2021 PRODUCT GOVERNANCE POLICY - GNB Fundos ...
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2021 PRODUCT GOVERNANCE POLICY
1) INTRODUCTION
Following the publication of Directive 2014/65 / EU of the European Parliament and of the Council
of 15 May 2014 on markets in financial instruments ("MiFID II"), Regulation No 600/2014 of the
European Parliament and of the Council of May 15, 2014 and of the Delegated Regulation
2017/565 of the Commission of April 25, 2016, which materialize and complete certain rules
contained in MiFID II, GNB FUNDOS MOBILIÁRIOS – SOCIEDADE GESTORA DE
ORGANISMOS DE INVESTIMENTO COLETIVO, S.A. (hereafter " GNB - FM" or the “Company”),
as manufacturer of financial instruments (namely undertaking for the collective investment in
transferable securities – “UCITS”) has a duty to establish and follow a product governance model
that covers the entire product life cycle, from the time of its creation to the subsequent monitoring
and supervision, until the product is no longer marketed.
2) SCOPE
Financial products developed and distributed in the European Union as of January 3, 2018 should
be subject to a robust product governance process since its inception, in order to ensure that a
certain product, when distributed / sold, will meet the needs and objectives of a specific target
market defined for it, that the product distribution strategy is compatible with the identified target
market and that reasonable steps are taken to ensure that the products are distributed to the
target market identified.
In this regard, GNB-FM, as a manufacturer (“producer”) of UCITS funds, will ensure that it has
adequate systems, procedures and controls in place in order to guarantee that:
• All UCITS manufactured will meet the needs of the target markets identified;
• All UCITS will be marketed and sold to clients in the target markets via appropriate
distribution channels; and
• All information to clients regarding a certain UCITS, whether legal or commercial, is timely
provided and it is true, clear, complete, objective and updated;
3) PRODUCT APPROVAL PROCESS
As a manufacturer, GNB-FM shall implement the necessary written internal procedures to be
taken for the approval of each UCITS, as well as for any material changes to an existing UCITS,
prior to marketing or distribution being undertaken. In this regard, in order to approve a new
UCITS, or implement changes to an existing UCITS, the following steps must be taken:
I) Identify the opportunity to launch or modify a UCITS including a profitability analysis;
2II) Define the main characteristics / parameters of the UCITS being launched or
modified, specifically assessing all relevant risks to the target market and proposing
a risk profile;
III) Define the (potential) target market for the UCITS;
IV) Define / review / estimate the main costs and expenses of the UCIT;
V) Define a Model Portfolio (proposed asset allocation);
VI) Estimate the amount of assets under management in the short, medium and long
run;
VII) Define the main marketing conditions, distributors and distribution channels;
VIII) Perform stress tests and/or scenario analysis to the UCITS;
IX) Perform a conflict of interests analysis/assessment;
X) Documentation review and approval;
XI) Final approval by the Board of Directors.
Steps I) to X) shall be discussed and assessed by the Product Development Committee of the
Company (as defined in the Governance Policy of the Company). Considering these steps to be
taken, it is mandatory that the following units/functions of the Company are active parts in the
product approval process (notably in the Product Development Committee):
- Portfolio management;
- compliance;
- risk management;
- Marketing and distribution;
- Funds accounting / administration.
GNB-FM must ensure that all the relevant staff involved in the creation of new UCITS (or relevant
modifications) have the necessary technical knowledge and experience.
The minutes of the Product Development Committee that approves the creation of new UCITS or
material changes to the existing UCITS (or its/their offering strategy), following the above steps,
must be completely and clearly documented in writing and signed by all the participants. These
minutes shall be sent to the Board of Directors for the final approval of the product / product
changes.
4) IDENTIFICATION OF THE POTENTIAL TARGET MARKET
The definition of the potential target market should, as a minimum, consider the following 6
categories and respective options within each category (categories defined on the basis of the
"European MIFID Template (EMT)" approved by EFAMA):
A) Type of Investor: Non-Professional; Professionals; and / or Eligible counterparties.
3B) Knowledge and experience: The product is directed to Investors that are:
• Initiates: those who, at least, can make an investment decision based on pre-contractual
and contractual documentation. They do not need to have made any past investments, which
means the product may be suitable for an investor who invests for the first time in this type of
product;
• Informed: those who, at least, can make an investment decision based on pre-
contractual and contractual documentation or based on their knowledge and understanding
of the characteristics and risks of the product or investors with some experience in financial
markets ; or
• Advanced: those who have excellent knowledge and experience in financial products or
high experience of investing in financial markets and/or in this type of product or when the
investment decision is supported by a consulting service or inserted in discretionary portfolio
management.
C) Financial situation and ability to withstand losses: The product is directed to Investors that:
• Are not able to bear losses on the invested capital, besides the costs, charges and taxes
resulting from the investment;
• Understand and accept that the value of the product will fluctuate over time and that
they may face partial losses on the invested capital; or
• Understand and accept that the value of the product will fluctuate over time and that
they may face a total loss on the invested capital.
D) Risk tolerance: The product is directed to Investors that have:
• Low risk tolerance, i.e. at level 1 or 2 according to the KIID's SRRI of the product;
• Average risk tolerance, i.e. at level 3 or 4 according to the KIID's SRRI of the product;
• High risk tolerance, that is, at level 5, 6 or 7 according to the KIID's SRRI of the product.
E) Objectives and needs - Investments aimed to Investors with the following objectives:
• Preservation of capital; or
• Capital growth; or
• Income from capital
• ESG preferences
4F) Time horizon of investment:
• Very short term, i.e. up to 1 year; or
• Short term, i.e. between 1 and 3 years; or
• Medium term i.e. between 3 and 5 years; or
• Long-term, i.e. over 5 years.
None of the 6 categories defined above may be excluded when defining the potential target
market for a new or modified UCITS but additional categories or options inside a certain category
may be added if considered relevant. In this way, a proportionality approach should be adopted,
with a higher level of granularity in the definition of the potential target market of a given product
depending on its complexity, risk-reward profile, liquidity profile and / or innovative character.
In addition, a negative target market should also be defined for each product (if applicable), i.e.
the set of potential investors / customers for whom the product is not suitable / compatible with
their characteristics at all. The definition of the negative target market should be made using the
same categories as used in the definition of the potential (positive) target market. Alternatively, it
may be defined as a negative target market "all customers outside the potential target market
(positive)"
When a UCITS is launched, GNB-FM shall ensure the dissemination of the defined potential
target market to all relevant persons inside its organisation as well as to all distributors so that
they are able to understand the product and the underlying target market characteristics defined
and thereby fine tune the target market to ensure their correspondence with the features of their
customers base.
5) RISK ASSESSMENT AND STRESS TESTS / SCENARIO ANALYSIS
Before a UCITS is launched or modified, all its relevant risks, including operational risk(s) and
compliance/legal risks, shall be identified, assessed and documented. For this task, the following
units/functions shall have an active role:
- Risk management;
- Compliance;
- Portfolio management;
- Marketing and distribution;
- Funds accounting and administration.
5Furthermore the risk management function should conduct stress tests / scenario analysis using
the methodologies already approved and described in the risk management policies and
procedures of the Company. The objective is to evaluate the robustness in the definition of the
potential target market considering the characteristics defined for the product, assessing if there
are stressful situations where the product is no longer adequate for the potential target market
defined. Stress testing should also assess the existence of situations where the product may lead
to capital market integrity problems (for example, if 100% of the portfolio needs to be sold
immediately, depending on the size of the product).
Finally, scenario analysis shall also be taken in order to assess whether the costs / fee structure
of the product is compatible with the characteristics of the target market.
6) CONFLICT OF INTERESTS ASSESSMENT
GNB-FM must conduct an initial (prior to the launch) and ongoing assessment of the potential
conflicts of interest that may arise in view of the particular features of the product, its potential
target market and the commercial conditions / commercial strategy defined, and its potential
distributors. In particular, the existence of conflicts of interest should be assessed:
- at the level of the investment policy (concentration of investments; transactions with related
parties such as positions opposite to positions taken by, or held by, other portfolios / funds
managed by GNB-FM, GNBGA group or Novo Banco Group; impact on market integrity, etc);
- at the level of the cost/fee structure, potential inducements or other remuneration
arrangements;
- at the level of the commercial strategy and the remuneration to distributors;
- at the level of the misuse of material non-public information;
- Personal interests in the product.
7) DISTRIBUTION STRATEGY AND SELECTION OF DISTRIBUTORS AND
DISTRIBUTION CHANNELS
After definition of the potential target market, GNB-FM should define the commercial conditions
as well as the marketing strategy / distribution channels in accordance with the marketing
6procedures of the Company that should be in line with the target market defined for the product.
In this sense it shall define:
- Minimum subscription amounts (initial and subsequent) and initial price;
- Possibility of periodic pre-arranged subscriptions (and their amount);
- Distribution type ("execution only" / "execution with appropriateness test" / "investment
advice" / "portfolio management");
- Marketing channels (face-to-face, telephone, website, etc);
-Commercial and Marketing Strategy (advertising campaigns, promotions etc), if applicable;
- Remuneration to distributors;
In addition, GNB-FM shall evaluate and select the potential distributors for the UCITS taking into
account the size, capacity and experience thereof and the characteristics of the UCITS in question
and its potential target market.
When using (external) distributors, GNB-FM shall take all reasonable steps (please refer to the
marketing procedures of the Company) in order to ensure that it is able to confirm that the funds
are not being miss-sold and to determine if changes need to be made to the distribution /
marketing strategy and/or channels or to the target market itself. GNB-FM shall choose
distributors whose types of clients and services offered are in line with the target market of the
(target) UCITS. In this regard, GNB-FM must assure that the selected distributor is provided with
all the relevant information about the UCITS, the target market characteristics, as well as the
proposed type of investment service through which the client can acquire the UCITS. GNB-FM
shall define along with the selected/appointed distributors the necessary procedures in order to:
- Allow GNB-FM to have a permanent knowledge of the investors’ base of all products
manufactured by GNB-FM;
- Allow GNB-FM to have a permanent knowledge of the distribution channels as well as the
marketing material used by the distributors;
- Allow all distributors to have, on a regular basis (and at least annually) clear, complete
and timely information about the product and its target markets (as well as any change
that may occur from time to time);
8) ONGOING REVIEW
GNB-FM, based on a constant monitorization of its products and the information gathered
from the (local) distributors, shall take periodic reviews (at least on an annual basis) of the funds
7it manufactured in order to confirm they remain consistent with the needs, characteristics and
objectives of the defined (potential) target markets. More specifically, GNB-FM shall review, at
least on an annual basis:
• whether the investment policy / strategy as well as all underlying risks remains appropriate
to the target market;
• whether the distribution strategy and the channels employed remain appropriate;
• whether the cost / fee structure of the funds remains appropriate;
• If the funds continued to be distributed to the identified target market;
• If there are clients outside the defined target market (or negative target market clients);
• any complaints received, as well as any client feedback.
All periodical / annual reviews fund must be completely and clearly documented in writing.
9) PRODUCT TERMINATION – MERGER, LIQUIDATION OR TRANSFORMATION
The decline stage of the lifecycle of a UCITS, which may be characterized by a decrease in
the AuM / net inflows of the product and/or profitability for the Management Company and/or the
clients, and its eventual termination, may be the result of a series of factors such as;
-The investment strategy / investment policy of the Fund is no longer achieving its objectives
or no longer suitable for the defined target market;
- The AuM of the product decreased to a certain level where it is no longer viable, in the best
interests of the clients, to continue to operate;
- The fund becomes non-compliant with the relevant legislation;
- Regulatory changes, which may reduce the attractiveness of the UCITS or its sales;
- Creation of alternative products that may achieve greater benefits for clients.
- Extreme market distress, severe political crisis or other external factors that prevents the
fund to continue to operate on a going concern basis or satisfying the best interests of its clients.
Although a product may continue to be viable and profitable, the Management Company, in
the framework of the Ongoing Review (described in chapter 8), as a result of one or more of the
8above mentioned factors and according to the applicable laws and regulations, may decide
between the following alternatives:
1) Liquidate the Product (if allowed in accordance with the applicable laws and Regulations);
2) Merge the Product with another Product which may or may not be managed by the
Management Company (if allowed in accordance with the applicable laws and
Regulations);
3) Transform the UCITS or otherwise change some or all the parameters of the Fund (i.e.
investments objective and policy, fee structure, target markets, risk profile, subscription /
redemption amounts, NAV periodicity etc.)
In doing so the Management Company will consider, among others, the following factors:
• Total costs for the company of each alternative, including opportunity costs but having in
mind rationalization benefits;
• The strategic long term view / mission of the Management Company;
• Appropriateness of the (new) UCITS to the target market;
• Risk factors, including strategic, operational and reputational risks (such as loss of clients,
limited offer, loss of distributors, relative position among competition, possible complaints, legal
risks etc).
The Product Development Committee of the Company is responsible for assessing the
termination of a product (either by merger, transformation or liquidation) and for presenting their
conclusions to the Board of Directors for final approval. In order to do this, the following rules must
be addressed by the Committee:
i) Discuss and assess the reasons / factors behind the decision to terminate the product;
ii) Define the best solution/alternative for the Product (i.e. liquidate, merge or transform);
iii) Define / review / estimate all the costs and expenses for the process;
iv) Define the necessary steps and the necessary interactions and exchange of flows
between the relevant parties (investment manager, depositary, administrative agent,
distributors and regulators), taking particular attention to products that are sold abroad.
v) Define rules and timelines in order to monitor all the process;
The minutes of the Product Development Committee that approves the termination of a UCITS,
following the above rules, must be completely and clearly documented in writing and signed by
all the participants. These minutes shall be sent to the Board of Directors for the final approval of
the termination of the product.
9GNB-FM must ensure that all the relevant staff involved in the termination of a product / fund have
the necessary technical knowledge and experience.
10) PUBLICATION
GNB-FM shall publish the present Policy in its web-site.
11) DATE OF IMPLEMENTATION
This policy will be implemented from January 2021 onwards
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