1 Legal & Regulatory

1.1 UCITS Update

There have been a number of developments over the quarter:

Irish UCITS regulatory framework review

On 29 June 2018 the Central Bank of Ireland's (the "Central Bank's") March 2018 consultation paper ("CP119") which proposes to consolidate and amend the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 closed. CP119 focused on amendments arising from review of the Central Bank UCITS Regulations, amendments to UCITS share class provisions to reflect the ESMA Opinion, amendments related to UCITS performance fee provisions and amendments arising from the EU Money Market Fund Regulation.

For more information see our client update, Central Bank Review of the Regulatory Framework for Irish UCITS (CP119)

Depositary safekeeping duties

Article 22a(3)(c) of the UCITS Directive 2009/65/EC requires that where a depositary delegates safe-keeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Delegated Regulation (EU) 2016/438 on safe keeping duties of depositaries details how this obligation is to be fulfilled. On 29 May 2018 the European Commission published a Draft Commission Delegated Regulation which amends Delegated Regulation (EU) 2016/438 for consultation (which closed on 26 June 2018). It issued one in relation to AIFs also.

The draft regulation sets out further detailed requirements where custody of UCITS clients' assets is delegated to a third party. This follows ESMA's 2017 opinion on asset segregation in which ESMA asked the Commission to clarify certain obligations of depositaries where they delegate safe keeping functions to third parties. It also aims to ensure a consistent approach across the EU and address concerns arising because securities and insolvency laws are not harmonised throughout the EU.

In response to industry requests, the Commission decided to defer the application date of the new delegated regulation for 18 months post finalisation and it published a further draft on 12 July 2018.

The next step is for it to be considered by the European Parliament and the European Council.


On 25 May 2018 the European Securities and Markets Authority ("ESMA") published an updated version of its questions and answers or Q&A on the application of the UCITS Directive which includes one new Q&A on the application of remuneration disclosure requirements, under Article 69(3)(a), to staff of the delegate of an UCITS management company to whom investment management functions have been delegated.

For more information see ESMA says UCITS Accounts Should Disclose Staff Pay of Delegates

Central Bank Q&A

On 5 July 2018 the Central Bank published the twenty third edition of its UCITS Q&A amending Question ID 1002 on UCITS investing in non-UCITS investment funds. The amendments clarify that where a UCITS invests in a non-UCITS fund, the constitutional document of the non-UCITS must include a prohibition on investing more than 10% in other investment funds; and that the non-UCITS must be subject to requirements in its jurisdiction of domicile which are equivalent to certain UCITS investor protections. If this is not the case the non-UCITS fund must have requirements of the same effect in its constitutional or offering document.

UCITS should be in compliance with this revised Q&A as soon as possible taking into account the best interests of the investors. In any event, compliance should be ensured no later than 5 October 2018.

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