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RBC Dexia Investor Services

© 2010 RBC Dexia Investor Services Limited. RBC Dexia Investor Services Limited is a holding company that provides strategic direction and management oversight to its affiliates, including RBC Dexia Investor Services Bank S.A. and RBC Dexia Investor Services Trust, which operates in the U.K. through a branch authorized and regulated by the Financial Services Authority. All are licensed users of the RBC trademark (a registered trademark of Royal Bank of Canada) and Dexia trademark, and conduct their global custody and investment administration business under the RBC Dexia Investor Services brand name.

These materials are provided by RBC Dexia Investor Services for general information purposes only. RBC Dexia Investor Services makes no representation or warranties and accepts no responsibility or liability of any kind for their accuracy, reliability or completeness or for any action taken, or results obtained, from the use of the materials. Readers should be aware that the content of these materials should not be regarded as legal, accounting, investment, financial, or other professional advice, nor is it intended for such use. ™ Trademark of RBC Dexia Investor Services Limited.

3

Foreword

I am pleased to introduce “Target 2011: Preparing for the new UCITS IV implementation measures,” an analysis of the latest draft implementation measures and practical implications surrounding the forthcoming launch of UCITS IV in 2011.

The funds industry prepares for UCITS IV implementation at a time of great change, following a global financial crisis set to reshape many aspects of the investment landscape. As the industry seeks to generate fresh growth, the new flexibility offered under UCITS IV is welcomed by many investment professionals keen to build on the worldwide success of the UCITS brand.

Each new UCITS Directive is the result of a substantial collective effort involving EU policy makers, regulators, industry associations and market participants based on a shared objective of continuously improving the efficiency of the legal framework, sustaining the continuous growth of UCITS funds to the benefit of the asset management community and the end investors.

The success of UCITS to date also owes much to the efforts of the European fund servicing centres of Luxembourg and Ireland, which have driven cross-border distribution of UCITS funds and have helped position UCITS as a global cross-border investment brand.

Against this backdrop, information and analysis surrounding the impending launch of UCITS IV are critical in helping investment professionals prepare for the next market evolution and the development of new strategies and products.

RBC Dexia Investor Services ("RBC Dexia") continues to place major focus on this important area. In 2009, we released “Towards the next generation: moving from UCITS III to UCITS IV”, a guide intended to give product

specialists, members of legal teams and other market professionals a detailed understanding of the new features set to be introduced under UCITS IV. RBC Dexia also combined with consulting specialist KPMG to launch a major study report “UCITS IV: Which business model for tomorrow?” assessing market preparation for the latest wave of change.

This publication is designed to further enhance industry understanding of the implementing (Level 2) measures prepared by the European Commission to clarify provisions of the existing UCITS IV Directive (Level 1), providing a detailed overview and analysis of the latest developments, potential advantages and attention points for clients and market players.

The implementation of the UCITS IV measures will be complex and may raise a number of technical issues as the industry will be facing the challenge of the implementation of harmonised regulation across markets that are not themselves harmonised and boast a wide variety of rules, responsibilities and tax regimes of their own. Although the overall legal framework surrounding UCITS IV is sound, market players will need time to become confident with the new features and allow the processes to mature as new operating models are tested and best practice emerge.

With the stage now fully set for full UCITS IV implementation next year, we hope that you will find this document informative and useful as you build your business and the global funds industry prepares to embrace this next generation of UCITS products.

Jean-Michel LoehrChief Industry & Government RelationsRBC Dexia Investor Services

Methodology & user guide

This report has been divided into key UCITS IV topics with uniform sections for ease of use throughout which include:

I.Explanatory commentsproviding key background information on each topic covered

II.Client benefitsoutlining key advantages for fund promoters from the changes described throughout

III.Key featuresproviding a global overview of aspects of both the European UCITS IV Directive as voted on in 2009 and on Level 2 implementation measures* as contained in the latest draft texts

IV. RBC Dexia viewsproviding our own global synthesis analysis of key components of topics covered in each headline subject area

V. Analytical tableproviding a detailed review of: � the EU Directive by article � relevant L2 implementing measures and potential

additional recommendations � RBC Dexia attention points listing key points to note

from articles addressed in each table

*As indicated in the UCITS IV Directive, it was the Commission’s intention to adopt implementing measures supposed to fix additional rules not contained in the Directive itself.

Under the Lamfalussy process, the framework legislation is also called Level 1 (“L1” ) whereas the implementing measures will be referred to as Level 2 (“L2”).

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Management company passport

Mergers

Notification process

Master-Feeder funds

Key Investor Information (KII)

Supervisory cooperation

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12

23

28

36

46

6

Management companypassportDirective - Art. 6 – Art. 21

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I. Explanatory comment

The management company passport translates into the possibility: a) for a UCITS to appoint a management company

established in another Member State orb) for a management company to establish and

manage a UCITS in another Member State.

So-called “substance” criteria (minimum capital requirements, human and technical infrastructure) introduced through UCITS III are still valid under UCITS IV.

II. Client benefits

More flexibility for fund promoters to optimise their business models geographically.

Cost savings through economies of scale.

Centralised monitoring of underlying UCITS and elimination of ineffective arrangements (e.g. delegation).

III. Key features

Authorisation: Access to business subject to prior authorisation by the competent authorities of the management company's home Member State; once granted, authorisation valid for all Member States.

Capital requirements: Identical to those fixedby UCITS III.

Local requirements: No need to have a local representative in UCITS home Member State.

Applicable rules: Necessity to comply with:a) the rules of the management company's home

Member State in relation to the organisation of the management company, including delegation arrangements, risk-management procedures, prudential rules and supervision.

b) the rules of the UCITS home Member State in relation to constitution and functioning of the UCITS.

Level 2 - Implementation measures

Detailed requirements on administrative procedures, conflicts of interest handling and rules of conduct.

Maximum alignment with the Markets in Financial Instruments Directive (MiFID), while taking into account the specifics of the UCITS environment.

Focus on the content of the agreement to be drawn up between the management company and the UCITS depositary.

IV. RBC Dexia views

� The concepts of organisational requirements and conflicts of interest relating to UCITS are not new (as they correspond to the so-called substance criteria already introduced under UCITS III) but this is the first time that a more concrete and overarching guidance is given on how to put these theoretical concepts into practice.

� The passport comes with a number of constraints linked to managing cross-border, multi-jurisdictional situations, so that potential savings are coupled to additional requirements, liabilities and costs. Promoters will be well advised to balance out the different aspects before making their decision. We feel that there are still valid arguments in favour of proximity and a shared legal environment for the different parties involved.

� Seeking maximum alignment of UCITS with the MiFID rules in this area will contribute to a harmonised EU legal framework and help to create a level playing field between UCITS management companies and MiFID regulated firms. We believe, however, that these new prudential rules might lead to additional costs for existing (not yet MiFID compliant) management companies (related to staff, technical tools etc) and raise the bar for new entrants.

� We understand that in case of delegation, the third party needs to fulfill all the prudential rules in relation to the activity carried out. This implies inter alia that the requirements could be different, depending on the activity fulfilled. L2 texts do not, however, determine what precise requirements are linked to any specific activity a delegate service provider would need to respect.

� It is not clear whether the payment of distribution fees to externally appointed distributors falls under the exemptions quoted in the “inducements” section. Our current understanding is that payment of fees is allowed, subject to meeting the conditions of enhancing the quality of relevant services, not creating conflicts of interest and of being disclosed to investors.

� The (very) detailed proposals on the content of the agreement to be concluded between a management company and a depositary bank might possibly imply some conflict between respective national laws and regulations (e.g. anti-money laundering clauses, liability issues, prescriptions on termination etc) and ignore the differences that at present exist with respect to depositary responsibility across Member States.

� The requirement that the agreement mentioned above will be governed by the national law of the UCITS home Member State will also impact management companies, in the sense that a management company located in another Member State than the depositary will need to be aware (and keep updated) on all the relevant laws of the UCITS national country as well as interpretations of such laws.

8 | Management company passport

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V. Analytical table

Level 1 (Art. 6 > 21)

Level 2 Implementation measures

RBC Dexia attention points

Prudential rules (Art. 12)Each Member State shall draw up prudential rules which management companies authorised in that Member State, with regard to the activity of management of UCITS authorised according to this Directive, shall observe at all times.

Rules of conduct (Art. 14)Each Member State shall draw up rules of conduct which management companies authorised in that Member State shall observe at all times.

Administrative procedures:Need to establish, implement and maintain systems and procedures in a number of fields such as: � process of decision-making � business continuity policy � security, integrity and confidentiality

of information � complaints handling � accounting procedures � responsibility of senior management � internal audit and compliance function � risk management � personal transactions � recording of portfolio transactions and

of subscription and redemption ordersManagement companies are requested to employ personnel with sufficient skills, knowledge and expertise.

Conflicts of interest:Establish procedures for: � the identification and the

management of such conflicts of interest including the requirement of independence for the persons managing conflicts of interest

� keeping and regularly updating a record of all conflicts of interest that have arisen

� managing non-neutralised conflicts of interest

Management companies have to develop strategies to define how voting rights (attached to managed portfolios) are to be handled.

Rules of conduct: Obligation to act in the best interests of the UCITS and its shareholders and to ensure market integrity. Additional obligations in respect of: � reporting of subscription and

redemption orders � guidelines on order executions

being executed directly or through intermediaries

� principles on the handling of orders � specific obligations that were

considered critical under MiFID such as rules on inducements

The L2 provisions should apply to both management companies and investment companies that have not designated a management company (i.e. self-managed UCITS), taking into account the principle of proportionality.

Aggregation of orders (with another UCITS or another client) are only permitted if it is unlikely that this aggregation will work to the disadvantage of any UCITS or another client or clients and an order allocation policy must be established and implemented.

Management company should make appropriate information on their policy available to unitholders when placing orders on behalf of the managed UCITS. This policy also needs to be reviewed annually.

10 | Management company passport

Level 1 (Art. 6 > 21)



Delegation (Art. 13 + 19)1. If the law of the management company's home Member State allows management companies to delegate to third parties to achieve a more efficient conduct of the company’s business, to carry out on their behalf one or more of their own functions, the preconditions as set forth in Art. 13 will have to be complied with.The liability of the management company will not be affected by this delegation.2. The rules of delegation will be fixed by the management company’s home Member State.

The third party will have to fulfill all of the organisational and conflicts of interest requirements in relation to the activity to be carried out.

The corresponding article of the L1 Directive creates the need for fund promoters to know which country will allow (and under which conditions) a delegation of tasks to a third party provider as these rules may vary from country to country.

In case of delegation, the third party must fulfill all the organisational and conflicts of interest requirements in relation to the activity to be carried out. It also implies that the management company will have to verify that the third party has taken the appropriate measures in order to comply with the outlined requirements and will have to monitor effectively the compliance by the third party of these requirements.

Agreements (Art. 23.5 + 33.5)Where the management company's home Member State is not the UCITS home Member State, the depositary shall sign a written agreement with the management company regulating the flow of information deemed necessary to allow it to perform the necessary functions.

The agreement shall include a description of the procedures relating to safekeeping, transmission of and access to information and how to measure the tasks performed by each party.Other elements are related to the exchange of information and to obligations on confidentiality and money-laundering, to the appointment of third parties and to potential amendments and termination of the agreement.

According to the Committe of European Securities Regulators (CESR), this framework agreement should also be applicable in a domestic context.

There is no obligation to enter into a specific written agreement for each UCITS; it will be possible for the management company and the depositary to enter into a framework agreement listing the UCITS to which it applies.

The agreement between the management company and the depositary should be governed by the national law of the UCITS (i.e. depositary) home Member State.

Investment companies should not be treated differently from contractual funds.

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12

MergersDirective - Art. 37 - Art. 48

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“Mergers” means the merger, consolidation, or simultaneous purchase or sale of substantially all the net assets between an investment fund or sub-fund and another investment fund or sub-fund. � A domestic merger occurs:

between two or more UCITS established in the same Member State

� A cross-border merger occurs: between UCITS that are established in different Member States

It is worth noting that domestic mergers can still have an impact outside their own Member State, as underlying investors may be domiciled in another Member State. This point is particularly important for tax purposes. Non UCITS are not covered by this Directive. A fund provider that wishes to merge a non-UCITS fund into a UCITS fund under this framework would need to convert the former into a UCITS fund in advance of the merger.

II. Client benefits

Facilitate consolidation of product ranges.

Foster economies of scale.

Simplify daily fund operations.

III. Key features

Three types of mergers: (i) via absorption (ii) via creation of a new fund (iii) via a scheme of amalgamation, widely used in common law jurisdictionsOther national merger techniques remain untouched and stay valid within a domestic context. Merger techniques applied must be provided for under the laws of the merging UCITS home Member State.

Rules on mergers and related investor safeguards apply in the same way to both cross-border and domestic mergers (including merging compartments) and covers all UCITS, of both corporate and non-corporate type.

Authorisation: Both the merging/dissolving and receiving funds should be authorised as UCITS before the merger can proceed. In addition, the receiving fund must be registered for marketing in each Member State where the merging/dissolving fund was registered.

Investment policy: No requirement/restriction as regards comparability or similarity of the merging/dissolving and receiving fund.

Regulatory approval: Competent authorities of the merging/dissolving fund(s) would have to give their approval before the merger could be presented to unitholders (including for a vote where this is required under national law). Authorisation granted within 20 working days of submission of a complete file by the merging/dissolving fund(s). Refusal only in the case of non-compliance with envisaged measures. Competent authorities of the receiving fund not required to approve the merger and have no right to veto the transaction.

Investor information: Investors in the merging/receiving fund have the right to receive all relevant information.

Investor voting rights: Right to vote determined by reference to national law. If voting rules exist, the maximum limit required is set at 75% of the votes cast.

Investor redemption rights: Possibility to exit the merging/receiving fund free of charges at the latest five days prior to merger exchange ratio calculation.

Costs: Legal, advisory or administrative costs not borne by unitholders except for self-managed SICAVS.


Focus on the content of the information to be provided to unitholders of both the merging and receiving UCITS.

Choice of the medium to use when providing this information.

Delivering of the key investor information document during merging process.

IV. RBC Dexia views

� The requirements to notify the unitholders of both the merging and the receiving UCITS in any circumstances will present additional constraints and material financial burdens for UCITS. We have previously highlighted that some mergers would not have any impact on the unitholders of the receiving UCITS, in particular where the receiving UCITS is significantly larger than the merging UCITS. New communication requirements will create an added burden for the different intermediaries in the distribution chain as they channel the information to the end investor, with unforeseen costs and liabilities likely to be incurred at all levels. Such costs and burdens may outweigh the benefits of the economies of scales resulting from a merger and encourage liquidations of subscale UCITS rather than their mergers.

� Depositaries and intermediaries will be reluctant to take on additional responsibilities in the unitholder communication process, as foreseen by the measures, in an unharmonised multi-domestic framework.

� Given the complexity of the procedure to follow, we expect that most of the mergers will be performed prior to the entry into force of the new legislation.

� As long as some tax implications at fund and unitholder level remain unresolved, UCITS and their management companies may be deterred from fully exploiting this opportunity.

14 | Mergers

15

V. Analytical table

Level 1 (Art. 37 > 48)



Merger Techniques (Art. 37)Three types of merger techniques will be considered:a) merger by way of absorptionb) merger by formation of a new

fundc) scheme of amalgamation/

arrangement

No additional elements given. As the merger technique used for cross-border mergers must be provided for under the laws of the merging UCITS home Member State, Member States will have to decide which technique to provide for under their domestic law (i.e. not all countries might allow all 3 types).

New cross-border merger rules also apply to existing domestic and intra-umbrella mergers (L1 art. 38).

Authorization of Merger (Art. 39)The competent authorities of the merging UCITS shall grant authorization of the proposed merger if it complies with all the conditions set out in Articles 39 to 42 of L1 Directive. In addition, the competent authorities of the merging UCITS shall only grant authorisation if the receiving UCITS has been notified to mar-ket its units in all Member States where the merging UCITS is/are either authorised or has/have been notified to market its units.

No additional elements given, however it was CESR's understanding of the Directive that a Member State cannot restrict the right of two UCITS to merge provided they comply with all the relevant Directive requirements. For example, a Member State cannot prevent a UCITS that is a money market fund from merging with a UCITS investing in equities, provided its competent authorities are satisfied with the information to be provided to unit holders and all procedural requirements are fully complied with.

L 1 art. 39.4 carries an obligation to know exhaustively where the involved UCITS are respectively registered in order to align the registration countries of the receiving fund with the registration countries of the merging fund(s).

16 | Mergers

Level 1 (Art. 37 > 48)



Draft terms of merger (Art. 40.1)The common draft terms of merger shall include at least the following particulars:a) an identification of the type

of merger and of the UCITS involved

b) the background to and rationale for the proposed merger

c) the expected impact of the proposed merger on the unitholders of both the merging and the receiving UCITS

d) the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio

e) the calculation method of the exchange ratio

f) the planned effective date of the merger

g) the rules applicable, respectively, to the transfer of assets and the exchange of units and depending on the merger technique in use

h) the fund rules or instruments of incorporation of the newly constituted receiving UCITS

No additional elements given.

Depositary approval (Art. 41)Member States shall require that the depositaries of the merging and of the receiving UCITS verify the conformity of the particulars set out in points (a), (f) and (g) of the draft terms of merger with the requirements of this Directive and the fund rules or instruments of incorporation of their respective UCITS.

No additional elements given. New duty and liability for depositaries not existing under UCITS III.

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Level 1 (Art. 37 > 48)



Exchange ratio (Art. 42)The law of the merging UCITS home Member States shall en-trust either a depositary or an independent auditor to validate, amongst other points the calcu-lation method of the exchange ratio as well as the actual ex-change ratio.

A copy of the reports of the independent auditor, or, where applicable, the depositary shall be made available on request and free of charge to the unitholders of both the merging UCITS and the receiving UCITS and to their respective competent authorities.

No additional elements given. Dependent on Member State implementation choice; possible ac-crued responsibility for the deposi-tary that was not requested under UCITS III.

18 | Mergers

Level 1 (Art. 37 > 48)



Information of unitholders (Art. 43)That information shall be provid-ed to unitholders of the merging and of the receiving UCITS only after the competent authori-ties of the merging UCITS home Member State have authorised the proposed merger.It shall be provided at least 30 days before the last date for requesting repurchase or redemption.It shall include the following:

a) The background to and the rationale for the proposed merger.

b) The possible impact of the proposed merger on unithold-ers, including but not limited to any material differences in respect of investment policy and strategy, costs, expected outcome, periodic reporting, possible dilution in perform-ance, and, where relevant, a prominent warning to inves-tors that their tax treatment may be changed following the merger.

c) Any specific rights unitholders have in relation to the pro-posed merger, including but not limited to the right to ob-tain additional information, the right to obtain a copy of the report of the independent au-ditor or the depositary on re-quest and the right to request the repurchase or redemption or, where applicable, the con-version of their units without charge and the last date for exercising that right.

d) The relevant procedural as-pects and the planned effec-tive date of the merger.

e) A copy of the key investor information of the receiving UCITS.

L1 art .43 does not imply that the informa-tion provided to the unitholders of themerging and the receiving UCITS must be identical. Indeed, it would be illogical to do so as existing unitholders in the receiving UCITS should already have sufficient infor-mation about its aims and manner of oper-ation. The information needs of unitholders in the merging UCITS, on the other hand, are likely to be more substantial. Conse-quently, L2 principles distinguish between two sets of information.

The principles define contents and format of information to be delivered to both merging and receiving UCITS whereby both practical (e.g. the procedure by which unitholders will be asked to approve the merger proposal) and product driven in-formation (e.g. details of any differences in the rights of unitholders, comparison of charges, fees and expenses) is to be given.

The information should be personally ad-dressed to unitholders either on paper or in another durable medium such as elec-tronic mail (email). UCITS should also be able to provide the information by passing it on to the depositary or to intermediaries provided that it is ensured that all unithold-ers receive the information in due course.

Where the information is to be provided to unitholders using a durable medium other than paper, the latter have to be offered the choice and positively express them-selves in favour of the non paper format.

The level 2 provisions on information are only relevant and only apply to the merging process as set forth in L1 Directive. Member States may regulate the provision of other types of information to unitholders by national rules. This lack in harmonisation of unitholders information duties was already highlighted by CESR and thus continues to subsist.

According to the choice granted to unitholders on the method of providing the information, the institution in charge of record keeping will be under the obligation to contact and store a response from each single unitholder.

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Level 1 (Art. 37 > 48)



Approval by unitholders (Art. 44)Where the national laws of Member States require approval by the unitholders of the merging UCITS and/or the receiving UCITS of mergers between UCITS, Member States shall ensure that this decision shall require not more than 75% of the votes attached to the units/shares present or represented at the general meeting of unitholders/shareholders.

Additional details in the notice to merging shareholders in case local law requests their prior approval.

Art. 44 implies the necessity to know the voting thresholds of the relevant home Member State of the UCITS involved in the merger when preparing the legal set-up.

Right to redeem (Art. 45)Unitholders of the merging and the receiving UCITS have the right to redeem their units/shares without charge other than those retained to cover disinvestment costs. This right shall become effective from the moment the merging UCITS and the receiving UCITS unitholders are informed up until five working days preceeding the exchange ratio calculation day.


Costs (Art. 46)Except in cases where UCITS have not designated a management company (self-managed SICAV), Member States shall ensure that any legal, advisory or administrative costs associated with the preparation and the completion of the merger shall not be charged to the merging or the receiving UCITS, or to any of their unitholders.

No additional elements given. Necessity to assess those costs and proceed to a detailed cost-benefit analysis prior to take any decision.

We wonder whether the terms “legal, advisory or administrative costs” encompass all costs linked to a merger or, on the contrary is this enu-meration precisely meant to restrict the scope?

20 | Mergers

Level 1 (Art. 37 > 48)



Entry into effect of the merger (Art. 47)1. For cross-border mergers, the laws of the receiving UCITS home Member State shall determine this date. Member States shall ensure that, where applicable, the date of entry into effect is after the approval of the merger by unitholders of the receiving UCITS or the merging UCITS.

2. The entry into effect of the merger shall be made public through all appropriate means in the manner prescribed by the laws of the receiving UCITS home Member State, and shall be notified to the competent authorities of the home Member States of the receiving and the merging UCITS.

No additional elements given. L1 Art. 47.1 requires reference to the applicable law of the relevant Member State to know which date will be applicable.

L1 Art. 47.2 requires awareness of the communication rules in the Member State of the UCITS involved in the merger and preparation of a corresponding draft notification letter aimed at supervisory authorities.

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22

Notification processDirective - Art. 91 – Art. 96

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The UCITS Directive of 1985 introduced a product passport and a registration procedure in order to create a pan-European retail investment funds market.

The prevailing two month approval procedure is now replaced by a simple “regulator to regulator” notification process which will speed up the time to access foreign markets and whose language regime is modelled on the approach laid down in the Prospectus Directive1.

II. Client benefits

Reduced time to market.

Lower costs (legal, administrative, translationand printing).

Increased transparency and certainty of process.

III. Key features

Documents to submit to home competent authorities: Notification letter containing description of arrangements for marketing (cf. point three below) + KII + UCITS legal documentation.

Language: KII= local language of the target host Member States. Other documents (prospectus, rules of the fund or instruments of incorporation and annual report) + notification letter = local language of the target host Member States or “language whose use is customary in the sphere of international finance” (those languages are not defined at this stage).

Marketing arrangements: Details relating to local subscription and redemption facilities for local unitholders, paying agent facilities, facilities for distribution of obligatory disclosures to investors, general information about proposed distribution channels and a contact point where lists of distributors can be obtained.

Transmission delays: No later than 10 working days after the date of receipt of the notification letter and complete file by the home Member State authority (transmission by electronic means). UCITS notified about the transmission.

Start marketing: Immediately after the transmission of the notification by home authorities.

Power of host Member State: No power to ex-ante oppose the marketing, including on concerns on compliance with non-harmonised marketing provisions of domestic law. Such domestic rules will, however, have to be respected by the UCITS and made publicly available by each Member State.


Content and format of a standard notification letter.

Form and content of the UCITS attestation.

List of the information to be made accessible by Member States via electronic means.

Procedure to respect in case of amendments of any documents submitted during initial notification.

1. DIRECTIVE 2003/71/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading.

IV. RBC Dexia views

� By creating a different process for initial notification (Regulator to Regulator) and subsequent changes (UCITS to Regulator) legislators may have missed an opportunity to move standardisation and automation forward and could force regulators to face flows of uncontrolled communications from an open number of UCITS from all over the EU.

� We favour the arrangements made for the domestic marketing rules, not covered by the Directive, to be presented in a homogeneous format by the respective supervisory authorities. Any changes to the host State marketing arrangements should be clearly published on the host State’s website and introduced with a prior notice, in order to allow fund promoters to fully benefit from the faster notification process and reduce the uncertainty resulting from possible ex-post reactions for non-compliance with domestic rules.

� Notwithstanding the foregoing, we advocate additional standardisation in the domestic marketing rules which should not encourage non-value added and non-harmonised practices in the host States.

� Due to quicker and cheaper access to foreign markets, strong likelihood to see an increase in the number of marketing countries (and number of new distribution arrangements). As a conclusion, we see potential cost savings in the new notification procedure, provided that an efficient electronic communication process is established between Member States and that the application of the new rules is carried out in good faith between them.

24 | Notification process

25

V. Analytical table

Level 1 (Art. 91 > 96)



Notification letter + Attestation(Art. 93)If a UCITS proposes to market its units in a Member State other than that in which it is established, it must first submit a notification letter to the competent authorities of its home Member State. The notification letter shall include information on arrangements made for the marketing of units of the UCITS in that other Member State.

Standard models for both the notification letter and attestation are to be provided.

In order to complete notification letter need to know the details on paying agents (if applicable) and marketing arrangements beforehand.

Language (Art. 93.2 + 94.1, b, d)Key investor information shall be translated into the official language(s) of the UCITS host Member State or into a language approved by the competent authorities of that Member State.

No additional elements given. Need to know which languages are approved in any given Member State as well as a harmonised definition of “language customary in the sphere of international finance”.

Transmission (Art. 93.3)The competent authorities of the UCITS home Member State shall transmit the complete documentation to the competent authorities of the host Member State no later than 10 working days after receipt of the notification letter. Upon the transmission of the documentation, the authorities of the UCITS home Member State shall immediately notify the UCITS about the transmission. The UCITS may access the market of the UCITS host Member State as from the date of that notification.


26 | Notification process

Level 1 (Art. 91 > 96)



Subsequent modifications (Art. 93.8)In the event of a change in the information regarding the arrangements made for marketing or a change regarding share classes to be marketed, the UCITS shall give written notice thereof to the competent authorities of the host Member State before implementing the change.

UCITS must notify by email the host Member State of any update or amendment to the documents submitted during the initial notification. The UCITS may either describe the amendment or provide for a new version (as attachment) of the amended document.

The L2 measures do not specify how the description of the amendment addressed to host Member State should look.

Information on the marketing of UCITS (Art. 91.3)Member States shall ensure that complete information on the laws, regulations and administrative provisions which do not fall within the field governed by this Directive and which are specifically relevant to the arrangements made for the marketing of units of UCITS, established in another Member State within their territories, is easily accessible from a distance and by electronic means. Member States shall ensure that that information is available in a language famililiar to those working in international finance, is provided in a clear and unambiguous manner and is kept up to date.

Next to information on local marketing rules, each Member State should also provide details on registration fees, requirements for any reporting or transmission of information to the competent authorities as well as the electronic mail address designated for the purpose of transmitting updates of documents.

This requirement imposed on each Member State supervisory authority should facilitate promoter’s search when looking for the legislative provisions in relation to domestic marketing requirements.

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28

Master-Feeder FundsDirective - Art. 58 – Art. 67

29


The objective is to achieve economies of scale by facilitating asset poolings on a domestic and cross-border basis.

Together with the existing “virtual pooling” as permitted by some Member States, UCITS IV is introducing Master/Feeder “entity pooling” allowing UCITS Feeder funds established in one Member State to feed their assets into a UCITS Master fund established in the same or in other Member State.

II. Client benefits

Cost efficiencies via pooling of assets and centralisation of core investment management resources.

Ease of tailoring products to domestic constraints or client segment needs.

Cost efficient way to test new markets or distribution channels.

Disassociation of marketing constraints from cost of managing (e.g. running different product brands or ranges within one hub).

III. Key features

Investments (Feeder fund level): Minimum 85% into a single Master fund. Investments in one Master fund only. No or limited investment policy role of its own. Limited possibility to use derivatives to impact the Feeder fund performance or to hedge currency risks.

Characteristics: Both Master and Feeder are UCITS. Both must be fully compliant with all provisions of the UCITS Directive – as regards the provisions governing risk man-agement controls, governance structures, appointment of depositaries etc. Possibility to appoint and employ same management company (including on the basis of the management company passport), depositary (where domiciled in same jurisdiction) and auditor.

Authorisation: Provided the envisaged provisions are complied with, investment of a Feeder into a Master fund subject to permission by Feeder fund competent authorities. Supervisory authorities should allow existing UCITS to be converted into a Feeder UCITS – subject to requirements to inform investors of the pending change in investment policy and offering them the right to re-deem free of charge. Master fund would only need to be authorised as a normal UCITS: no specific authorisation required to assume the role of Master fund.

Information: Information to the Feeder's investors should clearly explain the implications of investing into the Master from both an investment policy and a fees point of view.

Subscriptions: The Master can receive assets from non-UCITS asset gathering vehicles, institutional or individual investors: these non-UCITS investors in the Master fund would not be subject to any harmonised requirements under the UCITS Directive.

Regulatory cooperation: Competent authorities of the Master should communicate without delay any decision or measure taken with regard to the Master to each of the Feeders' competent authorities (as that may have an impact on the Feeder).


Cover the content of the written agreement that should be put in place between the Master and Feeder UCITS, as well as their respective depositaries and auditors.

Contain detailed requirements on the steps to be taken in the case of a liquidation, merger or division of the Master UCITS.

Define the rules for the choice of the applicable law.

IV. RBC Dexia views

� Some aspects surrounding the agreement between Master and Feeder contain matters of an operational and organisational nature, which may be subject to frequent change. They should therefore be supported by documents such as an operating memorandum.

� The obligations for Master depositaries to communicate (any) irregularities which are deemed to have a negative impact on a Feeder UCITS to Feeder depositary, raises important questions on duties and liabilities (i.e. Feeder’s depositary sole judge whether proposed solution is in the interest of the Feeders’ unitholders) and may trigger potential conflicts of interests (e.g. Master depositary tributary on Feeder’s depositary whereas both belong to the same group).

� As indemnification rules and materiality thresholds for errors vary amongst Member States, we would favour (as stipulated in CESR’s advice) to systematically follow the Masters’ home country rules when determining what kind of breaches/irregularities have to be reported by the Master’s depositary to the Feeder's depositary and stipulate them explicitly in the agreement between those two parties. This would warrant consistency and equitable treatment among all shareholders of one entity.

� The lack of clarification with regards to the Master-Feeder consolidation method for calculations of daily global exposures for example, will be key to evaluate the operational impacts. Even if a “look through” approach is theoretically possible, it would appear difficult to apply for each NAV calculation without increasing the costs. We strongly encourage the use of a fund of funds style approach.

� The rules on applicable law for agreements between Master fund and Feeder fund as well as their respective depositories and auditors create a potential danger of lengthy discussions between involved signatories not belonging to the same group. In our view, the law of the Master should always prevail. As Master funds could have to deal with multiple Feeders, this could otherwise result in multiple agreements governed by multiple different laws - leading to complexities, uncertainties and increased legal costs.

� In relation to the bilateral depositary to depositary agreements and for the purpose of avoiding the emergence of a multitude of different conventions and debates on which should prevail, we advocate the creation of one standard set of reporting requirements by the Feeder fund domicile.

� The lack of harmonisation between the depositaries’ roles and responsibilities among the EU Feeder jurisdictions, might lead to some Master depositaries indirectly supporting the requirements of those different regulatory regimes in addition to the obligations in their home Member State.

� Although the taxation aspects are not in the scope, we anticipate that tax issues might create obstacles to the effectiveness of the Master-Feeder structure.

30 | Master-Feeder Funds

31

V. Analytical table

Level 1 (Art. 58 > 67)



Master – Feeder agreement(Art. 60.1)Feeder UCITS, prior to investing in units or shares of a given Master UCITS, will have to enter into an agreement with the Master UCITS which enables the Feeder UCITS to meet the requirements laid down in the Directive.In the event that both Master and Feeder UCITS are managed by the same management company, the agreement may be replaced by internal conduct of business rules ensuring compliance with the requirements set forth in the agreement.

The agreement shall include how access to information is governed, the basis of investment and divestment by the Feeder UCITS, the standard dealing arrangements (e.g. complaints handling) and the events affecting those dealing arrangements, the arrangements in relation to accounting periods and potential related changes as well as prescriptions on the applicable law of the agreement (choice between Master or Feeder jurisdiction).

The internal conduct of business rules shall include the same headings as those detailed above (even if less detailed) and also a section on appropriate measures to mitigate conflicts of interest that may arise between Feeder and Master UCITS. The applicable law is left at the discretion of the parties and shall either be the law of the Member State in which the Master or the Feeder fund is established.

The choice of the applicable law at this stage is important as it will automatically determine the applicable law on both the agreements (“information–sharing agreement”) between depositaries and auditors.

In order to avoid lengthy discussions between parties and with regulators, we encourage the development of “standard” templates.

Information sharing agreement (Art. 61) (Agreement between depositaries)Member States shall require that, if the Master and the Feeder UCITS have different depositaries, those depositaries enter into an information-sharing agreement in order to ensure the fulfillment of the duties of both depositaries.

The agreement shall amongst others include the documents and categories of information to be shared between both depositaries, the co-ordination of accounting year-end procedures, the details of breaches to be reported by the Master depositary while carrying out its depositary function under the national law of its home Member State and the depositary's involvement in relation to operational matters like the procedure to calculate the net asset value of each UCITS.

Details of breaches should be coordinated amongst all Master-Feeder structures so as to avoid any discrepancies among those structures.

New reporting requirements have to be managed according to potentially different home Member States' rules.

Depositaries might consider determining on what basis they will accept a different (non-group) counterparty and within what jurisdictions, as risks, duties and liabilities could vary depending on the configuration.With regard to auditors, we would advocate appointing the same company for both the Master and the Feeder fund (no due diligence, IT flow simplified etc.)


Level 1 (Art. 58 > 67)



Drafting of Feeder Fund Prospectus (Art. 63)This article provides for the details the prospectus of the Feeder UCITS should contain regarding its specific link with the Master fund.

No additional elements given. New set of information to be included in the prospectus.

Reporting (Art. 63.2)In addition to the information provided for in Schedule B of Annex I, the annual report of the Feeder UCITS shall include a statement on the aggregate charges of the Feeder UCITS and the Master UCITS.The annual and the half-yearly reports of the Feeder UCITS shall indicate how the annual and the half-yearly report of the Master UCITS can be obtained.If the Feeder and the Master UCITS have different accounting years, the auditor of the Master UCITS will have to make an ad hoc report on the closing date of the Feeder UCITS.

A distinction is operated between the cases where the accounting years have the same accounting period end and the one where this is not the case.

Synchronisation of accounting years is not mandatory. Nevertheless our recommendation is to synchronise the year-end over the Master-Feeder structure.

Net Asset Value calculation (Art. 60.2)The Master and the Feeder UCITS shall take appropriate measures to coordinate the timing of their net asset value calculation and publication in order to avoid market timing in their units, preventing arbitrage opportunities.

L2 measures only repeat the necessity for the coordination of the frequency and timing of the net asset value calculation process and the publication of prices of units.

Necessity to coordinate the publication of the NAVs; the frequency of the NAV calculation at Master level has to be equal or higher than that of the Feeder.

Feeder dealing cut-off must preceed Master dealing cut-off which has to occur before the valuation point of the underlying assets.

Our recommendation would also be to harmonise the Feeder and the Master holidays calendar.

33

Level 1 (Art. 58 > 67)



Calculation of global exposure (Art. 58.2)A UCITS must ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio.A Feeder UCITS shall calculate its global exposure related to financial derivative instruments by combining its own direct exposure (see Art. 58.2. under point (b) with either:a) The master UCITS’ actual

exposure to financial derivative instruments in proportion to the Feeder UCITS’ investment into the Master UCITS; or

b) The Master UCITS’ potential maximum global exposure to financial derivative instruments provided for in the Master UCITS’ fund rules or instruments of incorporation in proportion to the Feeder UCITS investment into the Master UCITS.

No additional elements given. Depending on the approach chosen, (look-through or “fund of funds”), technology and operational adjustments will be necessary. Our recommendation would be to fix a percentage at the Master level ("potential maximum global exposure"), which would mean an easier measurement of the Feeder’s participation. In case of look-through processing, we wonder which fre-quency should be applied and whether the management company or the fund administrator would be in charge of this control?

Our recommendation is to harmonise the definition of the "global exposure" within the Master-Feeder structure in order to avoid a look through processing logic.

Fees and Commissions (Art. 65.2) � The management or

investment company of the Feeder UCITS would be obliged to pay all commissions it has received by virtue of the investment into the Master UCITS into the assets of the Feeder UCITS.

� The Master UCITS may not charge subscription or redemption fees for the Feeder UCITS’ investment into its units or shares or the divestment thereof.

No additional elements given. These fees could be calculated at both levels but should be reported globally in the financial report of the Feeder and included in the TER calculation.


Level 1 (Art. 58 > 67)



Liquidation of the Master UCITS (Art. 60.4)If a Master UCITS is liquidated, the Feeder UCITS shall also be liquidated, unless the competent authorities of its home Member State approve:a) The investment of at least

85% of the assets of the Feeder UCITS in units of another Master UCITS; or

b) The amendment of its fund rules or instruments of incorporation in order to enable the Feeder UCITS to convert into a UCITS which is not a Feeder UCITS.

L2 measures list the documents a Feeder fund has to provide to its competent authorities in both the cases foreseen by article Dir. 60.4 whereby a difference is to be made whether the Master informed the Feeder of its intention to liquidate with a prior notice of more or less than five months.

Upon completion of the submission of the documents referred to above, a Feeder fund should be granted authorisation by its supervisory body within 15 working days.

The (very) detailed timeframe given at L2 level is so tight that it is key to define specific milestones in advance. Despite the various possibilities offered, a consequent liquidation of the Feeder fund seems to be the most viable solution.

In case of liquidation of the Feeder, our recommendation is to assign one single liquidator for both Master and Feeder to facilitate (in terms of both time and cost) the process.

Merger or sub-division of the Master UCITS (Art. 60.5)If a Master UCITS merges with another UCITS or is divided into two or more UCITS, the Feeder UCITS shall be liquidated, unless the competent authorities of the Feeder UCITS home Member State grant approval to the Feeder UCITS to:a) Continue to be a Feeder

UCITS of the Master UCITS or another UCITS resulting from the merger or division of the Master UCITS;

b) Invest at least 85% of its assets in units of another Master UCITS not resulting from the merger or the division;

c) Amend its fund rules or its instruments of incorporation in order to convert into a UCITS which is not a Feeder UCITS.

L 2 measures list the documents a Feeder fund has to provide to its competent authorities in all the cases foreseen by article Dir. 60.5 whereby a difference is to be made whether the Master informed the Feeder of its future intention with a prior notice of more or less than four months. Upon completion of the submission of the documents referred to above, a Feeder fund should be granted authorisation within 15 working days from its supervisory body.

Similar to the previous case, a detailed timeframe is given on when and what action needs to be undertaken, which again leaves little time for decision taking.

35

36

Key Investor Information (KII)Directive - Art. 78 – Art. 82

37


Investors should receive clear, easily understandable and relevant information when they want to invest in UCITS. The Simplified Prospectus introduced in 2001 has proven to be an additional source of unnecessary costs for the industry and a document of very limited use to investors. As such, the simplified prospectus is to be replaced by the Key Investor Information Document (“KIID”) concept. The KIID will be a single document giving key facts (prescribed content, titles and order) to investors in a clear and understandable manner, avoiding the use of technical language.

II. Client benefits

Clear and understandable information and improved product comparability should increase end investors’ trust & product understanding.

Prescription of content ensures security about what needs to be included and offers increased comparability.

Possibility of electronic delivery.

III. Key features

Support: To be provided to potential investors in a durable medium or by means of a website and prior to purchasing units in a fund. Paper copy to be delivered to the investor upon request and free of charge.

Disclosures: Should be fair, clear and not misleading and consistent with the relevant parts of the (full) prospectus.

Cost information: KIID to include information about costs relating to the purchase, exchange or redemption of units, ongoing charges, performance fees, risks and other essential characteristics which would have an important bearing on the investment. Fund would not be held responsible for disclosure of advisory or sales related fees which are charged separately from the product. It should be for intermediaries to disclose costs or fees arising from their role in the sales/advisory process.

Practical information: Should be conveyed to investors to enable them to understand the nature and the risk of the investment product and to take investment decisions on an informed basis.

Product information: Should not be altered when UCITS are marketed in another Member State, other than being translated into one of the official or approved languages of the host Member State.


While all other UCITS IV features will be implemented via “Implementation Directives” requiring Member State transposition into domestic law, the KII will be implemented through an EU Commission regulation immediately applicable upon publication.

Implementation measures:

Lay down the detailed and exhaustive content of KIID.

Define dedicated content for each individual section.

Specify the particular points which need to be taken into account for specific UCITS structures.

Update at least once a year; revised KIID available within 35 business days following calendar year end.

IV. RBC Dexia views

� UCITS benefit from an additional one year period after the deadline for implementing the Directive in national law to produce the KIID. We would support a recommendation that UCITS launched during that transition period are required to issue a KIID rather than a simplified prospectus from day one.

� Legally the KIID should be made available within 35 business days of the calendar year end. In practice, this might present an operational challenge for funds and their service providers, given the huge number of KIID documents to be produced and additional constraints, including the fact that:

� Final figures (charges and performance) for non-daily funds will not be available immediately

� Figures will not be audited (last twelve months of the calendar year)

� Management company’s need to review and approve draft KIIDs

� Time required for translation into the different languages of distribution countries

� We feel the requirements on promoters to demonstrate that investors are offered the KIID in another form than the paper format (as envisaged in art.3 of the MiFID Directive), are very stringent. The demand that the client must specifically consent to the provision of that information in that form will oblige promoters to maintain records of their clients that expressed their choice.

� We welcome the possibility to regroup two or more classes of the same UCITS into a single document. However, in the case of a launch of new share classes or liquidation of share classes, an update of the KIID will be necessary. In the case of a combined KIID the diverging parts (i.e. charges, capitalisation, distribution of dividends, etc.) for the different share classes have to be separately listed in the combined KIID.

38 | Key Investor Information

39

V. Analytical table

Level 1 (Art. 78 > 82)



Use of language (Art. 78.5)Key Investor Information shall be written in a concise manner and in non-technical language.

Language:Language used should be clear, succinct and comprehensible.

Format, Presentation (Art. 78.5)Common format, likely to be understood by retail investors.

LengthThe KIID should not exceed two (three for structured funds) pages of A4 sized paper when printed.

It will be a challenge not to exceed the maximum length and still fit all the required information into the document.

In General: No signposting (Art. 78.3)No reference to other documents.

Cross-referencesCross-references to the prospectus of the UCITS might be used (i.e. in the narrative explanation of the risk and reward profile). If cross-references to sources of information other than the prospectus and the periodic reports are used, it should be made clear that the prospectus and periodic reports are the primary sources of additional information for investors.

Cross references may be used as long as all information fundamental to the investor information is included in the KIID itself.

The introduction of cross-references will facilitate the description of complicated technical mechanisms in the KIID without exceeding the maximum length of document.

General and specific content (Art. 78.2+78.3)Appropriate information about essential characteristics + information on: � Identification of UCITS � Description of investment

objectives and policy � Risk and reward profile � Charges � Past Performance

Order of contents and sections’ headings Definitions of different sections and their respective headings. The titles, order and contents of the respective sections are prescribed.

According to CESR, an official translation of each of the headings will be supplied.

Title of document, The title “Key Investor Information” to be prominently stated on the top of the first page of the KIID.

Explanatory statementAn explanatory statement (predefined) shall appear directly underneath the title.

It is expressly stipulated that the KIID is not marketing material.


Level 1 (Art. 78 > 82)



Name and identification of UCITS by code numbera) ABC Fund, a sub-fund/compartment of

XYZ fund SICAVb) Code number of UCITS, investment

compartment or share class shall be included

An ISIN Code or similar identification number needs to be mentioned if it exists.

Name of management company a) Management company: for a UCITS

which has a management company, the name of the management company shall be stated

b) Group: If the management company forms part of a group, the name of the group shall be stated

Corporate branding will be permitted to some extent.

Objectives and investment policyThis section shall contain:(i) A joint description of objectives and policy of the UCITS, setting out in plain language what the fund aims to do and how it will go about achieving that aim.

(ii) Essential features of the product which a typical investor should know, even if they do not form part of the description in the prospectus.

In particular it shall include:

A reference to a benchmark (if any), distribution policy, description of specific asset management techniques (if used), minimum recommended term for holding units (if applicable).

The purpose is not to simply reproduce the description in the prospectus, but use different form of words in the KIID provided that the resulting description is not inaccurate, misleading or inconsistent with the prospectus.

CESR announced its intention to edit a glossary of terms with the most important terms explained in everyday language.

41

Level 1 (Art. 78 > 82)



Risk and reward profileAdoption of a synthetic risk and reward indicator (“SRRI”). The SRRI is a new concept which shall display the relation between risk and reward of the funds. Presented in a graphical form, the indicator shall take the form of a series of categories on a numerical scale ranked from one to seven with a fund assigned to one of the categories. It shall be made clear on the scale that lower risk entails potentially lower reward and that higher risk entails potentially higher rewards.

SRRI shall be supported by a narrative explanation of the limitations of the indicator and the material risks relevant to the fund not fully captured by the indicator.

According to CESR, the methodology for the risk and reward indicator is based on historical volatility and for structured UCITS based on a value at risk (VaR) measure.

More detailed requirements are set forth in a specific appendix.


Level 1 (Art. 78 > 82)



Charges The "Charges" section will contain a pres-entation of charges in a form of a table as laid down in a dedicated appendix.Each of the charges specified in the table will contain a narrative explanation.The charges to describe are divided into three categories: � Entry and exit charges (to be expressed

in a maximum percentage) � Ongoing charges (all annual charges

and other payments taken from the assets of the UCITS and based on the figures for the preceding year)

� Contingent charges (charges only taken under specific conditions e.g. performance fees) and taken from the fund from time to time

In the case of a new UCITS, the ongoing charges will be estimated, based on the expected total of charges, except in the following cases:a) For funds which charge a fixed all-in-

clusive fee, that figure will be displayed.b) For funds which set a cap or maximum

on the amount that can be charged, that figure shall be disclosed so long as the management company gives a commitment to respect the published figure and to absorb any costs that would otherwise cause it to be ex-ceeded.

The ongoing charges figure does not include portfolio transaction costs or performance fees. A particular challenge will be to describe the mechanism of the performance fee in a short and concise way, using plain language and without having to use too many technical terms.

Past PerformanceAs a general rule, Past Performance shall be displayed in a bar chart covering the perform-ance for the last 10 years.UCITS with performance of less than 5 years shall only use a chart covering 5 years. Whatever the case, for any years for which data is not available, the year shall be shown as blank with no annotation other than the date.For all UCITS other than structured UCITS, the KIID shall include information about the past performance of the fund calculated based on its NAV at the end of the calendar year.Where the objectives and investment policy section of the key investor information docu-ment makes reference to a benchmark, a bar showing the performance of that benchmark should be included in the past performance chart.

Past performance information should be displayed on the assumption that any distributable income of the fund has been reinvested.

No indication may be given for past performance for any part of the current year.

43

Level 1 (Art. 78 > 82)



Additional Information (Art. 78.4)Key Investor Information shall clearly specify where and how to obtain additional information relating to the proposed investment, including but not limited to where and how the prospectus and the annual and half-yearly report can be obtained on request and free of charge at any time, and the language in which such information is available to investors.

Practical informationThis section shall contain the following: � The name of the depositary � Where and how to obtain further

information about the UCITS � Where and how to obtain other

practical information (where to find prices)

� That the fund’s home State taxation regime may have an impact on the investor

� A predefined liability statement

The management company or UCITS may be held liable solely for misleading, inaccurate or inconsistent information.

The title of this section was changed due to comments that the word “additional” would give the im-pression that the information in the KIID would not be self-explanatory and in itself sufficient to understand the key facts of the fund offer.

Updating of Information (Art. 82.2+81.1)The essential elements of key investor information shall be kept up-to-date.

In addition, an up-to-date version of the key investor information shall be made available on the website of the investment company or management company.

A review & update of the KIID must be carried out at least every twelve months. The revised KIID must be available no later than 35 business days after the end of the calendar year. When a review is carried out during the year and a material change is detected the KIID needs to be revised promptly. If such material change is due to a voluntary act of the SICAV / management company the revised KIID needs to be available when the change comes into effect. The notion “material change” needs to be determined independently for each section (e.g. any change in the practical information section is considered to be a material change).

Definition of a material change not always clear. According to CESR there is no re-quirement for revised versions of a KIID to be provided to those investors who received a previous version.


Level 1 (Art. 78 > 82)



Specific fund structures (Art. 78.7 b)The Commission shall adopt implementing measures which define the following:

Detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases:(i) For UCITS that have different investment compartments(ii) For UCITS offering different share classes(iii) For fund of funds structures(iv) For Master-Feeder structures(v) For structured, capital protected and other comparable UCITS

(i) Need to specify whether assets and liabilities are segregated and whether or not there is a right to switch.(ii) KIID needs to be prepared for each class but possibility to select a class to represent one or more other classes provided the choice is fair, clear and not misleading. (iii) Description of the selection of underlying funds.(iv) Proportion of the Feeder assets invested in the Master, description of the Master’s investment policy.(v) Need to display at least three scenarios of the UCITS’ potential performance. These scenarios are designed to illustrate the potential performance of the fund under a range of market conditions.

Management company may decide to determine and make use of a representative share class in one “combined” KIID. However, different features of different share classes may not be combined in one KIID and the use of a representative share class must not be misleading.

In the case of a fund of funds the right balance is to be kept between the information on the UCITS that the investor invests in and its underlying collective investment undertakings.

In the case of Master-Feeder structures, the description of the Feeder UCITS' risk and reward profile should not be materially different to that of the corresponding section in the Master UCITS' KIID.

In the case of structured UCITS, such as capital protected and other comparable UCITS, the provision of prospective performance scenarios (in place of past performance information) is required.

Durable medium (Art. 81)Management companies may provide key investor information in a durable medium or by means of a website.

Refer to Art. 3 of MiFID Directive which lays down the conditions for providing information in a durable medium (e.g. website) other than on paper.

Amongst other points, the client must specifically agree to obtain the information in that form and must be notified electronically of the address of the UCITS/management company’s website.

As evidence that the client has regular access to the internet, an email address must be provided.

45

46

Supervisory CooperationDirective - Art. 97 – Art. 110

47


The adjustments to the UCITS Directive imply a need for an enhanced cooperation framework between authorities. The UCITS III framework did not reflect recent progress made in the field of supervisory cooperation, notably following the adoption of the MiFID Directive.

The proposed measures take into account the existing legal framework in relation to international cooperation, as well as best practice developed within CESR and IOSCO, the International Organization of Securities Commissions.

II. Client benefits

No immediate advantage, but obviously a prerequisite to the success of all of the above cross-border topics.

III. Key features

Accordingly, the existing provisions of the UCITS Directive dealing with these issues were strengthened to:

Ensure equivalence of powers for competent authorities.

Develop existing mechanisms relating to the exchange of information.

Put in place a mechanism allowing competent authorities of a Member State (within the framework of their powers under the Directive) to carry out on-the-spot verification of information and investigation on the territory of another Member State, or have them carried out by the competent authorities of another Member State/ third parties.


Define the content of the procedures to be followed when competent authorities intend to carry out verification or an investigation on the territory of another Member State.

Define the content of the procedures to be followed when competent authorities intend to exchange information.

IV. RBC Dexia views

� All service providers acting as UCITS administrators are likely to be affected by these monitoring possibilities and on-site visits and should prepare accordingly.

V. Analytical table

Level 1 (Art. 97 > 110)



Authorities’ powers (Art. 98.2)Competent authorities shall have the power, at least, to:a) Access any document in any

form and receive a copy of itb) Require any person to pro-

vide information and, if necessary, to summon and question a person with a view to obtaining information and carry out on-site inspections

c) Require existing telephone and data traffic records

d) Require the cessation of any practice that is contrary to the provisions adopted in the implementation of this Direc-tive

e) Request the freezing or the sequestration of assets

f) Request the temporary prohibition of professional activity

g) Require authorised invest-ment companies, manage-ment companies or deposi-taries to provide information

h) Adopt any type of measure to ensure that investment companies, management companies or depositaries continue to comply with the requirements of this Directive

i) Require the suspension of the issue, repurchase or redemp-tion of units in the interest of the unitholders or of the public

j) Withdraw the authorisa-tion granted to a UCITS, a management company or a depositary

k) Refer matters for criminal prosecution

l) Allow auditors or experts to carry out verifications or in-vestigations

Details of the documents and information a supervisory authority shall provide to the competent authority of another Member State in which it intends to carry out an on-the-spot verification. The requested authority may also decide to allow auditors or other experts to carry out the investigation (instead of foreign supervisory authority).

The requested authority shall decide whether it will carry out the on-the-spot verification or investigation itself or whether it will allow the requesting authority to carry out the on-the-spot verification or investigation.

Necessity for management companies and service providers to anticipate request for different data, and obeying to diverging procedures.

48 | Supervisory Cooperation

49

Level 1 (Art. 97 > 110)



Exchange of information (Art. 109.3 + 109.4)The competent authorities of the management company's home Member State shall, without delay, notify the competent authorities of the UCITS home Member State of any problem identified at the level of the management company which may materially affect the ability of the management company to perform its duties properly with respect to the UCITS or of any breach of the requirements falling under the management company’s obligations.The competent authorities of the UCITS home Member State shall, without delay, notify the competent authorities of the management company's home Member State of any problem identified at the level of the UCITS which may materially affect the ability of the management company to perform its duties properly or to comply with the requirements of this Directive which falls under the responsibility of the UCITS home Member State.

Defines what piece of news constitutes routine exchange of information and specifies the information likely to be of material interest which should be communicated without prior request and undue delay.

Contact us

Europe and the Middle EastRichard HaleRegional Head, UK, Ireland and the Middle East Sales & [email protected]: +44 (0) 20 7002 2007

Simon ShaplandRegional Head, Continental Europe Sales & [email protected]: +44 (0) 20 7029 7811

AmericasBrent WilkinsHead, North America Sales & [email protected]: +416 955 2495

Asia PacificScott McLarenHead, Asia Pacific Sales & [email protected]: +852 2978 5656

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