The European Securities and Markets Authority (ESMA) has published an opinion on the extent to which different types of units or shares of the same undertakings for collective investment in transferable securities (UCITS) fund can differ from one another, having found diverging approaches in different EU countries.

In its opinion, addressed to national regulators, ESMA sets out four high-level principles which UCITS must follow when setting up different share classes in order to ensure a harmonised approach across the EU:

  • common investment objective. Share classes of the same fund should have a common investment objective reflected by a common pool of assets. ESMA considers that hedging arrangements at share class level – with the exception of currency risk hedging – are not compatible with the requirement for a fund to have a common investment objective;
  • non-contagion. UCITS management companies should implement appropriate procedures to minimise the risk that features specific to one share class could have a potentially adverse impact on other share classes of the same fund;
  • pre–determination. All features of the share class should be pre-determined before the fund is set up; and
  • Differences between share classes of the same fund should be disclosed to investors when they have a choice between two or more classes.

ESMA also states in its opinion that share classes should never be set up to circumvent the rules of the UCITS Directive, particularly those on diversification, derivative eligibility and liquidity. ESMA notes that its principles will have an impact on funds in countries where share class arrangements can currently be set up that do not comply with the new principles. To mitigate negative effects for investors in share classes that were established prior to the issuance of the opinion and which do not comply with these principles, ESMA is of the view that these share classes should be allowed to continue to operate. However, in order to level the playing field across the EU, ESMA states that these share classes should be closed for investment by new investors within six months of publication of the opinion, that is 30 July 2017, and for additional investment by existing investors within 18 months of publication of the opinion, that is 30 July 2018.

View ESMA opinion on UCITS share classes, 30 January 2017