The UCITS IV Directive comes into force across the EU on 1 July 2011 and all Member States are required to have it transposed into local law by that date.

Some elements of the Directive will impose immediate operational requirements on the funds industry, some will be phased in and some elements are likely to have limited impact in the short term but could enable major changes in the longer term.

CESR have been publishing consultation documents on the Implementation Measures and a picture is beginning to emerge on the processes that will be needed to comply with the Directive.

FundAssist has been actively engaged with a cross-section of the funds industry to fully understand the implications of the Directive and its impact on clients, particularly in relation to the Key Investor Information Document.

The requirements in relation to the KIID are prescribed in detail by CESR, including guidelines for the transition from the Simplified Prospectus.

The requirements for the preparation of the KIID are clear and for most fund products can be readily implemented although the requirements to publish within 35 business days generally requires automation and a well-planned process once the initial set-up work is completed.

The transition guidelines published by CESR are as follows:

  1. A management company shall be allowed either to begin providing key investor information for all of its existing UCITS simultaneously or to phase the introduction of key investor information throughout the transitional period allowed by the UCITS home state.
  2. For any new stand-alone UCITS or a new UCITS umbrella structure authorised during the transitional period, the management company shall provide key investor information from the outset.
  3. For any new investment compartment added to an umbrella UCITS existing at 30 June 2011, the management company may choose whether to provide a simplified prospectus or key investor information for that compartment.
  4. If a new share class of an existing UCITS is approved during the transitional period, the management company shall treat it in the same way as the existing classes of that UCITS, providing either a simplified prospectus or key investor information in respect of all classes of units / shares in the fund.
  5. A management company that continues to provide a simplified prospectus for a UCITS during the transitional period may carry out and publish one or more revisions of that simplified prospectus. Such revisions may include the addition of elements of key investor information such as a synthetic risk-reward indicator or a standard charges table.

Based on our discussions, some fund promoters are planning a wholesale conversion to the KIID on or before February 2012, the first annual publication date after the implementation of the Directive. However, some promoters that frequently launch or alter fund products are considering a wholesale conversion by 1 July 2011. Other promoters are planning on taking full advantage of the transition arrangements and will only publish KIIDs as an when it becomes necessary.

There is considerable concern, particularly expressed by fund lawyers and directors, regarding the legal status of the KIID and its relationship with the fund prospectus and other documentation.

Some promoters are planning a rewrite of the prospectus to marry the terminology in the KIID to that in the prospectus and also to ensure adequate disclaimers are contained in the prospectus. Some promoters believe this may not be necessary or that the changes can be minimised.

The legal standing of the KIID in EU Member States is being hotly debated and the transposition of the Directive into local law in each Member State is eagerly awaited. Views differ widely as to the legality of a uniform KIID and the acceptability of the prospectus and other fund documentation in English.

The initial notification procedure is expected to be very beneficial in getting products to market quickly across the EU. However, the need to revert to current practice for dealing with subsequent changes to a fund product and to meet ongoing filing requirements is raising concerns and may negate many benefits of the notification process. Again, the detailed implementation in local law and regulation is eagerly awaited.

In general, fund promoters are concerned that the envisaged efficiencies and cost reductions may be difficult to fully realise while compliance with the new regime will definitely incur real costs.

Research Team, FundAssist Ltd

September 25, 2013