Regulation on Compensation of UCITS Fund Investors and/or the UCITS Fund – Unofficial Consolidated Text (Narodne novine, No. 16/19 and 150/22)

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Croatian Financial Services Agency, 10000 Zagreb, Franje Račkoga 6, P.O. Box 164, Croatia t: 01 6173 200, f: 01 4811 507, e: info@hanfa.hr, OIB: 49376181407, MB: 02016419, w: www.hanfa.hr PRAVILNIK (REGULATION) ON COMPENSATION OF UCITS FUND INVESTORS AND/OR THE UCITS FUND („Narodne novine“, No. 16/19 and 150/22 – Unofficial Consolidated Text)

I. INTRODUCTORY PROVISIONS
Article 1.
This Regulation governs the procedure for compensation that a management company (hereinafter: Company) is obliged to pay to investors of a UCITS fund and/or the UCITS fund in cases of incorrect calculation of net asset value per share or share price, and unauthorized breach of investment limits within the meaning of Article 259(2) and (4) of the Act, as well as for damage caused to the assets of a UCITS fund as a result of omissions by the Company within the meaning of Article 110(1) and (2) of the Act, and for damage incurred by holders of shares in a UCITS fund within the meaning of Article 184 of the Act.

II. INCORRECT CALCULATION OF SHARE PRICE
Article 2.
(1) The share price of a UCITS fund is the net asset value per share, calculated in accordance with applicable regulations.
(2) An incorrect calculation of the share price exists when the initially calculated share price in a UCITS fund differs from the subsequently accurately determined share price for the same day.
(3) The period of incorrect calculation is the period during which a material error in calculating the share price as defined in Article 3 of this Regulation existed.

Material Error in Calculating Share Price
Article 3.
(1) The compensation procedure for incorrect calculation of share price prescribed by this Regulation is conducted when the difference between the initially calculated and subsequently accurately determined share price for the same day exceeds 1% of the value of the initially calculated share price (material error in calculating share price). (2) Exceptionally, pursuant to paragraph 1 of this Article, for money market UCITS funds operating in accordance with Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds, the Company is obliged to conduct a compensation procedure when the difference between the initially calculated and subsequently accurately determined share price for the same day exceeds 0.3% of the value of the initially calculated share price, and for bond UCITS funds when that difference exceeds 0.7%. (3) The compensation procedure for a material error in calculating share price consists of preparing the compensation plan as per Article 7 of this Regulation, delivering the notice as per Article 8 to investors, and compensating affected investors and/or the UCITS fund.

Calculation of Higher Share Price
Article 4. (NN 150/22)
(1) A calculation of higher share price exists when the initially calculated share price is higher than the subsequently accurately determined share price for the same day.
(2) In the case of a higher share price calculation, the Company is obliged to compensate affected investors who acquired shares in the UCITS fund during the period of incorrect calculation, by paying monetary funds or allocating shares, regardless of whether they are still investors in the UCITS fund at the time of compensation. The Company is obliged to define in the rules of the UCITS fund the situations in which compensation is carried out by monetary payment and those by share allocation. The amount of compensation the Company is obliged to pay equals the difference between the initially determined and subsequently accurately calculated share price multiplied by the number of issued shares during the period of incorrect calculation. (3) In the case of a higher share price calculation, the Company is obliged to compensate the UCITS fund when shares in the UCITS fund were redeemed during the period of incorrect calculation. The amount of compensation the Company is obliged to pay equals the difference between the initially calculated and subsequently accurately determined share price multiplied by the number of redeemed shares during the period of incorrect calculation. (4) Compensation shall not be carried out for those investors whose determined compensation amount during the period of incorrect calculation is less than 1.50 euros.

Calculation of Lower Share Price
Article 5. (NN 150/22)
(1) A calculation of lower share price exists when the initially calculated share price is lower than the subsequently accurately determined share price for the same day.
(2) In the case of a lower share price calculation, the Company is obliged to compensate affected investors whose shares were redeemed during the period of incorrect calculation, by paying monetary funds or allocating shares, regardless of whether they are still investors in the UCITS fund at the time of compensation. The Company is obliged to define in the rules of the UCITS fund the situations in which compensation is carried out by monetary payment and those by share allocation. The amount of compensation the Company is obliged to pay equals the difference between the initially calculated and subsequently accurately determined share price multiplied by the number of redeemed shares during the period of incorrect calculation. (3) In the case of a lower share price calculation, the management company is obliged to conduct an adjustment of the number of allocated shares for investors who acquired shares in the UCITS fund during the period of incorrect calculation. (4) Compensation under paragraph 2 of this Article shall not be carried out for those investors whose determined compensation amount during the period of incorrect calculation is less than 1.50 euros.

New Calculation of Share Price
Article 6.
The Company is obliged to prepare a new calculation of the share price for each day of the period of incorrect calculation.

Compensation Plan
Article 7.
(1) In the cases specified in Articles 3(1) and (2) of this Regulation, the Company shall without undue delay, but no later than within 60 days from becoming aware of the material error in calculating share price, prepare a compensation plan and deliver it without delay to HANFA, and if the UCITS fund is managed by a Company from another Member State, also to the competent authority of the home Member State of the UCITS fund. (2) The compensation plan specified in paragraph 1 of this Article must contain:

1. appropriate deadlines, methods and procedures by which it will compensate the damage to the UCITS fund and/or investors,
2. measures that will be taken with the aim of eliminating identified material errors and compensating damage,
3. new calculation of share price for each day of the period of incorrect calculation, and
4. number of investors who acquired and/or redeemed shares during the period of incorrect calculation, as well as individual and total amount of compensation to be paid to investors and/or the UCITS fund, by monetary payment or allocation of a proportional number of shares.

Notifying Investors
Article 8.
(1) When due to a material error in calculating share price the Company has an obligation to compensate certain affected investors, the Company is obliged to notify those investors of the existence of a material error in calculating share price from which they should receive compensation.
(2) The notice specified in paragraph 1 of this Article contains the following information:

1. what is the cause and nature of the material error in calculating share price,
2. the amount of damage and compensation obligation,
3. deadlines and method of compensating damage.
   (3) The notice specified in paragraph 1 of this Article is delivered by post or on another appropriate durable medium in accordance with Article 112 of the Act, within 10 days from preparing the compensation plan.

Implementation of Compensation Procedure
Article 9.
(1) After the Company prepares the compensation plan in accordance with Article 7 of this Regulation, it shall without delay proceed to compensating affected investors and/or the UCITS fund.
(2) Costs incurred for the purpose of implementing the compensation procedure and measures for incorrect calculation of share price are costs of the Company and cannot be charged to the UCITS fund or investors.

III. EXCEEDING INVESTMENT LIMITS
Article 10.
(1) For the purposes of this Regulation, exceeding investment limits or breach of investment limits refer to unauthorized exceedances of investment limits under Article 259(4) of the Act, namely those exceedances resulting from transactions concluded by the Company, which at the time of conclusion breached investment limits prescribed by the Act, regulations adopted under the Act and/or the UCITS fund prospectus. (2) The compensation procedure for breach of investment limits prescribed by this Regulation is conducted when:

1. the exceedance of investment limits amounts to more than 10% of the total permitted investment prescribed by Article 254(1) and Articles 255, 256, 257 and 258 of the Act, and
2. as a result of conducting transactions or adjusting investments in another appropriate manner under Article 13(1) of this Regulation, a loss or damage has occurred for the UCITS fund and/or investors.
   (3) The compensation procedure for exceeding investment limits under paragraph 2 of this Article consists of preparing the compensation plan as per Article 11 of this Regulation, delivering the notice as per Article 12 to investors, and compensating affected investors and/or the UCITS fund.
   (4) The period of exceeding investments is the period from the moment of unauthorized exceedance of investment limits under paragraph 2 of this Article until its elimination.

Compensation Plan
Article 11.
(1) In the case specified in Articles 10(1) and (2) of this Regulation, the Company shall without undue delay, but no later than within 60 days from becoming aware of the exceedance of investment limits, prepare a compensation plan and deliver it without delay to HANFA, and if the UCITS fund is managed by a Company from another Member State, also to the competent authority of the home Member State of the UCITS fund. (2) The compensation plan specified in paragraph 1 of this Article must contain:

1. appropriate deadlines, methods and procedures by which it will compensate the damage to the UCITS fund and/or investors,
2. information on the asset position in the UCITS fund portfolio relative to which the exceedance of investment limits occurred, duration and reasons for such exceedance,
3. measures that will be taken with the aim of adjusting investments and compensating damage,
4. number of investors who acquired and/or redeemed shares during the period of exceeding investments, as well as individual and total amount of compensation to be paid to investors and/or the UCITS fund.

Notifying Investors
Article 12.
(1) When due to exceeding investment limits the Company has an obligation to compensate certain affected investors, the Company is obliged to notify those investors of the existence of such exceedance from which they should receive compensation.
(2) The notice specified in paragraph 1 of this Article contains the following information:

1. what is the cause and nature of exceeding investment limits,
2. amount of damage and compensation obligation
3. deadlines and method of compensating damage.
   (3) The notice specified in paragraph 1 of this Article is delivered by post or on another appropriate durable medium in accordance with Article 112 of the Act within 10 days from preparing the compensation plan.

Amount of Compensation
Article 13. (NN 150/22)
(1) The Company is obliged to immediately upon becoming aware of the exceedance of investment limits adjust investments by conducting transactions necessary for fully eliminating the exceedance of investment limits or ensure adjustment in another appropriate manner (e.g., maturity of deposits, new payments or withdrawals by investors causing the end of exceedance of investment limits, change in method and methodology for valuing positions that caused the exceedance of investments when applicable, etc.). The Company is obliged to adjust investments in such a way as to fully eliminate the exceedance of investment limits. (2) When conducting a transaction or adjusting investments in another appropriate manner under paragraph 1 of this Article results in profit, such profit shall be allocated to the UCITS fund. The Company is obliged to compensate the UCITS fund for costs incurred in conducting transactions that caused the exceedance of investment limits, as well as costs incurred to eliminate the aforementioned exceedance of investment limits. (3) When conducting transactions or adjusting investments in another appropriate manner under paragraph 1 of this Article results in a loss, the Company is obliged to compensate the UCITS fund for such loss by paying an amount corresponding to the difference between the purchase and sale price of assets that led to the exceedance of investment limits. In cases where eliminating the exceedance of investment limits is carried out in another appropriate manner, the Company is obliged to compensate the UCITS fund for such loss by paying an amount corresponding to the difference in value of assets that led to the breach of investment limits on the day the breach occurred and the value of assets on the day of adjusting the exceedance of investments. The Company is obliged to compensate the UCITS fund for costs incurred in conducting transactions that caused the exceedance of investment limits, as well as costs incurred to eliminate the aforementioned exceedance of investment limits. (4) In the cases specified in paragraph 3 of this Article, the Company is obliged to compensate affected investors who redeemed shares from the UCITS fund, during the period from adjusting investments until compensating the loss to the UCITS fund, by paying monetary funds or allocating shares. The Company is obliged to define in the rules of the UCITS fund the situations in which compensation is carried out by monetary payment and those by share allocation. (5) Compensation shall not be carried out for those investors whose determined compensation amount during the period from adjusting investments until compensating the loss to the UCITS fund is less than 1.50 euros.

Implementation of Compensation Procedure
Article 14.
(1) The Company shall, after preparing the compensation plan, without delay proceed to compensating affected investors and/or the UCITS fund.
(2) Costs incurred for the purpose of implementing the compensation procedure and measures for exceeding investment limits are costs of the Company and cannot be charged to the UCITS fund or its investors.

Article 15.
Provisions of this Regulation relating to exceeding investment limits under Article 259(4) of the Act shall also apply in case of exceeding investment limits under Article 259(2) of the Act that lasts longer than the periods specified in Articles 259(2) and (3) of the Act. The day the exceedance of investment limits occurs is considered to be the first day after the expiration of the period specified in Articles 259(2) and (3) of the Act.

IV. REVISION OF COMPENSATION PLAN
Article 16.
(1) Implemented compensation procedures for the case of incorrect calculation of share price and for the case of breach of investment limits are audited by an auditor as part of the annual audit of UCITS fund reports.
(2) In the case specified in Article 7 of this Regulation, the auditor's report and opinion must contain the auditor's assessment of whether, in the compensation procedure, the new calculation of share prices under Article 6 of this Regulation was accurately determined and whether the calculation procedures and amount of compensation paid to the UCITS fund and/or investors were in accordance with the conditions of this Regulation. (3) In the case specified in Article 11 of this Regulation, the auditor's report and opinion must contain the auditor's assessment of whether the calculation procedures under Article 13 of this Regulation and the amount of compensation paid to the UCITS fund and/or investors were in accordance with the conditions of this Regulation. (4) If, as part of the audit of UCITS fund financial reports, an exceedance of investment limits or incorrect calculation of share price is found, the Company is obliged without delay to take appropriate measures in accordance with the provisions of this Regulation.

V. OTHER CASES OF COMPENSATION
Article 17. (NN 150/22)
(1) The Company is responsible to the UCITS fund and investors for performing its business properly and diligently, and is liable for damage caused to the assets of a UCITS fund that resulted from omissions by the Company in performing and executing its duties prescribed by the Act, regulations adopted under the Act, rules and prospectus of the UCITS fund. (2) The Company is also liable for damage incurred by holders of shares in a UCITS fund due to the issuance or redemption of shares in a UCITS fund, as well as for failure to redeem shares in a UCITS fund, if such actions or omissions by the shareholder were made on the basis of documents or notices under Article 183 of the Act, which contained untrue or incomplete data and information, or data and information that are misleading, or on the basis of incorrect or incomplete data and statements forwarded to the shareholder by persons acting in the name and on behalf of the Company performing the business of offering shares in a UCITS fund. (3) Compensation under paragraphs 2 and 3 of this Article shall not be carried out for those investors whose determined compensation amount during the period of incorrect calculation is less than 1.50 euros. (4) The compensation procedure in the cases specified in paragraphs 1 and 2 of this Article consists of preparing the compensation plan as per Article 18 of this Regulation, delivering the notice as per Article 19 to investors, and compensating affected investors and/or the UCITS fund.

Compensation Plan
Article 18.
(1) In the case specified in Articles 17(1) and (2) of this Regulation, the Company shall without undue delay, but no later than within 60 days from becoming aware of the damage incurred, prepare a compensation plan and deliver it without delay to HANFA, and if the UCITS fund is managed by a Company from another Member State, also to the competent authority of the home Member State of the Company. (2) The compensation plan specified in paragraph 1 of this Article must contain:

1. appropriate deadlines, methods and procedures by which it will compensate the damage to the UCITS fund and/or investors, as well as measures that will be taken with the aim of eliminating the causes of damage,
2. information on the reasons for the occurrence of damage,
3. number of investors who suffered damage, as well as individual and total amount of compensation to be paid to investors and/or the UCITS fund.

Article 19.
(1) When in the case specified in Articles 17(1) and (2) of this Regulation the Company has an obligation to compensate certain affected investors, the Company is obliged to notify those investors of the existence of such obligation.
(2) The notice specified in paragraph 1 of this Article contains the following information:

1. cause of damage,
2. amount of damage and compensation obligation
3. deadlines and method of compensating damage.
   (3) The notice specified in paragraph 1 of this Article is delivered by post or on another appropriate durable medium in accordance with Article 112 of the Act within 10 days from preparing the compensation plan.

Implementation of Compensation Procedure
Article 20.
(1) After the Company prepares the compensation plan in accordance with Article 18 of this Regulation, it shall without delay proceed to compensating affected investors and/or the UCITS fund.
(2) Costs incurred for the purpose of implementing the compensation procedure and measures for incorrect calculation of share price are costs of the Company and cannot be charged to the UCITS fund or investors.

VI. SIMPLIFIED COMPENSATION PROCEDURE
Article 21. (NN 150/22)
(1) When the total amount of payment for compensation under the provisions of this Regulation is less than 6,500.00 euros and the amount of payment for compensation per investor is less than 330.00 euros, compensation plans under Articles 7, 11 and 18 of this Regulation do not need to be delivered to HANFA.
(2) In the cases specified in paragraph 1 of this Article, it is not necessary to conduct an audit of implemented compensation procedures as part of the annual audit of UCITS fund reports.

VII. FINAL PROVISIONS
Article 22.
(1) The Company is obliged to deliver documentation under Articles 7, 11 and 18 of this Regulation in the manner and in accordance with the Technical Instruction for Using the WEB Form Entry Service and Documentation Delivery in Electronic Format and the Instruction for Filling Out WEB Forms for Management Companies. (2) It is considered that the Company has delivered the compensation plan under Articles 7, 11 and 18 of this Regulation at the moment when the documentation is recorded on the server for sending such documentation. (3) In justified cases of technical inability to deliver or improperly executed delivery (e.g., system failure, inability to read received documentation, etc. in the manner prescribed by paragraph 1 of this Article), the Company is obliged to deliver documentation in written form, directly or by post for the purpose of timely reporting. The Company is obliged to deliver documentation in the manner prescribed by paragraph 1 of this Article as soon as the reasons for such delivery inability cease, but no later than within 8 days from the cessation of circumstances causing technical inability to deliver. (4) HANFA may, if necessary, request the Company to deliver certain documentation prescribed by this Regulation in original or certified copy, regardless of electronic delivery.

Article 23.
(1) With the entry into force of this Regulation, the Regulation on the Procedure for Compensating Investors of a UCITS Fund and/or the UCITS Fund (Narodne novine 41/17) ceases to be valid.
(2) Compensation procedures initiated under the provisions of the Regulation on the Procedure for Compensating Investors of a UCITS Fund and/or the UCITS Fund (Narodne novine 41/17) shall be completed in accordance with the provisions of that regulation.
(3) This Regulation will be published in Narodne novine, and enters into force on the eighth day after publication.

FINAL PROVISION
The Regulation on Amendments and Supplements to the Regulation on Compensation of Investors of a UCITS Fund and/or the UCITS Fund (NN 150/22) entered into force on January 1, 2023.
Article 6.
This regulation will be published in Narodne novine, and enters into force on January 1, 2023.