Changes from report parliamentary committee draft to plenary report

Added(b) The costs are properly incurred in connection with or for the purposes of:

Addedi) the operation of the UCITS having regard to ▌its structure, investment strategy, ▌objective and policy, or

Addedii) the compliance with legal regulatory requirements;

Added(c) The costs are borne by investors in a way that ensures fair treatment of investors.

Added1b. Member States shall require management companies to maintain, operate and review an effective pricing process that allows for the identification and quantification of all costs borne by the UCITS or its unit-holders. Before the authorisation of the UCITS and throughout its life, that pricing process shall ensure that the following conditions are fulfilled:

Added(a) the costs are not undue;

Added(b) the costs borne by retail investors are justified and proportionate, in the context of the overall value delivered to unit -holders having regard to the characteristics of the UCITS, including its investment objective, policy, strategy, expected returns, level of risks and other relevant characteristics.

Added1c. Member States shall ensure that management companies are responsible for the effectiveness and quality of their pricing process. The pricing process shall be clearly documented, shall clearly set out the responsibilities of the management bodies of the management company in determining and reviewing the costs borne by investors, and shall be subject to periodic review. The assessment of costs shall be based on objective criteria and methodology, and shall include a comparison to market products, such as UCITS with similar characteristics in terms of investment objective, strategy, level of risks and other relevant characteristics.

Added1d. Member States shall require management companies to assess ▌annually whether undue costs have been charged to the UCITS or its unit-holders.

AddedMember States shall require management companies to reimburse investors¸ without undue delay, where undue costs have been charged to the UCITS or its unit-holders, or where costs have been miscalculated to the detriment of the UCITS or its unit-holders.

AddedMember States shall require management companies to report to the competent authorities of their home Member State and to the competent authorities of the home Member State of the UCITS, to the depositary and to the financial auditors of the UCITS, situations where undue costs have been charged to the UCITS or its unit-holders.

Added1e. Member States shall require management companies to assess at least annually the conditions mentioned in paragraph 1b, point (b). The assessment shall take into account the criteria set out in the pricing process▌.

Added▌

Added1f. ESMA shall, no later than four years after the entry into force of Directive (EU) .../... [OP Please introduce the number of this amending Directive], organise and conduct a peer review in cooperation with national competent authorities, regarding the implementation of the obligations described in this Article, including the costs associated with reimbursements to individual investors.”;

Added(b) paragraph 2 is amended as follows:

Added(i) The introductory wording is replaced by the following:

Added‘Without prejudice to Article 116, the Commission shall adopt, by means of delegated acts in accordance with Article 112a, measures to ensure that the management company complies with the duties set out in paragraphs 1 to 1e in particular to:’;

Added(ii) point (b) is replaced by the following:

Added‘(b) specify the principles required to ensure that management companies employ effectively the resources and procedures that are necessary for the proper performance of their business activities;’;(iii) the following points (d) and (e) are added:

Added‘(d) specify the minimum requirements for the pricing process to prevent undue costs from being charged to the UCITS and its unit-holders, in particular, by:

Added(i) ensuring that costs are correctly identified and quantified, and comply with the requirements set out in paragraph 1a, point (a);

Added(ii) identifying which costs can be charged to the UCITS and its unit-holders taking into account the level of the costs and the nature of the costs by reference to a list of eligible costs that meet the conditions set out in paragraph 1a, points (b) and (c) , and the conditions under which competent authorities may authorise on a case-by-case basis costs which are not included in the list of eligible costs but that meet the conditions set out in paragraph 1a, points (b) and (c);

Added(iii) identifying potential conflict of interests and measures to mitigate the occurrence of conflicts of interest;

Added(iv) establishing a procedure to determine the level of compensation where undue costs have been charged to investors;

Added(v) establishing a procedure which will be triggered when the amount unduly charged is material and exceeds a threshold to be determined on the basis of existing national competent authorities’ guidelines on indemnification procedures;

Added(e) provide for criteria to determine whether costs are justified and proportionate in accordance with paragraph 1b, point (b).▌’;

Added(c) the following paragraph 4 is added:

Added‘4. By …[OP: please insert the date = five years from the date referred to in Article 7(2) of this Directive], after consulting ESMA, the Commission shall submit a report to Council and Parliament on the implementation of this Article. The report shall evaluate at least the following:

Added(a) whether this Article has had a positive impact on the costs and performance of UCITS offered to retail investors and to which extent;

Added(b) whether the assessment set out in paragraph 1e is proportionate in terms of complexity and costs incurred by management companies;

Added(ba) whether there could be other mechanisms to address high costs incurred by investors at Union level, including legislative and non-legislative measures.’;

Added(2) the following Article 20a is inserted:

Added‘Article 20a

AddedIn respect of each UCITS it manages, a management company shall provide to the competent authority of its home Member State information on the costs borne by investors and performance of the UCITS, at the level of each fund, or at the level of the UCITS share classes where those share classes have different cost structures.’;

Added(3) in Article 30, the second paragraph is replaced by the following:

Added‘For the purpose of the Articles referred to in the first paragraph, ‘management company’ means ‘investment company’, with the exception of the second paragraph of Article 14(1d).’

Added(4) in Article 90, the following paragraph is added:

Added‘This Article applies without prejudice to the application of Article 14.’;

Added(5) ▌Article 98(2) is amended as follows:

Added(i) the following point is inserted:

Added‘(ea) in accordance with Article 69a of Directive 2014/65/EU, carry out regular checks of the alignment of the qualitative and quantitative features of the UCITS on the market with the relevant benchmarks and, when necessary, take corrective actions;’;

Added(ii) the following point is added:

Added‘(n) without prejudice to any reimbursement made pursuant to Article 14(1d), require compensation to investors where undue costs have been charged to UCITS or its unit-holders.’;

Added(6) in Article 99(6), the following point is added:

Added‘(h) without prejudice to any reimbursement made pursuant to Article 14(1d), a requirement to compensate investors where undue costs have been charged to UCITS or its unit-holders, or where costs have been miscalculated to the detriment of the UCITS or its unit-holders, while taking into account that procedures for compensation are to be proportionate to the unduly charged amount, in particular from a technical and operational standpoint.’;

Added(7) in Article 112a(2), the following subparagraph is inserted after the fourth subparagraph:

Added‘The power to adopt the delegated acts referred to in Article 14 shall be conferred on the Commission for a period of four years from [OJ: insert date of entry into force of this amending Directive].’;

AddedAmendments to Directive 2011/61/EU

AddedDirective 2011/61/EU is amended as follows:

Added(1) Article 12 is amended as follows:

Added(a) the following paragraphs 1a to 1f are inserted:

Added“1a. For the purposes of paragraph 1, Member States shall require AIFMs to act in such a way as to prevent undue costs from being charged to the AIFs and their unitholders.

AddedThe costs which comply with the following conditions shall be regarded as due:

Added(a) they do not exceed the maximum amount disclosed in the prospectus referred to in Article 23(3), the fund rules or instruments of incorporation as referred to in Article 23(1) and the key information document referred to in Article 5(1) of Regulation (EU) No 1286/2014;

Added(b) they are properly incurred in connection with or for the purposes of:

Addedi) the operation of the AIF having regard to ▌its structure, investment strategy, ▌objective and policy, or

Addedii) the compliance with legal or regulatory requirements;

Added(c) they are borne by investors in a way that ensures fair treatment of investors, except for cases mentioned in Article 12 (1) where AIF rules or instruments of incorporation provide for a preferential treatment.

Added1b. Member States shall require AIFMs to maintain, operate and review an effective pricing process that allows for the identification and quantification of all costs borne by the AIFs or their unitholders. That pricing process shall ensure that the following conditions are fulfilled:

Added(a) the costs are not undue;