New Law on Open-Ended Investment Funds adopted

On 10 October 2019, the National Assembly of the Republic of the Serbia adopted the Law on Open-Ended Investment Funds with a Public Offering (the “Law”), published in the Official Gazette No. 73/2019 dated 11 October, 2019, effective eight days after publishing in the Official Gazette on 18 October 2019.

The new Law made terminological harmonization, firstly with the newly enacted Law on Alternative Investment Funds, but also with the directives of the European Union. Harmonization with the EU law initiated the entire procedure of amending the already existing law, and then deciding to adopt the new Law nonetheless. In addition, the provisions of the Law and the Law on Alternative Investment Funds which regulate similar or at least approximately similar matter are also harmonized. In accordance with EU regulations, the definition of the term investment unit has been changed, and instead of defining it as a calculated proportionate share in the total net assets of an investment fund, it is now defined as transferable dematerialized financial instruments in accordance with the law governing the capital market. Some terms are also in line with the European Union directive, which replaced the terms of the previous Law on Investment Funds, which EU law does not know. The services that the depositary can perform, as well as the terms and conditions for the provision of the depository service, are also specified. The Law also extended the deadline for issuing the license issuance decision, the deadline was extended from 30 days to 60. The decision is going to be issued by the Securities Commission. The deadline has also been modified in order to comply with EU regulations. When creating the new Law in addition to EU regulations, the legislator took into consideration comments from the private sector, taking into account the conditions of the domestic capital market. The changes that have been made in this way widen the possibility of investing the assets and provide greater protection for investors. In accordance with EU rules, there is no longer a restriction that a member of an open-ended investment fund may not acquire more than 20% of the net value of the investment fund. By-laws for the implementation of this Law must be adopted within six months of its entry into force. Procedures that have not been completed by the date of entering into force of this Law will be terminated according to the rules of the Law on Investment Funds. The law shall enter into force on the eighth day after its publication in the Official Gazette.

After the great financial crisis of 2008, the consequences on the market participants were such that their confidence in the potential of investment funds as a form of investment was disturbed. For this reason, the legislator amended the Law on Investment Funds from 2006 three times, to mitigate the negative effects of the global financial crisis and also to comply with EU regulations. The changes made in 2009 and 2011 have made the investment fund business more stable and secure. However, as the Republic of Serbia is in the process of accession to the European Union, it has undertaken the obligation to fully harmonize the Law on Investment Funds with the directives of the European Union by the end of 2021. The idea behind the changes was to align with EU regulations and to improve the legal framework of investment funds, in order to achieve development of the investment fund industry and the capital market. As part of the undertaken obligation to harmonize with the EU regulations, it was decided to amend the Law on Investment Funds, which would then only cover open-ended investment funds with a public offering and to pass a new Law on Alternative Investment Funds. Since the legislator realized that amendments to the Law on Investment Funds were too large and comprehensive, it was decided to adopt a new Law. Together with the adoption of this law, the National Assembly of the Republic of Serbia also adopted the Law on Alternative Investment Funds, which we wrote about more at the time of the publication of the Bill.