Ireland: Funds Quarterly Legislative Update: 1 October 2015 To 31 December 2015

Last Updated: 18 January 2016
Article by Dillon Eustace

FUNDS QUARTERLY LEGAL AND REGULATORY UPDATE UCITS

(i) UCITS Regulations

On 5 October 2015, the Central Bank of Ireland (the "Central Bank") issued a new set of regulations relating to Irish domiciled UCITS, their management companies and their depositaries titled Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1))(Undertakings for Collective Investment in Transferable Securities) Regulations 2015 (the "UCITS Regulations"). The UCITS Regulations entered into force on 1 November 2015 and have replaced the UCITS Notices from that date.

The Central Bank UCITS Guidance Notes have also been replaced with website guidance which "will retain all of the guidance currently located in the Guidance Notes and UCITS Notices". The website guidance can now be accessed on the Central Bank's website via the following link:

http://www.centralbank.ie/regulation/industry- sectors/funds/ucits/Pages/GuidanceonUCITSRegulations.aspx

As noted in our last update, Dillon Eustace published an article on the UCITS Regulations which can be accessed via the following link:

http://www.dilloneustace.ie/download/1/Publications/Financial%20Services/New%20Central%20Bank%20UCITS%20Regulations.pdf

(ii) Central Bank publishes Guidance Note on UCITS - Organisation of Management Companies

The Central Bank published a Guidance Note on UCITS - Organisation of Management Companies (the "Guidance Note") on 5 October 2015.

The Guidance Note provides guidance on the type of information which should be included in the detailed business plan in support of an application for the authorisation of a UCITS management company. The Guidance Note is also relevant for a self-managed investment company.

The Guidance Note is available via the following link:

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Documents/151005_ORGANISATION%20OF%20UCITS%20MANAGEMENT%20COMPANIES%20FINAL_DL.pdf

(iii) Central Bank publishes Guidance Note on UCITS Financial Derivative Instruments and Efficient Portfolio Management

In October 2015, the Central Bank published a Guidance Note on UCITS Financial Derivative Instruments and Efficient Portfolio Management (the "Guidance Note"), which was updated on 4 November 2015.

The Guidance Note provides guidance on the following areas:

  • Relevant legislation;
  • Permitted FDI;
  • Global exposure;
  • Commitment approach;
  • Types of FDI which may be excluded from the global exposure calculation;
  • Netting;
  • Hedging;
  • VaR;
  • OTC Derivatives – general;
  • Techniques and instruments for purposes of efficient portfolio management; and other requirements.

The Guidance Note is available via the following link:

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Documents/151102-%20FDI%20EPM%20GN%20FINAL_DL.pdf

(iv) Central Bank publishes the first edition of its Investor Money Regulations Q&A

The Central Bank published the 1st edition of its Money Investor Regulations Q&A in October 2015.

The Q&A sets out answers to queries likely to arise in relation to the implementation of the Investor Money Regulations ("IMR") and seeks to assist in limiting uncertainty until definitive positions and practices are finalised. This 1st edition of the Q&A covers general questions around the applicability of the IMR, segregation, risk management and investor money examination.

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

http://www.centralbank.ie/regulation/ClientAssetsandInvestorMoney/InvestorMoneyRegulations/Documents/151002%20-%20IMR%20Q%20%20A%20-%20Final.pdf

(v) Central Bank updates its UCITS Application and Post Authorisation forms

In October 2015, the Central Bank updated its suite of UCITS Application forms and published a number of Post Authorisation forms which can be accessed via the following links:

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Pages/forms.aspx

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Pages/post-authorisation.aspx.

(vi) Central Bank publishes 9th , 10th and 11th edition of its UCITS Questions and Answers ("Q&A")

In November 2015, the Central Bank published the 9th and 10th editions of its UCITS Q&A, while the 11th edition was published in December 2015.

The 9th edition sees the addition of 9 new questions:

  • Question ID 1049 clarifies the typographical error in Regulation 9(12) of the UCITS Regulations;
  • Question ID 1050 clarifies the Central Bank's position on Regulation 9(4) of the UCITS Regulations following the withdrawal of Guidance Note 2/07;
  • Question ID 1051 clarifies when the requirement (under Regulation 95(3)(a)(ii) and Regulation 113(3)(a)(ii) of the UCITS Regulations) to produce the second set of halfyearly accounts commences;
  • Question ID 1052 clarifies the typographical error in Regulation 124(3) of the UCITS Regulations;
  • Question ID 1053 clarifies the transitional arrangements that apply in relation to the managerial functions listed in Schedule 10 of the UCITS Regulations;
  • Question ID 1054 confirms that the Central Bank no longer requires promoters of UCITS to maintain a minimum capital of €635,000.
  • Question ID 1055 confirms the Central Bank's position on the alternative method of valuation as set out in Regulation 36(1);
  • Question ID 1056 clarifies where conditions are imposed on fund administrators acting for UCITS; and
  • Question ID 1057 confirms that there is no regulatory obstacle to holding subscription / redemption monies of individual sub-funds as fund assets within a single account in the name of the umbrella UCITS. On 22 December 2015, the Central Bank issued guidance on Umbrella Fund Cash Accounts and a summary of this guidance is set out in section (viii) below.

The 9th edition also amends the following question:

  • Question ID 1043 now clarifies that the disclosure of long or short positions on a net or gross basis can be determined by the responsible person provided the basis used is clearly disclosed in the prospectus.

In the 10th edition, Question ID 1058 was added to address an omission in relation to Regulation 78(2)(b) of the UCITS Regulations by clarifying the timing of the submission of the first annual audit report of a UCITS to the Central Bank. In addition Question ID 1050, which provides guidance in relation to Regulation 9(4) of the UCITS Regulations, was amended to clarify that each financial index must meet the relevant criteria and no look through can be applied, however this is without prejudice to Article 9(2) of the Eligible Assets Directive 2007/16/EC which allows investments in financial derivatives whose underlyings are eligible assets with concentration levels in excess of that permitted by the UCITS Regulations to be regarded as financial derivatives on a combination of assets. The 11th edition saw the addition of Question ID 1059 which clarifies an omission in Regulation 105 of the UCITS Regulations.

The updated Q&As are available via the following links:

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Documents/151104_UCITS%20QA%20NO%209%20FINAL_DL.pdf

http://www.centralbank.ie/regulation/industry-sectors/funds/ucits/Documents/UCITS%20QA%20Edition%2010.pdf

http://www.centralbank.ie/regulation/industry-sectors/funds/Documents/UCITS%20QA%2011th%20Edition.pdf

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