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CESR Clarifies New UCITS Document Requirements in Latest CP, Data Workflow Challenges Ahead

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Following on from its technical advice on the management of cross border data for UCITS earlier this year, the Committee of European Securities Regulators (CESR) has just published a series of new consultation papers that provide guidelines for the selection and presentation of data for the new Key Investor Information (KII) documents, which will require firms to rework their data management systems workflow. This data advice is all part of the revised UCITS IV Directive, which is due to be implemented by member states by 1 July next year, and the proposals are aimed at improving the comparability of the data between structured UCITS, especially in a cross border context.

Firms have until the 10 September to respond to the proposals and the 15 direct questions included in the four related consultation papers. The KII paper also includes examples of how the data should be presented, although CESR has also provided set templates in another consultation paper, which includes two questions about the suitability of said templates. The aim is rectify what CESR sees as the failures underlying UCITS III’s Simplified Prospectus regime, which was unsuccessful at rectifying cross border data differences.

The move from the Simplified Prospectus to the KII documents for the marketing of UCITS funds will therefore require buy side firms making a significant investment in their data management workflows and data checking (as noted recently by MoneyMate’s chief technology officer Ronan Brennan). The focus of the regulator is on ensuring this documentation from asset managers is as accurate and consistent as possible and it is also seeking to make cross border operations much more efficient and transparent.

The move from one format to another will require related existing data workflows to be altered but it will also mean new data items being added into the mix. One such data flow is: “Management companies shall choose at least three scenarios of the UCITS’ potential performance to illustrate how the payout works under different market conditions.” This therefore adds in more data on modelling and analysis into the client marketing documents, which must be transparent and fairly granular in detail, with the inclusion of formulas and “narrative explanation”.

CESR proposes to allow member states to decide whether they will allow firms to take the full 12 months to implement the changes needed to move from the Simplified Prospectus to the KII; the ultimate deadline for the changeover is 30 June 2012. These changes will need to take into account particular changes in the treatment of data around cross border notifications, fund mergers and master-feeder structures in the move from the UCITS III regime to KII. The emphasis is on information that is “fair, clear and not misleading”, according to the consultation papers, and it is likely that firms will be held to standards around data quality.

In order to ensure that even the basics are taken into account, CESR has provided a definition of what it means by “clear language and layout” in a separate consultation paper. The regulator is therefore keen to make sure there is no room for semantic misinterpretation, even down to the typeface that it considers to be easy to read (Arial or Times New Roman, for those of you that are curious), thus taking the idea of prescriptive data requirements to a whole new level.

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