The Central Bank has published guidance on "Umbrella funds – cash accounts" which applies to the holding of cash assets of UCITS or AIF umbrella funds in a single account at the level of an umbrella fund (an "umbrella cash collection account") in the name of the investment fund, the fund management company on behalf of the investment fund or the depositary (the "Guidance").
The publication of the Guidance follows the introduction of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 (the "Investor Money Regulations") in March 2015. The Investor Money Regulations apply to investor money collection accounts held by fund service providers from 1 April 2016. Following the introduction of the Investor Money Regulations, the current models employed for holding subscription and redemption monies, including where these are not held in fund service provider collection accounts or where they are held as fund assets, were considered by industry. The Guidance is intended to provide clarity on the principles applicable to one such model, namely umbrella cash accounts containing subscription, redemption or dividend money received from or due to investors in the sub-funds of an umbrella fund, where the sub-funds operate on a contractual settlement basis. Use of an umbrella cash account, where appropriate, will avoid the need for separate collection accounts at a sub-fund level.
At a December 2015 industry seminar discussing the Guidance, Ms Martina Kelly, Deputy Head, Markets Policy Division at the Central Bank, commented that the Guidance is intended to provide clarity in relation to the existing practice of operating collection accounts at umbrella fund level, and that there has been no change in law in relation to the matters addressed in the Guidance. Ms Kelly indicated that there will be no Central Bank approved models for collection accounts, whether falling under the Investor Money Regulations or held as fund assets, but that the various models across the industry should be reviewed for compliance with the Investor Money Regulations or the Guidance, where relevant.
What does the Guidance say?
The Guidance states that constitutional documents for umbrella funds must provide that assets and liabilities of each individual sub-fund are kept separate from all other sub-funds and that separate books and records are maintained for each sub-fund in which all transactions relevant to the sub-fund are recorded. The depositary must be satisfied at all times that the amounts within the umbrella cash account can be attributed to individual sub-funds in order to comply with the constitutional documents, and that the holding of cash assets of umbrella funds in an umbrella cash account will not compromise the ability of the depositary to carry out its safe-keeping and oversight duties and responsibilities under the AIFMD and the UCITS Directive.
The Central Bank also sets out the circumstances when it is not appropriate to operate an umbrella cash account, to include where sub-funds within the umbrella fund are highly leveraged, where there is an increased possibility that investors subscribing to the those sub-funds are likely to make late payments, or where the constitutional document does not set out any consequences for investors who do not provide subscription proceeds by the stated settlement date.
A policy needs to be put in place by fund management companies and depositaries to govern the operation of an umbrella cash account. This must be reviewed by both parties at least annually, and contain certain procedures which are specified in the Guidance. Prospectuses will also need to be updated to explain the way in which the umbrella cash account has been established and how it will operate and to set out related risk disclosures.
The Guidance also provides that an umbrella fund may elect to transfer blocked redemptions ie, redemption or dividend money received from a sub-fund account but incapable of transmission to the relevant investor, for example due to incomplete anti-money laundering obligations, to an investor money collection account held by a fund service provider in accordance with the Investor Money Regulations. Where subscription money is received with insufficient documentation to identify the owner, the depositary should ensure that the money is returned to the payer within five working days.
Fund service providers and fund boards will need to review their existing collection account models, and where these fall within the scope of the Guidance, ensure that the constitutional documents and prospectus of the fund contain appropriate disclosures to facilitate continued use of the umbrella cash account. An appropriate policy in relation to the operation of the umbrella cash account will also be required.
The Guidance may be accessed here.
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