Amendment to the Regulations applicable to mutual funds and their service companies in Mexico

On August 16, 2022, the Resolution that amends the General Provisions applicable to mutual funds and their service companies (the "CUFI", and the resolution that amends it, the "Amendment") was published in the Federal Official Gazette, becoming effective the day after its publication.

The purpose of the Amendment is to (i) reduce the administrative burden related to complying with the Mutual Funds Law (Ley de Fondos de Inversión, "LFI"), by including exceptions that would allow to amend mutual funds' prospectuses without the prior authorization from the Mexican Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, the "CNBV"), (ii) strengthen the corporate governance bodies of mutual funds managers through the creation of investments committees, (iii) strengthen the open architecture, allowing variable income and debt mutual funds to establish fees for the management of their assets or for share distribution services when they are acquired by mutual funds managed by a different mutual fund manager and (iv) reduce legal asymmetry that may have an impact on clients' wealth and on the healthy competition of the mutual funds market, incorporating investors' rights to the portability of their shares and funds from a mutual funds distributor or an entity that provides distribution services ("Mutual Funds Distributor"), to another entity of said nature.

I. Exceptions to the CNBV's authorization to amend prospectuses

Pursuant to the LFI and CUFI, an authorization from the CNBV is required to amend the mutual funds' prospectuses.

By means of the Amendment, certain cases were included in which the amendments to mutual funds' prospectuses will not require the CNBV's authorization (e.g., amendments to the ticker number, investment portfolio structure, corporate name, capital structure, tax regime, among other general data). In such cases, a markup of the prospectus must be filed with the CNBV no later than five business days prior to the effective date of the amendments, along with a statement by an authorized signatory of the prospectus, indicating that such amendments fall within the applicable exception.

II. Exceptions to the limits under the Investment Regime

The following events are added in the regulation, whereby the mutual funds referred to below may breach, or may otherwise exceed the minimum or maximum limits of their investment regime during the following time frames (in calendar days), without being considered a default:

• Recently incorporated mutual funds: 90 days from the date of beginning of operations.
• Mutual funds in process of merger, spin-off, dissolution, liquidation or insolvency: 90 days from the date of the CNBV's authorization to carry out the corporate act.
• When there are no shareholders in the variable portion of the mutual fund's paid-in capital stock due to certain corporate acts: 90 days from the date in which the CNBV was notified of the relevant corporate act.
• Change on mutual fund's type, or changes to its investment objectives or policy that result in material amendments to its investment regime: 90 days from the date in which the amendments to the prospectus become effective.

III. Creation of the Investments Committee

The mutual fund's managers' board of directors may create an investments committee that will determine the investment strategy according with the investment policies determined by such board of directors, and will approve any amendment to the investment strategy and to the prospectuses.

This committee must be incorporated by a director who will serve as chairman, the chief executive officer, the person responsible for comprehensive risk management, the investment director or equivalent and other officers that the board of directors may appoint for such purposes. If such committee is created, the mutual fund manager must notify the CNBV within ten business days after its incorporation, and file within six months after such notification CUFI's Annex 19, including the information of such committee.

IV. Strengthening of open architecture and healthy market competition 

The Amendment recognizes the right of investors to the portability of their shares and funds from a Mutual Funds Distributor to another entity of similar nature, in accordance with the following:

• Mutual Funds Distributors must undertake actions for their clients to terminate the agreements that they have entered into with them, upon the clients' prior written request. Agreements must provide mechanisms to make this right effective. 
• Clients may enter into agreements with other Mutual Funds Distributors, with the possibility of additionally agreeing that the new Mutual Funds Distributor takes all necessary actions to terminate the agreement, and request the transfer of funds and shares to the former Mutual Funds Distributor, having previously entered into a form agreement with mutual fund managers and with the prior express authorization of the client.
• The former Mutual Funds Distributor must transfer the shares of the mutual fund at the average acquisition price of each such shares, and the funds must be transferred to the client's account in the new Mutual Funds Distributor, and terminate the agreement with 15 business days, prior written notice of the new Mutual Funds Distributor.
• If the client's prior authorization is not granted for these purposes, the new Mutual Funds Distributor must return the shares and funds to the former Mutual Funds Distributor within ten business days after the date in which the client expressed her inconformity (in addition to any applicable damages and penalties that may apply).

Variable income and debt mutual funds, which the investment regime allows for investment in mutual fund's shares, may include fees for the acquisition of mutual fund's shares managed by a mutual fund manager other than the one that manages the acquiring mutual fund.

V. Replacement of CUFI's Annexes 2 and 3

The Amendment replaces CUFI's Annexes 2 (Requirements to draft a prospectus) and 3 (Requirements to draft a variable income and debt mutual funds' key investor information document).

VI.    Transitory provisions

• The Amendment became effective on August 17, 2022.
• Mutual funds have a six-month term from the effective date of the Amendment to file with the CNBV the amendments to prospectuses and to the key investor information documents resulting from the Amendment; that is, by February 17, 2023.
• The update of said documents must be filed, along with a statement from an authorized signatory of the prospectus, indicating, under oath, that the corresponding amendments were performed pursuant to the Amendment.

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