ESMA releases its final Opinion on share classes of UCITS

After having issued two consultation papers back in December 2014 and April 2016, the European Securities and Markets Authority (ESMA) released its final Opinion on share classes of UCITS on 30 January 2017.

In its Opinion, ESMA focuses on the possibility for UCITS to use derivative overlays at share class level while subjecting this practice to 4 principles it considers must be complied with: (i) common investment objective (ii) non-contagion (iii) pre-determination and (iv) transparency.

In its Opinion, ESMA expresses that only currency risk hedging at share class level would, on an exceptional basis, comply with the common investment objective principle. This means that, in ESMA's opinion, other derivative strategies including duration hedging or beta hedging will no longer be allowed at share class level for UCITS.

However, ESMA considers that, to avoid too much disruption in the European fund market, share classes which were established before 30 January 2017 and which do not comply with its Opinion may continue to exist but will have to be closed to subscription by new investors by 31 July 2017, and to additional subscriptions by existing investors by 31 July 2018. New share classes should comply immediately with the new rules.

It is likely that the CSSF will, in its regulatory practice, follow ESMA's Opinion but it has not yet taken any official position.

For more information please contact Jacques Elvinger or Olivia Moessner