The CBI issued a consultation on both the CBI UCITS Regulations and the CBI Guidance on performance fees for UCITS and certain types of Retail Investor AIFs on 9 September.
The consultation is called CP161. The proposed amendments update the domestic regulatory framework applicable to UCITS and take account of policy developments since the current CBI UCITS Regulations were published.
On 15 April 2024, the Directive (EU) 2024/927 (the Amending Directive) entered into force. Almost all provisions will apply in member states from 16 April 2026. The Amending Directive amends the UCITS Directive as well as AIFMD. These revised European rules will be transposed into Irish law by amending the UCITS Regulations. In CP161, the CBI proposes to (i) repeal and replace the current CBI UCITS Regulations to ensure alignment of the domestic regulatory framework with these revised European rules (ii) update the domestic framework by incorporating outstanding updates from previous consultations, clarifying certain provisions, incorporating certain Q&As and guidance and removing out of date provisions and (iii) change domestic rules in relation to performance fees for UCITS and Retail Investor AIFs.
The key proposals in the UCITS consultation are under the following headings:
- Updating performance fee rules
- Updating rules for the operation of redemption gates
- New section on residency requirements for Directors and Designated Persons
- Introduce new rules on liquidity management techniques (LMTs) and differentiate certain changes and activities from harmonised LMT fees and activities
- Remove obsolete provisions now covered by the Money Market Fund Regulation
- Incorporate a rule permitting ETF naming requirement at share class level
- Include derogation for UCITS ETFs from the requirement to have same dealing procedures and frequencies for all share classes within a sub-fund
- Disclosure requirement in prospectus of maximum fee payable for any recurring fees paid out of fund assets
- Technical changes
- Reporting requirements will now cross refer to reporting requirements on the CBI website
- Changes introduced in the Amending Directive e.g. ensuring retail investors cannot receive redemption in kind in the ordinary course of redemptions
- Reflecting that most UCITS no longer have to issue a UCITS KIID where a PRIIPs KID is produced
Principal policy proposals
Updating performance fee rules
The CBI Guidance on performance fees was published in 2021 and clarified the CBI's expectations in relation to performance fees charged by Irish-domiciled funds following publication of the ESMA Guidelines on performance fees in UCITS and certain types of AIFs (the ESMA Guidelines on performance fees). Due to legislative constraints contained in the CBI UCITS Regulations, certain aspects of the ESMA Guidelines on performance fees were not fully implemented, including:
- the possibility of a performance reference period that is less than the whole life of the fund for certain fee models;
- fulcrum fee models or other models which provide for a symmetrical fee structure; and
- crystallisation of performance fees more frequently than annually for HWM or HoH models that have a performance reference period of the life of the fund that cannot be reset, and fulcrum fee models or other models which provide for a symmetrical fee structure.
It is now proposed to remove the legislative constraints and bring the CBI approach to performance fees in line with the ESMA Guidelines on performance fees. The CBI guidance on performance fees will also be updated. The CBI is also consulting on whether an entity other than the Depositary can perform the function of verifying the performance fee. The updated guidelines are included in an Annex to CP161.
Redemption gates
The CBI proposed to remove the requirement that a redemption gate shall not be imposed on a dealing date unless the total requests for redemption exceed 10% of the total number of units or 10% of net asset value. This is to align the CBI approach to LMTs with the approach in the Amending Directive.
Residency requirements for Directors and Designated Persons
The current residency requirements for Directors and Designated Persons for firms with a PRISM rating of "low" will be retained as a minimum requirement for all management companies, with the discretion for the CBI to provide for additional residency requirements at the point of authorisation.
Introduce new rules on liquidity management techniques (LMTs) and differentiate certain changes and activities from harmonised LMT fees and activities
The revised UCITS Regulations will introduce new rules on LMTs equivalent to those set out in the Amending Directive. Harmonised descriptions of certain LMTs will be set out in the UCITS Regulations transposing Annex IIA of the Amending Directive and at least two LMTs from this list must be selected and incorporated into the fund rules of the UCITS. The CBI is introducing a dedicated LMT section in the new CBI UCITS Regulations containing provisions on general operational requirements for LMTs along with rules for UCITS selecting, activating and deactivating side pockets, suspensions, swing pricing and redemption gates.
It will therefore be necessary to differentiate rules around certain charges and activities set out in the CBI UCITS Regulations from the LMTs. The CBI proposes clarifying that administrative charges applied to investor redemptions are distinct from LMTs (which take account the cost of liquidity). These changes are necessary to ensure, where a fund imposes standard charges as part of its normal redemption process (a redemption charge), that it does not inadvertently trigger the requirements under the relevant LMT provisions (a redemption fee).
It is also necessary to differentiate between in-specie/in-kind redemption as an LMT and the exchange of assets in the settlement of redemptions which does not constitute an LMT. Where the UCITS provides for the settlement of redemptions through an exchange of assets as part of its redemption policy, and this is not implemented as a LMT, the CBI UCITS Regulations will require that the UCITS disclose the terms and conditions in its prospectus under which such an arrangement will operate.
Remove obsolete provisions now covered by the Money Market Fund Regulation
It is proposed to remove the obsolete rules from the CBI UCITS Regulations that apply to MMFs and amend certain rules applying to UCITS investing in money-market instruments (MMIs) that are not MMFs. Certain rules will be retained to include i) requirements that a UCITS which is a short term or standard MMF must comply with stress testing requirements under the MMFR and ongoing reporting requirements and ii) requirements for non-MMF UCITS which contain MMIs to comply with certain provisions in the MMFR relating to the use of amortized costs.
Incorporate a rule permitting ETF naming requirement at share class level
Changes already made in the CBI UCITS Q&A which enable the ETF naming requirement at the share class level will be incorporated in the CBI UCITS Regulations.
Include derogation for UCITS ETFs from the requirement to have same dealing procedures and frequencies for all share classes within a sub-fund
The CBI UCITS Regulations will be amended to provide that ETFs can avail of a derogation from the rule that all share classes within a sub-fund must have the same dealing procedures and frequences. There is a waiver already provided for in the CBI UCITS Q&A which will be deleted once the CBI UCITS Regulations are updated.
Disclosure requirement in prospectus of maximum fee payable for any recurring fees paid out of fund assets
The CBI is proposing requiring a new disclosure in the prospectus of the maximum fee payable for recurring fees based on the Net Asset Value. There is currently no specific requirement for the disclosure of such fees in the UCITS legislative framework.
Technical changes
The new CBI UCITS Regulations will direct stakeholders to the CBI's website for the relevant reporting requirements. This allows for greater flexibility for the CBI to update reporting requirements without having to make legislative amendments.
Aligning the CBI UCITS Regulations with provisions of the Amending Directive, and consequently the updated UCITS Regulations. This is particularly in the case of distinguishing between LMTs and other activities such as updating the definition of anti-dilution levy, ensuring retail investors cannot receive redemption in kind in the ordinary course of redemptions, distinguishing between a redemption charge and a redemption fee. Another change is reflecting the fact that most UCITS no longer have to issue a UCITS key investor information document or KIID where they now produce a key information document, or KID, pursuant to the PRIIPs Regulation.
Next steps
The consultation will be open for 8 weeks. Feedback from stakeholders must be provided by 5 November 2025. The CBI will review all feedback received on the consultation paper CP 161 and prepare and publish a feedback statement.
William Fry will be submitting a response to the CP 161 UCITS consultations.
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