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Investment Funds Act

The Austrian Ministry of Finance has recently introduced a draft bill on the amendment of certain provisions of the Austrian Investment Funds Act (Investmentfondsgesetz, InvFG). The amendment aims to:

  • implement EU Directive 2007/16/EC giving uniform definitions relating to undertakings for collective investment in transferable securities (Ucits)
  • take account of the Committee of European Securities Regulators (CESR) guidelines to facilitate cross-border provision of services
  • promote competitiveness of Austrian investment funds by aligning the Austrian legal framework with the legal regime of other EEA jurisdictions

Key changes proposed by the draft bill include the following: under the new regime, individuals (as opposed to only legal persons) may invest in a specialised investment fund, provided, however, that the minimum investment per individual is at least €250,000 ($367,000).

Further, the Directive provides uniform definitions specifying the instruments in which a fund may invest, such as closed-ended funds or financial instruments linked to the performance of other instruments. They will be implemented to foster cross-border marketing activities.

As opposed to the current regime under which assets forming part of a fund may not be pledged or otherwise encumbered or provided as security, the draft bill proposes an exemption: it specifically allows fund assets to be pledged or provided as security for purposes of derivatives transactions. This will certainly be welcomed by the industry. Under the present framework people had to argue against the letter of the law to justify why the provision of margin calls for futures transactions (for example) were nonetheless permitted.

In line with the legal regime of other EEA jurisdictions, the draft bill foresees that (i) the investment fund management company shall in the future be obliged to publicly disclose when it suspends and resumes the redemption of units, and that (ii) distributions to unit holders may not only be satisfied with profits generated by the fund but also from the fund's assets (Substanzauschüttung) if the respective fund rules so provide, and if the value of the fund's assets does not fall below €1,150,000 ($1,688,775) as a result of such distributions. It is also envisaged that an investment management company may terminate the management of a fund with immediate effect if the value of a fund's assets reaches €150,000 (as opposed to €370,000, as now).

With respect to the EEA passporting regime for Ucits funds, the draft bill aims to codify regulatory practice. It will ensure that the attestation issued by the competent authorities of the EEA member state in which the investment fund management company has its registered office, confirming that the provisions of Directive 85/611/EEC are complied with, can be submitted in English without a German translation. The provisions on the statutory waiting period shall be revised to state that the two month waiting period (before one may publicly offer units in a Ucits fund to Austrian investors) is a maximum which will be shortened if the respective fund is listed in the Austrian regulator's database of Ucits funds permitted for public offer in Austria.

The consultation period on the draft bill ended on January 4 2008. In the weeks to come, the draft bill will be forwarded to the two chambers of the Austrian Parliament for discussion. If approved, the amendments will enter into force from July 23 2008 onwards.

Ursula Rath

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