In November 2021, a question on fee rebate arrangements was added in the ESMA FAQ on UCITS.
In fact, ESMA did not answer itself but forwarded the question to the EU Commission (as allowed by Article 16b (5) of the ESMA Regulation).
The question relates to the applicability of the UCITS inducement rules (i.e. Article 29 of the UCITS Level 2 Directive):
- to rebate arrangements where UCITS management companies ("UCITS Mancos") pay these rebates from their own resources (payment vis-à-vis an individual investor);
- the payment of fees by UCITS Mancos from their own resources to separate investors (e.g. by concluding side letters with institutional investors, subscribing investment fund units on behalf of their clients).
The EU Commission in the first part of its reply verifies the application of the UCITS inducement rules in this case. According to the EU Commission, as management fee discount arrangements entail payments to certain investors based on the fees charged by the UCITS Mancos to remunerate investment management and/or administration activities, they should be analysed as payments for the activity of the investment management and administration of the UCITS and therefore as falling within the scope of the UCITS inducement rules. The EU Commission states that UCITS Mancos must be able to provide accurate and documented justifications upon national competent authorities' request.
The analysis made by the EU Commission in its reply is surprising in view of the texts in question. To date, to our knowledge, the CSSF has not officially commented on this position.
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