A key feature of Undertakings for the Collective Investment in Transferable Securities (“UCITS” fund) is the Key Investor Information Document (“KIID”), which provides the retail investor with simplified information from the prospectus.
UCITS also qualify as Packaged Retail Investment and Insurance Products (“PRIIPS”). Since PRIIPs are required to do a Key Information Document (“KID”), promoters of a UCITS fund were technically obliged to provide both the KIID as well as the KID. Thus, these conflicting requirements would have created unclarity for the retail investor.
Initially, an exemption was provided for investment companies and management companies who are promoting a UCITS to continue using a KIID under the UCITS framework without the need for doing a KID as required by the PRIIPS legislation. The exemption was initially given until the 31st of December 2021, but it was extended until the 31st of December 2022.
In a circular dated the 23rd of May 2022, the MFSA provides ‘Amendments to the Investment Services Rulebooks to Transpose and Implement EU Directives, Regulations and EBA Guidelines’. The fourth point of this circular relates to the transposition of ‘Directive (EU) 2021/2261 of the European Parliament and of the Council of 15 December 2021 amending Directive 2009/65/EC as regards the use of key information documents by management companies of UCITS’.
The 7th Recital of EU Directive 2021/2261 states that: “It should therefore be laid down that the KID is to be considered to satisfy the requirements applicable to the key investor information.” Furthermore, this recital adds that the investment companies and management companies which are promoting a UCITS fund “should not be required by competent authorities to provide the key investor information, and only the KID should be provided to those investors.” According to Article 2 of the Directive, this will become effective from the 1st of January 2023.
Furthermore, the MFSA’s circular provides Annex D, a document containing the updates for Part BII of the Investment Services Rules for Retail Collective Investment Schemes. This annex introduces three new Standard License Conditions (“SLCs”). Whilst SLC 6.2.25 provides that these amendments will start applying from the beginning of 2023, SLCs 6.2.23 and 6.2.24 provide that retail investors of UCITS can be provided with a KID under PRIIPS legislation to suffice the KIID requirement under UCITS legislation. Nevertheless, non-retail investors of UCITS must still be given a KIID according to the UCITS framework.
Thus, the MFSA’s circular on this EU directive removes the need to continue postponing the exemption which is scheduled to expire at the end of 2022 and will provide further clarity to retail investors prior to making their respective investment decisions. From a juridical perspective, these amendments consolidate the EU’s effort to protect retail investors through the PRIIPS framework by allowing PRIIPS legislation to effectively supersede certain elements of UCITS legislation relating to retail investors.
Article updated 03/06/2022