UCITS IV Directive not implemented in time-what to do now?
The deadline for Poland to implement the EU’s revised investment fund regulations came and went on 30 June 2011, but since then the Ministry of Finance has published its initial proposal to codify UCITS IV.
The proposed law includes comprehensive amendments in order to implement the UCITS IV Directive (2009/65/EC). The proposed changes appear to enact the provisions of the directive quite faithfully, but given the scope of the changes only practical application of the new law will show the degree to which the functioning of the investment fund market is improved.
The main goal of the directive is to make it easier for funds regarded as UCITS (“undertakings for collective investment in transferable securities”) to operate across national borders in the EU market. Thus implementation of the directive should facilitate procedures related to “passporting” of UCITS from the home jurisdiction to the territory of other member states, i.e. relying on authorisation issued by regulators in one member state as a basis for operating in other member states. Under the new rules, if the regulator in the home jurisdiction forwards all of the required documents for the UCITS to the regulator in the host jurisdiction, the host will not be allowed to oppose the fund’s entry onto its market. Another important new feature will be to enable passporting of UCITS management companies. Under the directive, a management company with authorisation in one member state should also be able to take over management of an existing fund in another member state. However, it will not be easy to implement these rules. One problematic issue is whether a Polish fund would continue to maintain its legal personality under Polish law if the entity managing it were not a Polish TFI governed by the Act on Investment Funds, but some other entity not recognised under Polish law. Thus the proposal would allow for such an acquisition pursuant to an agreement between the acquirer and the TFI.
Another significant change introduced by the directive and reflected in the proposed new Polish law is to replace the “simplified prospectus,” which has been regarded as too long and often hard to understand for potential investors, with a “key investor information document” or KIID. The KIID will be entirely separate from the prospectus and is supposed to be shorter than the simplified prospectus. The KIID would present information about the fund and its units in an organised, straightforward, clear and accessible form, but would be comprehensive enough to enable the investor to make an informed investment decision. This change should be regarded as very reasonable.
In June, the Polish Financial Supervision Authority published an official statement on its website concerning investment fund regulations to be applied during the period from 1 July 2011 (the date from which UCITS IV was supposed to be implemented into Polish law) until actual implementation is achieved. The statement identifies which provisions of the UCITS IV Directive may be applied during this period. This is because, based on rulings by the European Court of Justice, once the deadline for implementation of a directive has passed, the directive may exert certain direct legal effects even though it has not actually been implemented in the given member state (for example, in their dealings with public authorities, persons may rely on entitlements vested in them by the directive). It is important to check on a case-by-case basis whether a specific provision of the directive will have direct application under the particular circumstances.
Jakub Koziński, Capital Markets practice, Wardyński & Partners