The Royal Decree of 22 April 2020 aims to protect open-ended public undertakings for collective investment (“UCIs”) against the consequences of the COVID-19 epidemic and in particular protect the liquidity of such UCIs. UCIs that are confronted with redemption requests of their units have to sell, often at unfavourable prices, positions in their portfolios in order to obtain the necessary liquidity. In order to protect these UCIs, the Royal Decree gives the latter the possibility to limit the frequency of execution of those redemption requests. The Royal Decree also provides for the possibility for UCIs to use certain liquidity protection mechanisms towards their investors, even if such mechanisms are not expressly provided for in the prospectus or the articles of association of the UCI. Finally, the Royal Decree extends the deadline for the submission of the periodical reports. The Royal Decree is applicable until 31 July 2020.
The Royal Decree of 22 April 2020 on specific measures to protect public undertakings for collective investment with a variable number of units against the consequences of the COVID-19 epidemic (“RD“) was published in the Belgian Official State Gazette on 24 April 2020. The purpose of the RD is to protect certain undertakings for collective investment (“UCIs“) that are faced with liquidity problems due to substantial amounts of redemption requests from their investors.
In order to protect the UCIs’ liquidity, the RD introduces flexibility with regard to:
- the frequency of execution of issuance or redemption requests or requests for a change of compartments; and
- the use of specific measures to address liquidity risks.
In addition, the RD extends the deadline for the submission of periodical reports.
Frequency of execution of issuance or redemption requests or change of compartments requests
The RD aims to reduce the frequency of the execution of issuance or redemption requests, or of requests for a change of compartment, and the frequency of the calculation of the net asset value (“NAV“) of the units. Such a decision may be taken by a UCI confronted with the unavailability of staff due to illness (contamination by COVID-19), making it no longer possible to carry out the regular calculation of the NAV of the UCI.
The decision to make use of this option will not require an amendment to the prospectus, the key information document, the articles of association or the management regulations of the UCI. A UCI will only have to publish a press release to inform its investors. However, it is important to note that the obligation of the UCI to execute issuance or redemption requests or requests for a change of compartments, at least twice a month, is maintained.
Use of specific measures to address liquidity risks
To deal with the liquidity risk more adequately, the RD makes a number of modifications to facilitate the use of certain tools or measures that were introduced by the Royal Decree of 15 October 2018. It concerns the “swing pricing”, “anti-dilution levy’ and “redemption gate” mechanisms:
- With respect to all three mechanisms, the provisions that require the application procedure of the mechanisms to be specified in the prospectus, the articles of association and/or the management policies are rendered inapplicable.
- For the redemption gate, an exception is provided to the requirement to develop a policy specifying the conditions for the application of the redemption gate measure, as well as to include in the conflicts of interests policy the identification of conflicts of interest and the procedures to be followed to manage such conflicts. This exception is not provided for the anti-dilution levy and swing pricing mechanisms. To make use of said mechanisms, UCIs will have to establish a policy and submit it to the FSMA.
- No later than the first time the swing pricing or anti-dilution levy mechanism is used in the context of the RD, a notice to the investors must be published to explain the terms and conditions of the measure concerned.
Publication of periodical reports
Finally, the RD extends the deadline by 10 weeks for the publication of the UCIs’ annual and semi-annual reports.
The extraordinary regime established by the RD is strictly temporary. The ordinary rules will therefore apply again in full as from the end of the period of application of the RD, which is 31 July 2020.