One of the few remaining items on the agenda of harmonization of the Czech legal system with the acquis communitaire is a package of legislation regulating capital markets and collective investment. The core of this package consists of the Act on Undertaking on Capital Markets and the Act on Collective Investment, which are both prepared in draft form and are expected to be submitted formally to parliament soon, with a view to being adopted on or before May 1 2004 (the anticipated date of EU accession).
The draft Act on Collective Investment will replace the Act on Investment Companies and Investment Funds, which has been in force since 1992. The original intention of the Ministry of Finance (which is primarily responsible for the preparation of the draft) was to deliver an innovative and concise piece of legislation based on the analogous laws adopted in some EU countries, especially Luxembourg. The initial draft submitted for broader discussions, for example, anticipated the introduction of investment companies with variable capital (SICAVs), something that, to date, is unknown in the Czech legal system.
However, the current draft is notably less ambitious and its main aim is to lay down a complete and relatively detailed regulation of collective investment which would be entirely harmonized with the acquis, but would not substantively deviate from the present Czech legal system of collective investment.
The draft provides for three types of collective investment vehicles:
- Investment funds - joint stock companies with separate legal personality and limited duration for closed-end types of investment.
- Open-ended unit trusts - special trust-like entities without separate legal personality that enable a continuing subscription and redemption of units issued by the unit trust. Units are negotiable legal instruments, usually in book-entered form. Each unit trust must be managed by a licensed investment company.
- Closed-end unit trusts - entities similar to open-ended unit trusts but where the units are not redeemable.
From the above, only open-ended unit trusts may be established as so-called standard funds, that is, funds which may invest in a limited range of assets and which qualify under EU Directive No 85/611/EEC (UCITS) as undertakings for collective investment in transferable securities.
All types of the collective investment undertakings (open-ended as well as closed-ended) may be established as special funds, which generally have more freedom with respect to the types of investment assets. The draft anticipates the existence of special funds for securities, special funds for venture capital, real estate special funds, special funds for derivatives, special funds of funds, special funds for special assets and mixed special funds.
Because the draft is designed to come into force on accession by the Czech Republic to the EU, it attempts to lift the barriers to the free movement of capital by introducing the so-called single pass for investment companies seated in other EU member states as well as for Czech investment companies which intend to conduct business in other EU countries. The draft also sets out conditions for the public offering of units issued by foreign standard funds (UCITS) and special funds. Unlike special funds, no approval from the Czech Securities Commission is necessary for the offering of foreign UCITS - a simple announcement to the Commission, together with certain other conditions being met, should suffice.
Pursuant to the transitional provisions of the draft, existing investment companies and investment funds will automatically become licensed under the new Act. All existing open-ended unit trusts will, by operation of law, become special funds for securities (even if they met the stricter requirements for standard funds); the current version of the draft does not provide for any simplified procedure which would enable existing open-ended unit trusts to become standard funds after the introduction of the new law.
As mentioned above, the draft Act on Collective Investment has not yet been adopted by parliament; accordingly it is likely that the final version of the Bill will contain provisions that differ from the present draft.