UCITS

Merger of UCITS and Master-Feeder structure

UCITS IV introduces a framework for amalgamating assets, either through the cross-border merger of UCITS irrespective of their legal form or by allowing master-feeder structures. However, some issues arise which need to be evaluated on a case-by-case basis, in particular regarding tax impacts at UCITS' and investors' levels.

Main challenges:

Definition of target set-up (fund range, local management company(ies), distribution, etc.);
Taxation (investors’ level / portfolio’s level) and VAT issues;
Migration of funds (marketing and distribution issues, accounting and tax reporting, contractual arrangements, risk management process, corporate governance, etc.).

Management Company Passport

UCITS IV introduces a framework for amalgamating assets through the cross-border merger of UCITS irrespective of their legal form or by allowing master-feeder structures. However, some issues have arisen which need to be evaluated on a case-by-case basis in particular as regards tax impacts at UCITS' and investors' levels.

Today, the UCITS IV management company passport permits the remote establishment and cross border management of UCITS funds and the centralisation of their asset management, administration and risk management operations.

As from March 2019 because of the Brexit, this passport will no longer be valid in relation to the UK. As such, it will no longer be possible for UK Management Companies to act as management companies for UCITS funds. Similarly, the same consequences could apply to EU based UCITS Management Companies, whom would be unable to act as management company for UK funds equivalent to UCITS.

Main challenges for cross-border promoters of UCITS:

Definition of target corporate set-up, country of location and delegation arrangements (delegation rules remaining at the discretion of each Member State);
Taxation (personal and corporate tax) and VAT issues;
Migration of fund operations (staffing, contractual arrangements, risk management process, corporate governance, cooperation between the country of domicile of the UCITS and the management company, etc.;
Non-EU distribution issues;
Management of non-UCITS funds and impacts of the AIFM Directive;
For players imported by the Brexit, it is now urgent to address these challenges.

Notification process

The notification process is now a regulator-to-regulator process. The UCITS’ Home Member State regulator has only 10 working days to review a standardised (in form and content) notification file and transmit it to the Host Member State, thereby triggering the immediate right to start marketing activities in that country.

For UK UCITS funds sold elsewhere in the EU and for EU UCITS funds not in the UK, this modification process is likely to not work anymore as from March 2019 due to Brexit.

Main challenges:

Cross-border management companies' need to face regulators;
Adequate internal process to fully benefit from such a reduced time-to-market opportunity;
Compliance of the marketing arrangements with local regulations (local marketing activities remaining subject to the supervision of the host regulators on an ex-post basis).

Key Investor Information Document ("KIID")

The KIID is a short document containing Key Investor Information, the content, form and presentation which is fully harmonised so as to facilitate its understanding and direct comparisons between UCITS.

Challenges:

Sourcing of information to feed the KIID and fund documentation management;
Consistency between the various information sources (prospectus, KIID, website, factsheets, etc.);
Automation of the KIID (production and dissemination);
Review of distribution contracts.
If PRIIP and the new KIID models are not applicable to UCITS before 31 December 2019, fund managers will have to pass additional information not included in the current KIID, like transactions costs to their Distributors because of MiFID II.