On 25 September 2012, the European Securities and Markets Authority ("ESMA") published a Questions and Answers document on the Key Investor Information Document ("KIID") for UCITS. The purpose of the Q&A is to promote common supervisory approaches and practices in the application of the UCITS Directive1 and its implementing measures. This briefing provides a summary of ESMA's responses to the questions posed by the general public and competent authorities under each of the six headings in the Q&A. Preparation of KIID by UCITS that are no longer marketed to the public or by UCITS in liquidation
Notwithstanding that a UCITS is no longer marketed to the public, an up-to-date version of the KIID should be prepared so that it can be made available to the existing investors who request it. For the same reason (i.e. that an investor may request the KIID), a structured UCITS2, needs to keep its KIID up to date even where the UCITS is no longer marketed to the public.
When a UCITS is in liquidation there is no obligation to prepare a KIID.
Communication of KIID to Investors
Existing investors should be provided with a KIID when they subscribe for units of the same class in a sub-fund on the basis that the KIID is a pre-contractual document and each such additional subscription is a new contract. However, where unit holders in a UCITS invest through a regular savings plan, a KIID is not required in relation to the periodic subscriptions, unless a change is made to the subscription arrangements which would require a new subscription form. This interpretation is consistent with the approach adopted by the Central Bank of Ireland in relation to additional subscriptions.
Existing investors within a UCITS umbrella fund who exchange units in one sub-fund for units in another subfund must receive the KIID for the sub-fund into which they exchange units.
The Q&A confirmed that all prospective investors, including professional investors, must be provided with a KIID.
Treatment of UCITS with Share or Unit Classes
The Q&A confirmed that information relevant to two or more share classes may be combined into a single KIID provided the resulting KIID complies in full with all KIID requirements (including the limit on length). Also, a UCITS may select a class to represent one or more other classes of the UCITS provided the information in the KIID is fair, clear and not misleading to prospective investors in those other classes. Where charging structures differ between classes, the share class with the highest overall charge is the most appropriate representative share class to avoid the risk of understating charges. However, it is the responsibility of the UCITS to select the most appropriate representative share class having regard to the characteristics of the UCITS, the nature of the differences between share classes in the UCITS and the range of choices on offer to each investor.
Past Performance
If a UCITS does not yet have performance data for one complete calendar year (and is not a UCITS which may provide simulated data for past performance), a statement that there is insufficient data to provide a useful indication of past performance should be included in the KIID. There is no need to accompany that statement with a blank performance chart.
Where a UCITS refers to an index in its investment objectives and policies as a benchmark against which it will measure the fund's performance but does not intend to track the index, it is necessary to include a bar showing the performance of the benchmark index in the bar chart alongside each bar showing the UCITS past performance. It should be made clear in the past performance section of the KIID that the performance is not tracking the index.
Where a UCITS refers to an index in its investment objectives and policies (for example as an indication of the universe from which investments may be selected) but does not intend to measure performance against that index, it is not necessary to refer to the index in the past performance section of the KIID.
When there is no data available for a particular year, the year should be shown as blank in the bar chart with no annotation other than the date.
Where a material change occurs to a UCITS' objectives and investment policy during the period displayed in the bar chart, the UCITS' past performance prior to that material change shall continue to be shown. Therefore, if the benchmark is modified, the bar chart should display the performance of the previous benchmark for the period preceding the change. A statement indicating this change should also be included in the past performance section.
Past performance figures shall be calculated on the basis that any distributable income of the fund has been reinvested. Therefore, where available, the performance of the benchmark with reinvestment of revenues should be used in the bar chart alongside the UCITS' past performance. Where such a benchmark does not exist, an appropriate disclosure highlighting that the benchmark does not take into account the reinvestment of revenues should be included in the KIID.
Clear Language
A glossary can be signposted but the use of a glossary should not result in too many cross-references. The complete name of the fund can be shown when first mentioned and then simply referred to as "the Fund" thereafter in the KIID and the same approach can be taken for share classes of funds with a reference to "the share class of the fund" in the KIID.
Identification of the Ucits
Only the name of the UCITS management company should be disclosed in the KIID, the name of the investment manager(s) of the UCITS, if any, should not be disclosed in the KIID.
Conclusion
Once again, the issue of a Q&A by ESMA proves to be a useful way to address some of the interpretations of the KIID Regulations3. However given the KIID implementation deadline of 30 June 2012, it would have been useful if it had been issued in advance of that deadline. Please see the following website address for the full text of the ESMA Q&A: http://www.esma.europa.eu/system/files/2012-592.pdf
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
