In its Newsletter N°130 dated November 2011 the Luxembourg Financial Sector Regulator (Commission de Surveillance du Secteur Financier, the "CSSF") requires the insertion of a paragraph in the prospectuses of UCITS and UCIs (referred to as "UCI" or "UCIs") newly created as of the date of publication of this Newsletter (i.e. 23rd November 2011). For all existing UCIs, this paragraph shall be introduced with the next update of the prospectus and by 30 June 2012 at the latest.
Such mandatory paragraph is worded as follows:
« The [investment company, FCP, UCI(TS)/management company] draws the investors' attention to the fact that any investor will only be able to fully exercise his investor rights directly against the UCI(TS), [notably the right to participate in general shareholders' meetings - for UCI(TS) incorporated in form of an investment company] if the investor is registered himself and in his own name in the shareholders' register [for UCI(TS) incorporated in form of an investment company] / in the unit holders' register [for UCI(TS) incorporated in form of an FCP] of the UCI(TS). In cases where an investor invests in the UCI(TS) through an intermediary investing into the UCI(TS) in his own name but on behalf of the investor, it may not always be possible for the investor to exercise certain shareholder rights [for UCI(TS) incorporated in form of an investment company] or unit holder rights [for UCI(TS) incorporated in form of an FCP] directly against the UCI(TS). Investors are advised to take advice on their rights. »
This new requirement is based on article 151(1) of the law dated 17 December 2010 relating to undertakings for collective investment (the "UCITS IV Law"), the provisions of which require the inclusion in the prospectuses of necessary information enabling the investors to make an informed judgment of the proposed investment and, particularly, of the risks attached hereto.
Background and purpose of the new paragraph
The new paragraph relates to the services offered by intermediaries to investors and namely nominee services. As a reminder, the circular 91/75 has already authorised the use of nominee services and defined the conditions thereto. A nominee, as defined by the CSSF in its circulars 91/75 and 02/77, is an intermediary who intervenes between the investors and the UCI of their choice and acts on behalf of the investor of a UCI by appearing as shareholder or unitholder of the UCI and exercising the rights attached to such quality. The name of the underlying investor will consequently not be revealed to the UCI, which will handle directly with the nominee. However, the investor will remain the ultimate beneficial owner of the shares or units of the UCI and will act through the nominee providing appropriate information to and soliciting instruction by the respective investor.
The investors have to be informed of the possible limitations to their rights as shareholders or unitholders of the UCI
Similar to the circular 91/75 which requires the mention in the prospectus of the right of the investor to deal directly with UCI of their choice for placing the subscriptions and redemption orders despite of using the services of a nominee, the CSSF demands henceforth that the investors be informed of the possible limitations to their rights as shareholders or unitholders of the UCI in which they intend to invest, with a view to enhance the protection of the investors as well as of the UCI.
In fact, pursuant to circular 91/75, where nominee services are organised by the UCI, the promoter must ensure the compliance with the requirements of this circular, namely the insertion of a termination clause in the nominee agreement, the description of the role of the nominee in the prospectus and the insertion of provisions in the prospectus regarding the possibility of the investors to directly invest in the UCI without having recourse to a nominee.
In this context, the new paragraph to be inserted in the prospectus will draw the attention of the investors to limitations in the ongoing exercise of their shareholder/unitholder rights and thereby helps preventing potential conflicts or misunderstandings on the part of the investors; ultimately the UCI are also likely to benefit from the enhanced prospectus disclosures, not least as this heads-up may help preventing potential contestations and legal proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
