- Activities related to the production and distribution of goods and services in a particular geographic region.
- The correct and effective use of available resources.

We are constantly faced with choices. Each choice has an opportunity cost. Considering opportunity cost can help us make better decisions.

If we act on instinct, we may choose the most pleasurable or easiest course of action, but the best decision in the short term may not be best in long term.

The main importance of economics understanding is helping individuals/society decide on the optimal allocation of our limited resources.

- time, money and skills for individuals

- natural resources, capital, labor force and technology for companies and countries

The fundamental problem of economic is said to be mainly scarcity. Economics helps to take a rational approach on all available opportunities.

Just as the principles of mathematics don't change with the size of the problem, basic economic principles do not change with the size of the economy. They're just harder to see because of the many layers that exist between savers and borrowers.

But the direct relationship among self-sacrifice, savings, credit, investment, economic incentive, and social and economic progress are always the same. (extract from "How an economy grows and why it crashes" by Peter D. Schiff)

Demand for more is natural to all humans. No matter what we have, we always want more.

Everyone must have a rational, well-thought-out approach to solving problems. Common sense and critical thinking both play a role in economical problem solving, as well as how people regard life, situations and each other. Common sense and critical thinking, however, differ in their approach and level of operation.

- Common sense involves thinking and problem-solving skills developed from intuition, natural logic and the human ability to observe events and absorb information and lessons from them. These observations allow you to learn from experience and thus to hone and implement sound judgment. You use common sense to approach and attempt to solve problems in day-to-day life.

- Critical thinking involves judging a situation based on studied reasoning, where the person intentionally and consciously focuses on a subject. Critical thinking allows for planning, calculating, investigating and explaining; you use it for situations that require a larger degree of concentration and deliberation.

Common sense is, by definition, a sound conclusion. Critical thinking, on the other hand, can be either sound or unsound. Mistakes in logic can be made through critical thinking. Critics are not always right, and their conclusions can be colored by their own prejudices.

The right combination of both human capital tools will lead to the right economical decisons. (Risk Mismanagement: VaR against Black Swan - Joe Nocera -The New York Times)

Money in an economy is like oil in an engine. It makes it run more smoothly and efficiently than it would without it. The textbook answer is that money makes exchanges easier by solving the barter problem.

You can only barter with people who have what you want and want what you have. If everyone "TRUSTS" money, that problem is greatly reduced.

The "naturalness" of money is apparent here: in prison, cigarettes are used as money. People who do not smoke will accept cigarettes as payment because they know they can exchange the cigarettes to someone else for something else. That's the "medium of exchange" role of money. (Future of Money by Bernard Litaer)

The financial crisis of 2008/2009 (and of course today) and the failure of Lehman Brothers has raised many questions about the money creation process in our actual economies;

- Why did it happen?

- How can we prevent it happening again?

- Where did all the money come from (in reference to the credit bubble)?

- Where did all the money go (in reference to the credit crunch)?

- How did the government (via the ECB) suddenly create billions of new money through 'quantitative easing'?

- Are there not cheaper and more efficient ways to manage this financial crisis than to burden taxpayers?

These are in our view the key questions today and they need to be addressed as soon as possible.

Human capital is the investment in training and education, which was popularised in Gary Becker's book, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, for which he was awarded a nobel prize in economic.

"Adaptive organizations choose to invest in people, to consider people as human capital and worth investments of various kinds, rather than as costs to be minimized. This choice recognizes the reality that the demand for qualified knowledge and service workers exceeds the supply in many labour markets and will continue to do so for some time to come" (Burud & Tumolo, 2004).

"Human capital is productive wealth embodied in labour, skills and knowledge" (United Nations).

The emphasis on human capital in organizations reflects the view that market value depends less on tangible resources, but rather on intangible ones, particularly human resources.
Recruiting and retaining the best employees, however, is only part of the equation. The organization also has to leverage the skills and capabilities of its employees by encouraging individual and organizational learning and creating a supportive environment where knowledge can be created, shared and applied.

Today's financial service industry is under high pressure due to several well-known reasons. The announcement in the global banking sector these days of large downsizing measures will have a huge domino HR impact for the whole industry in the future.

In business, revenues are driven by two types of investments: human capital and financial capital.

Financial services firms rely heavily on their people to enable them to succeed. Achieving strategic change and a sustainable return to growth depends on attracting, retaining and developing the right staff. Companies are increasingly appreciating the importance of helping their people realise their potential.

See summarized the most common reasons why some people within one organization are not performing the work deliverables as it is expected as Employer, Management, Manager or Supervisor:

Why do some organizations get better performances than others?
Not surprisingly, the answer has to do with people.

How many times have we all heard that people are every company's most important asset?
Often is the answer.

The fact is that many companies make that statement, but either don't believe it, or don't deliver on it.
The truth is, people not only make a difference, they are the difference between one company and the next.

In our view, how organizations manage their people is what makes more than ever the difference between failure and success.
Effective human-resources management is about hiring and developing the right workforce to meet business objectives and achieve a sustainable competitive advantage.

"It is about getting the right people in the right place at the right time and at the right cost".

As we know, when exiting employees are asked, "Why are you leaving?" most of them are not inclined to tell the truth. Rather than risk burning a bridge with the former Manager/Superior whose references they might need, they will just write down "better opportunity" or "higher pay".
Why would they want to go into the unpleasant truth about how they never got any feedback or recognition from the Manager/Superior, or how they were passed over for promotion?.

Talent Management enables organizations to rapidly align, develop, motivate, and maintain a high-performance labour force.
They also alleviate the hassle of writing performance reviews by automating the task and ensuring quality of reviews and reviewed on time.

Organizations can establish and communicate critical corporate goals, measure performance improvement, and ensure that all levels of the organization are aligned to attain critical business objectives.

The six dimensions of talent management can be summarised as follows:
(Source: IBM Institute for Business Value/Human Capital Institute)

In the past, countries developed their own accounting standards. They were rules-based, principle-based, business-oriented, tax-oriented,... in one word, they were all different. With the globalization, the need to harmonize these standards was not only obvious but necessary.
By the end of the '90s, the two predominant standards were the U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). And, both standard setters, IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board), initiated a convergence project even before IFRS was actually adopted by many countries.

One of the major differences lies in the conceptual approach:

U.S. GAAP is rule-based, whereas IFRS is principle-based.

The inherent characteristic of a principles-based framework is the potential of different interpretations for similar transactions. This situation implies second-guessing and creates uncertainty and requires extensive disclosures in the financial statements. In a principle-based accounting system, the areas of interpretation or discussion can be clarified by the standards-setting board, and provide fewer exceptions than a rules-based system.

However, IFRS include positions and guidance that can easily be considered as sets of rules instead of sets of principles.

The difference between these two approaches is on the methodology to assess an accounting treatment. Under U.S. GAAP, the research is more focused on the literature whereas under IFRS, the review of the facts pattern is more thorough.

While this is not a comprehensive list of differences that exist, here are a few examples:

• Consolidation - IFRS favors a control model whereas U.S. GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.

• Statement of Income - Under IFRS, extraordinary items are not segregated in the income statement, while, under US GAAP, they are shown below the net income.

• Inventory - Under IFRS, LIFO (a historical method of recording the value of inventory, a firm records the last units purchased as the first units sold) cannot be used while under U.S. GAAP, companies have the choice between LIFO and FIFO (is a common method for recording the value of inventory).

• Earning-per-Share - Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under U.S. GAAP the computation averages the individual interim period incremental shares.

• Development costs - These costs can be capitalized under IFRS if certain criteria are met, while it is considered as "expenses" under U.S. GAAP.

EU Commission - Accounting ››

IFRS Foundation and IASB ››

IFRS-Portal (German) ››

LUX GAAP TOOL ››

No enterprise is immune to the dangers that constitute risk. Yet, risk is in itself a good driving force to promote greater or more productive effort - the stock market feeds off two key motivators: fear and greed. Risk management is the modern discipline that answered the call to handle business risk .

The aim of risk management is to improve awareness of the consequences of risk-taking activities, reduce the frequency of damaging events occurring (whenever this is possible), and minimize the severity of their consequences if they do occur.

-Identify the risks to which the organization is exposed.
-Quantitative or qualitative assessments of the documented risks.
-Risk prioritization and response planning.
-Monitor execution and results.

Approach to looking at potential risks in each area of operations and then identifying the more significant risk areas that may impact each operation in a reasonable time period.
Important steps to follow within this process are the following :
-Period of analysis: When estimating occurrences and likelihoods all estimates should be made over the same period of time (usually, a one year interval or at least until the end of the next fiscal year).
-Risk Interdependencies: not only consider risk at individual enterprise-unit level. Each operating unit is responsible for managing its own risk but maybe subject to the consequences of risk events on units above or below in the enterprise structure.
-Risk Ranking: to take the established significance and likelihood estimate, calculate risk ranking, and identify the most significant risk across the entity reviewed. The most ranked are called Risk Drivers or the Primary Risks.

It is a process, effected by an entity's board of directors, management and other personnel, applied in a strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. (Source: COSO Enterprise Risk Management (ERM)- Integrated Framework).
Underlying principles:
ERM is a process: a set of actions designed to achieve a result.
Implemented by People in the Enterprise: The risk management process must be managed by people who are close enough to that risk situation to understand the various factors surrounding that risk including is implications.
It is applied by setting strategies across the overall enterprise.
Concept of Risk Appetite must be considered: it is the amount of risk that an enterprise and its individual managers are willing to accept in their pursuit of value.
Provides only reasonable, not positive assurance on objective achievements.
It is designed to help attain the achievement of objectives.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Read more ››

The COSO framework defines internal control as a process effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations.

Read more ››

A derivative is a risk transfer agreement, the value of which is derived from the value of an underlying asset.

Underlying can be anything that interests markets: cash instruments, like stocks and bonds; tangibles, like commodities; or intangibles, like interest rates, currency rates, stock market indices, and credit quality.

Derivatives focus mostly on two types of risk:
- market risk
- and credit risk.

Contracts are either traded on organized exchanges, or through a clearing house or agreed directly between two parties in the over-the-counter (OTC) market.

Exchange-traded contracts are generally standardized but carry the guarantee of the clearing house associated with the exchange.

Some derivatives will even combine two or more relatively simple derivatives to achieve the desired allocation of targeted risks.

The valuation of derivatives depends significantly on the state of their underlying's, whereas the value of underlying's depends significantly on market forces.

-Cash settlement is a method of settling derivatives contracts by cash rather than by physical delivery of the underlying asset. The parties settle by paying/receiving the loss/gain related to the contract in cash when the contract expires.

-Alternatively, the old classical way of doing was to make physical delivery of a pre-specified quantity and quality of a commodity on a predetermined date at a contractually agreed location.

Derivatives are used to hedge risk, to speculate or to construct arbitrage transactions.

The Luxembourg Government has extended the status of "Financial Sector Professional" ("PFS"), created by the Law of 5 April 1993 on the financial sector, to a range of complementary activities as described here after.

Investment firms: defined as firms supplying or providing investment services to third parties on a professional and repetitive basis.
These are mainly :investment advisers, brokers in financial instruments, commission agents, wealth managers, professionals acting for their own account, market makers, underwriters of financial instruments, distributors of units and/or shares in undertakings for collective investment (UCIs), financial intermediation firms and investment firms operating a multilateral trading facility (MTF) in Luxembourg;

Specialised PFS : Entities active in the financial sector but which do not offer investment services.
These mainly include: registrar agents, professional custodians of financial instruments, operators of a regulated market authorised in Luxembourg, operators of payment or securities settlement systems, currency exchange dealers, debt recovery, professionals carrying on lending operations, professionals carrying on securities lending operations, professionals providing fund transfer services, administrators of collective savings funds and managers of non coordinated UCIs);

Support PFS: PSFs pursuing an activity related to, or complementary to, a financial sector activity. These include: company domiciliation agents, client communication agents, administrative agents of the financial sector, primary IT systems operators of the financial sector, secondary IT systems and communication networks operators of the financial sector and professionals providing company formation and management services.

The major regulations applicable to outsourcing in general and IT outsourcing in particular consists of the Law of 5 April 1993 on the financial sector, as modified (the "Financial Act"), which defines the concept of professional of the financial sector ("PFS").
The Financial Act has been significantly modified by the Law of 13 July 2007 relating to markets in financial instruments (the "MiFiD Act") and implementing among others the Directive 2004/39/EC relating to markets in financial instruments (so called "MiFiD"). The MiFiD Act notably provided for amendments to the Financial Act as to the definition of the PFS.

The question of whether a support PFS status is required mainly depends on the possibility of the service provider being able to regularly access confidential data.
In other words, the main principle is that the service provider, not having support PFS status, may not have access to confidential data. This requirement is important as the Beneficiaries of the services and support PFS are subject to the same professional secrecy. Circular 96/126 (as modified by Circular 05/178) of the CSSF sets out the rules governing the outsourcing of services to third parties not having a support PFS status.

Regarding the outsourcing of activities governed by the Financial Act, an entity that envisages becoming a PSF within the meaning of sections 29-1 to 29-4 of the Financial Act shall, in order to be able to provide regulated services to clients wishing to outsource their activity, be a Luxembourg-based company under the corporate form of a Société anonyme (S.A.), a Société à responsabilité limitée (S.à r.l.), a Société en commandite par actions (SCA), a Société en nom collectif (SNC), a Société en commandite simple (SCS), or a Société coopérative.
Normal market practice if for a Support PFS to take one of the following corporate forms: a public company limited by shares (S.A.), a private limited company (S.à r.l.) or a limited corporate partnership (S.C.A.).
Moreover, some particular requirements (to be reflected in the articles of association of the company) must be satisfied on the incorporation of a PFS as well as in the case where an existing company is transformed into a PFS:
(a) the corporate object of the company shall reflect the services that the Support PSF will render;
(b) the company's capital must amount to the capital required for the relevant PFS status and;
(c) the compulsory auditing of the PFS' annual accounts by one or more external auditors ("réviseur d'entreprise").

Under Luxembourg corporate law, no particular restrictions apply to the outsourcing of services to a specific company.
However, outsourcing of services by a Luxembourg company to a service provider is only possible to the extent that it does not entail the transfer of the effective place of management to another country, as this would engender the change of the nationality of the company.
A company that is domiciled in Luxembourg has hence Luxembourg nationality and shall be governed by Luxembourg law. In this context, the activity of domiciliation of companies could be considered as a form of outsourcing and the particular restrictions of the act of 31 May 1999 regarding the domiciliation of companies should be respected.

CSSF: PFS REGULATION ››

CSSF: SUPPORT PFS REGULATION ››

LFF: REGULATED OUTSOURCING ››

A holding company is a company that is organized for the purpose of owning shares in other companies. A company may become a holding company by acquiring enough voting shares in another company to exercise control of its operations, or by forming a new company and retaining all or part of the new company's shares. While owning more than 50 percent of the voting shares of another company ensures control, in many cases it is possible to exercise control of another company by owning as little as ten percent of its shares.

Holding companies and the companies they control have a parent-subsidiary relationship. When a holding company owns a controlling interest in another company, the holding company is called the parent company and the controlled company is called the subsidiary. If the parent owns all of the voting shares of another company, that company is said to be a wholly-owned subsidiary of the parent company.

Although a holding company is not restricted from producing goods and delivering services, it is usual that the sole purpose is the "holding" legal ownership of other companies.

Main functions of holding companies are:
-Receiving dividends, interest or royalties;
-Making investments in other companies (holding shares in subsidiary or associated undertakings);
-To finance investment undertakings by supplying the companies that they hold shares in with funds.

A holding company is said to be a "pure" holding company if it exists solely for the purpose of owning shares in other companies and does not engage in business operations separate from its subsidiaries.

If the parent company also engages in its own business operations, then it is said to be a "mixed" holding company or a holding-operating company.

Holding companies whose subsidiaries engage in unrelated lines of business are called conglomerates.

The benefits of a holding company are:

-Profits from subsidiary companies are paid to the holding company so that company taxes are paid by the holding company and not by the subsidiaries;
-Tax losses may be offset against profits in other companies in the holding structure;
-Reduced risk for the owners;
-Efficient ownership and control of a large number of different companies perhaps involved in different industries and registered in different countries;
-Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be used as collateral for additional debt financing.

Usually the holding company is registered in a country with low taxes and importantly, a wide network of double taxation treaties (a double taxation treaty between two countries in order to allow the offset of taxes paid by a company to one country, against taxes charged by the other country).

There are three types of Luxembourg holding company, each of which benefit from a different tax regime.

SOPARFI
A Soparfi (an acronym for "Société de Participation Financière") is not a specific type of company, rather it is a special tax regime for a resident company that holds and manages the shareholdings of subsidiaries. Under company and tax law SOPARFIs are "normal" companies (no specific status) and may also exercise finance or other activities in addition to holding or trading in equity investments.

Tax-exempt holding companies ("1929 holding companies")
These companies are mainly of historic interest. The tax regime only applies to 1929 holding companies already in existence on 19 July 2006. After 31 December 2010, no company can anymore benefit from the tax advantages of the 1929 holding regime. The Luxembourgian government has reacted to the abolition of the Holding 1929 - and created a new instrument for the management of private assets: the "SPF" (Private Asset Management Company)

Private Family Asset Holding Company (Société de gestion de patrimoine familial "SPF")
The SPF was introduced by the law of 11 May 2007. This type of company has been specifically designed to meet the business needs of family owned holding companies managing financial assets. This is why the exclusive object of the SPF is the acquisition, holding, management and disposal of financial assets, to the exclusion of any commercial activity.

LFF: How to set up a SPF ››

LFF: How to set up a SOPARFI ››

Private Equity firms are investment vehicles used primarily by institutions and wealthy individuals to gain equity ownership in a variety of companies.
Private Equity is highly illiquid because sellers of private stocks (called private securities) must first locate willing buyers. Investors in Private Equity are generally compensated when:
1-the firm goes public
2-it is sold or merges with another firm, or
3-it is recapitalized.
The primary strategy used by Private Equity firms to acquire other companies is the leveraged buyout, which involves the use of substantial debt to acquire then privatize public companies. The Private Equity firm then makes investors shareholders in the new private company. After several years of holding a private company, Private Equity firms then sell shares to the public, resulting in another massive payout for the firm's investors.

A Private Equity firm is a specialist venture company that invests in private businesses by purchasing their equity, or shares.
Private Equity firms are also known as venture capitalist or private equity investors. They are heterogeneous organizations that differ in their resources, strategies and objectives.
The few features that they share in general are their objective on nurturing companies with management, and capital assistance with the objective of increasing the value of their invested funds many times over. Sectors Private Equity firms frequently invest in include computer hardware and software, semiconductors, biotechnology and communication.
-Independent Private Equity firms are companies that work separate of their fund-supplying investors.
-Captive Private Equity firms raise funds and capital from their primary shareholders and/or a parent company. Shareholders are typically financial institutions (insurance companies or investment banks). Captive private equity firms are those whose management structure is characterized by a great degree of effective control and involvement by a primary investor.
-Semi-captive Private Equity firms raise capital from both outside investors and their main shareholders. They combine the two approaches employed by independent and captive private equity firms-investing some of their parent companies funds, and externally raising more funds.

A Private Equity fund is a type of investment vehicle that utilizes a group of investors with cash to invest.
The purpose of this type of investment is to provide a way for institutional and individual investors to pool their money together and invest in equity positions.
By putting their money together, these investors can take advantage of economies of scale and make larger returns on their investments.
One of the features of a Private Equity fund is the money manager. A money manager is in charge of making the investment decisions on behalf of the fund. The money manager does all of the research dealing with potential companies in which to invest.
Private Equity funds can generate profits in many different ways. One of the most popular strategies that private equity funds use is to buy a company that is not performing well and take it private.
The private equity fund can then put the proper management in place and get the company back on track. After improving the performance of the company, the equity firm can then take the company public and generate large returns through an initial public offering.

Separate Entities
Private Equity investing involves two separate entities: the Private Equity firm and the Private Equity funds that they create. When it comes to financial reporting, there are two sets of financial statements in that the assets under management by a Private Equity firm are not shown on its balance sheet, but rather reported by the fund.
General Partner
Private Equity firms as professional investment managers are tasked with the organization and formation of Private Equity funds and fund raising from private investors. As general partner of a Private Equity fund of limited partnership, a Private Equity firm is responsible for the management of the investment business of the partnership and assumes the partnership liabilities. The general partner's fund investment responsibilities include searching for investment deals and making investments, on-going portfolio company management and formulating exiting strategies.
Limited Partners
As limited partners, investors of a Private Equity fund cannot take part in the partnership operations, and that is one reason why they are not responsible for the full obligations of the partnership business dealings; their liabilities are limited to the amount of capital they contribute.

Competitive structures are offered in Luxembourg for setting-up Private Equity funds, such as the SICAR or the SIF, and structures for pan-European Private Equity acquisitions.
The below website links provide a good overview and summary of the key information, including compliance requirements, for setting-up Private Equity in Luxembourg:

LFF PRIVATE EQUITY ››

CSSF: SICAR REGULATION ››

CSSF: SIF REGULATION ››

An Undertaking for Collective Investment in Transferable Securities (UCITS) is an investment fund that meets the criteria laid down by Directive 2009/65/EC, as amended, and benefits from a passport which enables it to be sold cross-border into any other EU Member State.

Read more ››

An Undertaking for Collective Investment (UCI) established under Part II of the Law of 2010 is an investment fund that does not meet the criteria set by the EU Directives to render it eligible for distribution in more than one EU Member State.

Read more ››

The Luxembourg law of 15 June 2004 relating to the investment company in risk capital has created a Luxembourg vehicle ("SICAR" Société d'investissement en capital à risque –undertaking for collective venture capital investment) whose principal object is investing in risk bearing capital issued by domestic and foreign companies.

Read more ››

The Specialised Investment Fund (SIF) is a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime for an institutional and qualified investor base.

Read more ››

The latest version of the Undertakings for Collective Investment in Transferable Securities ("UCITS") directive, UCITS IV, was agreed by the EU in 2009 and takes effect as of July 1, 2011. The changes are mostly technical or affecting fund management companies, but they also include new provisions for providing information to investors in a straightforward and easy-to-understand format, known as a Key Investor Information Document (KIID).

Risk Management Process
Frequency of risk monitoring should be at least daily. UCITS are not classified as "sophisticated" or "non-sophisticated" under Ucits IV. UCITS and management companies will need to establish and maintain a permanent risk management function, independent from operating units. A UCITS must ensure that its global exposure relating to derivatives does not exceed the total net value of its portfolio. OTC counterparty risk must be limited to 5% (10% for credit institutions) of fund assets. Scope for reducing risk via financial collateral.

Improve investor information
The Key Investor Information Document (KIID), a document designed to replace the simplified prospectus and provide investors with clearer information and greater protection.
The number of risk figures is increased under UCITS IV :
The prospectus must disclose (a) the method used to calculate the global exposure (b) the expected level of leverage employed during the relevant period and (c) when using the relative VaR approach, information on the reference portfolio.
The annual report must include, if VaR is applied, the lowest, the highest and the average VaR during the financial year. The model and inputs used for calculation (calculation model, confidence level, holding period, length of data history) should be displayed.
The KIID must include a synthetic risk and rewards indicator (SRRI).

Facilitate asset pooling
One of the main objectives of the Ucits IV is to create a common framework to asset pooling at a European level. In this context, the Ucits IV Directive introduces a specific regime for master-feeder structures.
Ucits IV defines a feeder fund as one authorised to invest at least 85 per cent of its assets in another Ucits, it may hold up to 15 per cent in cash, derivatives for hedging purposes or property for its own use. Its status as a feeder fund is granted by the regulator of the country in which it is domiciled.

Facilitate cross border marketing
There will be immediate market access once the authorisation has been granted by the country of origin of the UCITS ("UCITS passporting procedure"); the host country will be able to monitor the commercial documents but not to block access to the market. The previous two-month approval procedure is now replaced by a simple "regulator to regulator" notification process, which must take no longer than 10 business days.

Management Company Passport
A management company will be allowed to provide the full range of collective portfolio services to UCITS funds domiciled in another Member State, without needing to be fully established in that other Member State.

Facilitate cross border mergers
The information given to investors about the merger will be monitored by the supervisor, who will not authorise the merger unless it is satisfactory; authorisation will be assigned to a single supervisor, in conjunction with the other supervisor concerned, so as to make the procedures more efficient.

The Key Investor Information Document ("KIID") is a short document designed to describe the fund in terms that investors should find straightforward and easy to grasp, in a standardised format over two pages. The KIID is intended to be self-sufficient.
The new directive stipulates that at a minimum, it should contain the name of the fund, a short description of the fund's investment objectives and policy, a description of past performance or performance scenarios, details of cost, and the fund's targeted risk/reward profile (Synthetic Risk and Reward Indicator "SRRI").
It should be written in plain language and predefined form, content and length, enabling investors to compare one fund with another more easily.
Material changes to the fund - for instance, changes in management charges -will require amendment of the KIID and notification of regulators in all countries where the fund is marketed, in addition to annual updates that must be introduced within 35 working days of the end of each year.
Existing funds will benefit from a grandfathering clause giving them a transition period of up to 12 months to publish a KIID, any funds launched on or after July 1, 2011 must have the KIID ready at time of launch. The document must be published in one or more of the official languages of any member state in which the fund is marketed.