The FSMA has published a Q&A on UCITS: what’s new?

In order to provide guidance on questions related to UCITS, the FSMA has published a new Q&A on its website.

In brief:

• In its newly published Q&A, the FSMA provides clarification on multiple legal requirements that are applicable to (non-) Belgian UCITS.
• Answers are given to pertinent legal and regulatory requirements relating to the KID, prospectus, investment strategy, reporting requirements, etc.

On 25 October 2023, the FSMA published a new Q&A applicable to UCITS (Undertakings for Collective Investment in Transferable Securities) to clarify its expectations on a number of pertinent topics, such as the KI(I)D (Key Information Document & Key Investor Information Document), the prospectus, the investment policy and the reporting requirements. 

Besides providing more clarification on a number of selected, but material legal requirements, the FSMA also explains what it considers as permissible or appropriate practices and documents its expectations (on top of the legal obligations). These apply to a number of specific modalities relating, for instance, to amendments to the prospectus, when and how to provide the possibility to exit without charge, etc. Because of the variety of topics covered and the new insights formally communicated by the FSMA, the new Q&A will certainly provide useful guidance for the entities in scope, being both Belgian and non-Belgian based UCITS.¹ Below, we summarize some points that are set out in the Q&A.
 

KID or KIID: which one to provide?

The Q&A starts with a section dedicated to the KI(I)D. Starting 1 January 2023, it is required to provide retail-investors with a PRIIPs (Packaged Retail and Insurance-based Investment Products) KID when advising on or selling a UCITS fund.²

A question still unanswered was which rule to apply when the UCITS is only made available to professional investors. From the answer provided by the FSMA in the Q&A, it can be derived that it is allowed to either provide (i) the PRIIPs KID or (ii) the ‘UCITS KIID’ if the UCITS fund is not offered to retail investors and no PRIIPs KID is drawn up.
 

Changes in prospectus: approval or notification?

Next, the FSMA clarifies which approval or notification requirements and modalities to apply when amending the prospectus. Any modified prospectus must be provided to, and later be approved by, the FSMA before being published and made available to investors.³ However, deviations from this principle exist: a notification of the amended prospectus to the FSMA is then deemed sufficient. Some exceptions are explicitly provided for by law, but in this Q&A the FSMA uses its competence to specify some additional ones. One of them relates to changes in the weight of indices in a composite benchmark of a sub-fund: if this change has no other impact on the investment policy, a simple notification to the FSMA is enough (the ‘light procedure’ of notice). However, if the change triggers an update of the investment policy, advance approval by the FSMA is necessary.

Exit without charge: ratio and documentation is key

The Q&A also delves into the obligation, in certain scenarios, to allow exit without charge when notable changes occur in the characteristics of the UCITS that could have an impact on the client’s initial decision to invest in the respective UCITS. While this option was already in place for specific changes (e.g. increased ongoing costs), the FSMA expands this requirement by stating that it will take a case-by case approach to review the UCITS’ assessment.

The FSMA offers guidance through examples of cases in which it expects UCITS to follow this procedure, such as substantial changes in its investment policy. In addition, the FSMA stipulates formalities must be followed when a change in characteristics occurs. These formalities relate to:

(i) methods of informing the participants of the change,

(ii) file content,

(iii) press release content, and

(iv) press release timing
 

What else can we learn from this Q&A?

Regarding the investment policy of the UCITS, the FSMA specifically stresses that the securities and money-market instruments that are part of the so-called “trash ratio” must meet the legally stated criteria:

(i) potential loss for the UCITS,

(ii) liquidity,

(iii) reliable valuation,

(iv) way in which information on the instruments is available,

(v) tradability,

(vi) matching the investment policy, and

(vii) risks.⁴

The FSMA describes the conditions for a UCITS to be allowed to invest more than 35% of its assets in government securities.⁵ One of those requirements is that unit-holders of this UCITS must receive equivalent protection compared to unit-holders in UCITS that do comply with the cap. 

Regarding share classes, UCITS are allowed to provide them in their statutes (or management rules) in an abstract manner.⁶ Admitting individuals to a share class with more favorable terms involves using objective criteria. This applies, for instance, to classes reserved for directors and employees of the UCITS and/or its management company. These criteria can also be stipulated in an abstract manner, meaning it could be sufficient to refer to the minimum initial subscription amount as an objective criterion, while the minimum initial subscription amount in concrete terms is mentioned in the prospectus instead of the statutes or management rules.

The Q&A also addresses aspects of the requirement for ‘non-Belgian UCITS’⁷ to be registered in Belgium (in accordance with art. 149 of the Belgian UCITS Law), before being offered to the public in Belgium. The registration obligation persists when units are placed through a ‘financial intermediary’. Whether a financial institution is considered a financial intermediary should be assessed on a case-by-case basis. Nevertheless, the FSMA explicitly states that a financial institution that directly or indirectly receives a fee related to the public offer of  non-Belgian UCITS is deemed to be a financial intermediary. In that case, the non-Belgian UCITS must be registered prior to public offering in Belgium. Conversely, providing the customer with the possibility to acquire units from a non-Belgian UCITS through the service of receiving and transmitting orders, while receiving a fee or benefit for this service from the customer (and hence not from non-Belgian manufacturers), is possible without a prior registration of the non-Belgian UCITS in Belgium. In this scenario, the financial institution is not considered a financial intermediary, as it is only acting on behalf of the client.

In addition to the points mentioned in this article, the Q&A covers several other elements regarding reporting requirements, means of publication of the NAV, etc. We therefore recommend to consult the Q&A to ensure compliance.