Olivier Sciales, Chevalier & Sciales

CSSF issues circular on investor notification of material changes to open-ended UCITS funds

By Olivier Sciales, Chevalier & Sciales – Luxembourg’s Financial Sector Supervisory Authority According has published Circular 14/591 on July 22, addressed to all open-ended UCITS funds governed by the grand duchy’s legislation of December 17, 2010, regarding the protection of investors in the event of a material change to an open-ended undertaking for collective investment.

The CSSF says that according to well-established supervisory practice, in the event of such a material change to investors’ interests in an open-ended fund under the 2010 law, the regulator requires that they be given sufficient time to take an informed decision, and that if they do not wish to accept the proposed change, they should be able to redeem or convert their shares or units free of charges. The circular formally enshrines and clarifies this existing administrative practice, with immediate effect.
 
Under the 2010 law, a fund’s prospectus should include information necessary for investors to make an informed judgement on the proposed investment. In the event of any change proposed to the prospectus, the CSSF assesses this requires additional measures to protect the interests of the fund’s investors in the UCI. Although this is not the case for every change, since fund investment is predominantly retail investors, the CSSF believes they need time to make an informed decision about any change significant enough potentially to affect the their interests and possibly alter the basis on which they originally made the investment.
 
When considering a material change to their structure, organisation or operations, funds should consider the likelihood of it being such as to prompt investors to reconsider their investment, and compare their interests or situation before and after the change, then submit the proposed change, with any appropriate explanations, to the CSSF, well before the change is due to take effect.
 
The CSSF says it may assess proposed changes on a case-by-case basis, decide whether they should be deemed material, and where necessary request notification of investors. As a rule, such changes may not be put into effect until after the expiry of the notification period, which under current practice should be one month.
 
During this notification period, investors are entitled to request the repurchase or redemption of their shares or units without charge. At its discretion, the fund may also offer investors the option to investors to switch their investment into another fund, or sub-fund of the same fund structure, without conversion charges.
 
The CSSF may agree on request not to impose a notification period in cases such as where all investors in the fund in question agree to the proposed change. It may also agree to impose a notification period only to inform investors of the change before it becomes effective, without offering the ability to redeem or convert holdings free of charge.
 
The notification period is without prejudice to notice periods required by law for investors to pre-approve such changes, nor to specific requirements of regulators in other jurisdiction, both within and outside the EU, where the UCI is registered for distribution.

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