ALFI UCITS IV implementation project – KID Q&A Document

UCITS and we think that the practitioner should again provide the KID as if it had not previously been providedto that investor.(3) The investor's holding of the UCITS is reduced to zero units for a short time, during which time a notifiableevent does NOT happen on the UCITS. In that case we think that there is no need to provide the KID to theinvestor again. Practitioners who are inclined to treat this as a case in which they should provide the KID againmay wish to consider whether it would disrupt investors who use a UCITS regularly but not continuously.Examples may include short term liquidity funds, which investors may use to park cash whilst waiting for theirpreferred fund's dealing day, and investors who perform "bed and breakfast" trades for tax purposes.(4) The investor's holding of a UCITS is reduced to zero units for a long time (say, more than one year). In thatcase we think that the practitioner should treat the next subscription as an initial subscription, and to provide theKID as if it had not previously been provided to that investor.(5) The investor's holding of a UCITS remains above zero but there is a long time (say, more than one year)between operations. The investor will nevertheless receive written notice of any material change to the fund. Inthat case we think that there is no need to provide the KID to that investor again.We again took account of the Distance Marketing Directive to decide one year as the period of dormancy after whichan earlier provision of the KID may be considered to be unreliable: "Where, however, no operation of the same natureis performed for more than one year, the next operation will be deemed to be the first in a new series of operations."However, it is important to note that practitioners must decide their own policy in respect of the provision ofthe KID prior to a subsequent operation.Q. Must a transfer agent ensure that the KID has been provided before putting a transfer into effect?A. No. A transfer request is only an administrative process to reflect a deed of transfer that two parties have executedin another place and it may be performed without any obligation to provide a KID.Q. Is a central transfer agent required to keep records of whether a KID was provided to a potential investor,even if the sales process is conducted by an advisor elsewhere?A. There is no requirement in the UCITS Directive to keep a record of the provision of a KID to an investor butLuxembourg company law and the commercial code require companies to keep adequate records of their businessand we think that this would include a record of the provision of a KID under certain circumstances. Whether thatmeans the transfer agent depends upon the circumstance. For the purposes of this answer we will assume that themanagement company and the transfer agent are different entities and that the transfer agent is the managementcompany's delegate. We will also assume that the management company has a separate means to provide the KID tointermediaries and infrastructure firms and to record that provision. (For these investors, it would be enough for themanagement company and the transfer agent to agree their identity and for the transfer agent to note that it mayexecute subscriptions on their accounts without further controls in respect of the KID.) We will therefore focus on theprovision of the KID to direct investors under the meaning of Art 80(1) of the UCITS Directive.Since the UCITS Directive applies to the management company, the transfer agent's record-keeping obligation andsubscription control process in respect of KID may be described in their delegation agreement, without which thetransfer agent has no obligation in respect of the KID. The transfer agent may or may not be the party who providesthe KID and in the latter case its obligation will be limited to receiving and keeping a record of provision, so thatsubscriptions may be checked against those records and be executed in compliance with Art 80(1) of the UCITSDirective. For example, if the management company agrees with an investor to provide the KID by means of a website(EU Regulation 583/2010, Art 38(2)), it would be the management company (or another of its delegates) that providesthe KID and the transfer agent need only record that fact and execute that investor's subscriptions without furthercontrols in respect of the KID. For each investor who has not agreed to be provided with the KID by means of awebsite, the management company may instead provide the transfer agent with a record of each provision of a KID tothat investor, and request that it control the investor's subscriptions using those records. For practical reasons, in adirect sales model (as opposed to an intermediary or advisory sales model) where the investor has not agreed to beprovided with the KID by means of a website, the management company is also likely to delegate to the transfer agentthe job of providing the KID to the investor, and the transfer agent would directly make the record of each provision.Q. If a transfer agent receives a subscription from an investor who has not been registered as having agreedto be provided with the KID by means of a website and the transfer agent has no record of whether theinvestor has been provided with the relevant KID, what should it do with the order? Can it execute the orderand retrospectively provide the KID to the investor?A. As in the previous question, we will assume that this question is in respect of the provision of the KID to directinvestors under the meaning of Art 80(1) of the UCITS Directive. Practitioners who execute the subscription andretrospectively provide the KID to the investor will not be in compliance with Art 80 of the UCITS Directive and we thinkthat the management company will run the risk (1) of censure from regulators and (2) that the investor will repudiateALFI KID Q&A, Issue 1314, 11 April25 September 2012 Page 58