Chapter 4

Collective Investment Schemes

• A Collective Investment Scheme (CIS) allows investors to pool money together into a fund.
• The fund is then managed professionally, and investors share the profits or losses.
• CISs are also known as mutual funds in some jurisdictions.

CIS Structures

• CISs can be structured as unit trusts, investment companies, or partnerships.
• Most CISs in Brunei Darussalam are unit trusts.
• Open-ended schemes: Investors can redeem (sell) their units anytime, and the CIS is obliged to pay cash based on the net asset value.
• Closed-ended schemes: Investors buy units initially, and they can only sell to each other on secondary markets, CIS is not obliged to redeem units.
• Interval undertakings: These allow for periodic redemptions or sales of units.

CIS Licensing

• A CIS must be licensed by the Authority to operate in Brunei Darussalam.
• If a CIS is licensed in a foreign country, it may apply to be recognized as a CIS in Brunei Darussalam if certain conditions are met.
• The Authority may revoke a CIS license or recognized CIS status if the operator or custodian has acted illegally or provided false information.

CIS Prospectus

• A CIS is required to produce a prospectus, containing relevant information about securities offered to the public.
• Prospectus must be made available to clients when they are offered CIS units.
• Regulated entities do not have to provide a prospectus for execution-only transactions or for discretionary portfolio management agreements.

CIS Oversight

• Oversight functions for a CIS include safekeeping of the CIS property, reviewing the CIS's operations, and taking steps to prevent conflicts of interest.
• Trustee: Responsible for safekeeping of the CIS property in the case of an investment trust.
• Custodian: Safekeeps the CIS property and executes transactions on behalf of the fund.
• Operator: Manages the CIS operations and makes investment decisions.

General Duties of a CIS Operator

• The operator must ensure that the CIS property provides risks aligned with the investment objectives and policy stated in the prospectus.
• The operator must avoid CIS property being used contrary to the Securities Markets Regulations (SMR).
• The operator must immediately rectify any breaches of the SMR, unless it is not in the best interests of the unit holders or oversight functions agree to delay.

Public CIS Investments

• A public CIS may invest in units of another CIS, but it must ensure that:
  • The other CIS has been independently audited in line with International Financial Reporting Standards (IFRS).
  • If the other CIS is an Islamic CIS, it is audited annually in line with Islamic financial standards.
  • The other CIS's unit holders can redeem their units.
  • Investments in other CIS units do not exceed 20% of the public CIS's value.

Winding Up a CIS

• The operator may wind up a public CIS if the Authority agrees, the CIS is not commercially viable, its purpose cannot be achieved, the period stated in the constitution expires, or there is a transfer of the CIS.
• In the case of a private CIS, the CIS must be wound up if it fails to meet the SMR criteria.

Overview of Key Points

• A CIS allows investors to share profits or losses from a professionally managed fund.
• There are three main structures for CISs: unit trusts, investment companies and partnerships.
• CISs can be open-ended or closed-ended, based on whether or not they are obligated to redeem units.
• Operating a CIS in Brunei Darussalam requires a license or recognition from the Authority, and the Authority may revoke licensing or recognition if certain conditions are not met.
• A prospectus is required for all CISs and must be made available to clients when they are offered units.
• The operator of a CIS has significant responsibility for the safekeeping and management of the property and must ensure its investments are aligned with the stated objectives and in compliance with the SMR.
• The Authority may intervene in the operation of a CIS under various circumstances.
• A CIS may be wound up due to a variety of reasons, including lack of viability, inability to achieve its purpose, expiration of the period stated in the constitution, or a transfer of the CIS.