ESMA publishes revised Q&A document on UCITS KIID

The European Securities and Markets Authority has issued on March 26 a new version of its Questions and Answers document containing guidance and interpretation of the rules governing the Key Investor Information Document for UCITS funds, designed to promote common supervisory approaches and practices in the practical application of the UCITS regime through responses to questions posed by the general public and regulators themselves.

ESMA says the answers are also intended to help UCITS management companies by providing clarity as to the content of the rules rather than creating an extra layer of requirements. It will review the questions and answers to determine whether in certain areas there is a need to convert some of the material into formal guidelines and recommendations. The document will be regularly edited and updated whenever new questions are received.

The document, which was last updated in September 2012, covers the preparation of KIIDs by UCITS that are no longer marketed to the public or are in liquidation, communication of KIID to investors, the treatment of UCITS with share or unit classes, past performance issues, clarity of language, and identification of the UCITS fund.

The new content deals with past performance. It notes that Article 19(4) of the European Commission’s Level 2 regulation 583/2010 states that in the case of mergers under the UCITS IV provisions, only the past performance of the fund into which the other is merged should be referred to in the KIID. But how should this be interpreted in cases where the continuing fund is one newly established with no performance history, and it is the fund that has been absorbed that in effect ins being continued in the merged entity.

In these circumstances, ESMA says, the KIID should report on the past performance of the UCITS that has been absorbed into the merged entity, as long as the regulator can reasonably determine that the merger has no material impact on the fund’s performance. Such an impact would arise, according to the authority, were there to be a change to the fund’s investment policy or to the entities involved in investment management. The fact that the historic performance described is that of the UCITS that has been absorbed, not the surviving legal entity, must be made clear in the KIID.

ESMA’s updated Q&A document on the Key Investor Information Document for UCITS can be consulted at

UCITS IV Key Investor Information Document - general overview

The Key Investor Information Document (KIID) is a short document designed to describe the fund in terms that investors should find straightforward and easy to grasp, in a standardised format over two A4 pages. Its aim is both to improve understanding among retail clients of how funds operate and what risks they entail, and to reduce the volume of text that promoters have to translate into other languages in order to market their funds in other countries.

The introduction of the KIID in Ucits IV follows the failure of the ‘simplified prospectus’ concept incorporated into the Ucits III Management Company Directive to offer investors a document they could understand or to relieve significantly the documentary burden on fund promoters, in part due to variations in the way the provision was implemented by different EU member states as well as concern among promoters that omitting extensive sections of the full prospectus might expose them to legal risk.

The KIID is intended to be self-sufficient. The new directive stipulates that at a minimum, it should contain the name of the fund, a short description of the fund’s investment objectives and policy, a description of past performance or performance scenarios, details of costs, and the fund’s targeted risk/reward profile, as calculated by the Synthetic Risk and Reward Indicator (SRRI). It should be written in plain language and predefined form, content and length, enabling investors to compare one fund with another more easily.

Material changes to the fund – for instance, changes in the SRRI or in management charges – will require amendment of the KIID and notification of regulators in all countries where the fund is marketed, in addition to annual updates that must be introduced within 35 working days of the end of each year. Existing funds will benefit from a ‘grandfathering’ clause giving them a transition period of up to 12 months to publish a KIID; any funds launched on or after July 1, 2011 must have the KIID ready at time of launch.

The document must be published in one or more of the official languages of any member state in which the fund is marketed, or any other language approved by the country’s authorities. By contrast, there is no obligation to translate the full prospectus and financial accounts of the fund if these are already available in “a language customary in the sphere of international finance” – in practice English.