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On the path to unification of the European investment trust market



On October 3 2011 the National Assembly of the Republic of Slovenia implemented into Slovene law 2009/65/EC of the European parliament and of the council of July 13 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (Ucits).

The newly adopted Investment Trusts and Management Companies Act (Official Gazette RS, no 77/2011) introduces several novelties, aimed at providing clear regulations governing non-Ucits trusts in Slovenia, thus unifying the EU investment trust market. Slovenia is one of the first EU member states, which implemented the Directive 2009/65/EC into domestic law.

Adopting the definition of Ucits and non-Ucits trusts outlined in the Directive, the Act provides that a Ucits trust is an undertaking with the sole object of collective investment in transferable securities and other liquid financial assets. Pursuant to the provisions of the Act, the new minimum initial capital required for the establishment of a management or investment company is determined at e125,000 ($169,000).

The capital of the management company must be maintained at a minimum of 25% of fixed costs of the company in the preceding business year or the total capital requirements for credit and market risks, which arise from management and associated activities of the company.

A further measure adopted to ensure transparency and diligent management is the implementation of the so-called four-eyes principle. Specifically, the Act requires that managing directors are only authorised to represent the company jointly. Further, the members of the boards of directors of the management company must carry out their obligations solely on the basis of an employment contract.

With regards to advertising of investment trusts, the Act stipulates that the advertisements must be unambiguous and comply with the contents of the prospectus. Individuals marketing investment trusts on behalf of the management company are required to hold a permit issued by the Securities Market Agency of the Republic of Slovenia.

Under the new Act, the investment fund administrator shall be held liable for damages, should it be established that the administrator failed to demonstrate diligent conduct. Such a lawsuit may be filed by the management company. Further, the Act determines that mutual funds can be subject to mergers as well as acquisitions.

With regards to the latter, an audit must be carried out before the actual acquisition. In order to increase the effectiveness of the investment fund market, the Act also introduces master feeder structures, which are suitable primarily for small investment trusts. This novelty can help reduce expenses, due to the possibility of transferring funds to a central fund

Through detailed regulations of investment trusts and investment or management companies, Slovene legislators ensure greater legal certainty. In addition, the Act has provided amendments which are paramount to the formation of a uniform investment trust market within the EU.

Further, greater competition on the investment trust market will be achieved once the other EU member states implement the Directive in their legislation.

Andrej Kirm

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