Hoppa yfir valmynd
Ministry of Industries and Innovation

Financial Services and Markets - Act No 30/2003 on UCITS

English translation (unofficial)


Act No 30/2003
on Undertakings for Collective Investment in Transferable Securities (UCITS) and Investment Funds

 
CHAPTER I
General provisions
Article 1
Scope

This Act shall apply to Undertakings for Collective Investment in Transferable Securities (UCITS) and to investment funds.
UCITS and investment funds are solely intended to accept funds from members of the public for collective investment in financial instruments and other assets on the basis of spreading risk, in accordance with a prior-stated investment policy.
Only UCITS and investment funds may accept funds from members of the public for joint investment in financial instruments and other assets on the basis of spreading risk, in accordance with a prior-stated investment policy.

Article 2
Definitions

For the purposes of this Act the following meanings shall apply:
1. UCITS: a fund licensed to operate in the European Economic Area (EEA), established and operated by a management company, which issues units in collective investment undertakings (unit share certificates) which are redeemable at the owners' demand from the fund's assets;
2. Investment fund: a fund with an operating license not authorised to market its products in the EEA, which issues unit share certificates in collective investment undertakings or shares;
3. Management company: the management company of a UCITS, in accordance with the Act on Financial Undertakings, which operates UCITS and investment funds, as provided for in Chapters II and III of this Act, and other funds for collective investment;
4. Depositaries: financial undertakings, as provided for in the Act on Financial Undertakings, which fulfil the requirements of sub-chapter C of Chapter II of this Act;
5. Financial instrument: a financial instrument in accordance with the definition of the Act on Securities Transactions;
6. Unit in collective investment undertakings (unit share certificate): a financial instrument which confirms the right of all persons with a holding in a fund for collective investment, or individual division of it, to the fund's securities assets. All owners of unit shares shall have the same right to the fund's income and assets, or those of the division concerned, in proportion to their holding;
7. Institutional investor: an institutional investor in accordance with the definition of the Act on Securities Transactions.

Article 3
Authorisation to commence operation and registration of funds

The Financial Supervisory Authority shall grant UCITS accreditation, as provided for in Chapter II, and grant accreditation or an operating licence for investment funds, as provided for in Chapter III. The Financial Supervisory Authority shall rule as to whether any activities are covered by this Act.
The Financial Supervisory Authority shall keep a register of UCITS and investment funds, including all the principal information on the fund in question. Any changes to information previously reported should be notified to the Financial Supervisory Authority in advance.

Article 4
Other funds for collective investment

Management companies may establish funds for collective investment which do not accept funds from members of the public (institutional investor funds) and issue unit shares or shares. The management companies must notify the Financial Supervisory Authority of the establishment of funds in accordance with this Article. Funds referred to in this Article shall not be subject to surveillance as provided for in this Act.
Management companies must adopt an investment policy for funds referred to in this Article which shall be accessible to investors. Information provision shall in other respects be in accordance with an agreement between the management company and investor.
The provisions of Articles 23-25 on unit shares shall apply to funds referred to in this Article.

CHAPTER II
Undertakings for Collective Investment in Transferable Securities (UCITS)
A. Accreditation and revocation of accreditation
Article 5
Granter of accreditation

The Financial Supervisory Authority shall grant UCITS accreditation. Activities may begin once accreditation has been received from the Financial Supervisory Authority. A UCITS may not operate without the accreditation of the Financial Supervisory Authority.
UCITS as provided for this Act may not be converted into funds not covered by this Act.
The Financial Supervisory Authority shall only grant accreditation to UCITS if their management companies and depositaries fulfil the requirements of the Act on Financial Undertakings.

Article 6
Application for accreditation

An application by a management company for accreditation of a UCITS must be made in writing and include the rules of the fund as provided for in Article 12, its prospectus and an excerpt of the prospectus, as provided for in Chapter II H of this Act, information on the managers of the UCITS and other relevant information as determined by the Financial Supervisory Authority.

Article 7
Granting of accreditation

A decision by the Financial Supervisory Authority on the granting of accredi-tation must be notified to the applicant in writing as promptly as possible and no later than one month following the receipt of a complete application. The Financial Supervisory Authority must notify an applicant when an application is considered to be satisfactory.
The Financial Supervisory Authority must publish notifications of accreditation granted to UCITS in the Legal Gazette (Lögbirtingablað).

Article 8
Refusal of accreditation

If an application does not fulfil the requirements of this Act, in the estimation of the Financial Supervisory Authority, it shall refuse to grant accreditation.
Grounds must be given for refusal of an application by the Financial Supervisory Authority and the applicant notified within one month of the receipt of a complete application.

Article 9
Revocation of accreditation

The Financial Supervisory Authority may revoke its accreditation of a UCITS:
1. if a management company commits serious or repeated violations of this Act, or rules, Articles of Association or Regulations adopted pursuant to it;
2. if a management company has not exercised its authorisation to operate a UCITS within twelve months of it being granted, if accreditation has been expressly relinquished, or if the activities of the fund are suspended for a continuous period of more than six months; or
3. if the fund does not have at its disposal at least ISK 50 million three months after accreditation was granted, or at least ISK 10 million divided among at least 50 parties so that the share of each of them amounts to at least ISK 10 thousand.
Before any revocation may be enacted pursuant to Points 1-2 of the first para-graph, a reasonable time limit shall be given for rectifying the situation if possible.

Article 10
Notification of revocation

Revocation of the accreditation of a UCITS must be notified to the Board of the management company and grounds provided in writing. The Financial Supervisory Authority shall publish the notification in the Legal Gazette and advertise in the media. Should a management company operate a branch of a UCITS or service activities in another state, notification must be sent to the competent supervisory authorities in that state.


B. Establishment and activities
Article 11
Name

Only UCITS may use in their name, or as a further explanation of their activities, the Icelandic word verðbréfasjóður (Undertaking for Collective Investment in Transferable Securities).

Article 12
Rules

The management company must set rules for the UCITS. The rules must include at least the following items:
1. the name of the UCITS,
2. whether the UCITS will operate as a single entity or in separate divisions,
3. its investment policy,
4. the name of the UCITS's depositary, and provisions as to how the depositary may be changed,
5. the commission of the management company,
6. authorisation to market the UCITS in Iceland and in other EEA states,
7. issuing of unit shares and their redemption,
8. how dividends and other profits of the UCITS's securities shall be disposed of,
9. the method of calculating the redemption value of each unit share,
10. procedures for any merger of the UCITS with other funds or for merger of divisions of the same fund,
11. how a UCITS or division can be wound up.
Changes to the rules of a UCITS shall not take effect until approved by the Financial Supervisory Authority. The change shall take effect no later than three months after being approved, unless otherwise determined by the Financial Supervisory Authority. The Financial Supervisory Authority shall make notification of the change in the Legal Gazette.
The management company must notify owners of unit shares in a UCITS of any change to the fund's rules. The Financial Supervisory Authority may grant exemp-tions from this provision.

Article 13
Divisions

A UCITS may be operated as separate divisions. The finances of each UCITS division under a management company must be kept separate. Each division shall be responsible for its own obligations. However, all the fund divisions are responsible in solidum for their joint expenses.

Article 14
Formation of a UCITS

The assets of a UCITS are formed by means of an agreement between a management company and a customer, who entrusts it with investing his/her funds in a specific UCITS under its direction. The UCITS is formed by the customer turning over money in exchange for unit share certificates, and is subsequently comprised by the assets which are acquired upon disposing of this money for collective investment.

Article 15
Separation of management and depositary operations and independence

A management company may not at the same time be a depositary. A member of the Board of a management company may not be on the Board of a depositary.
Management companies and depositaries shall operate independently of each other, having the interests of the unit share owners always as their prime concern.

Article 16
Right to bring suit

A management company may initiate litigation in its own name on behalf of individual owners of unit shares to have the unit shares cancelled.

Article 17
Operation of Undertakings for Collective Investment
in Transferable Securities (UCITS)

The operation of UCITS shall include the following projects:
1. investments in accordance with the investment policy;
2. general administration:
a) accounting and legal services;
b) customer services;
c) assessment of the value of securities and other assets;
d) internal checks and monitoring;
e) keeping a registry of unit share owners;
f) calculation of redemption value;
g) issuing and redemption of unit shares;
h) compiling statements of transactions;
i) serving as depositary for unit shares and data on transactions;
3. marketing.

Article 18
Outsourcing tasks of a management company

A management company may entrust other parties with tasks as provided for in Article 17 after having received the approval of the Financial Supervisory Authority. A management company may never, however, outsource all of the tasks provided for in Article 17. Tasks as provided for in Point 1 of Article 17 may not be entrusted to a depositary or another company if its interests are not compatible with those of the management company and unit share owners.
Should a management company entrust another undertaking with part of its tasks as provided for in Article 17, this shall not in any way affect the responsibility of the management company towards unit share owners.
More detailed rules concerning the outsourcing of tasks of management company shall be set in a Regulation.

Article 19
Good business practices and customs

A management company shall operate a UCITS in accordance with good business practices and customs, making market credibility and the interests of unit share owners their prime concern.


C. Depositaries

Article 20
Activities of the Depositary

Administration and safekeeping of the financial instruments of a UCITS shall be entrusted to a depositary which has been approved by the Financial Supervisory Authority. The assets of a UCITS must be kept separate from the assets of the depositary. A depositary must:
1. ensure that the sale, issue, repurchase, redemption and invalidation of unit shares in a UCITS is conducted in accordance with the law and the rules of the party concerned;
2. ensure that the redemption value of unit shares is calculated in accordance with law and the rules of the party concerned;
3. enforce the instructions of the management company, unless these contravene the law or statutes of the party concerned;
4. ensure that, when transactions take place with the assets of a UCITS, remuneration for the assets is made within normal time limits;
5. ensure that the revenue of a UCITS is disposed of in accordance with law and the rules of the fund.

Article 21
Approved parties

Commercial banks, savings banks, credit institutions, securities undertakings and the branches of comparable foreign undertakings operating in Iceland may be approved as depositaries.
Changes of depositaries are not permitted without the approval of the Financial Supervisory Authority.

Article 22
Liability

A depositary shall be liable towards a management company and unit share owners for any losses they may incur which may be traced to the intentional or negligent actions of the depositary's employees in carrying out tasks as provided for in Article 20.
A depositary may entrust another undertaking, which is eligible for approval as provided for in Article 21 or which has an operating permit as a financial undertaking and is subject to supervision comparable to companies as referred to in Article 21, the safekeeping of securities of a UCITS in whole or in part. Should a depositary entrust another undertaking with the safekeeping of securities of a UCITS, this shall not have any effect on the liability of the depositary towards a management company and unit share owners as referred to in the first paragraph.


D. Unit shares

Article 23
Issuing of unit shares

A management company shall issue documents signifying ownership rights in a UCITS in the form of unit share certificates, cf. however, the third paragraph.
All holders of a share in a UCITS, or individual division of the same, shall have an equal claim to the income and assets of the fund or the division in question, in proportion to their share, with the unit share certificates serving as confirmation of a claim to securities held by the fund.
A management company is not obliged to issue unit share certificates unless their owners so request.
If the unit shares are issued as electronic security certificates in a securities depositary, the Act on Electronic Registration of Title to Securities shall apply.
Unit shares must be registered by name or in a nominee account, cf. the Act on Securities Transactions.
Unit shares are exempt from stamp tax.

Article 24
Information on unit share certificates

The unit share certificate shall include at least the following items cf., however, the fourth and fifth paragraphs of Article 23:
1. the name of the UCITS, its depositary and management company;
2. the name and identity number of the original owner of the unit share;
3. how the unit share can be redeemed and what rules apply concerning payment of dividends;
4. the name and identity number of the transferee, if the unit share has been traded without being redeemed.
The unit share certificate must be dated and signed by the Board of the management company. The signatures may be printed or presented in another similar manner.

Article 25
Registry of unit shares

The management company of a UCITS must maintain a registry of owners of unit shares in the fund. The registry must include at least the following items:
1. name and identity number of owner,
2. date of sale of the unit share certificate,
3. nominal value of the unit share certificate,
4. total number of outstanding certificates.
The management company must be notified of change of ownership of unit shares. Such notifications, together with other information received concerning ownership of unit shares, shall be entered into the registry, together with the source of the notification, cf. however, the fourth paragraph of Article 23.

Article 26
Cash payment

Unit shares in a UCITS shall only be sold for cash payment of the purchase price. This provision shall not prevent the distribution of bonus issues.


E. Redemption

Article 27
Redemption obligation

Unit shares shall be redeemed on the owners' demand in accordance with the detailed provisions of the fund's rules.
Notwithstanding the provisions of the first paragraph, a management company may, in accordance with the provisions of the fund's rules, suspend redemption of unit shares. Suspension must apply universally to all unit shares and may only be applied when there are exceptional reasons for so doing and when required to protect the interests of unit share owners. Suspension of redemption must be notified to the Financial Supervisory Authority immediately. Furthermore, the suspension shall be advertised publicly.
The Financial Supervisory Authority may demand that the redemption of unit shares be suspended, if such is required to safeguard the interests of unit share owners or the public.
Supervisory bodies of other states of the EEA, where the unit shares of a UCITS have been marketed, must be notified of a suspension of redemption in accordance with the provisions of this Article.

Article 28
Calculation of redemption value

The redemption value of unit shares in a fund is the market value of its total assets less any debts of the fund at the time of redemption, such as debts owed to credit institutions, unpaid administrative and management costs, collection costs and payable or imputed public levies, divided by the total number of issued and unredeemed unit shares.
The Minister may, in a Regulation, lay down detailed rules for the calculation of the redemption value of unit shares in a UCITS and assessment of the market value of assets.

Article 29
Advertisement of redemption value

The redemption value of unit shares in a UCITS shall be calculated daily and advertised publicly at least twice each month. The Financial Supervisory Authority may decide that the public advertisement of redemption value shall be made more frequently, if this is considered warranted.


F. Authorised investments

Article 30
Financial instruments and deposits

The investment authorisations provided for in this Chapter shall apply to a UCITS or, if it is divided into divisions as provided for in Article 13, to its individual divisions. A UCITS may only invest in:
1. securities and money market instruments which have been listed, or are traded, on a regulated securities market as defined in the Act on Securities Transactions. For the purposes of this Act, money market documents shall mean liquid instruments which are traded on a money market and whose value can be determined at any time;
2. newly issued securities, provided the terms of their issue include an obligation to apply for listing of the securities on a regulated securities market as referred to in Point 1. The listing of securities in accordance with this provision must take place no later than one year after their issue;
3. unit shares in a UCITS. Investments may also be made in instruments of other funds for collective investment, if UCITS can satisfactorily demonstrate, in the assessment of the Financial Supervisory Authority, that these funds are subject to supervision comparable to UCITS, that co-operation between the Financial Supervisory Authority and the competent authority of the home state of the fund is satisfactorily ensured, that protection for owners of certificates is ensured in a similar manner to UCITS, and that it publishes an annual report plus an interim statement at least at six-month intervals. Investments may not be made in UCITS and other funds for collective investment which invest, according to their own rules, more than 10% of its assets in unit shares of UCITS or unit shares or shares of other funds for collective investment;
4. deposits of financial undertakings which are established in a state within the EEA. A UCITS may, however, invest in deposits of financial undertakings established outside the EEA if it can demonstrate satisfactorily, in the assessment of the Financial Supervisory Authority, that it is subject to similar rules on risk and supervision as apply within the EEA. Deposits as referred to in this Point must be repayable upon the demand of the deposit owner and have a maximum fixed term of twelve months;
5. derivatives listed on a regulated securities market, as defined in the Act on Securities Transactions. The underlying variables of derivatives must be authorised investments as provided for in this Article, securities indices, interest rates, foreign exchange rates or currencies in which the UCITS may invest in accordance with the provisions of the fund's rules;
6. derivatives not traded on a regulated securities market (OTC derivatives). The underlying variables of derivatives must be authorised investments as provided for in this Article, securities indices, interest rates, foreign exchange rates or currencies in which the UCITS may invest in accordance with the provisions of the fund's rules. The counterparties of UCITS in such derivative trading must be subject to supervision accepted as valid by the Financial Supervisory Authority. It must be possible to calculate the value of such contracts on a daily basis. It must also be ensured that such contracts can be sold daily at their current real value;
7. money-market instruments traded outside of regulated securities markets.

Article 31
Other assets

Notwithstanding the provisions of Article 30, a UCITS may invest the equivalent of up to 10% of its assets in other securities and money-market instruments than are referred to therein.
A UCITS may hold cash or liquid assets in the short term. Such assets may not, however, be part of the fund's investment policy.

Article 32
Asset take-overs and precious metals

A UCITS may without restriction take over property to secure settlement of claims. Such property shall be sold as soon as this is considered favourable and no later than eighteen months from the date of acquisition. Further deferral of sale is authorised if such clearly serves the interests of the fund. Such deferral of sale must be notified to the Financial Supervisory Authority, which may demand that the sale be made within an appropriate period.
A UCITS may not invest in precious metals or in claims to them.

Article 33
Monitoring of risk

Management companies must have surveillance systems enabling them to monitor, evaluate and manage risk of individual assets and current portfolios of UCITS.

Article 34
Derivative trading

A UCITS must always hold suitable and sufficiently valuable assets to balance the assessed maximum loss from a derivative. Such assessment shall be based on the value of the underlying assets, counterparty risk, external circumstances on financial markets and the term of the derivative.
A UCITS may trade in derivatives provided the underlying assets are within the limits provided for in Article 35. A surveillance system as provided for in Article 33 shall evaluate in a satisfactory manner the value of derivatives not traded on regulated securities markets.
UCITS must at regular intervals provide the Financial Supervisory Authority with an account of their derivative trading in such format as the Financial Supervisory Authority may prescribe.

Article 35
Maximum investments in assets of a single issuer

A UCITS may not invest more than 10% of its assets in securities and money market instruments issued by the same issuer, or invest more than 20% of its assets in deposits of the same financial undertaking.
A UCITS may not trade in derivatives not traded on a regulated securities market with the same party where counterparty risk of the contract will amount to more than 5% of the fund's assets. This proportion increases to 10% if the counterparty is a financial undertaking within the EEA or a financial undertaking established within the EEA subject to supervision assessed as valid by the Financial Supervisory Authority.
If a UCITS invests more than 5% in securities issued by the same issuer, the total of such investments may not exceed 40% of the fund's assets. In calculating this total, regard need not be had for deposits with financial undertakings or derivatives not contracted on a regulated securities market if the counterparty is a financial undertaking subject to supervision assessed as valid by the Financial Supervisory Authority.
Notwithstanding the provisions of the first and second paragraphs, the total investment in trade with a single party in securities, money-market instruments, deposits and derivative contracts not traded on a regulated securities market, may not exceed 20% of the fund's assets.
Notwithstanding the provisions of the first paragraph, a UCITS may invest up to 35% of its assets in securities and money market instruments issued or guaranteed by one or more states within the EEA or their local authorities, international institutions, to which one or more of these states are a party, or states outside of the EEA. Securities referred to in this paragraph shall not be taken into consideration when calculating the total of investments provided for in the third paragraph.
The limitation provided for in this article may not be combined. A UCITS may not, therefore, invest more than 35% of its assets in securities, money market instruments, deposits or derivatives of the same issuer. Parties belonging to the same group shall be considered as a single party in calculations provided for in this Article.

Article 36
Index funds

A UCITS may invest up to 20% in shares or bonds of the same issuer if the objective of its investment policy according to the fund's rules is to reflect a specific equity or bond index. The index must have satisfactory risk distribution, be posted publicly and reflect the market in question in a satisfactory manner.
The Financial Supervisory Authority may raise the authorisation provided for in the first paragraph to 35% if the weighting of one issuer in the index is more than 20%. An investment of over 20% may only be authorised in a single issuer.

Article 37
Secure securities

The Financial Supervisory Authority may authorise a UCITS to invest up to 100% of its assets in securities and money market instruments as referred to in the fifth paragraph. of Article 35, if the Financial Supervisory Authority deems this to be compatible with the interests of unit share owners.
Investments of a UCITS as referred to in the first paragraph must be distributed among at least six different securities issues, with the investment in a single securities issue never exceeding an amount representing 30% of the UCITS's assets.

Article 38
Investments in UCITS and other funds for collective investment

A UCITS may invest in other UCITS and funds for collective investments (funds of funds). A UCITS may not, however, invest more than 20% of its assets in an individual UCITS or fund for collective investment.
The total investment of a UCITS in funds which are not UCITS may not exceed 30% of its assets.

Article 39
Restrictions on a portfolio

A UCITS may hold a maximum of:
a) 10% of the non-voting shares in an individual limited-liability company;
b) 10% of the debt instruments of individual securities issuers;
c) 25% of the unit shares of a UCITS and other funds for collective investment;
d) 10% of the money market instruments of individual securities issuers.

Article 40
Loans and guarantees

A UCITS may not grant loans or provide guarantees for other parties, cf. however authorisations as provided for in Article 30.
A UCITS may not take loans other than short-term loans to meet the cost of redeeming unit shares. Such loans many not amount to more than 10% of assets of the fund or of individual divisions within it.

Article 41
Short sale

A UCITS may not sell financial instruments which it does not own at the time of sale.

Article 42
Remedial actions

Immediate action must be taken, if investments of a UCITS exceed the limits permitted in accordance with this Act, to bring them within the limits provided for by law within a maximum of six months. The Financial Supervisory Authority may, however, in individual instances prescribe a longer period of adjustment provided this is clearly in the interests of unit share owners.


G. Marketing outside the home state

Article 43
Marketing of UCITS established within
the EEA in Iceland

A foreign UCITS established and accredited in another state of the EEA may market its unit shares in Iceland two months after the UCITS has notified the Financial Supervisory Authority of its proposed activity. Notification must be accompanied by the following documentation:
1. a declaration by the competent supervisory authority in the UCITS's home state that it has been accredited in this state and fulfils in other respects the requirements set in EU Directives for undertakings for collective investment in transferable securities;
2. the rules of the UCITS;
3. a prospectus and excerpt of a prospectus. A prospectus must contain information as provided for in Point 6 of this paragraph;
4. the audited financial statements of the last year, if they are available, and subsequent six-month interim statements;
5. a description of how the proposed activities are to be carried out or of the marketing of the UCITS's unit shares;
6. information on the proposed measures of the UCITS to ensure the rights of unit share owners to payment of profits, redemption of unit shares and the information which the fund is obliged to disclose.
The Financial Supervisory Authority may refuse to allow a UCITS, as referred to in the first paragraph, to commence marketing in Iceland if it fails to fulfil the requirements set for UCITS in accordance with this Act and rules adopted by virtue of it, or if the marketing in other respects infringes against legal provisions. The Financial Supervisory Authority must provide a UCITS with written grounds for such refusal before the time limit referred to in the first paragraph expires.
The Financial Supervisory Authority shall ensure that the UCITS is subject to supervision in its home state and check its authorisations to operate and activities.
Changes to details previously notified in accordance with this Article must immediately be notified to the Financial Supervisory Authority.

Article 44
Authorisation for prohibiting activities of foreign UCITS

The Financial Supervisory Authority may prohibit a foreign UCITS from marketing its unit shares in Iceland if the undertaking in question has blatantly or repeatedly violated the provisions of this Act or rules adopted by virtue of it, or violated the provisions of other Acts on financial undertakings, provided instructions or penalties provided for in this Act have not succeeded in putting a stop to the above-mentioned violations.

Article 45
Marketing of Icelandic UCITS outside of Iceland

If a UCITS intends on marketing its unit shares outside of Iceland, it must give notification thereof to the Financial Supervisory Authority and the supervisory authority in the country where marketing is planned.


H. Information disclosure

Article 46
Financial statements and interim statements

The financial statement and interim statements of a management company must provide separate information on a UCITS or each of its divisions. Detailed rules shall be set in a Regulation on the breakdown of information on UCITS to be provided in financial statements and interim statements. Management companies must also send the Financial Supervisory Authority a quarterly balance sheet for UCITS in the format prescribed by the Financial Supervisory Authority.

Article 47
A prospectus and excerpt of a prospectus

A management company must publish a prospectus and excerpt of a prospectus for a UCITS.
The prospectus must include the information necessary to enable investors to assess the advantages of investing in the UCITS in question. An excerpt of a prospectus must summarise the principal details of a prospectus.
A management company must send the Financial Supervisory Authority a prospectus and excerpt of a prospectus following any changes to them.
Detailed provisions on prospectuses and excerpts of prospectuses for UCITS, including what information must be published in prospectuses and excerpts of them, shall be laid down in a Regulation.

Article 48
Further information in a prospectus

The prospectus for a UCITS must describe the fund's investment policy in detail, and that of individual fund divisions, if applicable, specifying the types of investments which it may undertake in accordance with the fund's rules.
The prospectus must specify whether the fund or its individual divisions may invest in derivatives and, if such is permitted, whether their use is limited to techniques to minimize risk and stabilise profits in the face of price fluctuations.
Should a UCITS, or one of its individual divisions, be authorised in accordance with the rules of the fund to invest in derivatives, the prospectus must describe in detail the possible effects of the use of derivatives on the risk of investments in the fund.
If a UCITS, or one of its individual decisions, invests in other financial instruments than securities or money market instruments, as provided for in Article 30, or invests in deposits or a fund which, according to its investment policy is intended to reflect a specific securities index, or if the price of a fund is likely to fluctuate considerably due to its investment policy or the type of investment opportunities in which the fund invests, special attention must be drawn to this in a conspicuous manner in the prospectus and advertisements and all promotional activities concerning the fund and its investment policy. If the book price of the assets of a UCITS, or one of its individual divisions, is likely to fluctuate considerably due to the composition of its securities portfolio or the methods which are used in managing the portfolio, special attention must be drawn to this in a conspicuous manner in the prospectus and other promotional publications.
If a UCITS invests a substantial portion of its assets in other UCITS and other funds for collective investment, its prospectus must specify the maximum management cost borne by the UCITS itself and the other funds. The annual report of the UCITS must specify the maximum percentage of management costs which, on the one hand, the fund itself bears and, on the other hand, the funds in which it invests bear.
A management company must provide, at the request of an owner of a unit share in a UCITS, information on the fund's risk management methodology for its assets with regard to the risk and expected return on the investments of the UCITS the past year or two.

Article 49
Access to information

An excerpt of the prospectus shall be offered to an investor without charge prior to concluding a transaction in unit shares. A prospectus, together with an annual report and six-month interim report, must be accessible to an investor in a UCITS without charge.
The financial statement and six-month interim statement shall be accessible to the public, in such manner as is provided for in the prospectus and an excerpt of the prospectus, and as is approved by the Financial Supervisory Authority.
The rules of a UCITS must be accessible to investors in the fund.

Article 50
Commission

A management company must inform investors in a UCITS in advance what commission it will charge for its services. Changes to this commission must be notified to unit share owners with reasonable notice.
If a UCITS invests in unit shares of other UCITS and other funds for collective investment, which are managed directly by or with a mandate from the same management company, or by another company which is linked to the management company by common operations or management, or by substantial direct or indirect holdings, a management company may not take a commission for subscriptions or redemption of investment in the funds.

Article 51
Promotional activities

In its advertisements and other promotional activities, a UCITS must take care to provide correct and detailed information on their activities. Care must be taken to indicate clearly whether a fund is a UCITS or an investment fund.
Advertisements and other promotional activities must refer to a prospectus or excerpt of a prospectus and state where these documents may be obtained.

CHAPTER III
Investment funds
A. Investment funds which issue unit share certificates
(unit share funds)
Article 52
References to Chapter II

If an investment fund is established and operated by a management company, the management company shall issue certificates for ownership rights in the investment fund in the form of unit share certificates. The provisions of sub-chapters A-D and H of Chapter II shall apply to investment funds as provided for in this Chapter.
Only investment funds may use, in their names or as an explanation of their activities, the words "investment fund" (Icel. fjárfestingarsjóður).

Article 53
Redemption

Unit share certificates of investment funds as provided for in this Chapter shall be redeemable. Redemption by investment funds shall be as provided for in a fund's rules. A management company must draw the attention of customers in particular to the rules which apply to the fund's redemption obligations.
Notwithstanding the provisions of the first paragraph, an investment fund may, in accordance with the provisions of the fund's rules, suspend redemption of unit shares. Suspension must apply universally to all unit shares and may only be applied when there are exceptional reasons for so doing and when required to protect the interests of unit share owners. Suspension of redemption must be notified to the Financial Supervisory Authority immediately. Furthermore, the suspension shall be advertised publicly.
The Financial Supervisory Authority may demand that the redemption of unit shares be suspended, if such is required to safeguard the interests of unit share owners or the public.
The redemption value of unit shares in an investment fund shall be the market value of its total assets less any debts of the fund at the time of redemption, such as debts owed to credit institutions, unpaid administrative and management costs, collection costs and payable or imputed public levies, divided by the total number of issued and unredeemed unit shares.

Article 54
Authorised investments

The provisions of sub-chapter F of Chapter II, concerning the authorised investments of UCITS, shall apply to the investments of investment funds with the following exceptions:
1. Investment funds may invest in the unit shares of other funds for collective investment than UCITS and investment funds, without regard for Point 3 of Article 30. However, the total investment of an investment fund in funds which are not UCITS or investment funds may not exceed 20% of its assets.
2. An investment fund may invest in unlisted securities and money market instruments without regard for the first paragraph of Article 31.
3. The provisions of Article 35 shall not apply to investment funds as provided for in this Chapter. An investment fund may invest up to 20% of its assets in securities and money market instruments issued by the same issuer. Up to 35% of the fund's assets, however, may be invested in securities listed on a stock exchange and money market instruments of a single issuer, provided any such investment in excess of 20% is only in one issuer.
4. The provisions of the second paragraph of Article 38 shall not apply to investment funds.
5. The provisions of the second paragraph of Article 40 shall not apply to investment funds. An investment fund may borrow up to 25% of the value of the fund's assets.
6. The provisions of Article 41 shall not apply to investment funds. The evaluated maximum loss in transactions with securities which an investment fund does not have in its portfolio must not exceed 20% of the fund's revalued net asset value. Short sale of unlisted securities is not authorised.

Article 55
Notification of risk

A management company should explain to investors the risk involved in investment in a fund before a transaction takes place.

B. Investment funds which issue shares (share funds)
Article 56
Granter of an operating licence

The Financial Supervisory Authority shall grant operating licences for share funds. Operations may commence upon receipt of an operating licence from the Financial Supervisory Authority. A share fund may not operate without an operating license from the Financial Supervisory Authority.

Article 57
Application for operating licence

An application by a share fund must be made in writing and shall be accompanied by:
a) information on the establishment of a limited-liability company and confir-mation of the amount of paid-up capital;
b) the company's Articles of Association;
c) a prospectus;
d) information on the operational structure, including information as to how the activities proposed will be carried out;
e) information on a depositary, if applicable;
f) information on the Board of Directors, managing director and auditor;
g) confirmation that the managing director has completed an examination in securities trading;
h) information on the founders, shareholders or guarantee capital owners con-trol-ling a qualifying holding, as provided for in the Act on Financial Undertakings, in the proposed investment fund and the holding of each of them;
i) information on close links between the proposed limited-liability company and individuals or legal entities, in the understanding of the Act on Financial Undertakings;
j) other relevant information as determined by the Financial Supervisory Authority.

Article 58
Granting of an operating licence

A decision by the Financial Supervisory Authority on the granting of an operating licence must be notified to the applicant in writing as promptly as possible and no later than one month following the receipt of a complete application. The Financial Supervisory Authority must notify an applicant when an application is considered to be satisfactory.
The Financial Supervisory Authority must publish notifications of licences granted to share funds in the Legal Gazette (Lögbirtingablað).

Article 59
Refusal of an operating licence

If an application does not fulfil the requirements of this Act, in the estimation of the Financial Supervisory Authority, the Authority shall refuse to grant an operating licence.
Grounds must be given for refusal of an application by the Financial Supervisory Authority and the applicant notified within one month of receipt of a complete application.

Article 60
Revoking of an operating licence

The Financial Supervisory Authority may revoke the operating licence of a share fund:
1. if the operating licence has been obtained based on false declarations or by other improper means;
2. if the requirements for the granting of an operating licence are no longer fulfilled;
3. if there are serious or repeated violations against this Act, rules, statutes or Regulations adopted by virtue of it;
4. if the operating licence is not utilised within twelve months of its granting, if it is relinquished expressly, or if operation ceases for more than six successive months;
5. if the shareholders, Board of Director and management do not fulfil the conditions for eligibility set in this Chapter;
6. if the fund does not have at its disposal at least ISK 50 million three months after the granting of an operating licence, or at least ISK 10 million divided between at least 50 parties in such way that the share of each of them amounts to at least ISK 10,000 and is issued in the name of the owner.
Before any revocation may be enacted pursuant to Points 1-5 of the first paragraph, a reasonable time limit shall be given for rectifying the situation if possible.

Article 61
Notification of revocation

Revocation of the operating licence of a share fund must be notified to its Board of Directors and grounds given in writing. The Financial Supervisory Authority shall publish the notification in the Legal Gazette and advertise in the mass media.

Article 62
Activities

Share funds may only manage the operation of an investment fund.
A share fund must be operated in accordance with good business practices and customs, with the credibility of the market and interests of its shareholders as its prime concerns.
Only share funds may use, in their names or as an explanation of their activities, the words "investment fund" (Icel. fjárfestingarsjóður), cf. however the second paragraph of Article 52.
Shares in a share fund shall only be sold for cash payment of the purchase price. This provision shall not prevent the issuing of bonus shares.
The provisions of Articles 47-49, on prospectuses and excerpts of prospectuses shall apply to share funds as appropriate.
The Articles of Association of a share fund must include at least the following items, in addition to [those provided for by] the provisions of the Act on Limited-liability Companies:
a) the fund's investment policy;
b) information on redemption, if applicable;
c) how dividends, or other profits of the fund's securities, are to be disposed of;
A share fund must draw the attention of customers in particular to the rules which apply to the fund's redemption obligation.

Article 63
References to the Act on Financial Undertakings

and the Act on Securities Transactions
The Board of Directors of a share fund must be comprised of at least three persons. Chapter VII of the Act on Financial Undertakings shall apply to the Board of Directors of an investment fund and obligation of confidentiality as appropriate.
Chapter VI of the Act on Financial Undertakings shall apply to holdings and how they are exercised.
The managing director of a share fund must have completed an examination in securities transactions in accordance with Chapter VII of the Act on Financial Undertakings.
Chapter XI of the Act on Financial Undertakings shall apply to financial statements and auditing of share funds.
The provisions of Chapters V to IX of the Act on Securities Transactions shall apply to share funds.

Article 64
References to the Act on Limited-liability Companies

The Act on Limited-liability Companies shall apply to share funds, cf. however Article 62. All shares shall, however, always convey equal rights in the fund.

Article 65
Authorised investments and notification of risk

Authorised investments of share funds shall be as provided for in Article 54 and notification of risk as provided for in Article 55.

CHAPTER IV
Supervision and a Regulation
Article 66
Supervision

The Financial Supervisory Authority shall see to it that the activities of UCITS, investment funds, management companies and depositaries comply with this Act and Regulations issued on its basis. The Financial Supervisory Authority shall have access to all documents and information from the parties covered by this Act which it may consider necessary for such supervision. The Act on Public Supervision of Financial Activities shall apply to such supervision as appropriate.
If the Financial Supervisory Authority is of the opinion that the activities of parties referred to in the first paragraph violate the provisions of this Act, Regulations or rules adopted on their basis, or are in any other respect irregular, unhealthy or unsound, it may grant the party concerned a reasonable period for rectifying the situation unless the violations are serious.
Should the Financial Supervisory Authority be of the opinion that activities covered by this Act are pursued without the required authorisation, it may demand from the parties concerned or parties subject to supervision such data and information as are necessary to determine whether such is the case. It can demand that such activities cease immediately. In addition, it may make public the names of parties regarded as offering services without the required authorisation.

Article 67
Regulation

This Act is enforced under the jurisdiction of the Minister of Commerce, who shall provide in detail for its implementation in a Regulation. Such Regulation may, for instance, provide for the authorised investments of UCITS and investment funds, good business practices, outsourcing of tasks of management companies, redemption value, marketing outside of a home state, authorisation for marketing of funds other than UCITS outside of a home state and information disclosure of UCITS and management funds. The Regulation may also provide for the use of derivatives by UCITS and investment funds and methods to assess their impact on the exposure of the funds' portfolios.

CHAPTER V
Penalties
Article 68
Fines

Violations of this Act concerning the following shall be liable to fines unless more severe penalties are prescribed in accordance with other Acts:
a) the exclusive right of UCITS to use as an explanation of their activities the term Undertakings for Collective Investment in Transferable Securities (Icel. verðbréfasjóður) (Article 11);
b) outsourcing the tasks of a UCITS management company (the first paragraph of Article 18);
c) marketing of Icelandic UCITS outside of Iceland (Article 45);
d) information provision of UCITS (sub-chapter H of Chapter II);
e) the exclusive right of investment funds to use as an explanation of their activities the term investment fund (Icel. fjárfestingarsjóður) (the second paragraph of Article 52 and the third paragraph of Article 62);
f) outsourcing the tasks of an investment fund's management company (the first paragraph of Article 52, cf. the first paragraph of Article 18);
g) information disclosure by investment funds (the first paragraph. of Article 52, cf. sub-chapter H of Chapter II, and the fifth paragraph of Article 62);
h) notification of risk (Articles 55 and 65); and
i) qualifying holdings (the second paragraph of Article 63, cf. the first paragraph of Article 40, Article 47, and the first paragraph of Article 48 of the Act on Financial Undertakings).

Article 69
Fines or imprisonment

Violations of this Act concerning the following shall be liable to fines or imprisonment of up to one year in duration, unless more severe penalties are prescribed in accordance with other Acts:
1. that activities subject to an operating licence shall not be pursued without accreditation or an operating licence (the third paragraph of Article 1);
2. changing UCITS to funds not covered by the Act (the second paragraph of Article 5);
3. independence of management companies and depositaries of UCITS in their activities and their obligation to make the interests of unit share owners their prime concern (the second paragraph of Article 15);
4. activities of the depositary of UCITS (Article 20);
5. authorised investments of UCITS (sub-chapter F of Chapter II);
6. marketing of UCITS established in other states of the EEA in this country (the first paragraph of Article 43);
7. changing investment companies to funds not covered by the Act (the first paragraph of Article 52, cf. the second paragraph of Article 5);
8. independence of management companies and depositaries of investment funds in their activities and their obligation to make the interests of unit share owners their prime concern (the first paragraph of Article 52, cf. the second paragraph of Article 15);
9. activities of the depositary of investment funds (the first paragraph of Article 52, cf. Article 20);
10. the authorised investments of investment funds (Articles 54 and 65) and
11. the obligation of confidentiality (the first paragraph of Article 63, cf. Article 58 of the Act on Financial Undertakings).

Anyone who knowingly provides wrong or misleading information concerning the situation of a UCITS or investment fund or other matters concerning it, publicly or to the Financial Supervisory Authority, other public party or his/her customers, shall be liable to fines or imprisonment of up to one year in duration, unless more severe penalties are prescribed in accordance with other Acts.

Article 70
Liability of legal entities for violations. Attempted violation
or participation in such. Limitations on liability

In the event that a violation is committed in the course of the activities of an investment fund which issues shares, such a legal entity may be fined. The liability shall be as provided for in Part A of Chapter II of the Criminal Code.
An attempt to commit or participation in a violation of this Act is liable to punishment as prescribed by the Criminal Code.
Violations of this Act shall be liable to punishment whether committed intentionally or through negligence.
Any culpability resulting from the provisions of this Chapter shall expire in five years' time.

CHAPTER VI
Entry into force, etc.
Article 71

This Act shall enter into force on 1 July 2003. As of the same date Act No. 10/1993, on UCITS shall be repealed.

Article 72

This Act introduces into Icelandic law provisions of the Directive of the European Parliament and the Council No. 85/611/EEC, on Collective Investment in Transferable Securities, as subsequently amended.


Temporary provisions

I.

A UCITS currently in operation shall be deemed to have the accreditation of the Financial Supervisory Authority upon the entry into force of this Act. The UCITS must be dissolved within six months from the entry into force of the Act. The management company of a UCITS must send the Financial Supervisory Authority the rules of the funds in accordance with Article 12 within the same time limit.

II.

UCITS which hold operating licences as provided for in Article 27 of Act No. 10/1993 upon the entry into force of this Act, must request accreditation in accordance with this Act no later than three months after its entry into force.

III.

Share funds and other funds receiving funds from the public for collective investment which are covered by this Act must request accreditation or apply for an operating licence in accordance with this Act no later than upon issuing new shares in the company. The provisions of the first sentence shall not apply, however, if the fund is only marketed among institutional investors.
Funds as referred to in the first paragraph, requesting accreditation or applying for an operating licence as investment funds in accordance with this Act, shall be given until 1 July 2004 to satisfy the provisions of Article 54.

Adopted by Althingi, 10 March 2003.

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