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Speakers and topics
Conor Durkin Partner Topic – Changes to the UCITS regulatory landscape Ian Headon Senior Vice President, Northern Trust Topic – Preparing for UCITS V
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Welcome Fionan Breathnach Partner, Head of Investment Funds
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Changes to the UCITS regulatory landscape Conor Durkin Partner Mason Hayes & Curran
UCITS Update
Will be looking at:
• Feedback Statement on CP 77
• Feedback Statement on CP 84
• The new CBI UCITS Regulations
• UCITS Q&A Document
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UCITS Update
Will be looking at:
• Feedback Statement on CP 77
• Feedback Statement on CP 84
• The new CBI UCITS Regulations
• UCITS Q&A Document
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Feedback Statement on CP 77 – Promoter Regime
Promoters were required to hold €635,000 in net shareholders’ funds
Central Bank has dispensed with the promoter requirement for UCITS
Example: FCA authorised manager subject to a capital requirement of
€125,000 could release up to €510,000 previously tied up in regulatory
capital
Implications:
• removes a barrier to the establishment of UCITS by smaller
managers
• Level playing field with other UCITS domiciles
• allows greater flexibility regarding the naming of the UCITS and its
sub-funds
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Feedback Statement on CP 77 – Withdrawal of Guidance Note 1/96
The Central Bank has withdrawn Guidance Note 1/96
The Central Bank will no longer publish a list of permitted markets and
will not review submissions on permitted markets
It is the responsibility of the UCITS to ensure compliance with
Regulation 68(1) of the UCITS Regulations and Schedule 1 of the CBI
UCITS Regulations
The withdrawal of Guidance Note 1/96 provides UCITS with additional
flexibility to invest in US OTC markets
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Feedback Statement on CP 77 – additional set of half-yearly accounts
Central Bank requires UCITS management companies and
depositaries to prepare half-yearly accounts twice in every financial
year
Applies to financial year that starts after the commencement of the
Regulations
=> typically for the six month period commencing 1 July 2016
Requirement does not apply to UCITS schemes
Costs for preparing an additional set of half-yearly accounts would not
be material
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CP84 is issued by the Central Bank
ESMA consultation
ESMA noted that limiting collateral from a single issuer to 20% of net assets was adversely impacting UCITS particularly Money Market Funds that enter into reverse repos
ESMA Guidelines on ETFs and other UCITS issues
establishes rules regarding collateral
ref. para. 43 (a) to (J) Collateral may not exceed 20% UCITS NAV
For government guaranteed securities collateral may exceed 20% limit provided collateral is diversified (at least 6 different issues)
ESMA Revised Guidelines on Collateral diversification
Time Line
Proposal to introduce detailed rules on the evaluation credit quality for collateral
The Central Bank will permit asset concentration of greater than 20% for government guaranteed securities
UCITS are also required to evaluate the credit quality of collateral
CP84 feedback statement
December 2012
December 2013 March 2014
July 2014 October 2015
Feedback Statement on CP 84 – collateral diversification
CBI UCITS Regulations - rationale
“The publication of the Central Bank UCITS Regulations marks a
significant milestone for the Central Bank. It is the first time that we
have issued investment fund rules in the form of Central Bank
regulations. This will assist investment fund providers by bringing
additional clarity and certainty to the rules applied by the Central Bank.
We will shortly commence a review of the Central Bank’s AIF Rulebook
to see whether it should also be issued as Central Bank regulations.”
Director of Policy and Risk Gerry Cross
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CBI UCITS Regulations – new legal basis
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European Communities Act 1972
European Communities (UCITS) Regulations
SI 352 of 2011
UCITS Notices
Central Bank (Supervision and Enforcement) Act
2013
CBI UCITS Regulations
SI No. 420 of 2015
• Legislation should be confined to the scope of the Directive
• Supplementary provisions are limited to those as are
necessary
• Greater incidence of Courts striking down statutory
instruments
Minister for State may make
regulations required to
implement EU laws
CBI issued UCITS Notices
under Reg 123(3) of the
UCITS Regulations
CBI UCITS Regulations – changes
Legislative basis – the CBI UCITS Regulations is legally binding
legislation
“Responsible Person” – to define with precision the person to whom the
regulations apply
Waivers – requirement to renew pervious derogations
New managerial functions – 6 managerial functions and new
organisation effectiveness role
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CBI UCITS Regulations - Overview
Replace the UCITS Notices and apply with effect from 1
November 2015
Consolidate into one location all of the requirements that the
Central Bank imposes on UCITS
Supplement existing legislative requirements, in particular the
European Communities (UCITS) Regulations 2011
Introduce a small number of policy changes
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CBI UCITS Regulations – Interpretative issues
CBI Regulations need to be read in conjunction with the UCITS
regulations
CBI Regulations do not address issues by subject matter for example in
specie redemptions or share classes are found in different locations
Clarity – requirement to disclose short exposure is not precise
Conflicting – CBI UCITS Regulations are supplemented by guidance for
example Reg 28 requires the constitutive document to include a list of
stock exchanges whereas Guidance on UCITS Permitted Markets
clarifies that stock exchanges may be listed in the prospectus
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CBI UCITS Regulations – policy issues
CBI UCITS Regulations UCITS NOTICES
Disclose the percentage of assets
expected to be invested in long and short
positions – Ref S53(2)(b)
No requirement to disclose expected
levels of long and short exposure
Redemption Gates – all investors to be
treated equally
First to redeem, first out policy
New requirement for depositaries to report
non material breaches to the CBI
Depositaries were not required to
report non-material breaches to the
CBI
Collateral rules – requirement to carry out
own documented assessment of credit
quality taking into account credit ratings
with an action pan to remedy in the case of
a downgrade
No prescriptive rules on credit
assessment
Establish procedures for the valuation of
OTC derivatives – Ref S37(2)(g)
Prescriptive rules on valuation of OTC
derivatives
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CBI UCITS Regulations – transitional arrangements
The CBI UCITS Regulations commenced on 1 November 2015
Redemption gates - the requirement for a UCITS to redeem pro rata all
investors will commence on 1 November 2016
Short position disclosure - requirement to disclose the expected
percentage long and short positions applies the next time amendments
are made to the prospectus
Central Bank has not provided a transitional period
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CBI UCITS Regulations – key points
CBI UCITS Regulations
– major theme is enforcement
– sets out rules that must be complied with
– additional work for legal counsel
Domestic rules on collateral
– additional burden on UCITS
Removal of the promoter requirement and withdrawal of guidance note
on permitted markets is very welcomed
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Preparing for UCITS V Ian Headon Senior Vice President, Northern Trust
UCITS V - DEPOSITARY
How did we get here ?
Post 2008, industry & market events, policy making imperative
AIFMD – clarifications
Implementation
UCITS V is due to be effective March 18, 2016. We are awaiting final Level 2 implementing measures.
UCITS V broadly makes the depositary regime consistent with that under AIFMD, with some technical differences.
Where are we now ?
What does a depositary actually do ?
How is UCITS V different to AIFMD ? To UCITS IV ?
Where are we going ?
Depositary location, Passport
“Depositary Lite” implicaitons
Do investors value it ?
UCITS VI
Q&A
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Conor Durkin Partner Mason Hayes & Curran t: +353 1 614 5261
m: + 353 86 049 1230 e: [email protected]
@mhclawyers
Contact Details
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Fionan Breathnach Partner Head of Investment Funds Mason Hayes & Curran t: +353 1 614 5080
m: + 353 86 172 3740 e: [email protected]
@mhclawyers
Contact Details
