Depending on the jurisdiction, authorisation of the management company and the other parties concerned either precedes any application for authorisation of the mutual fund, or it is carried out as a single process when the management company first makes application for authorisation of a fund. Either way, the fund does not become authorised until the regulators are satisfied that it and the parties involved meet certain minimum requirements along the following lines:
- the management company must have a minimum capitalisation and ‘free resources‘ sufficient to fund its expenses for, say, three or six months;
- except in Australia, the custodian, depository or trustee must be independent of the management company and have a minimum capitalisation, which typically is substantially greater than that required for the management company. In Hong Kong, for example, HK$ million is their management company requirement, but for the custodian/trustee it is HK$10 million;
- the management company /and any separate investment manager) must have appropriately qualified and experienced personnel engaged in the fund‘s management and administration. In the US and UK, compulsory training and competence schemes have had to be operated by management companies for personnel engaged in portfolio management or administration and in selling or advising on investments for some years and this form of requirement is gradually being imposed throughout the world;
- the fund itself must meet certain operational requirements set out in the relevant regulations dealing with matters such as frequency of valuation and dealing, calculation of NAV and unit prices publication of prices and other information, maintenance of shareholder records, and controls over transactions with connected persons;
- the fund must also meet various investment requirements applicable to its objectives or fund type, including diversification, concentration, liquidity, limits on the use of derivatives and on borrowing;
- to allow investors to make informed decisions, detailed disclosure requirements must be adhered to by the fund;
- if the fund has been authorised in another jurisdiction, or the management company is not resident in the country concerned, then it must have a resident licensed representative with whom investors can deal.