Update to the Central Bank's UCITS Notices and Guidance Notes
18 Feb 2013
The Central Bank of Ireland (the "Central Bank”) has released an update to its UCITS Notices and certain UCITS Guidance Notes.
This update reflects changes being made to align the UCITS Notices and Guidance Notes with measures contained in the recent ESMA Guidelines on ETFs and other UCITS issues 1(the "ESMA Guidelines"). The ESMA Guidelines were published on 18 December 2012 and will become effective (albeit with transition arrangements for certain aspects) on 18 February 2013. This update reflects the intention of the Central Bank to require Irish authorised UCITS to fully comply with the ESMA Guidelines.
Key changes in the UCITS Notices and Guidance Notes are summarised below.
- UCITS 2/Guidance Note 4/07
Revised to apply a more extensive range of organisational requirements contained in UCITS 2 to UCITS organised as self-managed investment companies ("SMICs") from 1 July 2013. Consistent changes have also been made to section C of Guidance Note 4/07.
- UCITS 6
New prescribed prospectus disclosure requirements in line with the ESMA Guidelines, are as follows: (i) disclosure on the policy for the use of collateral; (ii) conflicts of interest, risk and fees disclosure regarding the use of securities lending and other efficient portfolio management ("EPM") techniques; (iii) specific detailed disclosure where total return swaps are utilised; (iv) specific disclosure for index tracking funds and leveraged index tracking funds relating to the index replication method, anticipated tracking error, factors contributing to tracking error and (where appropriate) leverage disclosure.
- UCITS 8
New prescribed annual and semi-annual report requirements in line with the ESMA Guidelines, regarding: (i) the use of derivatives and EPM techniques; (ii) type and amount of collateral received in relation to derivatives and EPM techniques; (iii) for index tracking funds, the actual tracking error.
- UCITS 10/Guidance Note 3/03
Revisions to apply consistent criteria to collateral received, whether in relation to derivatives or EPM techniques, in line with the ESMA Guidelines. Provision that risk exposure from EPM techniques as well as derivatives must be captured in counterparty risk calculation. Consistent changes have also been made to Guidance Note 3/03.
- UCITS 12
Revised comprehensively in line with the ESMA Guidelines in relation to eligible collateral and reinvestment of collateral. Notably, the provision previously contained in UCITS 12, requiring collateral received to be equal or exceed the amount invested or securities loaned under the transaction (i.e. requiring transactions to be fully collateralised), has been removed.
- UCITS 13
Revised to recommend that a UCITS umbrella has one prospectus and one annual and semi-annual report covering all sub-funds.
- UCITS 19
The key investor information document ("KIID") Notice has been enhanced in terms of detailed requirements (consistent with existing regulation). Also applies specific KIID disclosure requirements to index tracking funds regarding the replication method (physical or synthetic) and, where appropriate, disclosure on the use of leverage.
- UCITS 20
New Notice on exchange traded funds ("ETFs") in line with the ESMA Guidelines. This replicates the relevant provisions of the ESMA Guidelines, but does not provide any additional information or guidance.
- UCITS 21/Guidance Note 2/07
New Notice on financial indices in line with the ESMA Guidelines. This replicates the relevant provisions of the ESMA Guidelines, but does not provide any additional information or guidance. Consistent changes are also made to Guidance Note 2/07 including removal of specific criteria for hedge fund indices. Interestingly, although UCITS 21 states that indices must publish their constituents and weightings of same, Guidance Note 2/07 still states that information (on the index) that an index provider considers to be of a proprietary and sensitive nature is not expected to be published in a detailed manner.
- Annex I
Updated in respect of capital requirements for UCITS management companies in relation to capital contributions and subordinated loans.
- Guidance Note 4/07
In addition to the changes referred to above regarding SMICs, Guidance Note 4/07 has been revised to include a new section E outlining guidance on the requirements to obtain a management company passport. This is consistent with a successful application made by a Maples and Calder client.
As well as making some other general updates to UCITS regulation, the revised UCITS Notices and Guidance Notes effectively transpose the ESMA Guidelines into regulation for Irish UCITS. They do not, however, provide further clarity or detail on certain provisions of the ESMA Guidelines. This may come from ESMA in the form of the Q&A expected at the end of Q1 2013.
Links to the updated UCITS Notices and Guidance Notes are set out below:
Updated UCITS Notices
Updated Guidance Note 3/03
Updated Guidance Note 2/07
Updated Guidance Note 4/07
For further information on the topics covered in this note or to obtain a blackline version of the updated UCITS Notices and Guidance Notes or a copy of our paper entitled "ESMA Guidelines on ETFs – Initial Impact Assessment for Irish UCITS", please contact any of the individuals listed above.
Managing Partner Dublin
T: +353 1 619 2024
T: +353 1 619 2023
T: +44 20 7466 1711