What is a Collective Investment Scheme?

The term ‘collective investment scheme’ (CIS) is an important concept in the context of UK financial services legislation.

The activities of establishing, operating or winding up a CIS are regulated in the UK, if carried on by way of business. On that basis, they can only be carried out by a person authorised by the Financial Conduct Authority (or by an ‘exempt’ person).

In addition, restrictions apply on how units in a CIS can be promoted. A CIS will automatically fall within the definition of ‘Non-mainstream pooled investments’, which are subject to special restrictions as regards promotion.

An understanding of the concept of the collective investment scheme is therefore very useful in the context of investment structures and arrangements, whether or not there are intended to constitute a formal ‘fund’.

The statutory definition

The term ‘collective investment scheme’ is defined in Section 235 of the Financial Services and Markets Act 2000. That section provides as follows:

“(1) In this Part “collective investment scheme” means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

(2) The arrangements must be such that the persons who are to participate (“participants”) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.

(3) The arrangements must also have either or both of the following characteristics—
(a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
(b) the property is managed as a whole by or on behalf of the operator of the scheme.

(4) If arrangements provide for such pooling as is mentioned in subsection (3)(a) in relation to separate parts of the property, the arrangements are not to be regarded as constituting a single collective investment scheme unless the participants are entitled to exchange rights in one part for rights in another.

(5) The Treasury may by order provide that arrangements do not amount to a collective investment scheme—
(a) in specified circumstances; or
(b) if the arrangements fall within a specified category of arrangement.”


The statutory definition means that, in general terms, a CIS is any set of arrangements where:

  • Two or more investors participate in profits or income arising from the acquisition, holding, management or disposal of property of any kind
  • The investors do not have day to day control of the management of the property
  • The investors’ contributions and the profits or income due to them is pooled, or the property subject to the arrangements is managed as a whole.


A number of arrangements are excluded from the definition of collective investment schemes. One of the most important in practice relates to bodies corporate: no body corporate other than an open-ended investment company, a limited liability partnership or certain other types of mutual body amounts to a collective investment scheme.

For reference, here are the headings of the arrangements excluded from the definition of collective investment schemes. (Note that these arrangements may still fall within the definition of non mainstream pooled investments, notably bodies corporate.)

1. Individual investment management arrangements

2. Enterprise initiative schemes

3. Pure deposit based schemes

4. Schemes not operated by way of business

5. Debt issues

6. Common accounts

7. Certain funds relating to leasehold property

8. Certain employee share schemes

9. Schemes entered into for commercial purposes related to existing business

10. Group schemes (where each of the participants is a body corporate in the same group as the operator)

11. Franchise arrangements

12. Trading schemes (relating to arrangements whereby participants should receive, by way of reward, payments or other benefits in respect of the introduction by any person of other persons who become participants)

13. Timeshare schemes

14. Other schemes relating to use or enjoyment of property

15. Schemes involving the issue of certificates representing investments

16. Clearing services

17. Contracts of insurance

18. Funeral plan contracts

19. Individual pension accounts

20. Occupational and personal pension schemes

21. Bodies corporate

Raising Development Finance from Private Investors

This report sets out 5 of the most popular structures used by developers to raise capital from private investors, distilled from our lawyers’ experience of working on investment structures for over 20 years.

Free Download