On and with effect from 22 July 2014, the Commission de Surveillance du Secteur Financiere (CSSF) has published a circular that confirms, and provides clarifications on, the long-standing regulatory practice in relation to material changes to the terms of open-ended collective investment undertakings governed by the law of 17 December 2010 relating to collective investment undertakings (UCITS).

CSSF Circular 14/591 (Circular) sets out the process to be followed in case of “material changes” to the interests of unit holders of a UCITS, and requires that such investors are provided with sufficient time to make an informed decision on the proposed changes and are allowed to exit or convert their holding, without charge, should they not agree to the proposed changes. In considering what constitutes a “material change” for these purposes, the entity in question must consider: (i) whether there is a substantial likelihood that an investor would reconsider its investment in the UCITS in light of the proposed changes and (ii) the investor’s interest or situation before and after the proposed changes.

UCITS are obliged to submit to the CSSF a description of the proposed changes, together with an appropriate explanation, “well in advance” of the proposed changes becoming effective, so that the CSSF can assess the scope and impact of such changes. The CSSF reserves the right to assess whether a change should be deemed material and, if so, to require a notification to investors. The CSSF can also require that additional measures are taken to protect the interests of investors. The proposed changes may, in principle, not be implemented until after the expiration of the notification period that, in line with the CSSF's administrative practice, should be one month. During this period, investors have the right to request, free of charge, the redemption or conversion of their units in the UCITS.

Notwithstanding the foregoing, the CSSF may nevertheless agree, pursuant to a duly supported request for derogation to be made in advance, not to require prior investor notification or the ability of investors to redeem or convert their interests – for example, in cases where all of the investors in the UCITS agree to the contemplated changes.

The obligations in relation to the notification period referred to in the Circular are without prejudice to notice period(s) required by law for investors to pre-approve relevant changes and to specific requirements of other competent authorities in jurisdictions where the UCITS is registered for distribution.