IRELAND: CBI Publishes Central Bank UCITS Regulations

Thursday October 8 2015

On 5th October 2015, the Central Bank published the Central Bank UCITS Regulations. They will come into effect on 1st November 2015.

The Central Bank UCITS Regulations consolidate into one location all of the requirements which the Central Bank imposes on UCITS, UCITS management companies and depositaries of UCITS.  They supplement existing legislative requirements, in particular the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011.

The rules in the Central Bank UCITS Regulations are the same as the conditions set out in the Central Bank’s UCITS Notices but a small number of policy changes are included.  The Central Bank UCITS Regulations contain rules for UCITS investment funds, UCITS management companies and UCITS depositaries.  These rules cover matters such as investment restrictions, prospectus disclosures and organisational requirements.

Policy changes include the following:

Permitted Markets

Guidance Note 1/96 will no longer apply. Instead, when determining whether a market is UCITS eligible, the UCITS is required to regularly, review the list of stock exchanges and regulated markets that are specified in the prospectus of the relevant UCITS to ensure that those stock exchanges and regulated markets continue to meet with the regulatory criteria.

Operating Conditions

Previously, management companies were required to publish a half-yearly report covering the first 6 months of the financial year. There is now an additional requirement for both management companies and depositaries to “prepare half-yearly accounts of the management company twice in every financial year to cover… the first six months of the financial year of the relevant management company, and the second six months of the relevant financial year.” [1]

Collateral

A UCITS may now be fully collateralised in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. Such a UCITS should receive securities from at least 6 different issues, but securities from any single issue should not account for more than 30 per cent of the UCITS’ net value. UCITS that intend to be fully collateralised in securities issued or guaranteed by a Member State should disclose this fact in the prospectus of the UCITS.

Prospectus Disclosure

All prospectus requirements covered in the UCITS Notices have been consolidated in Part 4 of the CB UCITS Regulations. One addition concerning prospectus disclosure is the requirement for a management company that proposes, on behalf of a UCITS, to take short positions shall, in the prospectus of the UCITS, disclose in relation to each of the categories of assets in which it may invest, whether the UCITS will take long positions or short positions or both; and the percentage of the assets of the UCITS that it anticipates will be invested in long positions and in short positions respectively.

Depositary obligations

An additional obligation is imposed on a depositary which requires it to notify the Bank promptly of any non-material breach by the UCITS or by the depositary, of any requirement or obligation if the relevant breach is not resolved within four weeks of the depositary becoming aware of that breach.

The Central Bank consulted publically on the proposed policy changes and on the rules which it imposes on UCITS, UCITS management companies and depositaries of UCITS in CP77 – Consultation on publication of UCITS Rulebook.  A public consultation was also undertaken on proposed revisions to UCITS collateral diversification requirements in CP84 – Consultation on adoption of ESMA’s revised guidelines on ETFs and other UCITS issues.  The outcome of both consultations is reflected in the Central Bank UCITS Regulations. Additionally, the responses have also been published.

Click on the link above for further details.

[1] http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Documents/151005-Final%20UCITS%20CBI%20Regs%20searchable-%20rhd.pdf