On 29 March 2019, ESMA clarified benchmark disclosure obligations for UCITS in an updated version of its Q&A on the application of the UCITS Directive. The new questions and answers are included in Section II on “Key Investor Information Document (KIID) for UCITS” and impact primarily UCITS KIIDs but UCITS managers may have to review their other marketing materials and communications to ensure consistency.
1. Which UCITS are impacted?
All UCITS have to update their KIIDs, whether managed or not by reference to a benchmark (see respectively section 2.1. and 2.2. below) and should ensure consistency in their marketing materials and communications (see section 3 below).
2. What is the new disclosure guidance?
2.1 Where a UCITS is actively or passively managed in reference to a benchmark, the KIID should:
- mention in the investment policy section:
- whether the UCITS is actively or passively managed and define such terms. A UCITS is actively managed by reference to a benchmark where the benchmark plays an explicit or implicit role in defining the portfolio allocation and/or the performance objectives and measures of the UCITS. The UCITS or its management company must assess such role in consideration of the actual management. Therefore, if the selection of securities is in practice fully or partially determined by reference to a benchmark or the UCITS aims to achieve a similar performance to a benchmark, even though there is no reference or constraints with respect to a benchmark in the investment policy of the UCITS, the KIID should clarify that the UCITS is managed by reference to a benchmark
- where the UCITS is actively managed, the degree of freedom to deviate from the benchmark
- the index where the UCITS is tracking an index or the benchmark where the UCITS is managed in reference to a benchmark and clarify the version used where several versions of a benchmark exist
- show in the past performance section:
- if the UCITS is passively managed, the past performance of the index
- if the UCITS is actively managed in reference to a benchmark, the past performance of that benchmark
2.2 Where a UCITS is not managed in reference to a benchmark, the investment policy section of the KIID should also mention that the UCITS is actively managed with no reference to a benchmark.
3. To which extent consistency is required?
The KIID should be consistent:
- across fund documents and marketing materials (e.g. if a benchmark is named and referred to in the prospectus or in other marketing materials it should be in the KIID),
- across distribution channels (e.g. if a benchmark is referred to in certain media such as online platforms or financial data providers it should be in the KIID), and
- across investor types (e.g. same information provided to professional and retail investors).
4. When should the KIID be updated?
ESMA recommends implementing such changes as soon as practicable or the next time the KIID is updated.