Recent Developments in Belgian Financial Law

Amended Legal Framework for Collective Management of Investment Portfolios

On 19 October 2012, the Law of 3 August 2012 relating to certain forms of collective management of investment portfolios (Wet van 3 augustus 2012 betreffende bepaalde vormen van collectief beheer van beleggingsportefeuilles/Loi du 3 août 2012 relative à certaines formes de gestion collective de portefeuilles d'investissement; the “Law”) entered into force. The Law implements Directive 2009/65/EC of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. It applies to undertakings for collective investment (“UCI”) and management companies of undertakings for collective investment (“MCUCI”).

The new rules build on the former Law of 20 July 2004 on certain forms of collective management of investment portfolios (Wet van 20 juli 2004 betreffende bepaalde vormen van collectief beheer van beleggingsportefeuilles/Loi du 20 juillet 2004 relative à certaines formes de gestion collective de portefeuilles d'investissement; the “2004 Law”). Compared to the 2004 Law, the Law provides for the following changes:

  • In order to inform the investors correctly, a key investor information document containing the essential characteristics of the UCI, replacing the former simplified prospectus, needs to be prepared.
  • The MCUCI is allowed to operate in another Member State of the European Economic Area (“EEA”) (i.e., the so-called European passport), except for non-harmonised funds.
  • The rules of conduct, organisation and risk management of the MCUCI are strengthened by aligning such rules with Directive 2004/39/EC of 21 April 2004 on markets in financial Instruments (“MiFiD).
  • Master-feeder structures are authorised to allow an asset manager to centralise the management of portfolios of different UCIs (“Feeders”) which will invest at least 85% of their assets in one UCI (“Master”) established in another Member State of the EEA.
  • A common framework is introduced for mergers between domestic and cross-border UCIs.
  • The marketing of shares in an UCI in another Member State of the EEA is simplified. The UCI seeking to market its shares abroad will have to notify the authorities of the Member State of origin (i.e., the FSMA for Belgium) and submit a file which will be transmitted to the authorities of the host Member State.
  • The creation of compartments and classes of shares in mutual funds has been made possible and the rules applicable to investment companies have been transposed to mutual funds.
  • The UCIs with a fixed number of shares may delegate accounting tasks, including the establishment and the publication of the annual accounts.
  • The public UCIs with a variable number of shares must not be incorporated as a partnership limited by shares (commanditaire vennootschap op aandelen/société en commandite par actions).
  • The auditor acting for the UCI must not act at the same time for the MCUCI, except if there are two different independent private individuals representing one legal entity.
  • Finally, a new exception to the professional secrecy is established as the auditors of each of the UCI and of the MCUCI may exchange certain information.

Additional Rules on Issuance of Belgian Covered Bonds

Pursuant to the Law of 3 August 2012 establishing a regulatory framework for Belgian covered bonds (Wet van 3 Augustus 2012 betreffende diverse maatregelen ter vergemakkelijking van de mobilisering van schuldvorderingen in de financiële sector/Loi du 3 août 2012 relative à des mesures diverses pour faciliter la mobilisation de créances dans le secteur financier; the “Law”), credit institutions established in Belgium have been given the possibility to issue covered bonds since 3 September 2012. The Law provides for a mechanism protecting the holders of covered bonds by creating a special estate consisting of specific cover assets, separated from the general estate of the issuer.

The Royal Decree of 11 October 2012 (Koninklijk Besluit van 11 oktober 2012 betreffende de uitgifte van Belgische covered bonds door kredietinstellingen naar Belgisch recht/Arrêté royal du 11 octobre 2012 relatif à l’émission de covered bonds belges par des établissements de crédit de droit belge; the “Royal Decree”), entered into force on 18 October 2012 and defines quantitative and qualitative criteria for the eligibility of the cover assets, limitations by class of assets, and the minimum level of coverage.

The additional rules on covered bonds contained in the Royal Decree can be summarised as follows:

  • 5 categories of assets are taken into account as cover assets. The first 2 include loans covered by a first ranking mortgage on residential and non-residential (commercial) real estate located in a Member State of the EEA. The third category consists of debts by central public authorities, central banks or public sector entities of Member States of the OECD, or debts guaranteed or insured by such authorities. The fourth and the fifth categories include claims against credit institutions governed by the law of a Member State of the OECD and claims arising from hedging transactions.
  • The issuer may include hedging instruments in cover assets, provided such instruments are intended exclusively to cover the currency or interest rate risk.
  • For the first and second category of cover assets, the value to be considered is the smallest amount between the claims as reflected in the accounts of the issuer, 80% of the sale value of the residential buildings and 60% of the sale value of the non-residential buildings, and the value of the mortgage. For the third category of assets, the value is zero if the compensation of these claims originates from outside the European Union. There is an exception if the assets meet the criteria and limits set forth by Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions. For the last 2 categories, the value to be considered is the book value provided that the compensation may be weighted pursuant to Annex VI of the Directive 2006/48/EC (if this is not the case, the claims will not be considered for the verification of coverage test).
  • At least 85% of the eligible cover assets should consist of first, second or third category assets. The remaining 15% can consist of fourth and fifth category assets. Moreover, the cover assets must at least have a value equal to 105% of the nominal value of the issued covered bonds (5% overcollateralization).
  • The cover assets must generate sufficient cash or include sufficient liquidity in order to allow the credit institution to repay the Belgian covered bonds (capital, interest and other costs) within a period of 6 months.
  • The credit institutions should ensure that, in case of sudden and unexpected changes in interest rates or exchange rates, the cash flow generated by the cover assets is sufficient.
  • A credit institution must not issue new covered bonds if the amount of cover assets exceeds 8% of the total of the assets of the credit institution.
  • The issuer should for each issue or issuance program hold a register of cover assets and covered bonds. A cover asset and a covered bond may be registered in one register only. All assets or hedging instruments become cover assets upon their registration into such register. The qualification as cover assets is enforceable against third parties as from the registration.
  • For each issue or issuance program, the credit institution must appoint a cover pool monitor. Only persons or entities included on the official list of certified monitors established by the National Bank of Belgium (“NBB”), and who are not the issuer’s statutory auditor, may act as cover pool monitor.
  • When the issuer does not comply with its obligations vis-à-vis the bond holders and the NBB considers that the situation is such that the interest of the bond holders is in jeopardy, or in case of insolvency proceedings or when the authorisation of the issuer is withdrawn, the NBB may appoint a portfolio manager. The portfolio manager has all powers for managing the portfolio, including the powers to divest, invest or to take out loans.
  • Finally, the issuer is subject to the NBB’s supervision and shall provide the NBB with a quarterly report.