With effect as from 19 October 2012 the Belgian legislation on collective investment schemes has been amended principally to ensure the implementation of the following four EC Directives:
- Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)1;
- Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority);
- Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company; and
- Directive 2010/42/EU implementing Directive 2009/65/EC of the European Parliament and of the Council as regards certain provisions concerning fund mergers, master-feeder structures and notification procedures.
The amendment is effected by the Act of 3 August 2012 relating to certain forms of collective management of investment portfolios, which also contains an almost complete restatement of the previous legislation. The Act was published in the Belgian Official Gazette on 19 October 2012.
A Royal Decree further implementing the Act is being finalized by the Government.
This newsletter provides a concise outline of the key modifications to the Belgian regulatory framework in respect of undertakings for collective investment that are introduced by the Act:
- A new standardized “Key Investor Information” document (KII) replaces the simplified prospectus.
The Act replaces the simplified prospectus with a document referred to as the “Key Investor Information” (KII)2. The aim of the KII is to appropriately inform investors about the essential characteristics of the UCITS concerned, so that they are reasonably able to understand the nature and the risks of the investment product that is being offered to them and, consequently, to take investment decisions on an informed basis.
The information in the document shall be presented in a standardised format with a concise and non-technical language. The information must be correct, clear and not misleading, and it must be consistent with the relevant parts of the UCITS’s full prospectus.
The KII shall be drawn up in a common format, allowing for comparison, and shall be presented in a way that is likely to be understood by retail investors. The essential elements of the KII shall be kept up to date.
- A simplified notification procedure for UCITS
The Act introduces a simplified notification procedure for UCITS that wish to market their units in member states other than those in which they are established. In order to facilitate and accelerate cross-border marketing of UCITS, the host member state that receives a complete notification file by the competent authorities of the UCITS home member state, should not oppose access to its market by a UCITS established in another member state or challenge the authorisation given by that other member state.3 Furthermore, control of compliance of arrangements made for marketing of units of UCITS with laws, regulations and administrative procedures applicable in the UCITS host member state, should be performed after the UCITS accessed the market of that member state.4
This simplified notification procedure is not new for Belgian legal practice: as from 1 July 2011, the FSMA allowed Belgian and foreign EEA UCITS fulfilling the conditions of Directive 2009/65/EC to use the notification procedure described in articles 91 to 96 of Directive 2009/65/EC (See Circular Letters: FSMA_2011_03 (as to UCITS governed by the law of another member state of the EEA) and FSMA_2011_04 (as to UCITS governed by Belgian law)). The Act also provides for two notification procedures, depending on whether a UCITS governed by Belgian law (a), or a UCITS governed by the law of another member state of the EEA (b) is involved.
- If a UCITS governed by Belgian law proposes to market its units in another member state of the EEA, it must submit a notification file to the FSMA, containing (1) a notification letter5 and (2) an annex consisting of the KII, the prospectus, the fund rules or instruments of incorporation and, where appropriate the latest annual report and any subsequent half-yearly report6.7
The FSMA transmits to the competent authorities of the host member state the notification file no later than 10 working days of the date of receipt. The FSMA encloses with the notification file an attestation that the UCITS fulfils the conditions imposed by Directive 2009/65/EC. Upon the transmission of the documentation, the FSMA immediately notifies the UCITS of the transmission. As from the date of that notification, the UCITS may access the market of the host member state.8
- UCITS governed by the law of another member state of the EEA that wish to market their units in Belgium, must submit a notification file drawn up in accordance with the laws of their home member state to the competent authorities in their home member state. No later than 10 working days of the date of receipt, the competent authorities of the home member state must transmit to the FSMA the notification file and must immediately notify the UCITS of the transmission.
As soon as the FSMA has received the notification file, it adds the UCITS to the list referred to in article 149 of the new Act. As from that date, the UCITS may immediately access the Belgian market and market its units in Belgium.9 However, please note that this does not mean that the UCITS may distribute advertisements. The pre-approval requirements for marketing material remain still in place under the Act.
- A revamped management company passport
An important change introduced by the new Act is the European passport for management companies. The passport permits the remote establishment and cross border management of UCITS funds and the centralisation of their asset management, administration and risk management operations. As the UCITS funds and the (associated) management company are allowed to have different home member states, management companies are now permitted to manage funds cross-border. Also, management companies are no longer required to appoint service providers in de domicile of the fund, except the custodian bank.
Furthermore, the existing regulatory requirements regarding management companies are strengthened, and new regulatory requirements are introduced. This is the case for instance for the provisions on general organisational procedures and arrangements (article 201-205), internal control mechanisms (article 201 §3), risk management process (article 201 §6), integrity policy (article 201 §7) and conflicts of interest (article 218).
- Master-feeder structures may be created
The new Act allows fund structures with a directly invested UCITS fund (“master”) and one or more UCITS funds that primarily invest in the master (“feeders”). Master-feeder structures are allowed both where the master and the feeder are established in the same member state and where they are established in different member states. The master and feeder may have different managers and be registered in different member states.
The new Act stipulates conditions for the right to operate with master-feeder structures. The master itself cannot be a feeder or invest in feeders. Feeders must invest at least 85% of their assets in the master, while the remaining percentage may be invested in liquid assets and derivatives used for hedging purposes. Feeders must receive approval from the FSMA prior to investing in the master.10 In addition, the master and feeders must enter into an agreement that ensures the feeder access to the documentation and information that is required so that the feeder can operate in accordance with the directive.11 The feeder is obligated, for example, to monitor the activities of the master.12 Such an agreement can be replaced by internal business practice rules if the feeder and master are managed by the same management company.
The status of a UCITS fund as a feeder must be stated explicitly in the prospectus for the UCITS fund. The prospectus must also contain information on the master’s and feeder’s investment aim and strategy, a summary of the agreement between the master and feeder, as well as the cost and tax implications of the structure.
The master’s and feeder’s respective custodians and auditors shall enter into an agreement on information sharing, so that they can efficiently fulfil their obligations to the UCITS funds.
The master shall immediately notify the supervisory authorities in its home country of the identity of any UCITS funds that invest in the master’s shares or units.