Instellingen voor collectieve belegging in effecten (O&R nr. 119) 2020/8.2.5:8.2.5 Implementation in the Netherlands

Instellingen voor collectieve belegging in effecten (O&R nr. 119) 2020/8.2.5

8.2.5 Implementation in the Netherlands

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At the time of writing, several aspects of the UCITS Directive have been found to have been incorrectly implemented in Dutch law. Although in some places the literature discusses UCITS, the vast majority of Dutch literature on investment funds focuses on the AIFM Directive. As a result, the incorrect implementation of the UCITS Directive in Dutch law has not been discussed in the Dutch literature for a long time.

The Directive has not been fully or correctly implemented in several respects. These relate to:

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the party to which the requirements apply (described in paragraph 4.1);

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the requirements imposed on a master-UCITS (described in paragraph 4.5.3.1);

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the authorization requirement for a UCITS common fund (described in paragraph 4.4.4);

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the non-implementation of the Directive regarding eligible assets (described in paragraph 4.5.2);

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an incorrect limit for investing in covered bonds (described in paragraph 4.5.3.1);

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permitting management companies to perform collective investment tasks without having an authorization as a UCITS management company (de­scribed in paragraph 5.2);

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the obligations applicable to the cross-border management of a UCITS (described in paragraph 5.6.6.3).

Four topics stand out:

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Party to which the Directive applies

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The UCITS' authorization application

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The investment policy

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Cross-border management

First of all, it is striking that no distinction has been made in the Netherlands between provisions that are directed to the management company and provisions that are directed to the UCITS. In Dutch law, the management company is the party to which all the provisions applicable to the UCITS in the UCITS Directive apply. While this is not in line with the Directive, in my opinion it is materially defensible. It is also in line with the structure of the AIFM Directive.

A Dutch UCITS common fund does not require authorization in the Netherlands before units in the fund can be sold to investors. Only the management company requires authorization for the sale of units in a UCITS common funds. The UCITS Directive requires a dual authorization. The Dutch implementation is thus in conflict with the Directive.

The UCITS Eligible Assets Directive has not been implemented in the Netherlands since 1 January 2016. Before then, the Directive was implemented by means of a reference in the Dutch Financial Supervision Act. The reference was removed on the grounds that the Eligible Assets Directive refers to an article from UCITS Directive IIIA and that this has since been superseded by UCITS Directive IV. However, the relevant article of the UCITS Directive IIIA has been transposed into UCITS Directive IV and the UCITS Eligible Assets Directive is still in effect.

If a management company and a UCITS have different home member states, the UCITS Directive provides for a division of the applicable rules. The legal framework of the UCITS’ home member state is applicable to some aspects and the legal framework of the management company's home member state is applicable to other aspects. This division has not been correctly implemented in the Netherlands. The relevant article in which the division is included (Article 19 of the UCITS Directive) does not seem to have been implemented at all. This article reveals that the composition and functioning of a UCITS must be governed by the rules of the UCITS’ home member state. Examples of this are the provisions on ring-fenced assets, the obligation to publish the net asset value, the obligation to publish a prospectus, the requirements for the annual report and the obligations regarding the investment policy.

A management company that is established in an EU member state other than the Netherlands and that wishes to manage a Dutch UCITS would have to comply with the Dutch requirements on these aspects. Or the Dutch UCITS itself has to comply with these requirements but since The Netherlands has chosen to direct all requirements to the management company it is the management company that has to comply with these requirements. Currently, however, it follows from Dutch law that the relevant requirements do not apply to a management company from another member state. The relevant rules will therefore not be laid down in the legislation of the home country of the management company or in Dutch law.

If a Dutch management company wants to manage a UCITS in another member state on the other hand, it has to comply with too many requirements. The Dutch requirements regarding the prospectus and those regarding the annual report, for example, apply in that case. Yet it is the requirements of the home member state that should govern these matters. If the other member state has implemented the requirements correctly, the requirements of both member states will therefore apply in this respect.

Dutch lawmakers would do well to re-examine the implementation of the UCITS Directive in its entirety.

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