Sponsors of UCITS and AIFs are being driven to consider making prospectus changes in light of MiFID II.
While the funds themselves are not subject to the revamp of the EU investment services legislative framework, many will be indirectly affected if they engage EU authorised delegate investment managers or distributors.
The new regime comes into effect on 3 January 2018.
While prospectus changes are not mandatory, there are a number of aspects that may warrant adjustments. As well as updating IMAs and distribution agreements, we are working with clients on prospectus changes of this nature, including some of the examples considered below:
1. Product Governance – Disclosing details of each fund's Identified Target Market and also developing clearer, more positive statements in relation to the specific jurisdictions where funds/classes are registered for sale. For UCITS, it is also a positive statement that the fund and each sub-fund is a non-complex product, for the purposes of the MiFID II suitability assessment requirements.
2. Inducements - Providing disclosure on the use of Research Payment Accounts, where relevant. Removing or updating soft commission wording and/or any references to fee share arrangements with distributors or adjusting to reflect any arrangement that will rely on the enhanced quality of service model. Also, the potential introduction of new "clean" classes.
3. Telephone Recording - Informing investors that telephone calls with the investment manager and/or distributor may be recorded.
4. Best Execution / Mandatory Trading Obligations - Providing disclosure around any best execution or mandatory trading obligations that could constrain the investment manager in executing its investment strategy.
5. Client Categorisation - Clarifying if the investment manager will treat the fund as an eligible counterparty and is thus exempt from certain MiFID II obligations.
As they prepare for the new requirements, fund firms including SLI, Aberdeen and Danske are adding sections detailing target markets to their fund prospectuses