ESMA’s Opinion on Share Classes of UCITS

1 Common principles for UCITS share classes

On 30 January 2017, the European Securities and Markets Authority (“ESMA”) issued an opinion on the extent to which share classes of the same UCITS fund can differ from one another (Ref. ESMA 34-43-296) (the “Opinion”), having identified diverging practices among Member States.
In its Opinion addressed to national regulators, ESMA sets out four high-level principles governing the setting-up of UCITS share classes in order to ensure a harmonised approach across the EU:

  • Common investment objective:

ESMA is of the view that share classes of the same UCITS fund should have a common investment objective reflected by a common pool of assets, and therefore a common risk profile. In this respect, ESMA considers that hedging arrangements at share class level are not compatible with such requirements – with the exception of currency risk hedging.

  • Non-contagion:

UCITS management companies should implement appropriate procedures to minimise the risk of contagion between share classes. To prevent spill-over risk, derivative overlays used to hedge currency risk should be scaled and managed appropriately in accordance with minimum operational requirements (including mitigation of counterparty risk, accounting segregation, and stress testing).

  • Pre-determination:

All features of a given share class should be pre-determined before the share class is set-up, thus allowing a prospective investor to gain a full overview on the rights and/or features specific to the investment (including systematic currency risk hedging if applicable).

  • Transparency:

As share classes introduce a certain level of customisation, adequate disclosure should be made to ensure a common level of transparency vis-à-vis all investors. In particular, differences between share classes within a UCITS fund should be disclosed to investors when they have a choice between two or more classes.

The Opinion is available on ESMA’s website.


2 Transitional provisions

In terms of implementation, ESMA is of the view that existing “non-compliant” share classes should be allowed to continue to operate. However, in order to level the playing field across the EU, ESMA is of the view that such share classes should be closed:

(a) for investment by new investors within six months of publication of the Opinion (i.e. by 30 July 2017), and

(b) for additional investment by existing investors within eighteen months of publication of the Opinion (i.e. by 30 July 2018).

3 CSSF Press Release 17/06

As stated in the CSSF Press Release n° 17/06 (the “Press Release”) on 13 February 2017, the CSSF expects all UCITS funds to take the necessary measures to comply with the transitional provisions set forth in the Opinion. Furthermore, new share classes do henceforth have to comply with the common principles stated in the Opinion.

The Press Release is available on CSSF’s website.