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URÍA & MENÉNDEZ
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The information contained in this Newsletter is of a general nature and does not constitute legal advice |
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BANKING & FINANCIAL LAWIMPLEMENTATION OF UCITS III IN SPAIN AND EFFECTS ON THE MARKETING OF FOREIGN UCITS1. INTRODUCTION2. THE GRANDFATHERING PROVISIONS3. SOME MATERIAL ISSUES REGARDING THE TRANSITIONAL PERIOD3.1 When would the publication of an SP be required for foreign UCITS marketed in Spain?
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By 13 August 2003 EU Member States shall adopt the laws, regulations and administrative provisions necessary for them to comply with the following Directives:
(a) Directive 2001/107/EC of the European Parliament and of the Council of 21 January 2002 (hereinafter, “Directive 2001/107/EC”) amending council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (hereinafter, the “UCITS Directive”) with a view to regulating management companies and the simplified prospectus; and
(b) Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002 (hereinafter, “Directive 2001/108/EC”) amending the UCITS Directive with regard to investments by UCITS.
We will refer to the Directive 2001/107/EC and Directive 2001/108/EC as the “UCITS III Directives”.
Today a bill on collective investment schemes implementing the UCITS III Directive has been published in the official Gazzette of the Spanish Parliament. This bill is expected to be published in the official Gazzette soon, and will implement the UCITS III Directives and modify the current Spanish laws and regulations on collective investment schemes when it enters into force.
Given that UCITS III measures must be applied in all Member States of the European Union by no later than 13 February 2004, is it useful to analyse at this stage the potential effects of the implementation, and the application of the measures contained in the UCITS III Directives on the marketing of foreign UCITS in Spain.
In general, the UCITS III Directives amend the UCITS Directive with respect to three important material points:
(i) the investments of UCITS,
(ii) the obligation to publish a new document: the simplified prospectus (hereinafter, the “SP”); and
(iii) the creation of new requirements for management companies of UCITS and investment companies which have not designated a management company.
Articles 2 of both UCITS III Directives contain certain transitional provisions (the “Grandfathering Provisions”), which establish the following:
1. Management companies already authorised to manage UCITS in the form of unit trusts/common funds and investment companies before 13 February 2004 in their home Member State under the UCITS Directive shall be deemed to be authorised for the purposes of Directive 2001/107/EC if the laws of those Member States provide that in order to take up such activity they must comply with conditions equivalent to those contained in Articles 5a and 5b.
2. Management companies, already authorised before 13 February 2004, which are not included among those referred to in paragraph 1 above, may continue that activity provided that, no later than 13 February 2007 and pursuant to the provisions of their home Member State, they obtain authorisation to continue such activity in accordance with the provisions adopted in implementation of the Directive 2001/107/EC.
3. Only the granting of such authorisation shall enable those management companies to qualify under the provisions of this Directive 2001/107/EC on the right of establishment and the freedom to provide services.
4. Member States may grant those UCITS existing on the date of entry into force of Directive 2001/108/EC a period up until 13 February 2007 in order to comply with the new national legislation (implementing Directive 2001/108/EC).
However, these Grandfathering Provisions are not sufficiently clear to clarify all the issues that may arise from the application of the rules of UCITS III. Our analysis below is focussed on the transition from the asset system to the UCITS III Directives and Spanish laws.
The Grandfathering Provisions do not cover the publication of an SP. Therefore, it must be interpreted that this requirement would enter into force as from 13 February 2004. In fact, the new Spanish law on collective investment schemes being currently discussed in Parliament lists the simplified prospectus as one of the mandatory documents that must be obligatorily filed with the Comisión Nacional del Mercado de Valores (“CNMV”) within the initial registration procedure for a foreign UCITS to be marketed in Spain.
In this regard, it is important to note the Luxembourg case, since most foreign UCITS marketed in Spain are from Luxembourg and we understand that the Luxembourg authorities are interpreting that the transitional period for management companies may also be applied to the publication of the SP. We believe that a literal interpretation of the provisions of Directive 2001/107/EC does not provide enough arguments to sustain solidly this position. In this respect, our understanding is that the CNMV intends to require filing of an SP for foreign UCITS in Spain as from 13 February 2004. In our view this position seems to be well grounded on the UCITS III Directives.
Based on the above reasoning, foreign managers would be well advised to prepare an SP for 13 February 2004. According to current Spanish regulations, this SP should be filed one month after its publication in Luxembourg, so it may be argued that this SP should be filed with the CNMV by 13 March 2004 (a month after it is required to be published in their home Member State according to the UCITS III Directives).
This is an issue resolved by the Grandfathering Provision in paragraph 2 of Section 2 above. Management companies authorised before 13 February 2004 may continue their operations during the transitional period (i.e., until 13 February 2007) without any adverse effects other than the fact that they may not apply for a European passport for cross-border services in other European jurisdictions. In our view, based on this provision, the marketing of a foreign UCITS managed by this management company in other European Union countries should not be affected, since technically speaking the marketing of shares or units in a UCITS cannot be characterised as a cross-border rendering of services.
Although Article 2 of Directive 2001/107/EC remains silent with respect to the effects on investment companies that have not designated a management company for the purposes of Article 13 a) of the Directive 2001/107/EC, we believe that the same conclusion should be reached. It would be inconsistent with the terms of the UCITS III to argue that investment companies that have not designated a management company need to comply with such requirements and could be prohibited from marketing their shares, whereas a UCITS managed by a management company which does not comply with the requirements of UCITS III is authorised to market its shares or units through third party distributors in other European Union Member States without further requirements until 13 February 2007.
This is arguably the most controversial matter. In order to explain the problem, it is important to note certain preliminary facts:
1. In Luxembourg and other EU jurisdictions, UCITS may be created as undertakings in the form of umbrella funds, where different portfolios (sub-funds) are managed differently and typically subject to different investment policies. Each of these portfolios operates as an independent fund and, from time to time, new funds are launched, and existing funds are liquidated or merged into others.
2. The UCITS certificate is granted to the whole undertaking for collective investment in transferable securities. In other words, an undertaking (whether a company or a common fund) must comply in full with the UCITS Directive in order to qualify as a UCITS. This rule must also be applicable with respect to the different versions of the UCITS Directive. As a result, we believe it may be reasonably concluded that an umbrella fund in which the existing Sub-funds (“UCITS II Sub-funds”) have been created under the UCITS Directive and have not been adapted to Directive 2001/108/EC (“UCITS II Directive”), may not launch sub-funds subject to Directive 2001/108/EC (“UCITS III Sub-funds”), since a UCITS should only be subject as a whole to one version of the UCITS Directive. In other words, an undertaking may continue its operations under the UCITS II Directive or it may adapt to UCITS III Directives, but it may not launch UCITS II Sub-funds and UCITS III Sub-funds within the same umbrella at the same time.
3. It is worth noting that the Spanish CNMV has always argued that each of such portfolios should be considered as independent funds and, thus, their registration with the CNMV is a condition precedent to their marketing in Spain.
The important question to address is whether a UCITS subject to the UCITS II Directive and benefiting from the transitional period, could launch new UCITS II Sub-funds after 13 February 2004. As mentioned above, Directive 2001/108/EC states that Member States may grant UCITS existing on the date of entry into force of Directive 2001/108/EC for a period up until 13 February 2007 in order to comply with the new national legislation (implementing Directive 2001/108/EC). In addition, it seems clear that Member States may not authorise the creation of new UCITS subject to UCITS II after 13 February 2004. However, these provisions do not clarify whether the creation of new Sub-funds into umbrella funds subject to the UCITS II Directive may be permitted during the transitional period.
However, we believe that the transitional provision in section 2 of Directive 2001/108/EC should be interpreted in the sense that (i) no undertakings may be created under UCITS II after 13 February 2004 (by undertakings we mean the whole corporate or mutual fund structure) and (ii) a UCITS II should be permitted to carry out its operations in the same conditions as though Directive 2001/108/EC was not of application. Given that the UCITS´qualification is granted to a whole undertaking and an undertaking is free to decide whether it is going to carry out its operations under the UCITS II Directive or the UCITS III Directives, we believe that there are grounds to sustain that an undertaking should be permitted to continue to launch new funds under UCITS II, since new funds are not equivalent to new undertakings, which is what is prohibited by the provisions of the UCITS III Directives. A UCITS II should be permitted to carry out its operations exactly as it would have done had nothing been changed by Directive 2001/108/EC. In addition, we do not think that the investors protection principle could be argued to impede that interpretation, since the rules regarding investments made by UCITS have become generally more flexible in Directive 2001/108/EC than in the UCITS II Directive (the additional requirements established therein are only to protect investors in situations where the UCITS is investing in new products). Therefore, if the laws of the Home Member State permit UCITS subject to UCITS II to launch new UCITS II Sub-funds, we believe that there are strong grounds to maintain that this interpretation is consistent with the UCITS III Directives and that the marketing in Spain of those UCITS II Sub-funds should also be permitted by the CNMV. However, we understand that the CNMV has not yet reached to a clear position on this very issue.
Madrid, 20 October 2003
For further information, you may contact with Salvador Ruiz Bachs (srb@uria.com, telephone number +34915860696) or with Ángela Paz Suárez-Ferrin (psf@uria.com, telephone number +34915864515).
Salvador Ruiz Bachs