ALFI UCITS IV implementation project – KID Q&A Document

Q. Art 80 of the UCITS IV Directive says that practitioners must provide the KID to "investors in good timebefore their proposed subscription of units in such UCITS". Does that mean each and every subscription oronly the initial subscription?A. ESMA/2012/592 (Q&A on the KIID) says, "Existing investors should be provided with a KIID in the case ofadditional investments, on the basis that the KIID is a pre-contractual document and each additional subscription is anew con-tract. However, where unit holders in a UCITS invest through a regular savings plan, a KIID is not required inrelation to the periodic subscriptions, unless a change is made to the subscription arrangements, for example,increases or decreases in the subscription amount, which would require a new subscription form."ESMA's guidance has replaced ALFI's initial answer to this question, which has been retained below in struck-throughtext.A. We think that it normally means that the KID must be provided in respect of the initial subscription, and thatsubsequent subscriptions may be processed free from the obligation to provide the KID again, even if it has beenupdated. For example, it would be impractical to provide the KID to investors in regular savings plans prior to eachsubsequent subscription. When Art 79 of the UCITS Directive says that the KID "shall constitute pre-contractualinformation" and when Art 80(1) says that it should be provided "in good time before [the] proposed subscription," weconsider that it means the initial subscription into the UCITS that the KID describes. In reaching this opinion, we havetaken account of the Distance Marketing Directive (although it may not be directly applicable), and consider theobligation to provide a KID, "to apply to the first of a series of successive operations or separate operations of thesame nature performed over time which may be considered as forming a whole, irrespective of whether that operationor series of operations is the subject of a single contract or several successive contracts. […] The subscription to newunits of the same collective investment fund is considered to be one of 'successive operations of the same nature'"(Recitals 16 and 17 of the Distance Marketing Directive). However, practitioners may wish to consider whether theremay be circumstances in which a KID that was provided in respect of an initial investment may no longer be reliable,and another provision may be necessary before further investments may be made. Consider the following diagram:It shows the general rule that the first subscription to a UCITS, which may be an ordinary subscription or a switch in,should be preceded by the provision of a KID. Thereafter practitioners may wish to consider the following cases:(1) The investor's holding of a UCITS is reduced to zero units, during which time a notifiable event (being anevent of which a regulator would require prior written notice to be given to investors) happens on the UCITS. Inthat case the investor would not receive written notices of important changes to the UCITS and we think that thepractitioner should treat the next subscription as an initial subscription, and to provide the KID as if it had notpreviously been provided to that investor.(2) The investor requested a KID, which the management company provided. The investor subscribed after adelay. In that case we think that there is no need to provide the KID to the investor again unless during the delaya notifiable event (being an event of which a regulator would require prior written notice to be given to investors)happens on the UCITS. In that case the investor would not receive written notices of important changes to theALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 57