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EC adopts UCITS IV implementing measures
On 1 July 2010 the European Commission adopted the so-called UCITS IV “Level 2 measures.” At the same time, CESR has published two Guidelines on key investor information (KII).
Member States now have until 1 July 2011 for the implementation of the directives into national law while the regulations will apply from 1 July 2011. This leaves asset managers relatively little time to adapt their operations and systems.
UCITS IV
UCITS IV consists of the UCITS IV Directive, the Level 2 Implementing measures and CESR’s Guidelines. A tax framework to support UCITS IV is still missing.
These implementing measures are split across four separate instruments, which, together with the recast of the UCITS Directive and supporting CESR guidelines, form a package that lays the basis for an efficient and competitive UCITS market for the future.
The UCITS IV “Level 2 measures” consist of two directives and two regulations covering:
- Key Investor Information
- Rules for the conduct of UCITS management companies
- UCITS merger and master-feeder structures
- Notification procedure and supervisory cooperation.
These are:
- Key investor information – a new standardised and harmonised disclosure document designed to empower investors to take effective investment decisions. An implementing Regulation covers the content and form of the document, including the use of plain language and a much more investor-friendly presentation of information about risk. The implementing regulation is supported by detailed methodologies on calculating a fund’s level of risk and charges, which have been published today by the Committee of European Securities Regulators (CESR).
- Rules for the conduct of UCITS management companies – an implementing Directive aligns organisational requirements and rules of conduct for investment firms with the standards already applied across much of the financial services through the Markets in Financial Instruments Directive, otherwise known as MIFiD (see IP/07/1625). These rules also cover the prevention, management and disclosure of conflicts of interest. The Directive further obliges UCITS managers to employ sufficiently robust and effective procedures and techniques so that they are able to adequately manage the different types of risk the UCITS might face.
- UCITS mergers and master-feeder structures – an implementing Directive details certain investor protection measures in relation to these asset pooling techniques, and establishes a common approach to the sharing of information between master and feeder UCITS. It also covers detailed rules on the liquidation, merger or division of a master UCITS.
- Notification procedure and supervisory co-operation – an implementing Regulation sets out the details of standard documents and procedures to be used for electronic transmission in the notification procedure (used by a UCITS when it wishes to gain access to the market in another Member State). It also contains common procedures for enhancing supervisory cooperation in their oversight of fund managers’ cross-border activity of fund managers.
CESR Guidelines on KII
As above, CESR has also published two Guidelines on key investor information (KII).The KII will be required for UCITS from the second half of 2011. Each fund will have to show a risk rating on a scale of 1 to 7.
In the UK, the IMA has responded by calling for further work and refinement. The IMA note that:
“… using this methodology, half of UK-authorised funds would have the same risk rating and that this would not help investors to distinguish between different funds, undermining one of CESR’s key objectives for the risk indicator category.
"Moreover, using a data series of only five years, as recommended by CESR, will not give such a reliable indication of risk as would a longer time period. This undermines the second of CESR’s key objectives, which is that the indicator should be reasonably robust in different market conditions over time.”
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