The fundamental purpose of supervising an operator of a CIS is to ensure that investors' interests are protected. Supervision should seek to ensure that the assets of a CIS are managed in the best interests of its investors and in accordance with the objectives of a CIS. This will include ensuring the assets are held in safekeeping on behalf of investors, typically by requiring that they are registered in the name of an entity other than an operator and that they are held by an entity which is functionally independent of the operator, usually a custodian.

An operator should also be supervised in order to confirm that the investments in a CIS are valued properly. This will ensure an investor receives the correct number of units when investing in a CIS and also the correct proceeds of sale, should the person decide to liquidate a holding. Supervision of an operator in this regard may typically include checking that individual share holdings in a CIS are up to date and correctly valued and that the net asset value of a CIS, the unit price, is accurate at all times and available to investors. Review of a CIS report and accounts may also provide confirmation.

Investors' interests will also be protected by ensuring a CIS contains an appropriate spread of investments; namely that any regulatory restrictions and prospectus disclosures on the minimum number of holdings have been complied with and that a CIS is invested according to its investment objectives. Supervision of an operator in this regard will ensure that investors are exposed to a level of risk which is consistent with the fund's objectives, as well as ensuring any regulatory minimum spread of investments is maintained.

2. Market Integrity

Market integrity has two dimensions. The first is that of the market for CIS themselves. The fact that an operator is subject to supervision may encourage investors to use CIS as vehicles for their investments. If there is no (or inadequate) supervision, there is a strong possibility that investors' interests will be adversely affected. This, in turn, will dissuade the public from investing their savings and diminish confidence in the financial markets. The second dimension concerns the integrity of the markets in which a CIS invests. These markets may or may not have supervisory arrangements in place with regard to credit institutions, stock markets or investment services. Without such arrangements it may be difficult for an investor to conclude that a particular market is an appropriate -and safe- place to invest in via a CIS. This may be relevant when considering developing and emerging markets which might not have an established track record.

3. Integrity of Operator

An operator of a CIS will often be responsible for ensuring that all the day to day activities of operating a CIS are carried out competently. This may be a wide range of activities which includes managing the investments in accordance with the objectives of a CIS, valuation, administration, accounting, promotion and distribution. With so much responsibility resting with one entity, it is important that effective supervision is in place.

The level of supervision of each activity will probably vary. It is likely however that all activities will be supervised on an on going basis, to be determined in each case. This will depend, in part, upon the nature of any risks which may previously have been identified. In order to ensure that supervision is effective, it may be necessary to look at a number of different activities together, as part of a comprehensive review. For example, the accuracy of the net asset value of a CIS may be confirmed most effectively by reviewing the valuation of investments at the same time as checking a CIS'sincome and expense records.

4. Global Developments of CIS as an Investment Vehicle

CIS structures have developed rapidly and are now used globally as investment vehicles for a range of investment opportunities. For many investors a CIS is the first choice of investment vehicle which, in some respects, increases the obligations of supervisory authorities to ensure that CIS are managed properly and that these investors' interests are protected. A recent example is the growing number of privatization programmes, often in developing countries, which use CIS as a convenient means of indirectly bringing share ownership to large numbers of investors, often for the first time. CIS are also used as a basic investment vehicle for other types of investment portfolios such as pension funds and tax efficient plans in different jurisdictions.

For the CIS industry to be able to satisfy this expectation of producing a global investment vehicle, it is important that operators are properly supervised. Failure to properly supervise may result in valuation, custodial and other types of errors which, in turn, may adversely affect large numbers of investors.