      a description of the main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, on the applicable law and on the existence or not of any legal instruments providing for the recognition and enforcement of judgments in the territory where the Fund is established; and

(iv)      the identity of the Fund Manager, custodian or depositary, auditor and any other service providers for the Fund and a description of their duties and Unitholder's rights in respect of those persons; and

(v)       a description of any functions that have been delegated by the Fund Manager and any other of the Fund's service providers, the identification of each such delegate and any conflicts of interest that may arise from such delegations; and

(vi)      a description of the Fund's valuation procedure and of the pricing methodology for valuing assets; and

(vii)     a description of the Fund's liquidity risk management, including the redemption rights both in normal and in exceptional circumstances, and the existing redemption arrangements with Unitholders; and

(viii)    a description of all fees, charges and expenses and of the maximum amounts thereof which are directly or indirectly borne by Unitholders; and

(ix)      a description of how the Fund ensures a fair treatment of Unitholders and, whenever a Unitholder obtains preferential treatment or the right to obtain preferential treatment, a description of that preferential treatment, the type of Unitholders who obtain such preferential treatment and, where relevant, their legal or economic links with the Fund or the Fund Manager; and

(x)       the latest annual report for the Fund, if applicable; and

(xi)      the procedure and conditions for the issue and sale of units or shares of the Fund; and

(xii)     where available, the latest NAV of the Fund and its units or shares or the latest market price per unit or share of the Fund; and

(xiii)    where available, information regarding the historical performance of the Fund; and

(xiv)    if relevant, the identity of any prime broker for the Fund and a description of any material arrangements with that prime broker and the way the conflicts of interest in relation thereto are managed, information about the possibility of transfer and reuse of the Fund's assets by the prime broker, and information about any transfer of liability to the prime broker that may exist; and

(xv)     the total amount of leverage employed by the Fund; and

(xvi)    the life of the Fund, the ability to terminate the Fund and the process by which the Fund may be terminated; and 

(xvii)   a description of the arrangements in place for the safekeeping of cash held by or on behalf of the Fund pending investment or distribution to Unitholders.

(c)      All Offering Materials relating to a Foreign Fund must include information on the jurisdiction and regulatory regime applicable to the Foreign Fund and its fund manager.

(d)      If a Fund is a Listed Fund, the Fund Manager must provide in the Fund’s Offering Materials a description of the arrangements for listing of the Units and the listing venues on which Units of the Listed Fund may be traded.

(e)      If a Foreign Fund is required to provide a summary or key information document to investors in any jurisdiction, that document must also be provided to potential investors in the AIFC.

(f)       If at any time, there is a material change affecting any matter contained in the Offering Materials for a Fund or a significant new matter arises, the Fund must either before or promptly following the effective date of such material change or new matter, issue updated Offering Materials which clearly explain the material change or significant new matter. 

(g)      All Offering Materials relating to a Fund, including the information required under these Rules (as applicable) must be made available in the English language.

(h)      All Offering Materials relating to a Fund must include the following statement displayed prominently on its front page:

"The Astana Financial Services Authority has no responsibility for reviewing or verifying any offering materials, particulars or other documents in connection with this Fund.  Accordingly, the Astana Financial Services Authority has not reviewed, nor taken any steps to verify, this document, the information it contains, or any other documents relating to the Fund and has no responsibility for it.  The securities to which this document relates may be illiquid or subject to restrictions on their resale.  Prospective purchasers should conduct their own due diligence.  If you do not understand the contents of this document you should consult an authorised financial adviser."

(i)       All Offering Materials relating to an Exempt Fund must prominently disclose the following statement to prospective Unitholders:

"This Fund is an Exempt Fund for the purposes of the Collective Investment Scheme Rules.  It is intended only for sophisticated investors and is not subject to many of the requirements of the Collective Investment Scheme Rules."

(j)       All Offering Materials relating to an Exempt Fund managed by a Foreign Fund Manager must prominently disclose the following statement to prospective Unitholders:

"The fund manager of this Fund is not subject to regulation by the Astana Financial Services Authority."

(k)      Information relating to an Umbrella Fund:

(i)      Whether the Fund is constituted as a Protected Cell Company or is using contractual arrangements to segregate Sub-Funds.

(ii)     A statement that Unitholders may exchange Units of one Sub-Fund for Units in another Sub-Fund of the Umbrella Fund.

(iii)    Whether an exchange of Units in one Sub-Fund for Units in another Sub-Fund is treated as a redemption of Units, and resale or reissue of Units in the relevant Sub-Fund, and costs and fees associated with such redemption, resale or reissue.

(iv)    Policy for allocating between Sub-Funds any assets of, or costs, charges and expenses payable out of, the Fund Property which are not attributable to any particular Sub-Fund.

(v)     Information relating to any cross-liability that may occur between Sub-Funds if the Fund is not using the PCC structure.

(vi)    In respect of each Sub-Fund, if the currency is not the base currency of the Umbrella Fund, the currency in which the Fund Property allocated.

(l)       Information relating to a Feeder Fund:

(i)      Whether the Fund is investing in:

(A)         Real Property only; or

(B)          Securities issued by Bodies Corporate whose main activities are investing in, dealing in, developing or redeveloping Real Property only; or

(C)         a combination of (A) and (B).

(ii)      What percentage of the Property Fund’s net assets may consist of property related assets, referred to in 3.1(b), which are not traded in or dealt on markets provided for in the Constitution.

(iii)     Unless the Constitution and the Offering Materials state that the Fund invests in a single property, the maximum percentage of the Fund’s net assets which may be invested in any single property or, if applicable, the conditions under which the Fund may derogate from this restriction.

(iv)     The maximum percentage of the Property Fund’s net assets which may be invested in properties which are vacant, in the process of development or requiring development.

(v)     The maximum percentage of the Property Fund’s net assets which may be invested in properties which are subject to a mortgage.

(vi)     For investment in Real Property:

(A)          the countries or territories in which the Fund may invest;

(B)          the types of Real Property in which the Fund may invest and the policy in relation to encumbrances and lease period, if applicable;

(C)         the policy of the Fund Manager in relation to insurance of Real Property forming part of the Fund Property;

(D)         the risks involved in this type of Fund;

(E)          details of the Property Fund’s appointed valuer under CIS 6.10.(b);

(F)          a statement to explain the standards according to which the property valuations are conducted;

(G)         a statement with respect to any material policy regarding Real Property activities;

(H)         details of significant holders and the number of units held and deemed to be held by each of them;

(I)           details of principal taxes levied on the Fund’s income and capital, including tax, if any, deducted on distribution to Unitholders; and

(J)          if the Fund is a REIT, whether the investment vehicle is an Investment Company or Limited Partnership.

(vii)      If the Fund is a single Property Fund:

(A)          a prominent statement that the Fund invests in a single property;

(B)          the details relating to the single property, such as whether the property comprises individual properties or buildings, whether there are different types of uses or businesses conducted in the property, and proportions of anticipated income to be derived from the types of uses or occupants of the property; and

(C)         any risks associated with the investment in the single property, including risks arising from or affecting income to be derived from the uses or occupants of the property.

(viii)       If the Fund Manager itself acts as the custodian of Real Property, in accordance with CIS 7.3.(e):

(A)          a prominent statement that it acts as the custodian of the Real Property;

(B)          disclosure of risks that may arise as a result of it acting as custodian rather than delegating the function to an Eligible Custodian; and

(C)         the measures and safeguards it has in place to ensure the proper segregation and protection of the Real Property.

(ix)       Disclosure of:

(A)          details of any transactions or agreements entered into with Related Parties;

(B)          full particulars of the nature and extent of the interest, if any, of Related Parties in the property owned or proposed to be acquired by the Fund; and

(С)       whether the Fund Manager has Unitholder approval to enter into Related Party Transactions.

(m)    Information relating to an ESG Fund:

(i)              a description of the investment objective, policy and strategy incorporating an ESG Fund’s investment focus;

(ii)             a Fund Manager of an ESG Fund must ensure that Offering Materials do not refer to an “ESG Fund”, or otherwise includes or uses ESG-related or similar terms, unless the Fund meets the criteria in 2.4.1(e);

(iii)            a list of ESG criteria used to measure the attainment of the fund’s ESG focus;

(iv)           a description of the sustainable investing strategy used by the scheme to achieve its ESG focus, the binding elements of that strategy in the investment process, and how the strategy is implemented in the investment process on a continuous basis;

(v)            where the Fund uses a benchmark index to measure the attainment of its ESG focus, an explanation of how the benchmark index is consistent with or relevant to its investment focus;

(vi)           where the Fund uses a benchmark index for financial performance measurement only, a statement of that fact; and

(vii)          risks associated with the Fund’s investment focus and strategy;

(viii)         any ESG-related terms used must be clearly defined.

(n)   If a Fund is a Credit Fund, the Offering Materials issued or distributed in respect of a Credit Fund must include a prominent risk warning which draws attention to the unique risks which arise from investing in Credit and how the value of an investment in a Credit Fund is not guaranteed and is subject to the possibility of investment losses and illiquidity. In addition, the Offering Materials must include:

(i)              information on the risk and reward profile to enable investors to identify the specific risks associated with a loan origination strategy;

(ii)             information on the extent to which the Credit Fund intends to be  concentrated as regards individual entities, geographical locations and sectors and the risks arising from those proposed concentrations;

(iii)            details of the credit assessment and monitoring process used by the Credit Fund; and

(iv)           information on whether the Fund Manager will provide Unitholders or potential Unitholders with access to records and staff for the purposes of a due diligence process as well as the terms and conditions under which such access may be granted.

(o)   Information relating to a Digital Asset Fund:

(i)              the essential characteristics of the Digital Asset, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised;

(ii)             details of the DLT that is used to issue, store or transfer the Digital Asset;

(iii)           whether the Digital Asset will be admitted to trading on a Digital Asset Trading Facility or other facility and, if not, details as to how the Digital Asset can be transferred or redeemed, how that might impact its liquidity and any resulting risks;

(iv)           details of cybersecurity risks associated with the Digital Asset or its underlying technology, including whether there is a risk of loss of the Digital Asset in the event of a cyber attack, and details of steps that have been, or can be taken, to mitigate those risks;

(v)            details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and

(vi)           any other information relevant to the Digital Asset that would reasonably assist a prospective investor in making an informed decision about investing in the Digital Asset.

(p)    Information relating to an Investment Token Fund or Qualified Investment Token Fund, or a Tokenised Fund:

(i)              a statement that the document constitutes Offering Materials for an Investment Token Fund or Qualified Investment Token Fund, or a Tokenised Fund;

(ii)             if the Fund is an Investment Token Fund or Qualified Investment Token Fund, a statement of the percentage of the Fund Property held, or intended to be held, as Tokens;

(iii)           if the Fund is a Tokenised Fund, a statement of the percentage of Units in the Fund that are tokenised or intended to be tokenised;

(iv)           in case of an Investment Token Fund or Qualified Investment Token Fund, the essential characteristics of the Tokens, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised.

(v)            in the case of a Tokenised Fund, the essential characteristics of the underlying, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised;

(vi)           details of the DLT that is used to issue, store or transfer the Tokens held as a Fund Property or tokenised Units;

(vii)          whether the Tokens held as a Fund Property will be admitted to trading on an Authorised Market Institution, Multilateral Trading Facility, Organised Trading Facility or other facility and, if not, details as to how the Tokens can be transferred or redeemed, how that might impact its liquidity and any resulting risks;

(viii)         details of cybersecurity risks associated with the Token held as a Fund Property or tokenised Unit, or its underlying technology, including whether there is a risk of loss of the Token or tokenised Unit in the event of a cyber attack, and details of steps that have been, or can be taken, to mitigate those risks;

(ix)           details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and

(x)            any other information relevant to the Tokens held as a Fund Property or tokenised Units that would reasonably assist a prospective investor in making an informed decision about investment.

(q)   Information relating to an ETF:

(i)              A Fund Manager of an ETF must include in its Offering Materials:

(A)                the type of ETF and its characteristics;

(B)                the risks associated with the type of ETF;

(C)                the investment methodology and strategies the ETF proposes to adopt to track the referenced index or benchmark;

(D)                a clear description of the relevant indices or other benchmark the ETF is designed to track, timely information about the underlying components (including their liquidity) of the relevant index or the benchmark and, if the Price Information Provider is a Related Party, that fact;

(E)                clear signposts to guide investors to relevant websites or sources of information provided by Price Information Providers, as specified in Schedule 5;

(F)                information about whether iNAV is made available by the relevant exchange, and if so, how this information can be accessed by investors;

(G)               information on how the referenced index or benchmark will be tracked and the risks for investors in terms of exposure they have to the underlying index and any counterparty risk;

(H)                a description of the key elements which may affect the ETF’s ability to track fully the relevant index or benchmark, including, but not limited to, transaction costs, illiquid segments, and dividend re-investment;

(I)                  in the case of a synthetic ETF using Derivatives to replicate the performance of an index or other benchmark:

(1)        whether the ETF uses a funded or unfunded model to replicate the performance of the specified index or benchmark;

(2)        if not already disclosed, information relating to the counterparties to the Derivatives transactions, and where collateral is used, details relating to such collateral; and

(3)        a description of the risks associated with counterparty default and use of any collateral, the impact of those risks on the ETF’s performance and investor returns, and how such risks are to be mitigated;

 

(J)                 to the extent an ETF is required to have a diversified portfolio, how the ETF proposes to achieve diversification of investments through its investment strategy;

(K)                if available, information about the past performance of the ETF, measured through its realised tracking difference and annual tracking error information, on the anticipated level of tracking error during normal   market conditions, and how this will be effectively minimised; and

(L)                information about the ETF’s Authorised Participant and if it is also a market maker in the ETF Units in the relevant exchange.

(ii)             A Fund Manager of an ETF must include in its Offering Materials sufficient information to enable investors to clearly understand:

(A)               the ETF’s cost structure, covering:

(1)        any performance fees of the Fund Manager, if applicable;

(2)        its operational costs; and

(3)        if applicable, costs of underlying transactions (such as swaps, brokerage commissions and additional costs associated with leverage or use of collateral, and the rebalancing of the portfolio costs); and

(B)                any revenue derived by the Fund Manager through the use of the ETF’s  portfolio assets, and how that revenue is distributed between the ETF and the Fund Manager.

 

(r)    Information relating to a Money Market Fund:

(i)              A Fund Manager of a Money Market Fund that is a Public Fund must ensure that the Fund’s Offering Materials include a prominent warning:

(A)                drawing to the attention of investors the different nature of a Unit in a Money Market Fund compared to a Deposit;

(B)                that the capital of an investment in a Money Market Fund is not guaranteed; and

(C)                that the value of Units in the Money Market Fund may fluctuate.

(ii)             A Fund Manager of a Money Market Fund must specify in the Offering whether the Fund’s NAV is to be maintained:

(A)                constant at par (net of earnings); or

(B)                at the value of a Unitholder’s initial capital plus earnings.

5.4.        Content requirements for Offering Materials

(a)      All Offering Materials relating to a Fund must be clear, fair and not misleading.

(b)      A Fund Manager (other than the Fund Manager of a Corporate Treasury Fund) must give to a potential investor Offering Materials and other documentation that contain all the information which a person and his professional advisers would reasonably require and expect to be able to make an informed decision to become a Unitholder of the Fund.

(c)      If at any time, there is a material change affecting any matter contained in the Offering Materials for a Fund or a significant new matter arises, the Fund must either before or promptly following the effective date of such material change or new matter, issue updated Offering Materials which clearly explain the material change or significant new matter.

(d)      Without limiting subrules (a) to (c), the Fund Manager must ensure that at all times the Offering Materials include the following:

(i)       the information in Schedule 1-1;

(ii)     if it is a specialist class of a Fund, any information as is relevant to that specialist class of Fund as set out in rule 5.6;

(iii)    the mandatory statement required under rule 5.5;

(iv)     in the case of a Foreign Fund, the following additional disclosures:

(A)     information on the jurisdiction and regulatory regime applicable to the Foreign Fund and its fund manager;

(B)     if the Foreign Fund is required to provide a summary or key information document to investors in any jurisdiction, that document must also be provided to potential investors in the AIFC.

(e)        All Offering Materials relating to a Fund, including the information required under these Rules (as applicable) must be made available in the English language.

5.5.        Mandatory statements

(a)      A Fund Manager of an Exempt Fund and Non-Exempt Fund must include in the Fund’s Offering Materials the following statement displayed prominently on its front page:

"The Astana Financial Services Authority has no responsibility for reviewing or verifying any offering materials, particulars or other documents in connection with this Fund.  Accordingly, the Astana Financial Services Authority has not reviewed, nor taken any steps to verify, this document, the information it contains, or any other documents relating to the Fund and has no responsibility for it.  The securities to which this document relates may be illiquid or subject to restrictions on their resale.  Prospective purchasers should conduct their own due diligence.  If you do not understand the contents of this document you should consult an authorised financial adviser."

(b)      A Fund Manager of an Exempt Fund must include, in addition to the statement referred to in subrule (a), the following statement:

"This Fund is an Exempt Fund for the purposes of the Collective Investment Scheme Rules.  It is intended only for sophisticated investors and is not subject to many of the requirements of the Collective Investment Scheme Rules."

(c)      A Fund Manager of an Exempt Fund managed by a Foreign Fund Manager must include, in addition to the statements referred to in subrules (a) and (b), the following statement:

"The fund manager of this Fund is not subject to regulation by the Astana Financial Services Authority."

(d)     A Fund Manager of a Foreign Fund must include in addition the statement referred to in subrule (a), the following statement:

“These Offering Materials relate to a Fund which is not subject to any form of regulation or approval by the Astana Financial Services Authority”.  

5.6.        Additional disclosures for specialist Funds

5.6.1.     Information relating to Umbrella Funds

A Fund Manager of an Umbrella Fund must ensure that the Fund’s Offering Materials disclose the following information:

(a)     Whether the Fund is constituted as a Protected Cell Company or is using contractual arrangements to segregate Sub-Funds.

(b)     A statement that Unitholders may exchange Units of one Sub-Fund for Units in another Sub-Fund of the Umbrella Fund.

(c)     Whether an exchange of Units in one Sub-Fund for Units in another Sub-Fund is treated as a redemption of Units, and resale or reissue of Units in the relevant Sub-Fund, and costs and fees associated with such redemption, resale or reissue.

(d)     Policy for allocating between Sub-Funds any assets of, or costs, charges and expenses payable out of, the Fund Property which are not attributable to any particular Sub-Fund.

(i)      Information relating to any cross-liability that may occur between Sub-Funds if the Fund is not using the PCC structure.

(ii)     In respect of each Sub-Fund, if the currency is not the base currency of the Umbrella Fund, the currency in which the Fund Property allocated.

5.6.2.     Information relating to a Feeder Fund

A Fund Manager of a Feeder Fund must ensure that the Fund’s Offering Materials disclose the following information:

(a)     Whether the Fund is investing in:

(i)      Real Property only; or

(ii)      Securities issued by Bodies Corporate whose main activities are investing in, dealing in, developing or redeveloping Real Property only; or

(iii)     a combination of (A) and (B).

(b)     What percentage of the Property Fund’s net assets may consist of property related assets, referred to in 3.1(b), which are not traded in or dealt on markets provided for in the Constitution.

(c)     Unless the Constitution and the Offering Materials state that the Fund invests in a single property, the maximum percentage of the Fund’s net assets which may be invested in any single property or, if applicable, the conditions under which the Fund may derogate from this restriction.

(d)     The maximum percentage of the Property Fund’s net assets which may be invested in properties which are vacant, in the process of development or requiring development.

(e)     The maximum percentage of the Property Fund’s net assets which may be invested in properties which are subject to a mortgage.

(f)      For investment in Real Property:

(i)           the countries or territories in which the Fund may invest;

(ii)          the types of Real Property in which the Fund may invest and the policy in relation to encumbrances and lease period, if applicable;

(iii)         the policy of the Fund Manager in relation to insurance of Real Property forming part of the Fund Property;

(iv)         the risks involved in this type of Fund;

(v)          details of the Property Fund’s appointed valuer under CIS 6.10.(b);

(vi)         a statement to explain the standards according to which the property valuations are conducted;

(vii)        a statement with respect to any material policy regarding Real Property activities;

(viii)        details of significant holders and the number of units held and deemed to be held by each of them;

(ix)         details of principal taxes levied on the Fund’s income and capital, including tax, if any, deducted on distribution to Unitholders; and

(x)          if the Fund is a REIT, whether the investment vehicle is an Investment Company, Limited Partnership or Investment Trust.

(g)     If the Fund is a single Property Fund:

(i)           a prominent statement that the Fund invests in a single property;

(ii)          the details relating to the single property, such as whether the property comprises individual properties or buildings, whether there are different types of uses or businesses conducted in the property, and proportions of anticipated income to be derived from the types of uses or occupants of the property; and

(iii)         any risks associated with the investment in the single property, including risks arising from or affecting income to be derived from the uses or occupants of the property.

(h)     If the Fund Manager itself acts as the custodian of Real Property, in accordance with CIS 7.3.(e):

(i)           a prominent statement that it acts as the custodian of the Real Property;

(ii)          disclosure of risks that may arise as a result of it acting as custodian rather than delegating the function to an Eligible Custodian; and

(iii)         the measures and safeguards it has in place to ensure the proper segregation and protection of the Real Property.

(i)      Disclosure of:

(i)           details of any transactions or agreements entered into with Related Parties;

(ii)          full particulars of the nature and extent of the interest, if any, of Related Parties in the property owned or proposed to be acquired by the Fund; and

(iii)         whether the Fund Manager has Unitholder approval to enter into Related Party Transactions.

5.6.3.     Information relating to an ESG Fund

A Fund Manager of an ESG Fund must ensure that the Fund’s Offering Materials disclose the following information:

(a)     a description of the investment objective, policy and strategy incorporating an ESG Fund’s investment focus;

(b)     a Fund Manager of an ESG Fund must ensure that Offering Materials do not refer to an “ESG Fund”, or otherwise includes or uses ESG-related or similar terms, unless the Fund meets the criteria in 2.4.1(e);

(c)     a list of ESG criteria used to measure the attainment of the fund’s ESG focus;

(d)     a description of the sustainable investing strategy used by the scheme to achieve its ESG focus, the binding elements of that strategy in the investment process, and how the strategy is implemented in the investment process on a continuous basis;

(e)     where the Fund uses a benchmark index to measure the attainment of its ESG focus, an explanation of how the benchmark index is consistent with or relevant to its investment focus;

(f)      where the Fund uses a benchmark index for financial performance measurement only, a statement of that fact; and

(g)     risks associated with the Fund’s investment focus and strategy;

(h)     any ESG-related terms used must be clearly defined.

5.6.4.     Information relating to a Credit Fund

If a Fund is a Credit Fund, the Offering Materials issued or distributed in respect of a Credit Fund must include a prominent risk warning which draws attention to the unique risks which arise from investing in Credit and how the value of an investment in a Credit Fund is not guaranteed and is subject to the possibility of investment losses and illiquidity. In addition, the Offering Materials must include:

(a)     information on the risk and reward profile to enable investors to identify the specific risks associated with a loan origination strategy;

(b)     information on the extent to which the Credit Fund intends to be  concentrated as regards individual entities, geographical locations and sectors and the risks arising from those proposed concentrations;

(c)     details of the credit assessment and monitoring process used by the Credit Fund; and

(d)     information on whether the Fund Manager will provide Unitholders or potential Unitholders with access to records and staff for the purposes of a due diligence process as well as the terms and conditions under which such access may be granted.

5.6.5.     Information relating to a Digital Asset Fund

A Fund Manager of an ESG Fund must ensure that the Fund’s Offering Materials disclose the following information:

(a)     the essential characteristics of the Digital Asset, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised;

(b)     details of the DLT that is used to issue, store or transfer the Digital Asset;

(c)     whether the Digital Asset will be admitted to trading on a Digital Asset Trading Facility or other facility and, if not, details as to how the Digital Asset can be transferred or redeemed, how that might impact its liquidity and any resulting risks;

(d)     details of cybersecurity risks associated with the Digital Asset or its underlying technology, including whether there is a risk of loss of the Digital Asset in the event of a cyber attack, and details of steps that have been, or can be taken, to mitigate those risks;

(e)     details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and

(f)      any other information relevant to the Digital Asset that would reasonably assist a prospective investor in making an informed decision about investing in the Digital Asset.

5.6.6.     Information relating to an Investment Token Fund or Qualified Investment Token Fund, or a Tokenised Fund

A Fund Manager of an ESG Fund must ensure that the Fund’s Offering Materials disclose the following information:

(a)     a statement that the document constitutes Offering Materials for an Investment Token Fund or Qualified Investment Token Fund, or a Tokenised Fund;

(b)     if the Fund is an Investment Token Fund or Qualified Investment Token Fund, a statement of the percentage of the Fund Property held, or intended to be held, as Tokens;

(c)     if the Fund is a Tokenised Fund, a statement of the percentage of Units in the Fund that are tokenised or intended to be tokenised;

(d)     in case of an Investment Token Fund or Qualified Investment Token Fund, the essential characteristics of the Tokens, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised.

(e)     in the case of a Tokenised Fund, the essential characteristics of the underlying, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised;

(f)      details of the DLT that is used to issue, store or transfer the Tokens held as a Fund Property or tokenised Units;

(g)     whether the Tokens held as a Fund Property will be admitted to trading on an Authorised Market Institution, Multilateral Trading Facility, Organised Trading Facility or other facility and, if not, details as to how the Tokens can be transferred or redeemed, how that might impact its liquidity and any resulting risks;

(h)     details of cybersecurity risks associated with the Token held as a Fund Property or tokenised Unit, or its underlying technology, including whether there is a risk of loss of the Token or tokenised Unit in the event of a cyber attack, and details of steps that have been, or can be taken, to mitigate those risks;

(i)      details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and

(j)      any other information relevant to the Tokens held as a Fund Property or tokenised Units that would reasonably assist a prospective investor in making an informed decision about investment.

5.6.7.     Information relating to an ETF

A Fund Manager of an ETF must include in its Offering Materials:

(a)     the type of ETF and its characteristics;

(b)     the risks associated with the type of ETF;

(c)     the investment methodology and strategies the ETF proposes to adopt to track the referenced index or benchmark;

(d)     a clear description of the relevant indices or other benchmark the ETF is designed to track, timely information about the underlying components (including their liquidity) of the relevant index or the benchmark and, if the Price Information Provider is a Related Party, that fact;

(e)     clear signposts to guide investors to relevant websites or sources of information provided by Price Information Providers, as specified in Schedule 5;

(f)      information about whether iNAV is made available by the relevant exchange, and if so, how this information can be accessed by investors;

(g)     information on how the referenced index or benchmark will be tracked and the risks for investors in terms of exposure they have to the underlying index and any counterparty risk;

(h)     a description of the key elements which may affect the ETF’s ability to track fully the relevant index or benchmark, including, but not limited to, transaction costs, illiquid segments, and dividend re-investment;

(i)      in the case of a synthetic ETF using Derivatives to replicate the performance of an index or other benchmark:

(i)         whether the ETF uses a funded or unfunded model to replicate the performance of the specified index or benchmark;

(ii)        if not already disclosed, information relating to the counterparties to the Derivatives transactions, and where collateral is used, details relating to such collateral; and

(iii)       a description of the risks associated with counterparty default and use of any collateral, the impact of those risks on the ETF’s performance and investor returns, and how such risks are to be mitigated;

(j)      to the extent an ETF is required to have a diversified portfolio, how the ETF proposes to achieve diversification of investments through its investment strategy;

(k)     if available, information about the past performance of the ETF, measured through its realised tracking difference and annual tracking error information, on the anticipated level of tracking error during normal   market conditions, and how this will be effectively minimised; and

(l)      information about the ETF’s Authorised Participant and if it is also a market maker in the ETF Units in the relevant exchange, that fact.

(m)    sufficient information to enable investors to clearly understand:

(i)         the ETF’s cost structure, covering:

(A)       any performance fees of the Fund Manager, if applicable;

(B)       its operational costs; and

(C)       if applicable, costs of underlying transactions (such as swaps, brokerage commissions and additional costs associated with leverage or use of collateral, and the rebalancing of the portfolio costs); and

(ii)        any revenue derived by the Fund Manager through the use of the ETF’s  portfolio assets, and how that revenue is distributed between the ETF and the Fund Manager.

5.6.8.     Information relating to a Money Market Fund:

(a)     A Fund Manager of a Money Market Fund that is a Non-Exempt Fund must ensure that the Fund’s Offering Materials include a prominent warning:

(i)         drawing to the attention of investors the different nature of a Unit in a Money Market Fund compared to a Deposit;

(ii)        that the capital of an investment in a Money Market Fund is not guaranteed; and

(iii)       that the value of Units in the Money Market Fund may fluctuate.

(b)     A Fund Manager of a Money Market Fund must specify in the Offering whether the Fund’s NAV is to be maintained:

(i)         constant at par (net of earnings); or

(ii)        at the value of a Unitholder’s initial capital plus earnings.

5.6.9.     Information relating to a Hedge Fund

A Fund Manager of a Hedge Fund must prominently disclose to prospective Unitholders in the Prospectus and any other financial promotions relating to the Fund, the following statement:

“When considering investment in a Hedge Fund you should consider the fact that some Hedge Fund products use leverage and other speculative investment practices that may increase the risk of investment loss, can be illiquid, may involve complex tax structures, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the Fund Manager of Hedge Fund. Returns from Hedge Funds can be volatile and you may lose all or part of your investment. With respect to single manager products the manager has total trading authority and this could mean a lack of diversification and higher risk. The Hedge Fund may be subject to substantial expenses that are generally offset by trading profits and other income. A portion of those fees is paid to the Fund Manager of Hedge Fund.”

6.                 RULES REGARDING THE CONSTITUTION AND INVESTMENT POWERS OF FUNDS

6.1.             Application

This chapter applies to all Domestic Fund Managers in respect of all Domestic Funds managed by those Fund Managers, and where appointed, Trustees of such Funds.

6.1-1.     Permitted form of a Domestic Fund

(1)     Every Domestic Fund shall be one of the following:

(a)       an Investment Company;

(b)       a Limited Partnership;

(c)        an Investment Trust; or

(d)       another form permitted under these Rules.

6.2.             General requirements

(a)      Every Fund, except a Corporate Treasury Centre Fund, must have:

(i)        a written Constitution which complies with these Rules and, if the Fund is a Non-Exempt Fund, contains the contents specified in Schedule 1; and

(ii)       a purpose that is reasonably capable of being successfully carried into effect; and

(ii-i)     an auditor appointed in respect of the Fund;

(ii-ii)    if it is an Investment Trust, a Trustee appointed to the Fund in accordance with the requirements of these Rules;

(ii-iii)   if it is not an Investment Trust, an eligible person with whom the legal title to the Fund Property is registered unless otherwise provided in these Rules; and

(iii)      in the case of an open‐ended Non-Exempt Fund, single pricing for the purposes of redemption and re‐issue or sale of Units in the Fund where the price of a Unit is calculated by reference to the NAV of the property of the Fund to which the Units relate and in accordance with these Rules.

(b)      Any provision in the Constitution of a Fund is void in so far as it would have the effect of exempting the Fund or the Fund Manager, and if appointed, the Trustee, from liability for any failure to discharge their obligations under these Rules, the FSFR or any other rules made under the FSFR.

Guidance

For the avoidance of doubt, single pricing for these purposes means that the buying and selling prices for Units in a Fund are the same (that is, there is no spread between the buy and sell prices). This is in contrast with dual-priced Funds that offer different buy and sell prices.

6.2-1.     Instrument constituting the Fund

(a)       The Fund Manager and, in the case of an Investment Trust, both the Fund Manager and the Trustee of a Fund, must ensure that the written Constitution which every Fund is required to have pursuant to subrule 6.2(a)(i):

(i)         contains the contents specified in in Schedule 1 as are applicable to the Fund; and

(ii)        does not contain any provision that is prejudicial to the interests of the Unitholders generally or to the Unitholders of any class of Units.

(b)       The Fund Manager and, in the case of an Investment Trust, both the Fund Manager and the Trustee, are responsible for maintaining the Constitution and for making necessary amendments to it in accordance with the applicable legislation. 

(c)       Fund Manager may issue and in the case of an Investment Trust, may instruct the Trustee to issue such classes of Units as are set out in the Constitution, provided the rights of any class are not unfairly prejudicial to the interests of the Unitholders of any other class of Units in that Fund.

(d)       Units whose issue may be limited can be issued by a Fund Manager if permitted by the Constitution and if in accordance with the conditions set out in the Offering Materials, provided that such issue will not materially prejudice any existing Unitholders in the Fund.

(e)       In the case of an Investment Trust, the Trustee must take reasonable measures to ensure, before carrying out the Fund Manager’s instructions, that those instructions comply with the requirements in (c) and (d).

Guidance:

In accordance with the AIFC Glossary, Constitution in relation to a Fund means any of the following:

(a) which is in the form of a Body Corporate, the instrument of incorporation;

(b) which is in the form of a Trust, the trust deed;

(c) which is in the form of a Partnership, the partnership deed; or

(d) adopting a form other than one specified in (a) to (c), any instrument creating the legal form of the Fund to which the Fund Manager is a party setting out provisions relating to any aspect of the operation or management of the Fund.

6.2-2.    Creation of an Investment Trust

(a)     An Investment Trust shall be created by a Trust Deed entered into between a Fund Manager and a Trustee.

(b)     The Trustee of an Investment Trust must be independent of the Fund Manager of that Investment Trust. A Trustee will not be independent of a Fund Manager if:

(i)      the Fund Manager or the Trustee holds, or exercise voting rights in respect of, any Shares of the other;

(ii)      the Fund Manager and the Trustee have a common holding company or a common ultimate holding company;

(iii)     the Fund Manager or the Trustee have Directors on its Governing Body, who are also Directors of the other;

(iv)     the Fund Manager or the Trustee has individuals performing Controlled Functions who are also individuals performing Controlled Functions for the other; or

(v)      the Fund Manager and the Trustee have been involved in the previous two years in any professional or material business dealings, other than acting as Fund Manager or Trustee respectively of any other Fund.

(c)     An Investment Trust shall be formed solely for collective investment purposes.

(d)     The Trust Deed shall:

(i)      meet all the requirements that apply in respect of the Constitution of a Fund under these Rules;

(ii)      set out clearly whether the Trustee is to provide the oversight function relating to the Investment Trust;

(iii)     confer on the Trustee all the powers that are necessary for the Trustee to discharge all its duties and perform all its functions under these Rules; and

(iv)     not contain any provision which conflicts with the requirements in these Rules.

6.2-3.    Effect and validity of the Trust Deed

(a)     The provisions of the Trust Deed are binding on the persons who become Unitholders of the Investment Trust, as if they were a party to the Trust Deed.

(b)     Any provision of a Trust Deed, which is inconsistent with these Regulations or any Rules made by the Regulator, shall be void.

6.2-4.   Unitholder liability

(a)     The Unitholders of an Investment Trust created under these Rules are not liable for any debts or other liabilities incurred by or in respect of the Investment Trust except to the extent of any amount outstanding for the payment of the Units or interests in the Units at the price at which the Unitholder agreed to acquire the Units or interest in the Units.

(b)     No action shall be brought by any person against a Unitholder for any debts or other liabilities of, or in respect of, an Investment Trust or any actions or omissions of the Trustee or Fund Manager except to the extent provided above.

6.3.             Name of the Fund

(a)       The Fund Manager must ensure that the name of a Non-Exempt Fund or any sub‐fund or class of units in a Non-Exempt Fund or its sub-funds, is not:

(i)         undesirable, misleading or in conflict with the name of another Fund or another sub‐fund or class of units in the Fund or sub‐fund; and

(ii)        substantially similar to the name of another Fund in the AIFC or elsewhere; or

(iii)       is in the opinion of the AFSA likely to mislead or offend the public.

(b)       Before using as part of or in connection with the name of a Non-Exempt Fund, sub‐fund or class of units in a Non-Exempt Fund the words "guaranteed", "protected" or any other words with a similar meaning implying a degree of security in relation to the capital or income, the Fund Manager must demonstrate to the satisfaction of the AFSA that:

(i)         the guarantor has the authority and resources to honour the terms of the guarantee; and

(ii)        all the terms of the guarantee and the credentials of the guarantor are clearly set out in detail in the Offering Materials for the Fund and that any exclusions such as force majeure are highlighted.

6.4.             Spread of risk

A Fund Manager must take reasonable steps to ensure that a Fund provides a spread of risk that is consistent with the investment objectives and policy of the Fund as stated in its Constitution or most recently published Offering Materials.

6.5.             Breach of investment policy

On becoming aware of any breach of the investment objectives or policy of a Fund, a Fund Manager must immediately inform the Unitholders and, in the case of a Non-Exempt Fund, the AFSA of the magnitude of the breach, the cause of the breach, and the proposed method of rectification.  The Fund Manager must take action, at its own expense, to rectify that breach except in circumstances where it decides doing so would not be in the best interests of Unitholders, in which case the action must be taken as soon as such circumstances cease to apply.

6.6.             Investment in other Funds

A Fund may invest in Units of another collective investment vehicle if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy. Before investing in another Fund, the Fund Manager must take reasonable care to determine that it:

(a)     is the subject of an independent annual audit conducted in accordance with IFRS or US GAAP;

(b)     has mechanisms in place to enable Unitholders to redeem their Units within a reasonable time if it is an open-ended Fund;

(c)     is prohibited from having more than 25% of its gross asset value in the Units of other Funds; and

(d)     has a proper and disclosed basis for asset valuation and the pricing of Units in that Fund.

6.7.             Investment in Derivatives

A Fund may invest in Derivatives if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.  If not so permitted, a Fund may only use Derivatives for the purposes of efficient portfolio management.  If a Fund utilises Derivatives for any purposes, then the Fund Manager's systems and controls must include adequate risk management processes which enable it to monitor and measure as frequently as appropriate the risk of the Derivative positions and their contribution to the overall risk profile of the Fund.

6.8.             Securities lending and borrowing

A Fund may lend or borrow Securities if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.

6.9.             Borrowing

A Fund may borrow money for investment or other purposes if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy.  In the event that any limit on borrowing by the Fund is exceeded, the Fund Manager must immediately inform the Unitholders and, in the case of a Non-Exempt Fund, the AFSA of the magnitude of the breach, the cause of the breach, and the proposed method of rectification.  The Fund Manager must use its best endeavours to reduce, as soon as reasonably possible, the excess borrowings, whether by liquidating assets to repay borrowings or otherwise, to the extent practicable without having a material adverse effect on the Fund or investors as a whole. 

6.10.          Specific rules regarding investment in Real Property by Non-Exempt Funds and Real Estate Investment Trusts

(a)       A Non-Exempt Fund or Real Estate Investment Trust may invest in Real Property if expressly permitted to do so by, and in accordance with any limits contained in, the Fund's investment policy. 

(b)       Before a Non-Exempt Fund or Real Estate Investment Trust invests in any piece of Real Property or prior to disposing of a piece of Real Property, the relevant Fund Manager must appoint an independent professional Valuer with relevant expertise to ensure that the relevant Real Property is expertly valued.

(c)       The Fund Manager must ensure that the Valuer procures the proper valuation of all Real Property held by the Non-Exempt Fund or Real Estate Investment Trust, on the basis of a full valuation with physical inspection including, where the Real Property is or includes a building, an internal inspection at least once a year. 

(d)       If any event occurs which may on reasonable grounds have a material effect on the valuation of the relevant property the Fund Manager must consult with the Valuer with a view to arranging a fresh valuation before any Units in the Non-Exempt Fund or Real Estate Investment Trust are issued or redeemed after the date of the event. 

(e)       The Fund Manager must require that any valuation by the Valuer is on the basis of a 'open market value' of the relevant Real Property consistent with an authoritative text such as the current edition of the Royal Institute of Chartered Surveyors' Appraisal and Valuation Standards ("Red Book") or similar practitioners text used by surveyors.

6.11.          Rules relating to Real Estate Investment Trusts

(a)      A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Real Estate Investment Trust" or "REIT" or refer to a Fund or otherwise hold out a Fund as being a Real Estate Investment Trust or a REIT, unless it is a Fund which complies with Rule 2.4(b)(iv). 

(b)      If at any time during its operation of the Real Estate Investment Trust, the requirements in Rule 2.4(b)(iv) are not met, the Fund Manager must immediately notify the AFSA of the failure to meet the requirements in these Rules, and of what measures have been or will be taken to remedy the breach.  If the breach is not remedied within six months, the Fund will cease to meet the criteria of being a Real Estate Investment Trust.  The Fund Manager shall notify Unitholders promptly:

(i)         of it becoming aware that the Fund is reasonably likely to cease to qualify as a Real Estate Investment Trust (such notice to include the expected date of such cessation); and

(ii)        on the date of such cessation.

(c)      The Fund Manager of a Real Estate Investment Trust is responsible for appointing a Property Manager for the Real Estate Investment Trust and such Property Manager shall either be a:

(i)         a third party that is permitted under law or regulation (where applicable) to provide Real Estate Management and Servicing Activities; or

(ii)        a subsidiary of the Fund Manager, which has been established for the purpose of carrying on Real Estate Management and Servicing Activities.

(d)      The Fund Manager of a Real Estate Investment Trust must ensure that it distributes to the Unitholders each year an amount equal to not less than 80% of its audited annual net income. 

(e)      The Fund Manager of a Real Estate Investment Trust must determine if any:

(i)         revaluation surplus credited to income, or

(ii)        gains on disposal of Real Property,

shall form part of the annual net income for distribution to Unitholders.

(f)       A Real Estate Investment Trust may only use leverage or borrow:

(i)         in aggregate, up to a maximum of 60% of its NAV (as determined at the time of drawdown of funds); and

(ii)        for investment purposes or to meet its short-term working capital.

(g)      A Real Estate Investment Trust is permitted to own, and its Fund Manager is permitted to establish, special purpose vehicles for the purpose of holding Real Property, provided that a Real Estate Investment Trust must own directly or indirectly not less than 60% of the shares, and be entitled to exercise directly or indirectly at least 60% of the voting rights, of any such special purpose vehicle.

(h)      Where a Real Estate Investment Trust holds any Real Property via one or more special purpose vehicles, the Fund Manager must ensure that each special purpose vehicle distributes to the Fund all of the Fund's proportionate share of the special purpose vehicle's net income to the maximum extent permitted by the laws and regulations of the jurisdiction where the special purpose vehicle is established. 

(i)       A Fund Manager of a Real Estate Investment Trust that is an Exempt Fund shall be permitted to accept non-cash consideration for the purchase of Units in the Real Estate Investment Trust, subject to complying with Rule 6.11(l).  Non-cash consideration for the purchase of Units is not permitted in Real Estate Investment Trusts that are Non-Exempt Funds.

(j)       Real Estate Investment Trusts can only invest in property under development full completion of construction of which is guaranteed by a relevant state authority or institution or acceptable by the AFSA guarantee issued by a credible bank. The total contract value of the property under development must not exceed 10% of the NAV of the Fund property of the REIT.

(l)       A Fund Manager of a Real Estate Investment Trust must include in the Fund’s Offering Materials:

(i)        a detailed description of how the Fund intends to acquire and hold its investments in Real Properties (including the maximum number of special purpose vehicles through which Real Properties may be held);

(ii)       the maximum percentage of the Real Estate Investment Trust's assets (by reference to the Real Estate Investment Trust's NAV) that may be deployed for the purposes of property refurbishment, retrofitting and renovation, or a statement that no such activities are permitted; and

(iii)      (where applicable under Rule 6.11(i)), a statement that the Fund Manager may accept non-cash consideration for the purchase of units in the Real Estate Investment Trust and a description of the lock-up period (if any) applicable to Units acquired for non-cash consideration.

6.12.          Rules relating to Private Equity Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Private Equity Fund" or refer to a Fund or otherwise hold out a Fund as being a Private Equity Fund unless it is a Fund which complies with Rule 2.4(b)(ii). 

6.13.          Rules relating to Venture Capital Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Venture Capital Fund" or refer to a Fund or otherwise hold out a Fund as being a Venture Capital unless it is a Fund which complies with Rule 2.4(b)(iii). 

6.14.          Rules relating to Single Family Office Funds

A Fund Manager of a Single Family Office Fund must include in the Fund’s Constitution a statement containing the following:

(i)              the name of the common ancestor of the Single Family, the details of the identities of the family members to be served by the Single Family Office, either directly or by way of Family Entities or Family Fiduciary Structures, and proof of their common ancestry;

 

(ii)             a short explanation of the Source of Wealth of the family members served by the Single Family Office;

 

(iii)           the details of the due diligence that has been conducted to verify the Source of Funds that is funding the Single Family Office.

 

(iv)           the details of who controls the Single Family Office;

 

(v)            the details of the Ultimate Beneficial Owner of the Single Family Office;

 

(vi)           the details of Family Clients to be served by the Single Family Office;

 

(vii)          the details of any family members that are Politically Exposed Persons; and

 

(viii)         confirmation that the Single Family meets minimum investable assets under management requirement.

 

6.15.          Rules relating to Credit Funds

 

6.15.1 Systems and controls requirements for Fund Managers of Credit Funds

The Fund Manager of a Credit Fund must maintain systems and controls that include suitable, documented policies and procedures designed to ensure:

(i)              a Fund risk appetite statement is developed and incorporated into its investment process;

(ii)             that provision of Credit to a Borrower is only made based upon a sound assessment and pricing methodology;

(iii)           the ongoing monitoring of granted Credit, including policies for renewals and refinancing;

(iv)           that adequate risk management is undertaken, including in relation to credit risk and concentration risk;

(v)            the application of stress testing methodologies as set out in Section 6.15.2(e);

(vi)           the management of collateral;

(vii)          that bad debt and impairments are identified and managed; and

(viii)         the timely, appropriate and accurate valuation of Fund Property.

6.15.2  Eligible investments and diversification requirements

(a)      The Fund Manager of a Credit Fund must not allow for Credit to be provided to, or for the benefit of:

(i)              a natural person;

(ii)             a Related Party;

(iii)           a Collective Investment Scheme;

(iv)           a Person intending to utilise such financing for the purpose of speculative investment; or

(v)            a Bank or lender.

(b)      A Fund Manager must ensure that the investment strategy of a Credit Fund is designed to achieve a portfolio that meets the Fund’s specified diversification and concentration requirements within a stated period from the date of the Fund establishment.

(c)     The investment strategy of a Credit Fund must limit the maximum exposure to a single borrower (or group of connected borrowers) to 25% of the NAV of the Fund unless otherwise approved by the AFSA.

(d)      The Fund Manager must ensure that borrowing by a Credit Fund must not exceed 100% of the NAV of the Fund unless otherwise approved by the AFSA.

(e)          The Fund Manager of a Credit Fund must have a comprehensive stress testing and scenario analysis programme that:

(i)              identifies possible events or future changes in economic conditions that could have unfavourable effects on the Credit Fund’s credit exposures and assess the Credit Fund’s ability to withstand such changes;

(ii)             requires the outcomes of applying stresses to be compared against internal risk limits established by the Fund Manager in respect of the Credit Fund;

(iii)           considers the evolution of both specific transactions and aggregate exposures, reflecting all forms of counterparty credit risk at the level of specific counterparties, across an appropriate time horizon that represents meaningful stress testing;

(iv)           provides at least semi-annual exposure stress testing of principal market risk factors such as interest rates, FX and credit spreads for all counterparties of the Credit Fund in order to identify and enable the Fund Manager to reduce significant concentrations, relative to the internal risk limits, and specific risks when necessary;

(v)            requires scenario analysis exercises to be undertaken at least annually and incorporates material risks including yield curve exposure and basis risks; and

(vi)            must be undertaken by qualified personnel not involved in the investment management process of the Credit Fund.

(f)           The AFSA may direct the Fund Manager of a Credit Fund to conduct more frequent stress testing and scenario analysis.

(g)          The results of stress testing and scenario analysis performed in accordance with Rules 6.15.2 (e)(i) and 6.15.2(e)(ii) must be reported without undue delay to the Governing Body of the Fund Manager. 

 

Guidance

The periodic stress testing and scenario analysis required by Rule 6.15.2(e) should be viewed as a minimum standard. The Fund Manager of a Credit Fund should consider the fund’s complexity, liquidity and risk profile when considering the frequency of stress testing and scenario analysis or, should a material risk be identified, whether ad hoc stress testing and scenario analysis should be undertaken.

Scenario analysis may reflect historical or hypothetical scenarios and should, at a minimum, address scenarios where:

(a)            severe economic or market events have occurred;

(b)            broad market liquidity has decreased significantly;

(c)            a large financial intermediary is liquidating positions and

(d)            the Credit Fund is required to liquidate assets during a period of extreme market stress.

The AFSA considers that the "stated period" referred to in Rule 6.15.2 (b) is to be one year.

6.16.          Rules relating to ETFs

(a)          A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Exchange Traded Fund" (or “ETF”) or refer to a Fund or otherwise hold out a Fund as being an Exchange Traded Fund or ETF, unless it is a Fund which complies with Rule 2.4-1(j).

(b)          A Fund Manager of an ETF must take reasonable steps to ensure that any Authorised Participant it appoints has adequate systems and controls to ensure that the Units of the ETF are traded on-market at a price that does not significantly vary from the most recent NAV of the ETF, or the iNAV of the ETF, if available.

(c)          A Fund Manager of an ETF must ensure that the investment objective and strategy of the Fund is to track the performance of an index or benchmark specified in its Offering Materials.

(d)          A Fund Manager of an ETF may use an index or other benchmark for the purposes referred to in (c) only if it is provided by a Price Information Provider that meets the requirements in Schedule 5.

(e)           In (d), a Price Information Provider is a price reporting agency or an index or benchmark provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices of Investments, rates, indices, commodities or figures, which are made available to users, including a Fund Manager.

(f)           The Fund Manager of an ETF must treat an arrangement between the Fund  Manager and a Related Party to use an index or benchmark provided by the Related Party as a Related Party Transaction.

(g)          A Fund Manager of an ETF must take reasonable steps to ensure that the Fund’s Offering Materials and marketing materials describe the type of ETF in a way that is clear and not misleading to enable investors and potential investors to understand the type of ETF, and its characteristics.

6.17.          Rules relating to Money Market Funds

 

(a)          A Fund Manager of a Money Market Fund must ensure that the Fund’s investment strategy is consistent with the investment objectives of such a Fund as set out in Rule 2.4-1(k).

(b)          Without limiting (a), the Fund Manager of a Money Market Fund must ensure that:

(i)              at least 90% of the NAV of the Fund Property is invested in Deposits or Debentures that are of high quality, as determined by the Fund Manager in accordance with Rule 6.17(d);

(ii)             at least 10% of the NAV of the Fund Property consists of cash in accounts that permit the cash to be withdrawn immediately on demand;

(iii)           subject to (e), Deposits with, or Debentures issued by, a single entity do not exceed 10% of the NAV of the Fund Property;

(iv)           the Fund invests only in Deposits or Debentures:

(A)           with a residual maturity until the legal redemption date of not more than two years; and

(B)           where the time remaining until the next interest rate reset date is not more than 397 days;

(v)            the Fund Property has a weighted average maturity of not more than 6 months;

(vi)           the Fund Property has a weighted average life of not more than 12 months;

(vii)          the Fund does not invest in Financial Instruments other than Deposits or Debentures, except for:

(A)           Units in other Money Market Funds that have investment objectives and strategies consistent with those of the Fund; or

(B)           Derivatives that are used solely to hedge against foreign exchange rate risk; and

(viii)         the borrowings of the Fund do not, at any time, exceed 10% of the NAV of the Fund Property.

(c)          In (b):

(i)              the NAV of Fund Property, means the value of Fund Property at the most recent valuation under Rule 10.6;

(ii)             the “weighted average maturity” of Fund Property, means the average length of time to maturity of all the Financial Instruments held as Fund Property, weighted to reflect the relative holdings in each Financial Instrument, where the maturity of a floating rate  instrument is the time remaining until the next interest rate reset; and

(iii)           the “weighted average life” of Fund Property, means the weighted average of the remaining life of each Financial Instrument held as Fund Property, where the remaining life of a Financial Instrument is the time until the due date for repayment of the principal.

(d)          To determine whether a Deposit or Debenture is of high quality for the purposes of Rule 6.17(b)(i), a Fund Manager of a Money Market Fund must carry out  due diligence to an adequate standard on the Deposit or Debenture, taking into account the following factors:

(i)              the credit quality of the Issuer, and any guarantor, of the Investment;

(ii)             the nature and quality of the asset class represented by the Investment;

(iii)           the liquidity of the Investment; and

(iv)           any other risks associated with the Investment or the market in which it is traded.

(e)          For 6.17 (b)(iii):

(i)              the 10% single entity limit does not apply if the issuing entity is a government or government agency, or if the issue is government-guaranteed; and

(ii)             Deposits with, or Debentures issued by a bank may exceed 10% (up to a maximum of 20%) of the NAV of the Fund Property.

7.                 RULES REGARDING THE MANAGEMENT AND OPERATION OF FUNDS

7.1.             Application

This chapter applies to all Domestic Fund Managers in respect of all Funds managed by those Fund Managers, and if appointed, the Trustees of those Funds, except where otherwise provided in this chapter.

7.2.             Fund Manager and Trustee Ggeneral duties and functions

(a)      A Fund Manager must:

(i)        manage the Fund including the Fund's property in accordance with the Fund's Constitution and its most recent Offering Materials;

(ii)       perform the functions conferred on it by the Fund's Constitution and by or under these Rules;

(iii)      comply with any conditions or restrictions imposed by the AFSA including those on its Licence or in respect of the Fund; and

(iv)      comply with any requirements or limitations imposed under these Rules including any limits relating to financial interests it or any of its associates may hold in a Fund, for which it acts as the appointed Fund Manager.

(b)      In exercising its powers and carrying out its duties, a Fund Manager must:

(i)        act honestly; and

(ii)       exercise the degree of care and diligence that a reasonable person would exercise if he were in the Fund Manager's position; and

(iii)      act in the best interests of the Unitholders and, if there is a conflict between the Unitholders' interests and its own interests, give priority to the Unitholders' interests; and

(iv)      treat the Unitholders who hold interests of the same class equally and Unitholders who hold interests of different classes fairly; and

(v)       not improperly make use of information acquired through being the Fund Manager in order to:

(A)      gain an advantage for itself or another person; or

(B)      cause detriment to the Unitholders in the Fund; and

(vi)      ensure that the Fund's property is clearly identified as Fund property and held separately from the property of the Fund Manager and the property of any other Fund it manages; and

(vii)     in the case of a Non-Exempt Fund, report to the AFSA any breach of these Rules or relevant provisions of any other law administered by the AFSA, or of any Rules made under those laws, that:

(A)      relates to the Non-Exempt Fund; and

(B)      has had, or is likely to have, a materially adverse effect on the interests of Unitholders;

as soon as practicable after it becomes aware of the breach;

(vii)     in the case of a Non-Exempt Fund, report to the AFSA any breach of any other laws or requirements that apply to that Fund Manager in any other jurisdiction, that:

(A)      relates to the Non-Exempt Fund; and

(B)      has had, or is likely to have, a materially adverse effect on the interests of Unitholders;

as soon as practicable after it becomes aware of the breach;

(viii)    comply with any other duty or obligation as may be prescribed by or under these Rules or any other law administered by the AFSA; and

(ix)      carry out or comply with any other duty, not inconsistent with any enactment or rule of law in the AIFC, that is conferred on the Fund Manager by the Fund's Constitution.

(c)      Every officer, employee or agent of the Fund Manager must:

(i)        not make improper use of information acquired through being such an officer, employee or agent of the Fund Manager in order to:

(A)      gain an advantage for himself or another person; or

(B)      cause detriment to Unitholders in the Fund;

(ii)       not make improper use of his position as such an officer, employee or agent to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the Unitholders in the Fund;

(iii)      comply with any other duty or obligation as may be prescribed by or under these Rules or any other law administered by the AFSA; and

(iv)      carry out or comply with any other duty, not inconsistent with any enactment or rule of law in the AIFC that is conferred on him or her by the Fund's Constitution.

(d)      A Fund Manager must take reasonable steps to ensure that its officers, employees and agents comply with their obligations referred to above.

(e)      Subject to compliance with any duties conferred on the Trustee by the Trust Deed which are not inconsistent with these Rules, subrules (b)(i), (ii), (iii) and (v) and (c)(i) through (iii) shall apply equally to Trustees as to Fund Managers.

(f)       Where the Fund Manager is required to obtain the prior consent or approval of the Trustee before it is able to carry out any of its functions outlined herein, the Trustee shall provide such consent or approval to the Fund Manager without any unnecessary delay. If the Trustee decides to withhold such consent or approval, it shall also notify the Fund Manager of that decision and the reasons without any unnecessary delay.

7.2-1.      Director 

7.2-1.1.   Application

This chapter applies to:

(a)   a Single Family Office Fund;

 

(b)   a Corporate Treasury Centre Fund; and

(c)  the Director of an Investment Company acting as a Fund Manager of (a) or (b).

7.2-1.2.   Requirements relating to the Single Family Office Fund

(a) A Single Family Office Fund must: 

(i) be an Exempt Fund; and 

(ii) have minimum investable assets under management of USD 1 million, assessed by fair market or book value.

(b) For the purposes of these Rules, a Single Family Office Fund is treated as a Domestic Fund   that is managed by a Domestic Fund Manager.

(c) A Single Family Office Fund Manager is not required to have a Governing Body and appoint a Finance Officer and Compliance Officer.

7.2-1.3.  Requirements relating to the Corporate Treasury Centre Fund

(a) The Corporate Treasury Centre Fund must be: 

(i) an Exempt Fund; and 

(ii) a Group arrangement.

(b)  For the purposes of these Rules, a Corporate Treasury Centre Fund is treated as a Domestic Fund that is managed by a Domestic Fund Manager.

(c) The Corporate Treasury Centre Fund Manager is not required to have a Governing Body and appoint a Finance Officer and Compliance Officer.

7.2-1.4.  Requirements relating to a Director

(a) The Director of a Single Family Office Fund who is managing the Single Family Office Fund must not act as the Fund Manager of any other Fund or manage assets for another Person.

(b) The Director of a Corporate Treasury Centre Fund who is managing the Corporate Treasury Centre Fund must not act as the Fund Manager of any other Fund or manage assets for another Person.  [intentionally omitted]

7.3.             Duties of a Fund Manager in relation to Fund property

(a)      A Fund Manager must make decisions as to the constituents of the Fund's property that are in accordance with the Fund's Constitution and investment objectives and policy stated in the Fund's Offering Materials.

(b)      A Fund Manager must take all steps and execute, or procure the execution of, all documents to ensure that transactions relating to the Fund's property are properly entered into for the account of the relevant Fund or sub‐fund.

(ba)    A Fund Manager of an Investment Trust must ensure that instructions given to the Trustee in relation to the Fund Property are in accordance with the Trust Deed and the Offering Materials.

(c)      In case of any Fund other than an Investment Trust, Tthe Fund Manager is responsible to the Unitholders for ensuring the safekeeping of the Fund's property in accordance with these Rules.

(d)      Subject to Rule (e), and wWithout removing the generality of the obligation under (c), the Fund Manager must, in the case of a Fund structured other than as an Investment Trust,  delegate the Regulated Activity of Providing Custody in relation to the Fund's property to a service provider who is an Eligible Custodian in accordance with Rule 8.2.

(e)      [intentionally omitted]

7.3-1.     Duties of a Trustee in relation to Fund property

(a)     The Trustee of the Fund constituted as an Investment Trust must hold the Fund Property on trust for the Unitholders and accordingly is responsible to the Unitholders for the safekeeping of the Fund Property;

(b)     The Trustee shall ensure that property of the Investment Trust is:

(i)      clearly identified as the property of that Investment Trust; and

(ii)      held separately from any other property held by or entrusted to the Trustee.

(c)     The legal title of the Fund Property must be registered with the Trustee; and

(d)     The Trustee must not act on instructions of the Fund Manager in relation to the Fund Property if such instructions are not in accordance with the Trust Deed and the Prospectus.

7.3-2.     Trustee’s obligations relating to oversight functions

(a)     If the Trust Deed confers on the Trustee the oversight function of the Investment Truste, the Trustee must comply with CIS 10.5-1.

(b)     If the oversight function in relation to an Investment Trust is carried out by persons other than the Trustee, the Trustee shall provide to those persons any assistance that is reasonably required by them to carry out the oversight function.

7.3-3.     Removal and retirement of the Trustee

(a)     A Trustee may not retire, or be removed, except as provided in this rule.

(b)     A Fund Manager of a Fund may, at the request of the Trustee or otherwise, and if it is of the view that the Trustee is unable to discharge its functions a Fund Manager shall, with the prior written approval of the AFSA, replace the existing Trustee.

(c)     The AFSA may grant approval for the replacement of a Trustee only where it has received:

(i)      a written notice from the Fund Manager of its intention to remove the Trustee and either:

(A)     a certification that the removal of the Trustee will not adversely affect the interests of the Unitholders and the Fund Manager's ability to comply with its obligations under the Trust Deed, Offering Materials and these Rules; or

(B)     a Special Resolution of Unitholders approving the Fund Manager's proposal to remove the Trustee and its replacement with another Trustee; and

(ii)      the written consent of the person who agrees to be the replacement Trustee, and that person meets the requirements for a Trustee in rule 6.2-2(b) to be able to act as the replacement Trustee.

(d)     The Unitholders of the Investment Trust may replace the Trustee by Special Resolution.

(e)     The AFSA or the Fund Manager may apply to the Court for an order for the removal of the Trustee and any other appropriate orders including, but not limited to, the appointment of a replacement Trustee where the Trustee is, or is believed to be, in breach of its obligations under the Trust Deed, its Licence, these Rules or any other legislation administered by the AFSA.

(f)      Subject to the terms of the Trust Deed and these Rules, a Trustee appointed as a replacement Trustee shall have the same powers, discretions and duties as the previous Trustee.

(g)     Where a Trustee is removed or retires pursuant to the above, it shall, without any delay, transfer the assets of the Investment Trust held by it as directed by the Fund Manager or, as required by any Court order. Until the assets of the Investment Trust are so transferred, the Trustee remains accountable to the Unitholders for the safety of those assets.

7.4.             Use of prime brokers

(a)      A Fund Manager may only grant to a prime broker authority to combine the assets of a Fund with any other assets held by or available to the prime broker as collateral for any financing activities to be undertaken by the prime broker where, and so long as the Fund is an Exempt Fund and Fund's Offering Materials include:

(i)         the identity and profile of the prime broker, including where it is located and how it is regulated;

(ii)        the services provided by the prime broker to the Fund and the nature and extent to which the prime broker has the power and authority to commingle the assets of the Fund with any other assets held by or available to the prime broker as collateral for any financing activities undertaken by the prime broker; and

(iii)       a prominent warning to alert prospective Unitholders to the fact that the prime broker has the power and authority to use as collateral the assets of the Fund in conjunction with any other assets held by or available to the prime broker and where the prime broker uses the Fund's assets as collateral pursuant to the above power, the Unitholders may lose all the assets of the Fund in the event of the insolvency of the prime broker.

(b)      Any Person appointed as a prime broker to a Fund must qualify as an Eligible Custodian.

7.5.             Risk management

(a)       A Fund Manager must ensure that the risks inherent in the operation of a Fund are adequately managed, with due regard to the nature of the strategies and investment process employed by the Fund Manager and the role of Administrators and Eligible Custodians and where appointed, prime brokers.

(b)       The Fund Manager must, to the extent proportionate given the nature of the Fund and the nature and scale of the Fund Manager, ensure functional and hierarchical separation and independence between:

(i)        the risk management functions (Fund valuation and asset pricing); and

(ii)       the portfolio management functions (the investment management process).

(c)      Where the Fund Manager is unable to demonstrate adequate separation and independence in accordance with (b), the AFSA may require the Fund Manager to appoint an independent, suitably competent and experienced Administrator to perform the functions specified in (b)(i).

7.6.             Conflicts of interest

(a)      The Fund Manager must take reasonable steps to ensure that any dealing in relation to a Fund does not give rise to a conflict of interest.

(b)      Where a conflict of interest arises, whether in dealings with Related Parties or otherwise, the Fund Manager must disclose to Unitholders the nature of the conflict and how the conflict will be managed.

7.6-1.     Side letter arrangements

(a)      A Fund Manager must disclose in its Offering Materials:

(i)         a description of how the Fund Manager ensures a fair treatment of investors; and

(ii)        a statement as to the Fund Manager's ability (if any) to enter into side letter arrangements with investors.

(b)      A Fund Manager of a Non-Exempt Fund:

(i)         must, in addition to the disclosures set out in subrule (a) above, also disclose in the Offering Materials a description of any material benefits or concessions provided to any investors with whom they have entered into side-letter arrangements, as well as a description of the type of investors to whom such benefits are provided; and

(ii)        must not, in connection with any side-letter arrangements entered into, grant more favourable liquidity terms to any investor than are enjoyed by all other investors.

7.7.             Transactions between a Fund and its Fund Manager and the Fund Manager's Associates or other Funds managed by the Fund Manager

(a)      A Fund Manager must ensure that a Fund does not enter into a transaction with the Fund Manager, any Associate of a Fund Manager or any other Fund managed by the Fund or any of its Associates (each, a "Related Person Transaction") unless it is in accordance with the requirements in this Rule 7.7.

(b)      A Fund Manager must ensure that any Related Person Transaction is on terms at least as favourable to the Fund as any comparable arrangement on normal commercial terms negotiated at arm's length with an independent third party.

(c)      The Fund Manager must provide written notice to Unitholders before a Fund enters into any Related Person Transaction. 

(d)      The Fund Manager must obtain the approval of a majority of independent Unitholders of a Fund prior to the implementation of a Related Person Transaction or series of Related Person Transactions which involve the acquisition, disposal or commitment of asset of the Fund in excess of 5 per cent. of the net assets of the Fund.  For these purposes, the "independent Unitholders" of a Fund exclude the Fund Manager, any Associate of a Fund Manager and any other Fund managed by the Fund or any of its Associates.

(e)      The Fund Manager must include a brief summary of any Related Person Transaction in the relevant Fund's next published interim semi-annual or annual report, including the total value of the transaction, its nature and the identity of the persons with whom such transaction was made.  Where no such transactions take place during the financial year covered by an annual report, an appropriate negative statement to that effect must be made in the Fund's annual report.

7.8.             Best execution and fair allocation

A Fund Manager's systems and controls must include policies and procedures which are designed to ensure that:

(a)      when executing or procuring execution of trades for or on behalf of the Fund, the transactions are executed:

(i)        as soon as reasonably practicable after a decision to effect a transaction has been made; and

(ii)       on the best terms available at the time of dealing;

(b)      where the Fund Manager undertakes investment transactions for or on behalf of a Fund which it operates and one or more other Clients, there is timely and fair allocation of trades to the Fund and each other Client; and

(c)      trading of the Fund's investment portfolio is not excessive in light of its investment objective and policy.

7.9.                Maintenance of records

(a)      A Fund Manager must make and retain accounting and other records that are necessary to enable it to comply with these Rules in respect of each Fund for which it is the Fund Manager and to demonstrate at any time that such compliance has been achieved.

(b)      A Fund Manager must make the records referred to in (a) available for inspection by the AFSA and, if applicable, the Trustee or appointed Eligible Custodian, free of charge at all times during ordinary office hours and must supply a copy of the records or any part of them to the AFSA on request.

7.10.          Unitholder register

(a)      A Fund Manager or, where applicable, Trustee must ensure that in respect of each Fund of which it is the Fund Manager, a register of Unitholders is maintained which contains:

(i)        the name and address of each Unitholder; and

(ii)       the number of Units including fractions of a Unit of each class held by each Unitholder; and

(iii)      the date on which the Unitholder was registered in the register for the Units standing in his name.

(b)      The Fund Manager must take all reasonable steps and exercise all due diligence to ensure that the Unitholder register is kept complete and up to date.

(c)      The Fund Manager must make the Unitholder register in electronic or hard copy form available for inspection by Unitholders during normal business hours at the Fund Manager's place of business in the AIFC or otherwise in a designated location in the AIFC that has been notified to Unitholders.

(d)      Where a Fund is structured as an Investment Trust, the Trustee must make the Unitholder register in electronic or hard copy form available for inspection by Unitholders during normal business hours at the Trustee's place of business in the AIFC or otherwise in a designated location in the AIFC that has been notified to Unitholders. The Trustee must make the Unitholder register available to the Fund Manager during office hours and allow the Fund Manager to make copies of the register for its purposes.

7.10-1.   Amendment of Constitution and Offering Materials

(a)      A Fund Manager of a Non-Exempt Fund must not implement any amendment to the Constitution or Offering Materials of the Fund, which constitutes a material amendment, unless the AFSA has, by notice in writing, granted its approval.

(b)      An application for approval under (a) must include:

(i)       details of the proposed amendment;

(ii)      where the proposed amendment requires Unitholder approval under these Rules, evidence at such approval has been duly obtained in accordance with the Fund’s Constitution;

(iii)     certificate signed by the Fund Manager and if appointed, the Trustee, of the Fund to the effect that the proposed change will not affect compliance with these Rules; and

(iv)     any other information required by the AFSA.

(c)      For the purpose of (a), a material amendment is the amendment which constitutes a fundamental or significant change under Schedule 1-2.

7.10-2.   Unitholder approvals and notifications

A Fund Manager of a Non-Exempt Fund must comply with the provisions in Schedule 1-2 in regard to:

(a)                 fundamental changes requiring prior approval of the Unitholders;

(b)     significant changes requiring pre-event notification to the Unitholders; and

(c)      notifiable changes, that is, a change other than one in (b) or (c) which requires post notification to the Unitholders. 

7.11.          Ability to delegate or outsource

(a)      A Fund Manager or, where appointed, a Trustee may, subject to any restriction in the relevant Fund's Constitution or any applicable agreement between the Fund Manager and the Fund and any provisions of these Rules, delegate or outsource any of its Regulated Activities or delegate or outsource any of its other functions to another Person, which may be located in or outside the AIFC.

(b)      Delegation or outsourcing by a Fund Manager or a Trustee does not relieve the Fund Manager or the Trustee from any of its obligations in respect of a Fund. 

(c)      A Fund Manager may only delegate or outsource a Regulated Activity on prior written notification to the AFSA at least 30 days before the outsourcing or delegation is scheduled to take effect (the "specified date").  The outsourcing or delegation may only proceed if the Fund Manager does not receive an objection by the AFSA to the delegation or outsourcing prior to the specified date. 

(d)      When delegating or outsourcing, a Fund Manager or a Trustee must carry out due diligence on a proposed service provider prior to effecting a delegation or outsourcing and conclude on reasonable grounds that proposed service provider is suitable to perform the relevant functions.

7.12.          Requirements for delegation or outsourcing

(a)      Any delegation or outsourcing by a Fund Manager or a Trustee must be made on the basis of a written agreement with the relevant service provider.

(b)      If a Fund Manager or a Trustee delegates any activity or outsources any function to a service provider, it must take reasonable steps to ensure that it implements and maintains systems and controls to monitor the relevant service provider.

(c)      A Fund Manager or a Trustee which has delegated or outsourced any functions, must review at least every six months the carrying out of the relevant activities or functions by the relevant service provider.

(d)      If a Fund Manager or a Trustee discovers any non‐compliance in respect of a delegation or outsourcing agreement, the Fund Manager or the Trustee  must take immediate action to remedy the matter and, where the non-compliance is material, notify the AFSA promptly, and, as applicable, the Trustee.

7.13.          Contents of delegation or outsourcing agreement

(a)      A Fund Manager must ensure that any delegation or outsourcing agreement:

(i)        sets out the functions or activities and service standards that will be applied to the carrying out of such functions or activities;

(ii)       provides that the service provider cannot in turn delegate any activities delegated to it, or outsource any functions outsourced to it;

(iii)      requires the service provider to maintain records to show and explain transactions in relation to each activity or function performed in relation to the Fund and to enable the Fund to prepare accounts in compliance with these Rules and any other applicable law; and

(iv)      requires the service provider to:

(A)         retain the records for at least six years from the date to which they relate; and

(B)         keep the records, at all reasonable times, open to inspection by the Fund Manager, the Fund's auditor and the AFSA; and

(C)        ensure that the records are, if requested by the AFSA, capable of reproduction within a reasonable period not exceeding 3 days in hard copy and in English.  

(b)      A Fund Manager must ensure that a delegation or outsourcing agreement contains an undertaking by the relevant service provider to comply with any Rules applicable to the activity and to disclose to the AFSA and to the Fund Manager any material information that it would disclose to its Financial Services Regulator, if relevant, in relation to the conduct of the delegated or outsourced activity.

(c)      A Fund Manager must maintain records of all agreements, and any instructions given to a service provider under the terms of a delegation or outsourcing agreement, for at least six years.

7.14.          Permissible fees, charges, levies and expenses

(a)      A Fund Manager must not make any charge or levy in connection with the issue or sale of Units of a Fund except in accordance with the Fund's Constitution and Offering Materials. 

(b)      A preliminary or redemption charge must not be made by the Fund Manager unless it is permitted by the Fund's Constitution and it is expressed either as a fixed amount or calculated as a percentage of the price of a Unit.

(c)      Any preliminary charge must not exceed the amount or rate stated in the current Offering Materials in respect of any class of Units.

(d)      No payment may be made, or benefit given, to the Fund Manager out of the Fund's property, whether by way of remuneration for its services, reimbursement of expenses or otherwise, unless it is permitted by the Fund's Constitution and the Fund's Offering Materials specify how it will be calculated, accrued, when it will be paid and the maximum and current rates or amount of such remuneration.

(e)      A Fund Manager must give not less than 90 days' written notice to Unitholders of a Fund of any proposed increase in its remuneration, reimbursement of expenses or otherwise in respect of that Fund.

(f)       A Fund Manager must not introduce a new category of remuneration for its services or make any increase in the current rate or amount of its remuneration in respect of a Fund unless it has given not less than 90 days' written notice of that introduction or increase and of the date of its commencement to the Unitholders of that Fund and the Unitholders approve such new category or increase by such majority as is provided for in the Fund's Constitution Special Resolution.

7.15.          Reimbursement of remuneration and expenses

(a)      A Fund Manager must take reasonable steps to ensure that any payment to any trustee, custodian or administrator of a Fund, whether by way of remuneration, reimbursement of expenses or otherwise, is consistent with the disclosure in the Fund's Offering Materials regarding how that payment will be calculated, accrued, when it will be paid and the maximum and current rates or amount of such remuneration.

7.16.          Promotional payments, performance fees and set up costs

(a)      No promotional payment, performance fee or benefit may be made out of or given at the expense of a Fund to its Fund Manager unless it is permitted by the Fund's Constitution and specified in the Fund's Offering Materials.

(b)      Costs of the registration, exemption and incorporation of a Fund and of its initial offer or issue of Units, including Units in respect of a sub‐fund, may be amortised over a period not exceeding five years.

7.17.          Allocation of payments to capital or income

(a)      A Fund Manager and a Trustee may determine that all or any part of any permitted payments, charges and expenses of the Fund may be treated as a capital expense or income expense and allocated to the capital account or income account of the Fund respectively.

(b)      The Fund Manager must ensure that any determination in (a) is permitted by the relevant Fund's Constitution and specified in its Offering Materials in sufficient detail for a Unitholder or a prospective Unitholder to make an informed decision in relation to the allocation of such charges and expenses to be paid from the capital property or the income property as the case may be.

8.                 ADDITIONAL SERVICE PROVIDERS

8.1.             Application

This chapter applies to:

(a)       all Domestic Fund Managers in respect of all Non-Exempt Funds and Real Estate Investment Trusts managed by those Fund Managers; and

(b)       all Foreign Fund Managers that manage an Exempt Fund,

except that rules 8.5 to 8.7 do not apply to a Fund Manager or Trustee to the extent that it carries on the Regulated Activity of Providing Fund Administration within the Regulated Activities of Managing a Collective Investment Scheme or of Acting as a Trustee of a Fund.

8.2.              Requirement for Eligible Custodian and Fund Administrator

(a)       A Fund to which this chapter applies must have an Eligible Custodian and a Fund Administrator, in both cases acceptable to the AFSA.  This is subject to the exception to appoint an Eligible Custodian contained in Rule 8.2(b) and Rule 8.2(e). 

(b)       A Fund Manager is not required to appoint an Eligible Custodian where, due to the nature of the Fund and the type of assets which it holds, it is neither practical nor proportionate to appoint an Eligible Custodian, in which case the Fund Manager may choose not to appoint an Eligible Custodian, provided that title to such assets is either registered in the name of the Fund or is registered in the name of a nominee company (provided that in this latter case (i) such nominee company declares that it holds title to such assets on trust for the Fund; and (ii) the Fund Manager, vis‐à‐vis the Fund, takes full responsibility for the acts and omission of such nominee company).

(c)       A Fund Manager of a Fund to which this chapter applies must use appropriate care, skill and diligence when appointing an Eligible Custodian or Administrator.  In conducting its due diligence, at a minimum, the Fund Manager must consider the Eligible Custodian's or Administrator's legal and regulatory status, financial resources and organisational capabilities.

(d)       A Fund Manager must monitor the Eligible Custodian and Administrator on an on-going basis for compliance with the terms of the custody agreement and administration agreement for the relevant Fund. 

(e)       The AFSA may waive the requirement to appoint an Eligible Custodian or Administrator on a case-by-case basis on application by the Fund Manager of the relevant Fund. 

8.3.             Eligible Custodian

For the purposes of these Rules, an Eligible Custodian is a Person who is a separate legal entity from the Fund Manager for the relevant Fund and who also meets one of the following criteria:

(a)       an Authorised Person whose Licence authorises it to Provide Custody Services; or

(b)       an Authorised Person that is a Bank; or

(c)       a legal entity that is authorised and supervised by a Financial Services Regulator in a Recognised Jurisdiction for providing custody services in respect of a Fund; or

(d)       any other legal entity otherwise acceptable to the AFSA.

8.4.             Contents of a custody agreement

8.4.1.      A custody agreement with an Eligible Custodian in respect of a Fund must:

(a)      require that the title of any account of the Eligible Custodian to hold Fund property sufficiently distinguishes that account from any account containing Investments belonging to the Eligible Custodian, and is in the form requested by the Fund Manager or Trustee; and

(b)      require that the Fund's property will only be credited and withdrawn in accordance with the instructions of the Fund Manager or Trustee; and

(c)      require, subject to subrule 8.4.2, that the Eligible Custodian will hold the Fund's property separately from assets belonging to the Eligible Custodian; and

(d)      set out the arrangements for recording and registering the Fund's property, claiming and receiving dividends and other entitlements and interest and the giving and receiving of instructions; and

(e)      not permit the delegation of the activities and functions of the Eligible Custodian without the prior written consent of the Fund Manager; and

(f)       require the Eligible Custodian to deliver a statement to the Fund Manager (including the frequency of such statement), which details the Fund's Investments deposited to the account;

(g)      require, subject to subrule 8.4.2, that all the Investments standing to the credit of the account are held by the Eligible Custodian as the agent of the Fund Manager or the Trustee the Fund and the Eligible Custodian is not entitled to combine the account with any other account or to exercise any charge, mortgage, lien, right of set‐off or counterclaim against Investments in that account in respect of any sum owed to the Eligible Custodian on any other account of the Fund Manager, the Trustee the Fund  or any other Person; and

(h)      detail the extent of liability of the Eligible Custodian in the event of default.

8.4.2.      Neither the Fund Manager nor the Trustee is required to meet the requirements in subrule 2.4.1 (c) and (g), where either the Eligible Custodian or any other Person acting as the prime broker of the Fund does so in compliance with the requirements in rule 7.4.

Guidance

(1) A prime broker is a Person who provides to a Fund a range of services including custody and depository services, trading and execution services, clearing and settlement services and financing to support the Fund’s investment activities. Such financing activities generally include stock lending and borrowing. The restrictions in subrules 8.4.1 (c) and (g) prevent a Fund Manager of a Fund from authorising a prime broker to commingle the assets of the Fund with any other assets held by or available to the prime broker and use those assets as collateral to support the prime broker’s cross lending and borrowing activities involving Funds to which it acts as the prime broker. However, the restrictions in subrules 8.4.1 (c) and (g) do not apply if a Fund Manager of a Fund can comply with the requirements relating to the use of prime brokers set out in rule 7.4.

8.5.             Functions of an Administrator

(a)       The AML module applies to an Administrator of a Fund in respect of its activities regarding that Fund as if each reference in AML to a "customer" is a reference to a "Unitholder" or "prospective Unitholder" as appropriate to the context.

(b)      An Administrator of a Fund must not hold or control monies or assets belonging to third parties in connection with such administration except in the following circumstances:

(i)        holding cheques to the order of a Fund's bank account, provided such cheques are securely held for a maximum of three business days prior to being deposited into the relevant Fund's bank account or returned to the drawer of the cheque; or

(ii)       where a mandate over a Fund's or other third party's bank account is granted to the Administrator and the mandate has been agreed in writing with the bank concerned, and transfers out of the relevant bank account may be made only in circumstances where the mandate restricts instructions to make such payments to being made solely in accordance with the payment of invoiced fees and expenses, made in accordance with the relevant Fund's Constitution or Offering Materials and are not remitted to the account of the Administrator except by express instructions of the Fund Manager.

(c)       An Administrator of a Fund must maintain records which are sufficient to show and explain transactions in relation to each of the specific activities and functions which are being provided to each Fund, in respect of Unitholders or potential Unitholders of the Fund as appropriate.  The records must be retained by the Administrator for at least 6 years from the date to which they relate and at all reasonable times, open to inspection by the Fund Manager, the Fund's auditor and the AFSA and, if requested by the AFSA, be capable of reproduction within a reasonable period not exceeding 3 days, in hard copy and in English.

8.6.             Contents of an administration agreement

An administration agreement with an Administrator in respect of a Fund must:

(a)       set out the functions and service standards that will be applied to the provision of the administration of the Fund; and

(b)       must not permit the delegation of the activities and functions of the Administrator without the prior written consent of the Fund Manager; and

(c)       require the Fund Administrator to retain any relevant work or records relating to its activities and functions where the contract is terminated either by the Fund Manager or the Administrator.

8.7.             Requirements for notification

The AFSA must be notified when a Person ceases to be an Administrator or Eligible Custodian, and any Offering Materials must be updated accordingly.

9.                 RULES REGARDING DEALINGS IN OPEN-ENDED FUNDS AND LIQUIDITY

9.1.             Application

This chapter applies to:

(a)     all Funds managed by Domestic Fund Managers; and

(b)     all Exempt Funds managed by Foreign Fund Managers.

9.2.             Pricing of Units of open-ended Funds

(a)      A Fund Manager of an open-ended Fund must take all reasonable steps and exercise due diligence to ensure that the Units in the Fund are correctly priced in accordance with the applicable accounting procedures and the valuation policies of the Fund to ascertain an accurate single price for a Unit.

(b)      The price of a Unit must be calculated in a manner that is fair and reasonable as between Unitholders.

(c)      A Fund Manager must take immediate action to rectify any incorrect pricing of Units.  Unless the incorrect pricing is of minimal significance, the Fund Manager must promptly inform the AFSA, and if appointed, the Eligible Custodian of the Fund, of such a rectification.

9.3.             Suspension of dealings in Units

(a)      A Fund Manager may, in the case of an open‐ended Fund, temporarily suspend the issue, cancellation, sale and redemption of Units ("dealings in Units") in the Fund in accordance with the Constitution of the Fund where due to exceptional circumstances it is in the interest of the Unitholders in the Fund to do so. 

(b)      The Fund Manager may continue the suspension of dealings in Units only for so long as it reasonably believes that the suspension is in the interests of the Unitholders of the Fund.

(c)      Upon any suspension of dealings in Units, the Fund Manager must notify the Unitholders of the Fund and the AFSA as soon as practicable in writing of the suspension and its reasons for doing so.

10.              AUDIT, FINANCIAL AND VALUATION REQUIREMENTS

10.1.          Application

This chapter applies to:

(a)     all Funds managed by Domestic Fund Managers; and

(b)     all Exempt Funds managed by Foreign Fund Managers,

except that:

(i)         Rule 10.4 applies to Non-Exempt Funds and Real Estate Investment Trusts only; and

(ii)        Rule 10.5 applies to Non-Exempt Funds only.

10.2.          Financial Statements

A Fund Manager must ensure that each Fund that it manages prepares financial statements for each financial year of the Fund in accordance with International Financial Reporting Standards (IFRS) or US GAAP.

10.3.          Accounting Records

(a)      A Fund Manager must ensure that each Fund that it manages keeps accounting records that are:

(i)        sufficient to show and explain transactions undertaken by the Fund; and

(ii)       capable of determining the financial position of the Fund on an on-going basis; and

(iii)      record the financial position of the Fund as at its financial year end.

(b)     The Accounting Records must be:

(i)        retained by the Fund Manager or Fund for at least six years from the date to which they relate;

(ii)       at all reasonable times, open to inspection by the AFSA and the auditor of the Fund; and

(iii)      capable of reproduction, within a reasonable period not exceeding 3 business days, in hard copy and available in English.

10.4.          Auditor of a Non-Exempt Fund and a Real Estate Investment Trust Fund

(a)      Every Non-Exempt Fund and Real Estate Investment Trust Domestic Fund must appoint an external auditor to conduct an audit of the Fund's annual financial statements in accordance with the requirements of the relevant standards published by the International Auditing and Assurance Standards Board (IAASB) and to produce an auditor's report on those audited financial statements. 

(b)      A Fund Manager must prior to the appointment of the auditor, take reasonable steps to ensure that the auditor has the required skills, resources and experience to audit the type of Non-Exempt Fund and/or Real Estate Investment Trust the Fund for which the auditor has been appointed.

(c)      A Fund Manager must notify the AFSA of the appointment, resignation or termination of an auditor of a Non-Exempt Fund or a Real Estate Investment Trust Fund.

(d)      A Non-Exempt Fund and a Real Estate Investment Trust Fund must appoint an auditor to fill any vacancy in the office of auditor and ensure that the replacement auditor can take up office at the time the vacancy arises or as soon as reasonably practicable.

(e)      A Non-Exempt Fund and a Real Estate Investment Trust Fund must take reasonable steps to ensure that the auditor and the relevant audit staff of the auditor are independent of, and not subject to, any conflict of interest with respect to the Fund Manager, the Trustee or any other service provider to the Fund.

(f)       A Fund Manager or Trustee must notify the AFSA if it or any Non-Exempt Fund or Real Estate Investment Trust Fund that it manages becomes aware, or has reason to believe, that the auditor or the relevant audit staff of the auditor of the relevant Non-Exempt Fund or Real Estate Investment Trust Fund are no longer independent of the Fund Manager, the Trustee or any other service provider to the Non-Exempt Fund or Real Estate Investment Trust Fund, or have a conflict of interest which may affect their judgement in respect of the Non-Exempt Fund or Real Estate Investment Trust Fund .

(g)      A Fund Manager must take reasonable steps to ensure that it and its employees:

(i)        provide any information to the Non-Exempt Fund's or Real Estate Investment Trust's Fund’s auditor that the auditor reasonably requires, or is entitled to receive as auditor;

(ii)       give the auditor right of access at all reasonable times to relevant records and information within its possession regarding the Fund and allow the auditor to make copies of those records and information;

(iii)      do not interfere with the auditor's ability to discharge its duties in respect of the Non-Exempt Fund or Real Estate Investment Trust Fund ;

(iv)      report to the auditor any matter which may significantly affect the financial position of the Non-Exempt Fund or Real Estate Investment Trust Fund ; and

(v)       provide such other assistance as the auditor may reasonably request it to provide.

(ga)   A Trustee must take reasonable steps to ensure that it and its employees act in compliance with subrule (g)(i)

(h)      A Fund Manager must, in writing, require any Person to whom the Fund Manager has delegated or outsourced any functions to co‐operate with the Non-Exempt Fund's or Real Estate Investment Trust's Fund’s auditor in accordance with the provisions specified in (g).

10.5.          Periodic Reports of Non-Exempt Funds and Umbrella Funds

(a)      Each Non-Exempt Domestic Fund must produce an annual report and interim semi-annual report in respect of each of its accounting periods. 

(b)      An annual report must be produced within four months after the end of each annual accounting period for the Non-Exempt Fund.

(c)      An interim A semi-annual report within one month after the end of each interim accounting period for the Non-Exempt Fund.

(c-1)   For a Fund which is an Umbrella Fund, the Fund Manager must prepare an interim a semi-annual report for each Sub-Fund, but this is not necessary for the Umbrella Fund as a whole.

(d)      Each annual and interim semi-annual report of a Non-Exempt Fund must:

(i)        be available free of charge to the Non-Exempt Fund's Unitholders;

(ii)       be available in English; and

(iii)      be sent to the AFSA.

(e)      The annual and interim semi-annual  report for a Non-Exempt Fund or the Sub-Funds of an Umbrella Fund must be clear, complete and true and contain information for the relevant period and must include:

(i)        the name of the Non-Exempt Fund or Sub-Fund, its investment objective and investment policy;

(ii)       a brief assessment of the Non-Exempt Fund's or Sub-Fund’s risk profile;

(iii)      a review of the Non-Exempt Fund's or Sub-Fund’s investment activities and investment performance during the period;

(iv)      sufficient information to enable Unitholders to form a view on where the Non-Exempt Fund's or Sub-Fund’s property is invested at the end of the period and the extent to which that has changed over the period; and

(v)       any other significant information which would reasonably enable Unitholders to make an informed judgment on the activities of the Non-Exempt Fund or Sub-Fund during the period and the results of those activities at the end of the reporting period.

(f)       An annual report of a Non-Exempt Fund, other than a Fund which is an Umbrella Fund, must contain:

(i)        the full audited financial statements of the Fund for the annual accounting period; and

(ii)       the auditor's report on the financial statements; and

(iii)      a report of the Fund Manager containing the following information:

(A)      a review of the Non-Exempt Fund's investment activities during the period to which the report relates; and

(B)      particulars of any significant change to the Non-Exempt Fund since the date of the last report; and

(C)      any other information which would enable Unitholders to make an informed judgment on the development of the activities of the Non-Exempt Fund during the relevant period and the results of those activities as at the end of that period; and

(D)      for a Non-Exempt Fund which invests a substantial proportion of its assets in other Funds, a statement as to the maximum proportion of management fees charged to the Non-Exempt Fund itself and to other Funds in which that Fund invests.

(g)     An annual report of a Fund which is an Umbrella Fund must contain:

(i)         for each Sub-Fund:

(A)     the full audited financial statements for the annual accounting period;

(B)     the report of the Fund Manager in accordance with requirements set out in CIS 10.5-1.; and

(C)     if the Fund is a Public Non-Exempt Fund, the comparative table in accordance with CIS 10.5-2.;

(ii)      an aggregation of the financial statements required by (j)(i)(A) for each Sub-Fund (g)(i)(A);

(iii)     the report produced by the auditor in accordance with CIS 10.4.; and

(iv)     if the Fund is a Public Non-Exempt Fund, the Oversight Report in accordance with CIS 10.5-3.

(h)        Where a Fund is a Hedge Fund, the annual report must also include a report of its Eligible Custodian.

10.5-1.      Fund Manager’s report

The matters set out in (a) to (l) must be included in any Fund Manager’s report, except for the Corporate Treasury Centre Fund Manager’s report:

(a)        a restatement of the investment objectives of the Fund;

(b)        a restatement of the policy for achieving those objectives;

(c)        a review of the investment activities, including in relation to (a) and (b), during the period to which the report relates;

(d)        particulars of any fundamental change requiring prior approval by Unitholder meeting made since the date of the last report;

(e)        particulars of any significant change requiring pre-event notification since the date of the last report;

(f)         any other information which would enable Unitholders to make an informed judgement on the development of the activities of the Fund during this period and the results of those activities as at the end of that period;

(g)        for a report on an Umbrella Fund, the information required in (a) to (h) must be given for each Sub-Fund if it would vary from that given in respect of the Umbrella Fund as a whole; and

(h)        for a Fund which invests a substantial proportion of its assets in other Funds, a statement as to the maximum proportion of management fees charged to the Fund itself and to other Funds in which that Fund invests.

(i)             for a report on an ESG Fund the information containing:

(i)          on how the Fund’s investment focus has been met during the financial period, including a comparison with the previous period (if any); and

(ii)         the actual proportion of investments that meet the Fund’s investment focus (if applicable); and

(iii)        any action taken by the Fund in attaining the Fund’s ESG focus.

(j)         for a report on a Single Family Office Fund, statements:

                                               (i)         confirming that the Single Family Office Fund continues to comprise members of the Single Family;

                                              (ii)         confirming that the number of members of the Single Family has not changed (or, if it has, setting out details of the change); and

                                             (iii)         confirming that the Single Family Office continues to maintain investable assets of USD 1 million.

(k)         for a report on a Credit Fund, the following additional information:

                                               (i)         a breakdown of the originated loans between senior secured debt, junior debt and mezzanine debt;

                                              (ii)         a summary of all committed but undrawn Credit Facilities;

                                             (iii)         a breakdown of the originated loans between loans made with an amortising repayment schedule and loans made with bullet repayments;

                                             (iv)         a breakdown of the loan to value ratio for each originated loan;

                                              (v)         information in respect of non-performing exposures and exposures subject to forbearance activities;

                                             (vi)         a summary of the results of the most recent stress testing undertaken in accordance with Rules 6.15.2 (e)(i) or (ii); and

                                           (vii)         a description of any material changes to the credit assessment or monitoring process of the Credit Fund.

(l)          for a report on an ETF, the following additional information:

                                               (i)         a disclosure of the size of the tracking error at the end of the period under review; and

                                              (ii)         a statement in its annual report explaining:

(A)         any divergence between the anticipated and realised tracking error for the relevant period; and

(B)         the annual tracking difference between the performance of the ETF, and the performance of the index or other benchmark referenced.

10.5-1.1.   Corporate Treasury Fund Manager’s report

For a report on a Corporate Treasury Centre Fund, the Fund Manager must report on the progress of the fund’s treasury activities and include in the report:

                                               (i)         a copy of the fund’s annual return;

                                              (ii)          copies of the fund’s audited financial statements; and

                                            (iii)          any additional information or document required by the AFSA.

10.5-2.     The comparative table for the annual report for an Umbrella Fund

The comparative table for the annual report for an Umbrella Fund must set out:

(a)        the performance record over the last five calendar years, or if the Fund has not been in existence during the whole of that period, over the whole period in which it has been in existence, showing:

(i)      the highest and the lowest price of a Unit of each class in issue during each of those years; and

(ii)      the net income distributed or, for accumulation Units, allocated for a Unit of each class in issue during each of those years, taking account of any sub-division or consolidation of Units that occurred during that period;

(b)        as at the end of each of the last three annual accounting periods or all of the Fund's annual accounting periods, if less than three:

(i)      the total NAV of the Fund Property at the end of each of those years;

(ii)      the NAV per Unit of each class; and

(iii)     for a report of the directors of an Investment Company, the number of Units of each class in issue; or

(iv)     for a report of the Fund Manager of any other Fund, the number of Units of each class in existence or treated as in existence; and

(c)        if, in the period covered by the table:

(i)      the Fund Manager has been the subject of any event such as a transfer scheme having a material effect on the size of the Fund, but excluding any issue or cancellation of Units for cash; or

(ii)      there have been changes in the investment objectives of the Fund;

an indication, related in the body of the table to the relevant year in the table, of the date of the event or change in the investment objectives and a brief description of its nature.

10.5-3.      Oversight report

(a)        The Person providing the oversight function of a Public Non-Exempt Fund must make a report to Unitholders of the Fund which must be included in the Fund’s annual report referred to in CIS 10.5-1.

(b)        The oversight report must contain:

(i)      a description, which may be in summary form, of the duties of the Person carrying out the oversight functions and in respect of the safekeeping of the Fund Property; and

(ii)      a statement whether, in any material respect:

(A)     the issue, sale, redemption and cancellation, and calculation of the price of the Units and the application of the Fund's income, have not been carried out in accordance with the Rules and, the Constitution; and

(B)     the investment and borrowing powers and restrictions applicable to the Fund.

10.6.          Valuation of Fund property

(a)      A Fund must have comprehensive and well documented valuation policies and procedures in place to ensure the production of timely and accurate valuation of the Fund and Units of the Fund.

(b)      A Fund Manager must ensure that the investment portfolio of each Fund managed by that Fund Manager is valued at regular intervals as appropriate to the nature of the Fund, market practice and investor expectations, and in accordance with the valuation procedures set out in the Fund's Constitution or Offering Materials, except where such valuation is suspended in any circumstances that are set out in the Fund's Constitution or Offering Materials.

(c)      A Fund Manager must ensure that as soon as practicable after each valuation point for each Fund it manages, the Fund notifies Unitholders of the value per Unit of the Fund. 

(d)      Where required by these Rules, a Fund Manager must appoint an independent third party valuer which is expert in valuing the type of investments held by the Fund to value the Fund's investments. 

(e)      A Fund Manager of a Fund that has Fund Property that consists of Digital Assets must ensure that it does not use an index or benchmark provided by a Price Information Provider to value the Digital Assets unless the Price Information Provider meets the requirements in Schedule 5.

(f)       A Fund Manager of a Money Market Fund must conduct a valuation of the Fund Property on a mark to market basis at least once every week and at the same valuation point used to value the Fund Property on an amortised cost basis.

(g)      A Fund Manager of a Money Market Fund must ensure that the value of the Fund Property when valued on a mark to market basis does not differ by more than 0.5% from the value of the Fund Property when valued on an amortised cost basis.

(h)      A Fund manager must establish procedures designed to stabilise a Money Market Fund if the mark to market value of the Fund differs from its amortised cost basis value by less than 0.5%.

11.         ADDITIONAL REQUIREMENTS TO SPECIALIST FUNDS

11.1.      Rules relating to Real Estate Investment Trusts

(a)      A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Real Estate Investment Trust" or "REIT" or refer to a Fund or otherwise hold out a Fund as being a Real Estate Investment Trust or a REIT, unless it is a Fund which complies with Rule 2.4(b)(iv). 

(b)      If at any time during its operation of the Real Estate Investment Trust, the requirements in Rule 2.4(b)(iv) are not met, the Fund Manager must immediately notify the AFSA of the failure to meet the requirements in these Rules, and of what measures have been or will be taken to remedy the breach.  If the breach is not remedied within six months, the Fund will cease to meet the criteria of being a Real Estate Investment Trust.  The Fund Manager shall notify Unitholders promptly:

(i)         of it becoming aware that the Fund is reasonably likely to cease to qualify as a Real Estate Investment Trust (such notice to include the expected date of such cessation); and

(ii)        on the date of such cessation.

(c)      The Fund Manager of a Real Estate Investment Trust is responsible for appointing a Property Manager for the Real Estate Investment Trust and such Property Manager shall either be a:

(i)         a third party that is permitted under law or regulation (where applicable) to provide Real Estate Management and Servicing Activities; or

(ii)        a subsidiary of the Fund Manager, which has been established for the purpose of carrying on Real Estate Management and Servicing Activities.

(d)      The Fund Manager of a Real Estate Investment Trust must ensure that it distributes to the Unitholders each year an amount equal to not less than 80% of its audited annual net income. 

(e)      The Fund Manager of a Real Estate Investment Trust must determine if any:

(i)         revaluation surplus credited to income, or

(ii)        gains on disposal of Real Property,

shall form part of the annual net income for distribution to Unitholders.

(f)       A Real Estate Investment Trust may only use leverage or borrow:

(i)         in aggregate, up to a maximum of 60% of its NAV (as determined at the time of drawdown of funds); and

(ii)        for investment purposes or to meet its short-term working capital.

(g)      A Real Estate Investment Trust is permitted to own, and its Fund Manager is permitted to establish, special purpose vehicles for the purpose of holding Real Property, provided that a Real Estate Investment Trust must own directly or indirectly not less than 60% of the shares, and be entitled to exercise directly or indirectly at least 60% of the voting rights, of any such special purpose vehicle.

(h)      Where a Real Estate Investment Trust holds any Real Property via one or more special purpose vehicles, the Fund Manager must ensure that each special purpose vehicle distributes to the Fund all of the Fund's proportionate share of the special purpose vehicle's net income to the maximum extent permitted by the laws and regulations of the jurisdiction where the special purpose vehicle is established. 

(i)       A Fund Manager of a Real Estate Investment Trust that is an Exempt Fund shall be permitted to accept non-cash consideration for the purchase of Units in the Real Estate Investment Trust, subject to complying with Rule 6.11(l).  Non-cash consideration for the purchase of Units is not permitted in Real Estate Investment Trusts that are Non-Exempt Funds.

(j)       Real Estate Investment Trusts can only invest in property under development full completion of construction of which is guaranteed by a relevant state authority or institution or acceptable by the AFSA guarantee issued by a credible bank. The total contract value of the property under development must not exceed 10% of the NAV of the Fund property of the REIT.

(l)       A Fund Manager of a Real Estate Investment Trust must include in the Fund’s Offering Materials:

(i)        a detailed description of how the Fund intends to acquire and hold its investments in Real Properties (including the maximum number of special purpose vehicles through which Real Properties may be held);

(ii)       the maximum percentage of the Real Estate Investment Trust's assets (by reference to the Real Estate Investment Trust's NAV) that may be deployed for the purposes of property refurbishment, retrofitting and renovation, or a statement that no such activities are permitted; and

(iii)      (where applicable under Rule 6.11(i)), a statement that the Fund Manager may accept non-cash consideration for the purchase of units in the Real Estate Investment Trust and a description of the lock-up period (if any) applicable to Units acquired for non-cash consideration.

11.2.      Rules relating to Private Equity Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Private Equity Fund" or refer to a Fund or otherwise hold out a Fund as being a Private Equity Fund unless it is a Fund which complies with Rule 2.4(b)(ii). 

11.3.      Rules relating to Venture Capital Funds

A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Venture Capital Fund" or refer to a Fund or otherwise hold out a Fund as being a Venture Capital unless it is a Fund which complies with Rule 2.4(b)(iii). 

11.4.      Rules relating to Umbrella Funds

(a)     An Umbrella Fund may be formed as a Protected Cell Company (PCC) and must be an open-ended Fund if formed as a PCC.

(b)     A Fund Manager of an Umbrella Fund that is not constituted as a Protected Cell Company must ensure that the Fund is structured and operated in a manner that enables the effective management of:

(i)       the number of Sub-Funds; and

(ii)      the nature and diversity of their investment strategies, having regard to the adequacy of the Fund’s governance, valuation, operational and risk management arrangements.

(c)      A Fund Manager must ensure that the arrangements referred to in (a) are appropriate to the scale, complexity and risk profile of the Umbrella Fund.

(d)     A Fund Manager of an Umbrella Fund must ensure that none of its Sub-Funds invests in another of its Sub-Funds.

Guidance

An Umbrella Fund may be a Company constituted as a Protected Cell Company (PCC) or Investment Company. An Umbrella Fund may also be a Limited Partnership;

Unitholders of an Umbrella Fund are entitled to exchange rights they have in one Sub-Fund for rights in another Sub-Fund of the same Umbrella Fund;

A Sub-Fund of an Umbrella Fund is not a feeder fund (a Fund dedicated to investing in the Units or Debentures of a single other fund – master fund) or any other form of a discrete Fund;

A PCC is a form of a  Company which needs to be registered as a PCC under the Companies Regulations. An Umbrella Fund using the PCC structure has the benefit of legal segregation of Fund Property forming part of each individual cell. Accordingly, Fund Property of one cell of a PCC is not available to pay any obligations arising in relation to another cell of that PCC.

It is not mandatory for an Umbrella Fund to be constituted as a PCC. Instead, such Funds may be formed as a conventional Investment Company, Investment Trust or Limited Partnership. However, the legal segregation available to each cell of a PCC is not available to Sub-Funds of Umbrella Funds not formed as a PCC. In such cases, Fund Managers should ensure that the structure of the Umbrella Fund, including the number of Sub-Funds and the nature of their investment strategies, is appropriate having regard to the adequacy of the Fund’s governance, valuation, operational and risk management arrangements. Relevant requirements relating to the management and operation of Umbrella Funds are set out in Chapter 7.

Guidance

Umbrella Funds not constituted in the form of Protected Cell Company cannot benefit from legal segregation of sub-funds. Therefore, without legal segregation, umbrella funds rely on operational systems and governance arrangements to manage multiple sub-funds within a single legal entity. Where the AFSA considers that the number of Sub-Funds, or the diversity of their investment strategies, is such that the Umbrella Fund cannot be effectively managed in accordance with Rule 7.5-1, the AFSA may exercise within its powers set out in its powers to impose appropriate conditions or restrictions on the number of sub-funds 

11.5.      Rules relating to Single Family Office Funds

(a)     The Fund Manager of a Single Family Office Fund must include in the Fund’s Constitution a statement containing the following:

(i)              the name of the common ancestor of the Single Family, the details of the identities of the family members to be served by the Single Family Office, either directly or by way of Family Entities or Family Fiduciary Structures, and proof of their common ancestry;

 

(ii)             a short explanation of the Source of Wealth of the family members served by the Single Family Office;

 

(iii)           the details of the due diligence that has been conducted to verify the Source of Funds that is funding the Single Family Office.

 

(iv)           the details of who controls the Single Family Office;

 

(v)            the details of the Ultimate Beneficial Owner of the Single Family Office;

 

(vi)           the details of Family Clients to be served by the Single Family Office;

 

(vii)          the details of any family members that are Politically Exposed Persons; and

 

(viii)         confirmation that the Single Family meets minimum investable assets under management requirement.

(b)     The Fund Manager of a Single Family Office Fund:

(i)         must not manage assets for any Person other than Family Clients; and

(ii)        must not act as Fund Manager of any other Fund.

11.6.      Rules relating to the Corporate Treasury Centre Fund

(a)     The Corporate Treasury Centre Fund Manager is not required to have a Governing Body and appoint a Finance Officer and Compliance Officer.

(a)     The Director of a Corporate Treasury Centre Fund who is managing the Corporate Treasury Centre Fund must not act as the Fund Manager of any other Fund or manage assets for another Person.

 

11.7.    Rules relating to Credit Funds

 

11.7.1. Systems and controls requirements for Fund Managers of Credit Funds

The Fund Manager of a Credit Fund must maintain systems and controls that include suitable, documented policies and procedures designed to ensure:

(i)              a Fund risk appetite statement is developed and incorporated into its investment process;

(ii)             that provision of Credit to a Borrower is only made based upon a sound assessment and pricing methodology;

(iii)           the ongoing monitoring of granted Credit, including policies for renewals and refinancing;

(iv)           that adequate risk management is undertaken, including in relation to credit risk and concentration risk;

(v)            the application of stress testing methodologies as set out in Section 6.15.2(e);

(vi)           the management of collateral;

(vii)          that bad debt and impairments are identified and managed; and

(viii)         the timely, appropriate and accurate valuation of Fund Property.

11.7.2.  Eligible investments and diversification requirements

(a)      The Fund Manager of a Credit Fund must not allow for Credit to be provided to, or for the benefit of:

(i)              a natural person;

(ii)             a Related Party;

(iii)           a Collective Investment Scheme;

(iv)           a Person intending to utilise such financing for the purpose of speculative investment; or

(v)            a Bank or lender.

(b)      A Fund Manager must ensure that the investment strategy of a Credit Fund is designed to achieve a portfolio that meets the Fund’s specified diversification and concentration requirements within a stated period from the date of the Fund establishment.

(c)     The investment strategy of a Credit Fund must limit the maximum exposure to a single borrower (or group of connected borrowers) to 25% of the NAV of the Fund unless otherwise approved by the AFSA.

(d)      The Fund Manager must ensure that borrowing by a Credit Fund must not exceed 100% of the NAV of the Fund unless otherwise approved by the AFSA.

(h)          The Fund Manager of a Credit Fund must have a comprehensive stress testing and scenario analysis programme that:

(i)              identifies possible events or future changes in economic conditions that could have unfavourable effects on the Credit Fund’s credit exposures and assess the Credit Fund’s ability to withstand such changes;

(ii)             requires the outcomes of applying stresses to be compared against internal risk limits established by the Fund Manager in respect of the Credit Fund;

(iii)           considers the evolution of both specific transactions and aggregate exposures, reflecting all forms of counterparty credit risk at the level of specific counterparties, across an appropriate time horizon that represents meaningful stress testing;

(iv)           provides at least semi-annual exposure stress testing of principal market risk factors such as interest rates, FX and credit spreads for all counterparties of the Credit Fund in order to identify and enable the Fund Manager to reduce significant concentrations, relative to the internal risk limits, and specific risks when necessary;

(v)            requires scenario analysis exercises to be undertaken at least annually and incorporates material risks including yield curve exposure and basis risks; and

(vi)            must be undertaken by qualified personnel not involved in the investment management process of the Credit Fund.

(i)           The AFSA may direct the Fund Manager of a Credit Fund to conduct more frequent stress testing and scenario analysis.

(j)           The results of stress testing and scenario analysis performed in accordance with Rules 6.15.2 (e)(i) and 6.15.2(e)(ii) must be reported without undue delay to the Governing Body of the Fund Manager.

Guidance

The periodic stress testing and scenario analysis required by Rule 6.15.2(e) should be viewed as a minimum standard. The Fund Manager of a Credit Fund should consider the fund’s complexity, liquidity and risk profile when considering the frequency of stress testing and scenario analysis or, should a material risk be identified, whether ad hoc stress testing and scenario analysis should be undertaken.

Scenario analysis may reflect historical or hypothetical scenarios and should, at a minimum, address scenarios where:

(a)           severe economic or market events have occurred;

(b)           broad market liquidity has decreased significantly;

(c)           a large financial intermediary is liquidating positions and

(d)           the Credit Fund is required to liquidate assets during a period of extreme market stress.

The AFSA considers that the "stated period" referred to in Rule 6.15.2 (b) is to be one year.

11.8.      Rules relating to ETFs

(a)        A Fund Manager, or any other Person making an Offer of a Unit of a Fund or otherwise marketing a Fund, must not include the term "Exchange Traded Fund" (or “ETF”) or refer to a Fund or otherwise hold out a Fund as being an Exchange Traded Fund or ETF, unless it is a Fund which complies with Rule 2.4-1(j).

(b)          A Fund Manager of an ETF must take reasonable steps to ensure that any Authorised Participant it appoints has adequate systems and controls to ensure that the Units of the ETF are traded on-market at a price that does not significantly vary from the most recent NAV of the ETF, or the iNAV of the ETF, if available.

(c)          A Fund Manager of an ETF must ensure that the investment objective and strategy of the Fund is to track the performance of an index or benchmark specified in its Offering Materials.

(d)          A Fund Manager of an ETF may use an index or other benchmark for the purposes referred to in (c) only if it is provided by a Price Information Provider that meets the requirements in Schedule 5.

(e)           In (d), a Price Information Provider is a price reporting agency or an index or benchmark provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices of Investments, rates, indices, commodities or figures, which are made available to users, including a Fund Manager.

(f)           The Fund Manager of an ETF must treat an arrangement between the Fund  Manager and a Related Party to use an index or benchmark provided by the Related Party as a Related Party Transaction.

(g)          A Fund Manager of an ETF must take reasonable steps to ensure that the Fund’s Offering Materials and marketing materials describe the type of ETF in a way that is clear and not misleading to enable investors and potential investors to understand the type of ETF, and its characteristics.

11.9.      Rules relating to Money Market Funds

(a)        A Fund Manager of a Money Market Fund must ensure that the Fund’s investment strategy is consistent with the investment objectives of such a Fund as set out in Rule 2.4-1(k).

(b)         Without limiting (a), the Fund Manager of a Money Market Fund must ensure that:

(i)              at least 90% of the NAV of the Fund Property is invested in Deposits or Debentures that are of high quality, as determined by the Fund Manager in accordance with Rule 6.17(d);

(ii)             at least 10% of the NAV of the Fund Property consists of cash in accounts that permit the cash to be withdrawn immediately on demand;

(iii)           subject to (e), Deposits with, or Debentures issued by, a single entity do not exceed 10% of the NAV of the Fund Property;

(iv)           the Fund invests only in Deposits or Debentures:

(A)           with a residual maturity until the legal redemption date of not more than two years; and

(B)          where the time remaining until the next interest rate reset date is not more than 397 days;

(v)            the Fund Property has a weighted average maturity of not more than 6 months;

(vi)           the Fund Property has a weighted average life of not more than 12 months;

(vii)          the Fund does not invest in Financial Instruments other than Deposits or Debentures, except for:

(A)           Units in other Money Market Funds that have investment objectives and strategies consistent with those of the Fund; or

(B)           Derivatives that are used solely to hedge against foreign exchange rate risk; and

(viii)         the borrowings of the Fund do not, at any time, exceed 10% of the NAV of the Fund Property.

(c)          In (b):

(i)              the NAV of Fund Property, means the value of Fund Property at the most recent valuation under Rule 10.6;

(ii)             the “weighted average maturity” of Fund Property, means the average length of time to maturity of all the Financial Instruments held as Fund Property, weighted to reflect the relative holdings in each Financial Instrument, where the maturity of a floating rate  instrument is the time remaining until the next interest rate reset; and

(iii)           the “weighted average life” of Fund Property, means the weighted average of the remaining life of each Financial Instrument held as Fund Property, where the remaining life of a Financial Instrument is the time until the due date for repayment of the principal.

(d)          To determine whether a Deposit or Debenture is of high quality for the purposes of Rule 6.17(b)(i), a Fund Manager of a Money Market Fund must carry out  due diligence to an adequate standard on the Deposit or Debenture, taking into account the following factors:

(i)              the credit quality of the Issuer, and any guarantor, of the Investment;

(ii)             the nature and quality of the asset class represented by the Investment;

(iii)           the liquidity of the Investment; and

(iv)           any other risks associated with the Investment or the market in which it is traded.

(e)          For 6.17 (b)(iii):

(i)              the 10% single entity limit does not apply if the issuing entity is a government or government agency, or if the issue is government-guaranteed; and

(ii)             Deposits with, or Debentures issued by a bank may exceed 10% (up to a maximum of 20%) of the NAV of the Fund Property.

SCHEDULE 1: CONTENT REQUIREMENTS FOR CONSTITUTION

The Constitution of a Non-Exempt Fund must contain all of the information specified below, except where it is an Exempt Fund, in which case, it must contain the information specified in subrules (a), (b), (c), (d), (da), (db), (ia), (ib), (j), (k), (m), (n), (o), (s) and (u):

(a)      the name of the Fund;

(b)      the Fund Manager’s and, if the Fund is structured as an Investment Trust, the Trustee’s name and its principal place of business;

(c)       a statement that the Fund is a Domestic Fund, the Constitution of which is governed by the laws of the AIFC;

(d)       the legal form of the Fund and whether it is open- or closed-ended;

(da)     If the Fund is If the Fund is a specialist class of a Fund as defined in CIS 2.4, the relevant specialist class, and if applicable, that the Fund is an Islamic Investment Fund and consequently the Fund's entire business operations are conducted in accordance with Shari'a.

(db)     If the Fund is an Exempt Fund managed by a Foreign Fund Manager, that fact and the details of the appointed Fund Administrator or Eligible Custodian of the Fund.

(e)       a statement to the effect that:

(i)         the Fund Manager is responsible for all operations concerning the Fund and may from time to time delegate activities or outsource functions, but not the responsibility for conducting those activities and functions, to another Person in accordance with these Rules; and

(ii)        the Fund Property is entrusted to the Fund Manager and the Fund Manager remains responsible for the property even when an Eligible Custodian holds the legal title to the Fund Property; or

(iii)       the Fund Property is held on trust by the Fund’s Trustee, as the case may be.

(f)        if the duration of the Fund is limited, the length of such duration;

(g)       a statement that fees, charges and other expenses of the Fund may be taken out of Fund Property and the basis for determination of the amount of such fees, charges and other expenses;

(h)       the maximum and minimum sizes of the Fund's capital, if any;

(i)        a statement that a Unitholder is not liable:

(i)         for the debts of the Fund, unless the applicable legislation prescribes otherwise and, if so, those circumstances;

(ii)        to make any further payment after he has paid the price of his Units and that no further liability can be imposed on him in respect of the Units he holds;

(ia)     a statement that payments to the Fund Manager, Trustee, any Eligible Custodian, or the Person providing the oversight function (including a Shari'a Supervisory Board) by way of remuneration are authorised to be paid (in whole or in part) out of the Fund Property.

(ib)     Where the Fund is an Investment Trust, the following information:

(i)         the Trust Deed is made under and governed by these Rules and:

(A)       is binding on each Unitholder as if he had been a party to it and that he is bound by its provisions; and

(B)       authorises and requires the Fund Manager and the Trustee to do the things required or permitted of them by its terms and these Rules.

(ii)        Subject to the provisions of these Rules:

(A)       the Fund Property (other than sums held to the credit of the distribution account) is held by the Trustee on trust for the Unitholders according to the number of Units held by each Unitholder or, where relevant, according to the number of individual shares in the Fund Property represented by the Units held by each Unitholder; and

(B)       the sums standing to the credit of any distribution account are held by the Trustee on trust to distribute or apply in accordance with these Rules relating to income;

(j)        information on the investment objectives of the Fund, including:

(i)         whether the aim of the Fund is to spread investment risks and, if a Property Fund, whether the Fund invests in a single property;

(ii)        the types of Investments or assets in which it and (where applicable) each Sub-Fund may invest; and

(iii)       if the Fund is a specialist class of Fund, the class of Fund;

(k)       details of any investment, borrowing or stock lending restrictions or, in the event that there are no such restrictions, a statement to that effect;

(l)        a statement specifying:

(i)        the classes of Units which the Fund may issue; and

(ii)        the rights attaching to Units of each class (including any provisions for the expression in two or more denominations of such rights);

(m)      details as to:

(i)         the provisions relating to any restrictions on the right to redeem Units in any class; and

(ii) the circumstances in which the issue of the Units of any particular class may be limited;

(n)        details of who is carrying out the calculation, transfer, allocation and distribution of income for any class of Unit issued and outstanding during the accounting period;

(o)        information regarding the provision for the payment of income, if any, and the date on which such distribution shall be made;

(p)       a statement specifying the base currency of the Fund;

(q)        details of the procedures for the convening of meetings and the procedures relating to resolutions, voting and the voting rights of Unitholders;

(r)         details of oversight arrangements;

(s)        details as to:

(i)         the grounds under which the Fund Manager may initiate a suspension of the Fund and any associated procedures; and

(ii)        the methodology for determining the rights of Unitholders to participate in the Fund Property on winding up;

(t)         details of the manner in which amendments to the Constitution may be made;

(u)        a statement that nothing in the Constitution has the effect of exempting the Fund Manager and, if the Fund is structured as an Investment Trust, the Trustee, from any liability to Unitholders imposed under AIFC law and the Rules; and

(v)        details of those matters which enable the Fund, Fund Manager or any Person providing the oversight function of the Fund to obtain any privilege or power conferred by the Rules which is not otherwise provided for in the Constitution.

SCHEDULE 1-1. CONTENT REQUIREMENTS FOR OFFERING MATERIALS

The Offering Materials of a Non-Exempt Fund must contain all of the information specified below.

(a)        a description of the investment objective, policy and strategy of the Fund, information on where any master fund is established and where the underlying funds are established if the Fund is a fund of funds, a description of the types of assets in which the Fund may invest, the techniques it may employ and all associated risks, any applicable investment restrictions, the circumstances in which the Fund may use leverage, the types and sources of leverage permitted and the associated risks, any restrictions on the use of leverage and any collateral and asset reuse arrangements, and the maximum level of leverage which the Fund may utilise; and

(b)        a description of the procedures by which the Fund may change its investment strategy or investment policy, or both; and

(c)        a description of the main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, on the applicable law and on the existence or not of any legal instruments providing for the recognition and enforcement of judgments in the territory where the Fund is established; and

(d)        the identity of the Fund Manager, custodian or depositary, auditor and any other service providers for the Fund and a description of their duties and Unitholder's rights in respect of those persons; and

(e)        a description of any functions that have been delegated by the Fund Manager and any other of the Fund's service providers, the identification of each such delegate and any conflicts of interest that may arise from such delegations; and

(ea)      a statement of the place where copies of the Fund Constitution may be obtained;

(f)         a description of the Fund's valuation procedure and of the pricing methodology for valuing assets; and

(g)        a description of the Fund's liquidity risk management, including the redemption rights both in normal and in exceptional circumstances, and the existing redemption arrangements with Unitholders; and

(h)        a description of all fees, charges and expenses and of the maximum amounts thereof which are directly or indirectly borne by Unitholders; and

(i)         a description of how the Fund ensures a fair treatment of Unitholders and, whenever a Unitholder obtains preferential treatment or the right to obtain preferential treatment (including pursuant to side-letter arrangements), a description of that preferential treatment, the type of Unitholders who obtain such preferential treatment and, where relevant, their legal or economic links with the Fund or the Fund Manager; and

(j)         the latest annual report for the Fund, if applicable; and

(k)        the procedure and conditions for the issue and sale of units or shares of the Fund; and

(l)         where available, the latest NAV of the Fund and its units or shares or the latest market price per unit or share of the Fund; and

(m)       where available, information regarding the historical performance of the Fund; and

(n)        if relevant, the identity of any prime broker for the Fund and a description of any material arrangements with that prime broker and the way the conflicts of interest in relation thereto are managed, information about the possibility of transfer and reuse of the Fund's assets by the prime broker, and information about any transfer of liability to the prime broker that may exist; and

(o)        the total amount of leverage employed by the Fund; and

(p)        the life of the Fund, the ability to terminate the Fund and the process by which the Fund may be terminated; and 

(q)        a description of the arrangements in place for the safekeeping of cash held by or on behalf of the Fund pending investment or distribution to Unitholders.

(r)        if a Fund is a Listed Fund, a description of the arrangements for listing of the Units and the listing venues on which Units of the Listed Fund may be traded.

 SCHEDULE 1-2. APPROVALS AND NOTIFICATIONS

1.         Fundamental changes

(a)        The Fund Manager of a Non-Exempt Fund must, by way of a Special Resolution, obtain prior approval from the Unitholders for any proposed change to the Fund which is a fundamental change.

(b)        A “fundamental change” is a change or event which:

(i)      changes the purpose or nature of the Fund;

(ii)      may materially prejudice a Unitholder;

(iii)     alters the risk profile of the Fund; or

(iv)     introduces any new type of payment out of Fund Property.

(c)        Notwithstanding (b) above, any change may be fundamental depending on its degree of materiality and effect on the Fund and its Unitholders. Consequently, the Fund Manager must determine whether in each case a particular change is fundamental in nature and, if the Fund is an Investment Trust, obtain the Trustee’s agreement to the outcome of the determination.

Guidance:

For the purpose of this rule, a fundamental change to a Fund is likely to include:

(a)     any proposal for a scheme of arrangement;

(b)     a change in the investment policy to achieve capital growth from investment in one country rather than another;

(c)     a change in the investment objective or policy to achieve capital growth through investment in fixed interest rather than in equity investments;

(d)     a change in the investment policy to allow the Fund to invest in derivatives as an investment strategy which increases its volatility;

(e)     a change to the characteristics of a Fund to distribute income annually rather than monthly;

(f)      the introduction of limited redemption arrangements; or

(g)     a change of a Fund Manager, Trustee, Custodian or other oversight arrangement.

2.         Significant changes

(a)        The Fund Manager of a Non-Exempt Fund must give prior written notice to Unitholders in respect of any proposed change to the operation of a Fund where the change constitutes a significant change.

(b)        A “significant change” is a change or event which is not a fundamental change under rule 1 of Schedule 1 but:

(i)      affects a Unitholder's ability to exercise his rights in relation to his investment;

(ii)      would reasonably be expected to cause the Unitholder to reconsider his participation in the Fund;

(iii)     results in any increased payments out of the Fund Property to the Fund Manager, the Trustee or any other director or an associate of either; or

(iv)     materially increases other types of payment out of Fund Property.

(c)        Changes may be significant depending in each case on their degree of materiality and effect on the Fund and its Unitholders. Consequently the Fund Manager will need to determine whether in each case a particular change is significant in nature or not and if the Fund is an Investment Trust obtain the Trustee’s agreement of the outcome of the determination.

Guidance:

(1)        The notice period required for a pre-event notification to the Unitholder should be of a reasonable length, which is expected to be at least 60 days.

(2)        For the purpose of this section, a significant change is likely to include:

(a)        a change in the method of price publication;

(b)        a change in any operational policy such as dilution policy or allocation of payments policy; or

(c)        an increase in the preliminary charge where Units are purchased through a group savings plan.

3.         Notifiable changes

(a)        A Fund Manager must inform Unitholders in an appropriate manner and timescale of any notifiable changes that are reasonably likely to affect, or to have affected, the operation of the Fund.

(b)        A notifiable change in (a) is a change or event, other than a fundamental change or a significant change specified in rule 2 of Schedule 1-2, which a Unitholder must be made aware of unless the Fund Manager concludes that the change is insignificant.

Guidance:

(1)        The circumstances causing a notifiable change may or may not be within the control of the Fund Manager.

(2)        For the purpose of this section, a notifiable change might include:

(a)        a change of a named investment manager where the Fund has been marketed on the basis of that investment manager's involvement;

(b)        a significant political event which impacts on the Fund or its operation;

(c)        a change to the time of the valuation point; the introduction of limited issue arrangements; or

(d)       a change in the name of the Fund.

(3)        The appropriate manner and timescale of notification in this section would depend on the nature of the change or event. Consequently, the Fund Manager will need to assess each change or event individually.

(4)        An appropriate manner of notification could include:

(a)       sending an immediate notification to the Unitholder;

(b)       publishing the information on a website; or

(c)        the information being included in the next periodical report of the Fund.

SCHEDULE 2: RECOGNISED JURISDICTIONS

(a)       The AFSA will consider eligibility criteria when determining the assessment of a Recognised Jurisdiction, namely whether:

(i)         the jurisdiction is listed as a Compliant Country or Territory by the Financial Action Task Force;

(ii)        the jurisdiction complies with OECD standards for the exchange of tax information, including adherence to multilateral agreements in respect of the exchange of information;

(iii)       the jurisdiction's financial services regulatory regime achieves broadly similar outcomes to that of the AFSA; and

(iv)       the jurisdiction has appropriate co-operation arrangements in place with the AFSA to ensure co-operation including the exchange of information between regulatory authorities.

(b)       The AFSA will publish on its website a list of Recognised Jurisdictions that it considers as having met the eligibility criteria in (a).

(c)       The AFSA may determine that a jurisdiction no longer satisfies one or more of the eligibility criteria in (a), and that jurisdiction will cease to be a Recognised Jurisdiction and may be removed accordingly from the list of Recognised Jurisdictions on the AFSA's website.

SCHEDULE 3: ACCEPTABILITY ASSESSMENT

The AFSA will consider whether a non-AIFC jurisdiction is acceptable by assessing the following factors, after the Foreign Fund Manager has submitted documentation:

(a)        containing a comparative analysis of its jurisdiction's regulatory regime in relation to Funds and Fund Managers compared with that of the AFSA;

(b)        that identifies any gaps between the home state and the AFSA's fund management and regulatory regimes; and

(c)        demonstrates the controls intended to remedy any gaps identified in order to satisfy the AFSA's regulatory requirements.

SCHEDULE 4: FORMS

For the purposes of the CIS the prescribed forms are listed in the following table.

Purpose	Relevant section or Rule	Form
Application form for Recognition of Foreign Fund Managers	CIS 4-1.1

 

 

 

SCHEDULE 5: USE OF PRICE INFORMATION PROVIDERS

This Schedule applies to a Fund Manager of:

(a)            an Exchange Traded Fund; or

(b)            a Digital Asset Fund.

Use of price information providers

(a)            A Fund Manager of an ETF may only use an index or other benchmark provided by a Price Information Provider for the purposes referred to in Rule 6.16(c) if it has undertaken appropriate due diligence to ensure that the Price Information Provider, on an on-going basis, meets the requirements set out in (c).

(b)            A Fund Manager of a Fund that has any Fund Property that consists of Digital Assets may only use an index or other benchmark provided by a Price Information Provider to value the Digital Asset if it has undertaken appropriate due diligence to ensure that the Price Information Provider, on an on-going basis, meets the requirements set out in (c).

(c)            The requirements relating to the Price Information Provider are that:

(i)             it has fair and non-discriminatory procedures for establishing prices of Investments which are made public 

(ii)            it can demonstrate adequate and appropriate transparency over the methodology, calculation and inputs to allow users to understand how the benchmark or index is derived and its potential limitations by:

(A)             making publicly available all the rules that govern the methodology, composition, components and value, and relative weighting of securities in each index or benchmark within a reasonable time frame as appropriate to the nature of the index and its users; and

(B)             not making changes to the rules for index compilation without giving advance public notice before any changes are made;

(iii)          where appropriate, it gives priority to concluded transactions in making assessments and adopts measures to minimise selective reporting;

(iv)         it is of good standing and repute as an independent and objective price reporting agency or index provider;

(v)          it has a sound corporate governance framework;

(vi)         it has adequate arrangements to avoid its staff having any conflicts of interest where such conflicts have, or are likely to have, a material adverse impact on price establishment process, and in particular, it does not employ ETF staff, for the purposes relating to the creation, development or modification of the index compilation rules and their review; and

(vii)        it has adequate complaint resolution mechanisms to resolve any complaints about the Price Information Provider’s assessment process and methodology.