Ireland: Funds Quarterly Legal And Regulatory Update - 1 January 2015 To 31 March 2015

Last Updated: 17 April 2015
Article by Breeda Cunningham, Michele Barker and Karina Mulkerrins

Most Read Contributor in Ireland, July 2017



  1. ESMA consultation on different share classes of UCITS

In the last quarterly legislative update, we outlined that on 23 December 2014, the European Securities and Markets Authority ("ESMA") published a consultation on different share classes of UCITS (the "Discussion Paper"). The paper discusses what constitutes a share class and how to distinguish share classes from compartments of UCITS. ESMA aims to unify divergent national practices as to the types of share class that are permitted. This consultation closed on 27 March 2015.

On 26 March 2015, the Alternative Investment Management Association ("AIMA") responded to the Discussion Paper. AIMA agreed with ESMA that currency hedging should be a permissible type of hedge class. It was stated that since employing interest rate hedging or duration hedging does not alter the investment strategy of the share class any more than employing a currency hedge would, both interest rate hedging and duration hedging should also be permissible share classes for UCITS. Dillon Eustace has prepared an article on the Discussion Paper which can be viewed via the following link: ssion%20Paper%20on%20UCITS%20Share%20Classes%20v2.PDF

Dillon Eustace has responded to the Discussion Paper, in particular the questions relating to interest rate hedged classes.

The Discussion Paper can be accessed via the following link:

  1. ESMA updates Q&A on ETFs and other UCITS related issues

On 9 January 2015, ESMA published an updated version of its questions and answers paper on its guidelines on exchange traded funds ("ETFs") and other UCITS-related issues (the "Q&A"). The intention of the Q&A is to promote common supervisory approaches and practices in the regulation of UCITS. The Q&A refers specifically to ESMA's December 2012 guidelines on ETFs and other UCITS issues.

The Q&A was last updated in March 2014. In this revised version, new questions and answers have been added to the sections of the Q&A dealing with financial derivative instruments and collateral management as follows:

Question 5f: For the purpose of paragraph 39 of the guidelines, would the counter-party to a financial derivative instrument be considered as having discretion over the composition of the underlying assets of the financial derivative instrument under the following arrangement? The role of the counterparty only involves implementing a set of rules and this set of rules is agreed in advance with the UCITS management company and does not allow the exercise of any discretion by the counterparty.

Answer 5f: No, in such circumstances the counterparty to the financial derivative instrument will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument.

Question 6n: When a UCITS reinvests cash collateral in short-term money market funds pursuant to paragraph 43(j) of the guidelines, should the short-term money market funds comply with the requirements of Article 50(e)(iv) of the UCITS Directive (i.e. the short-term money market funds should not invest more than 10% of their assets in aggregate in other money market funds)?

Answer 6n: Yes, the requirement of Article 50(e)(iv) of the UCITS Directive also applies to short-term money market funds in which UCITS may reinvest cash collateral. The Q&A can be accessed via the following link:

  1. Call for volunteers liquid alternatives: hedge fund strategies in UCITS and 40 Act Funds

The AIMA Asset Management Standing Committee has formed a working group, the objective of which is to produce a guidance note in respect of liquid alternatives, particularly UCITS and 40 Act Funds operating with hedge fund strategies. A 40 Act fund is a pooled investment vehicle offered by a registered investment company as defined in the 1940 Investment Companies Act.

The working group began work in February and the project is anticipated to be completed in the second quarter of 2015.

The purpose of this guidance is to provide an overview of the requirements of these types of funds, on a compare and contrast basis, indicating and discussing in more detail the pressure points in these fund structures that may arise when the fund is operating with a hedge fund strategy.

  1. ESMA updates Q&A on KIIDs for UCITS

On 26 March 2015, ESMA published an updated version of its questions and answers paper on the key investor information document ("KIID") for UCITS (the "Q&A").

The Q&A includes a new question and answer at 4g on the treatment of past performance information in the event of fund mergers as follows:

Question 4g: Article 19(4) of Commission Regulation (EU) No 583/2010 states that "In the case of mergers referred to in Article 2(1)(p)(i) and (iii) of Directive 2009/65/EC, only the past performance of the receiving UCITS shall be maintained in the key investor information document." Article 19(4) applies in cases where a receiving UCITS has a performance history. How should Article 19(4) be interpreted in cases where the receiving UCITS is a newly established UCITS with no performance history and is in effect a continuation of the merging UCITS?

Answer 4g: In the case of a merger where the receiving UCITS is a newly established UCITS with no performance history, UCITS should use the past performance of the merging UCITS in the KIID of the receiving UCITS if the competent authority of the receiving UCITS reasonably assesses that the merger does not impact the UCITS' performance. ESMA expects the performance of the UCITS to be impacted if there is, inter alia, a change to the investment policy or to the entities involved in the investment management. It should also be made clear in the KIID of the receiving UCITS that the performance is that of the merging UCITS.

The Q&A was initially published by ESMA in September 2012 and aims to promote common supervisory approaches and practices in the application of the UCITS Directive and its implementing measures.

The Q&A can be accessed via the following link:

Alternative Investment Fund Managers Directive ("AIFMD")

  1. Guidelines on asset aggregation under the AIFMD

As outlined in our last quarterly legislative update, on 1 December 2014 ESMA issued a Consultation Paper titled 'Guidelines on asset segregation under the AIFMD' (the "Consultation Paper").

The Consultation Paper sets out ESMA's proposals for possible guidelines regarding the asset segregation requirements whereby the appointed depositary of an Alternative Investment Fund ("AIF") has delegated safe-keeping duties to an agreed third party. Two alternative proposals are outlined, as follows:

Option 1

The account on which the AIF's assets are to be kept by the delegated third party may only comprise assets of the AIF and assets of other AIFs of the same delegating depositary; or

Option 2

A delegated third party holding assets for multiple depositary clients would not be required to have separate accounts for the AIF assets of each of the delegating depositaries.

The consultation closed on 30 January 2015, and it is anticipated that ESMA will publish a final report in quarter two of 2015.

On 18 February 2015, ESMA published a list of responses that it had received to its Consultation Paper on Guidelines on asset segregation under the AIFMD.

Respondents include:

  • Alternative Investment Management Association (AIMA);
  • Depositary and Trustee Association (DATA);
  • European Fund and Asset Management Association (EFAMA);
  • Association for Financial Markets in Europe (AFME).

The Consultation Paper can be viewed via the following link: _guidelines_on_aifmd_asset_segregation.pdf

  1. Replies to ESMA's call for evidence on the AIFMD passport & third country AIFMs

On 7 November 2014, ESMA published a call for evidence in respect of the AIFMD passport and third country AIFMs (the "Consultation Paper"). ESMA also published a reply form and invited stakeholders to provide information on all matters in the Consultation Paper and in particular on the specific questions summarised in Annex 1 of same. In January 2015, AIMA responded to ESMA's call for evidence. EFAMA has also recently responded to ESMA's call for evidence.

By 22 July 2015, ESMA is required to submit an opinion to the European Commission an opinion on:

  • The functioning of the EU passport under the AIFMD; and
  • The functioning of the marketing of non-EU AIFs by EU AIFMs in the EU and the management and/or marketing of AIFs by non-EU AIFMs in the EU.

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