Ucits IV: Positive move or unnecessary cost?

So the Ucits IV deadline of 1 July has been and passed and the world has not ended.

With such industry focus on the KIID requirements, you might have missed the feverish efforts among fund managers, lawyers, directors, service providers and consultants to ensure that Ucits management companies and self managed investment companies (SMICs) were Ucits IV compliant by 1 July.

At the same time the industry has attempted to build the optimum solution in terms of a robust compliance and risk infrastructure and an appropriate governance regime, while taking account of all Ucits IV requirements.

Clearly the KIID requirements are the part of this whole process that directly affects investors the most. However, from a practical perspective, it is important that those investing in Ucits funds understand how the 1 July deadline of Ucits IV actually impacts the day-to-day management of their money and the processes behind their investment. This is how the transparency that is so sought after will be achieved.

With the implementation of Ucits IV, the required regulatory amendments do not in fact amount to a wholesale revision of the incumbent framework, but rather, they have codified a number of existing procedures while broadening and deepening the reporting framework.

There are specific requirements as to the organisation, conduct of business and structure of Ucits management companies and SMICs. Detailed operating procedures, which should be tailored to the nature, scale and complexity of each fund, must be in place to ensure compliance with all applicable regulatory requirements. Enhanced risk management processes, both on a holistic business risk basis and also specifically to address derivative type risk are now required.

The number of Ucits Management functions has also increased to ten with the addition of a complaints handling function and an accounting policies and procedures function. Also the existing requirement to monitor investment performance has broadened to encompass monitoring of investment policy, strategies and performance.

For investors, this is going to be significant, as there will be a greater requirement for managers to prove the suitability and success of their investments.

While there is of course a specific regulatory driver for management companies and SMICs to be Ucits IV compliant by 1 July, from a practical perspective, the compliance, operating and governance framework that will be created will contribute substantially to the smooth running of a fund.

This framework comprises a series of roles, responsibilities and reporting lines, starting with the board of directors and designated individuals, through to the service providers. While any governance framework contemplates a top down review process, Ucits IV also envisages a bottom up process, with service providers providing regular reporting to the designated individuals and to the board, as well as exception reporting as and when necessary.

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