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On 9 September, the Central Bank of Ireland (Central
Bank) published a public consultation (CP161)
setting out a series of changes it proposes to make to the Central
Bank UCITS Regulations and the Central Bank Guidance on performance
fees for UCITS and certain types of Retail Investor AIFs (RIAIFs)
(the Consultation).
The proposed amendments contemplated by the Consultation update
the domestic regulatory framework applicable to UCITS and take
account of policy developments since the current Central Bank UCITS
Regulations were last published.
The Consultation has been published following the implementation,
on 15 April 2024, of the Directive (EU) 2024/927 (AIFMD II) which
amends the Directive (EU) 2009/65/EC (the UCITS
Directive). The UCITS Directive was transposed into Irish
law by S.I. No. 352/2011 (UCITS Regulations),
providing the legislative basis for authorisation and regulation in
Ireland, of Undertakings for Collective Investment in Transferable
Securities (UCITS).
The Central Bank (Supervision and Enforcement) Act 2013 (Section
48(1)) (Undertakings for Collective Investment in Transferable
Securities) Regulations 2019, as amended (the Central Bank
UCITS Regulations) supplement the UCITS Regulations and
set out additional regulatory requirements and conditions imposed
by the Central Bank on Irish domiciled UCITS, UCITS management
companies and depositaries of UCITS.
What are the main changes being consulted
on?
The Central Bank plans to repeal and replace the Central Bank
UCITS Regulations to modernise and align with the updated European
UCITS framework. These changes will:
- ensure alignment between the domestic UCITS rules and the
revised EU framework
- update and streamline the domestic framework by incorporating
outstanding updates from past consultations, clarifying provisions,
embedding certain Q&As and guidance, and removing outdated
rules
- revise key rules, specifically those relating to performance fees for UCITS and certain RIAIFs, as well as the operation of redemption gates for UCITS
We have set out below an overview of the key changes which are proposed in the Consultation, together with some commentary on the impact of the change, as well as details on other miscellaneous updates proposed.
Performance fees: Regulatory and guidance updates
The Central Bank proposes to revise the UCITS performance fee
rules to align fully with ESMA Guidelines and improve fairness,
transparency, and investor protection. Current restrictions in the
Central Bank UCITS Regulations have limited full implementation of
ESMA provisions.
The proposed reforms would:
- remove legislative barriers preventing full ESMA
compliance
- allow shorter performance reference periods (less than full
fund life) under conditions
- permit fulcrum or other symmetrical fee models with
upward/downward adjustments allow more frequent fee crystallisation
if linked to the full fund-life reference period
- consider permitting independent third parties (beyond the depositary) to verify fee calculations
Additionally, the Central Bank will amend the Central Bank UCITS Regulations to incorporate ESMA Q&A guidance on funds with multiple portfolio managers, ensuring consistency with the UCITS Directive.
Redemption gates
The Central Bank proposes removing the current rule that redemption gates may only be applied if redemption requests exceed 10% of UCITS units or net asset value. Instead, UCITS responsible persons would have discretion to set their own thresholds for imposing redemption gates, provided they comply with the broader UCITS framework.
Liquidity management tools (LMTs)
The Consultation proposes amending the Central Bank UCITS Regulations to align with AIFMD II by introducing harmonised rules on liquidity management tools (LMTs). UCITS funds must select at least two LMTs, disclosed in fund rules, to strengthen responses to liquidity stress. A new dedicated LMT section will set operational requirements and rules for LMT selection, side pockets, suspensions, swing pricing, and redemption gates. Administrative redemption charges and in-specie redemptions will not be treated as LMTs.
The Central Bank also proposes requiring UCITS to consider including at least one quantitative LMT (e.g., redemption gate, notice period extension) and one anti-dilution tool. UCITS must notify the Central Bank if LMTs disclosed in the prospectus are activated or deactivated outside the normal course of business.
Money market funds (MMFs) and money market instruments (MMIs)
Share class and ETF-specific provisions
The Central Bank proposes formally incorporating recent UCITS Q&A clarifications into the UCITS Regulations:
ETF naming: Q&A ID 1016, allowing ETFs to meet naming requirements at the share class level, will be integrated, and the Q&A deleted to avoid duplication.Disclosure documents: Regulation 85(2) and (3) will clarify that referenced documents include the UCITS KIID or PRIIPs KID, ensuring actively-managed UCITS ETFs can use the PRIIPs KID for compliance.
Share class dealing flexibility: While all share classes must generally have identical dealing procedures and frequencies, a derogation will be introduced for UCITS ETFs to accommodate operational differences (e.g., cash vs. in-kind subscriptions, hedged vs. unhedged share classes), formalising Q&A ID 1030.
Prospectus and disclosure enhancements
NAV based fees - The Central Bank proposes requiring UCITS prospectuses to disclose the maximum amount of recurring fees calculated on the fund's NAV and paid from fund assets. This aims to enhance transparency and help investors make better-informed decisions.Dealing - The Central Bank proposes clarifying prospectus disclosure requirements for UCITS dealing charges. UCITS must prominently disclose all dealing-related charges that protect fund value—such as anti-dilution levies, redemption fees, swing-pricing adjustments, or liquidity cost factors—aligned with the disclosure statement required under Regulation 62, ensuring full investor transparency.
EPM - The Central Bank proposes amending UCITS prospectus rules to improve clarity on efficient portfolio management (EPM). Instead of merely disclosing their "intentions," UCITS must explicitly state the specific EPM techniques and instruments they may use, enhancing transparency and reducing ambiguity for investors and regulators.
Reporting and supervisory requirements
Relationship with the Bank - It also confirms that each UCITS and sub-fund must designate and maintain a dedicated email address for correspondence with the Central Bank, monitored daily, with any changes promptly notified in writing.
Governance and management company requirements
Directors - The Central Bank proposes amendments to the Central Bank UCITS Regulations to clarify director-related obligations for UCITS management companies. Key changes include:
- requiring written notification to the Central Bank when a
director resigns, is removed, or otherwise ceases to serve;
- confirming that no individual may simultaneously act as a
director of both a management company and its depositary for the
same fund; and
- maintaining minimum residency requirements for directors and designated persons, with the Central Bank retaining discretion to impose additional residency conditions during authorisation.
Relationship with the bank - The Central Bank
proposes requiring UCITS management companies to notify it of any
situation or event that affects, or could affect, their ability to
meet regulatory obligations or duties to the UCITS. This change is
intended to remove ambiguity and ensure consistent application of
notification requirements.
Key investor information - The Central Bank plans
to amend Regulations 75–78 of the UCITS Regulations to align
with the PRIIPs Regulation and related guidance. The goal is to
ensure consistency with EU rules while clarifying UCITS
managers' obligations.
What are the next steps?
The Central Bank has indicated that this Consultation will run for
an 8-week period until 5 November 2025. Stakeholders are invited to
review and respond to the queries raised by the Central Bank in
respect of the individual changes which are being proposed.
Following the conclusion of the consultation, the Central Bank
intends to publish a feedback statement, outlining the commentary
received from stakeholders and setting out how the Central Bank
propose to proceed in respect of the changes suggested.
Conclusion
The Consultation is a positive and welcome development from the
Irish funds industry perspective as it offers clarification of a
number of rules and streamlines their implementation across the
various elements of the Irish UCITS framework such as the Central
Bank UCITS Regulations and UCITS Q&A by removing ambiguity and
obsolescence while ensuring alignment between the domestic UCITS
rules and the revised EU framework.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
