S.I. No. 230/2019 - Central Bank (Supervision and Enforcement) Act 2013 (Section 48
(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019 Skip to content Disclaimer Feedback Helpdesk Gaeilge Léim go dtí an t-ábhar Séanadh Aiseolas Deasc chabhrach English Gaeilge English Produced by the Office of the Attorney General Táirgthe ag Oifig an Ard-Aighne Home Legislation Acts of the Oireachtas Statutory Instruments Pre-1922 Legislation Constitution External Resources Bills (Houses of the Oireachtas) Iris Oifigiúil / Official Gazette Revised Acts (LRC) Classified List of Legislation (LRC) Translations (acts.
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(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019 S.I. No. 230/2019 - Central Bank (Supervision and Enforcement) Act 2013 (Section 48
(1)of the Act hereby makes the following regulations: PART 1 PRELIMINARY AND GENERAL Citation 1.
(1)These Regulations may be cited as the Central Bank (Supervision and Enforcement) Act 2013 (Section 48
(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2019. Interpretation 2.
(1)In these Regulations, unless the context otherwise requires- “actively managed UCITS ETF” means a UCITS ETF, in respect of which the responsible person has discretion over the composition of its portfolio and which, subject to the stated investment objectives and policies, may have the objective of outperforming an index; “alternative investment fund” has the meaning given to the term in Regulation 5
(1)of the European Union (Alternative Investment Fund Managers) Regulations 2013 ( S.I. No. 257 of 2013 ); “AIF” means an alternative investment fund; “annual tracking difference” means the difference between the annual return of an index-tracking UCITS and the annual return of the tracked index; “anti-dilution levy” means a charge imposed on subscriptions or on redemptions as relevant, to offset the dealing costs of buying or selling assets of the UCITS and to preserve the net asset value per share of the UCITS, as a result of net subscriptions or of net redemptions on a dealing day; “associated company” has the meaning given to the term “associated undertaking” in schedule 4, Part III Accounting Principles and Valuation Rules, paragraph 21 of the Companies Act 2014 (No. 38 of 2014); “central counterparty” means a person specified in Regulation 8
(5); “Commission Regulation (EU) No 583/2010” means Commission Regulation (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website. “constitutional document” means- (
- a)in the case of a unit trust, the trust deed, (
- b)in the case of an investment company, the memorandum and articles of association, (
- c)in the case of a common contractual fund, the deed of constitution, and (
- d)in the case of an Irish Collective Asset-management Vehicle, the instrument of incorporation; “directed brokerage services” means brokerage services in relation to a UCITS pursuant to which a commission or similar payment is paid to or secured by the entity which issues instructions; “EMIR” means Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories; “ESMA” means the European Securities and Markets Authority; “FDI” means a financial derivative instrument; “group undertaking” means an undertaking that is included in the same group for the purposes of preparing consolidated accounts, in accordance with Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 84/349/EEC or in accordance with recognised international accounting rules; “index-tracking UCITS” means a UCITS the strategy of which is to replicate (by any means including physical or synthetic replication) or track the performance of an index or indices; “index-tracking leveraged UCITS” means a UCITS the strategy of which is to have a leveraged exposure to an index or exposure to a leveraged index; “indicative net asset value” means a measure of the intraday value of the net asset value of a UCITS ETF based on the most up-to-date information. For the avoidance of doubt the indicative net asset value is not necessarily the value at which investors on the secondary market purchase and sell their units; “investment adviser” means a firm appointed by- (
- a)a responsible person, or (
- b)an investment manager (including any sub investment manager), to provide investment advice in respect of some or all of the assets of a UCITS and which does not have any discretionary powers over any of the assets of that UCITS; “investment fund” means a UCITS or an AIF; “investment manager” means a firm appointed by a responsible person to manage some or all of the assets of a UCITS on a discretionary basis and shall include any sub investment manager appointed by an investment manager; “KIID” means a key investor information document of a UCITS; “legal maturity” means the date when the principal of a security is to be repaid in full and which is not subject to any optionality; “management company” has the meaning given to the term in the UCITS Regulations, with the exception of Part 11 where the term refers exclusively to a management company for which Ireland is the management company’s home Member State; “Money Market Funds Regulation” means Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds; “multilateral trading facility” has the meaning given to the term in Article 4 of MiFID; “own funds” has the meaning given to the term in point
(118)of Article 4
(1)of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012; “resident in the State” means a person who is present in the State for the whole of 110 business days per year; “regulatory criteria” means those non-exhaustive considerations in respect of a regulated market, including those set out in Schedule 1, to which the responsible person shall have regard when assessing the eligibility of a market for investment; “responsible person” means a management company, where one has been designated to act in respect of a particular UCITS and in the absence of any such designation, the UCITS itself. In the case of Regulation 50, the responsible person means the UCITS investment company where the designated management company is being replaced; “SEC” means the Securities and Exchange Commission of the United States of America; “soft commission” means an agreement or other arrangement under which an entity receives goods or services in return for which it agrees to direct, or in fact directs, business through or to another person or otherwise confers an economic advantage on that other person; “structured UCITS” has the meaning given to the term in Article 36
(1)of Commission Regulation (EU) No 583/2010; “supervisory and regulatory requirements” means any condition or requirement imposed on a UCITS by, or by virtue of, financial services legislation; “tracking error” means the volatility of the difference between the return of the index-tracking UCITS and the return of the index or indices that is or are tracked; “UCITS ETF” means a UCITS at least one unit or share class of which is traded throughout the day on at least one regulated market or multilateral trading facility with at least one market maker which takes action to ensure that the stock exchange value of its units does not vary significantly from its net asset value and where applicable from its indicative net asset value; “UCITS Regulations” means European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( S.I. No. 352 of 2011 ) (as amended); “umbrella UCITS” means a UCITS which has one or more sub-funds; “valuation policy” has the meaning given to that term by Regulation 34; “weighted average life” (“WAL”) means the average length of time to the legal maturity of all the underlying assets in the UCITS reflecting the relative holdings in each asset; “weighted average maturity” (“WAM”) means the average length of time to maturity or, if shorter, to the next interest rate reset to a money market rate, of all the underlying assets in the UCITS reflecting the relative holding in each case.
(2)For the purposes of these Regulations, in particular Part 2, Chapter 2 of these Regulations, any investment restrictions (which are applicable to particular types of assets invested in by a UCITS) or borrowing restrictions (which are applicable to borrowing by a UCITS) apply to the net asset value of the UCITS and to each sub-fund of an umbrella fund as if each sub-fund was a separate UCITS.
(3)A word or expression used in these Regulations and also used in the UCITS Regulations or the description or explanation of a matter set out in the UCITS Regulations and referred to in these Regulations has, unless the contrary intention appears, the same meaning (description or explanation) in these Regulations that it has in the UCITS Regulations. PART 2 RESTRICTIONS ON UCITS Chapter 1 General General restrictions 3. Where a counterparty has discretion over the composition or management of a UCITS investment portfolio or of the underlying of the FDI, the arrangement between the relevant UCITS and the counterparty shall be an investment management delegation arrangement and the responsible person shall comply with the requirements on delegation in the UCITS Regulations. Eligible assets: transferable securities 4.
(1)A responsible person shall ensure that investment by a UCITS in a partly paid transferable security does not expose the UCITS to loss beyond the amount to be paid for it.
(2)For the purpose of ensuring the ability of the UCITS to comply with Regulation 104
(1)of the UCITS Regulations, a responsible person shall - (a) assess (and document this assessment in writing) its liquidity risk, where information is available to the responsible person that would lead it to determine that investment by the UCITS in a transferable security could compromise the ability of the UCITS to comply with Regulation 104
(1)of the UCITS Regulations, (
- b)assess (and document this assessment in writing), by reference to the factors specified in this sub-paragraph at a minimum, the liquidity risk of a transferable security when investing in any transferable security - (
- i)the volume of and turnover in the transferable security, (
- ii)if price is determined by supply and demand in the market, the issue size and the portion of the issue that the investment manager plans to buy, (iii) the opportunity and timeframe to buy or sell the transferable security, and (
- iv)an assessment of the quality of secondary market activity in the transferable security and an analysis of the quality and number of intermediaries and market makers dealing in the transferable security concerned, and (
- c)assess (and document this assessment in writing) - (
- i)the liquidity of transferable securities, and (
- ii)the negotiability of transferable securities held in the portfolio, where such transferable securities are not admitted to trading on a regulated market as defined in Regulation 68
(1)(
- a)to (
- d)of the UCITS Regulations, in order to ensure compliance with Regulation 104
(1)of the UCITS Regulations. Closed-ended funds 5. A responsible person shall not invest the assets of a UCITS in a closed-ended fund for the purpose of circumventing the investment restrictions set out in the UCITS Regulations. Money-market instruments 6.
(1)A responsible person shall only invest assets of a UCITS in a money-market instrument where the responsible person has - (
- a)assessed the liquidity of that money-market instrument, and (
- b)retained written records of that assessment.
(2)In assessing the liquidity of a money-market instrument for the purpose of subparagraph
(1)(a), the responsible person shall take the following factors into account: (
- a)in respect of the particular money-market instrument: (
- i)the frequency of trades and quotes for the instrument; (
- ii)the number of dealers who are willing to purchase and sell the instrument; (iii) the willingness of the relevant dealers to make a market in the relevant instrument; (
- iv)the nature of market place trades; (
- v)the size of the particular issuance or programme; (
- vi)the possibility to repurchase, redeem or sell the relevant instrument in a short period and whether such repurchase, redemption or sale can be achieved at limited cost in terms of fees and bid/offer prices and with very short settlement delay; (
- b)in respect of the UCITS: (
- i)unit-holder structure and the concentration of unit-holders of the UCITS; (
- ii)the purpose of funding of unit-holders; (iii) the quality of information on the cash flow patterns of the UCITS; (
- iv)the prospectus’s guidelines of the UCITS on limiting withdrawals.
(3)Where a responsible person considers that an amortization method can be used to assess the value of a money-market instrument it shall ensure that this method will not result in a material discrepancy between the value of the money-market instrument and the value calculated according to – (
- a)the amortization method as set out in Regulation 91, where the UCITS is a Short-Term Money-Market Fund authorised by the Bank and not subject to the Money Market Funds Regulation, or (
- b)the amortised cost method as defined in Article 2
(10)of the Money Market Funds Regulation where the UCITS is authorised by the Bank pursuant to the Money Market Funds Regulation on or after 20 July 2018.
(4)Where the presumption of liquidity and accurate valuation provided for in paragraph 5 of Schedule 3 of the UCITS Regulations cannot be relied upon, the money-market instrument shall be subject to an appropriate assessment by the responsible person.
(5)A responsible person must be able to demonstrate that it has assessed liquidity for all money-market instruments which are traded on a regulated market but for which the responsible person was not able to rely on a presumption of liquidity. Deposits and ancillary liquidity with credit institutions 7.
(1)A responsible person shall only invest assets of the UCITS in deposits if such deposits meet the requirements of Regulation 68
(1)(f) of the UCITS Regulations.
(2)Deposits, or cash booked in accounts and held as ancillary liquidity, shall only be made with a credit institution which is within at least one of the following categories: (
- a)a credit institution authorised in the EEA; (
- b)a credit institution authorised within a signatory state, other than a Member State of the EEA, to the Basle Capital Convergence Agreement of July 1988; (
- c)a credit institution in a third country deemed equivalent pursuant to Article 107
(4)of the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. Financial derivative instruments 8.
(1)A responsible person shall only invest assets of the UCITS in an FDI if - (
- a)the FDI does not expose the UCITS to risks which the UCITS could not otherwise assume, (
- b)the FDI does not cause the UCITS to diverge from its investment objectives disclosed in its prospectus, and (
- c)the FDI is dealt in on a regulated market or alternatively the conditions in paragraph
(3)are satisfied.
(2)Where a responsible person enters, on behalf of a UCITS, into a total return swap or invests in other FDIs with similar characteristics, the assets held by the UCITS shall comply with Regulations 70, 71, 72, 73 and 74 of the UCITS Regulations.
(3)A responsible person shall only invest assets of the UCITS in an OTC derivative if the derivative counterparty is within at least one of the following categories: (
- a)a credit institution that is within any of the categories set out in Regulation 7; (
- b)an investment firm authorised in accordance with MiFID; (
- c)a group company of an entity approved as a bank holding company by the Federal Reserve of the United States of America where that group company is subject to bank holding company consolidated supervision by the Federal Reserve.
(4)Where a counterparty within paragraph
(3)(
- b)or (
- c)- (
- a)was subject to a credit rating by an agency registered and supervised by ESMA that rating shall be taken into account by the responsible person in the credit assessment process, and (
- b)is downgraded to A-2 or below (or comparable rating) by the credit rating agency referred to in subparagraph (
- a)this shall result in a new credit assessment being conducted of the counterparty by the responsible person without delay.
(5)Where an OTC derivative referred to in paragraph
(3)(a), (
- b)and (
- c)is subject to a novation, the counterparty after the novation must be - (
- a)an entity that is within any of the categories set out in paragraph
(3)(a), (
- b)and (c), or (
- b)a central counterparty that is - (
- i)authorised or recognised under EMIR, or (
- ii)pending recognition by ESMA under Article 25 of EMIR, an entity classified - (I) by the SEC as a clearing agency, or (II) by the Commodity Futures Trading Commission of the United States of America as a derivatives clearing organisation.
(6)(a) Risk exposure to the counterparty shall not exceed the limits set out in Regulation 70
(1)(
- c)of the UCITS Regulations, assessed in accordance with subparagraph (b). (
- b)In assessing risk exposure to the counterparty to an OTC derivative for the purpose of Regulation 70
(1)(
- c)of the UCITS Regulations - (
- i)a responsible person shall calculate the exposure to the counterparty using the positive mark-to-market value of the OTC derivative with that counterparty, (
- ii)a responsible person may net derivative positions with the same counterparty, provided that the UCITS is able to legally enforce netting arrangements with the counterparty. For this purpose, netting is permissible only in respect of OTC derivatives with the same counterparty and not in relation to any other exposures the UCITS has with the same counterparty, (iii) a responsible person may take account of collateral received by the UCITS in order to reduce the exposure to the counterparty, provided that the collateral meets with the requirements specified in Regulation 24
(1)(c),
(3),
(4),
(5),
(6),
(7),
(8),
(9)and
(10). Financial Index 9.
(1)A responsible person shall ensure that it is able to demonstrate that a financial index in which assets of the UCITS are invested satisfies the following: (
- a)an index should have a clear, single objective in order to represent an adequate benchmark for the market; (
- b)the universe of the index components and the basis on which these components are selected for the strategy should be clear to investors and competent authorities; (
- c)if cash management is included as part of the index strategy, the responsible person must be able to demonstrate that this cash management does not affect the objective nature of the index calculation methodology.
(2)If a financial index has been created and calculated on the request of a single market participant, or of a very limited number of market participants, and according to the specifications of that market participant, or those market participants, it shall not constitute an adequate benchmark of the market to which it refers.
(3)A responsible person shall ensure that a due diligence exercise on the quality of the financial index is carried out and documented, prior to investment of the assets of the UCITS in the index, and on an on-going basis, considering matters including the following: (
- a)whether the index methodology contains an adequate explanation of the weightings and classification of the components on the basis of the investment strategy; (
- b)whether the index represents an adequate benchmark; (
- c)matters relating to the index components; (
- d)an assessment of the availability of information on the index, including - (
- i)whether there is a clear narrative description of the benchmark, (
- ii)whether there is an independent audit and the scope of such an audit, and (iii) the frequency with which the index is published and whether this will affect the ability of the UCITS to calculate its net asset value.
(4)A responsible person shall not invest assets of the UCITS in a financial index where a single component’s impact on the overall return of that index exceeds the diversification requirements set out in Regulation 71 of the UCITS Regulations.
(5)A responsible person shall not invest assets of the UCITS in a leveraged financial index where a single component’s impact on the overall return of that index, taking into account the leverage, exceeds the diversification requirements set out in Regulation 71 of the UCITS Regulations.
(6)A responsible person shall not invest assets of the UCITS in a financial index - (
- a)that rebalances on an intraday or daily basis, or the rebalancing frequency of which prevents investors from being able to replicate the financial index, (
- b)in respect of which the index provider does not disclose, in a manner that is easily accessible by and free of charge to investors and prospective investors, the information prescribed in paragraph
(7)on the full calculation methodology sufficient to enable investors to replicate the financial index, or (c) information on the performance of which is not freely available to investors.
(7)The information on the full calculation methodology that must be disclosed shall include the following: (
- a)index constituents; (
- b)index calculation (including the effect of leverage within the index); (
- c)re-balancing methodologies; (
- d)index changes; (
- e)information on any operational difficulties in providing timely or accurate information; (
- f)important parameters or elements to be taken into account by investors to replicate the financial index.
(8)A responsible person shall only invest assets of the UCITS in a financial index if that index complies with the conditions set out in paragraph
(9).
(9)(a) The conditions to which paragraph
(8)refers are the following: (
- i)the financial index publishes, in a manner that is easily accessible by and free of charge to investors and prospective investors, its constituents together with, in accordance with subparagraph (b), their respective weightings; (
- ii)the methodology for the selection and the rebalancing of the components of the financial index is based on a set of pre-determined rules and objective criteria; (iii) the index-provider does not accept payments from potential index components for inclusion in the index; (
- iv)the methodology of the financial index does not permit retrospective changes to previously published index values; (
- v)the financial index is subject to independent valuation. (
- b)The requirements to which subparagraph (a)(
- i)refers are the following: (
- i)weightings are published after each re-balancing which publication may be on a retrospective basis; (
- ii)the information on the constituents of the financial index and their respective weightings shall- (I) cover the previous period since the last rebalancing, and (II) include all levels of the index.
(10)A responsible person shall only invest assets of the UCITS in a commodity index if the conditions specified in paragraph
(11)are satisfied in respect of that investment in that commodity index.
(11)The conditions to which paragraph
(10)refers are the following: (
- a)the relevant commodity index is comprised of different commodities; (
- b)sub-categories of a commodity shall be regarded as being the same commodity for the calculation of the diversification limits set out in Regulation 71 of the UCITS Regulations if those sub-categories are highly correlated within the meaning of paragraph
(12).
(12)For the purposes of paragraph
(11)two components of a commodity index that are sub-categories of the same commodity are highly correlated if 25 per cent of the correlation observations are above 0.8, where correlation observations are calculated as follows - (
- a)on the basis of equally-weighted daily returns of the corresponding commodity prices, and (
- b)from a 250-day rolling time window over a five-year period. Investment through subsidiaries 10. A responsible person shall not establish a subsidiary unless the following conditions have been satisfied: (
- a)the prior approval of the Bank to establish a subsidiary has been received; (
- b)the subsidiary must be wholly owned and controlled by the UCITS and, in particular, the directors of either the UCITS investment company or the UCITS management company or both must form a majority of the board of directors of the subsidiary; (
- c)the subsidiary must not be an investment fund or issuing body; (
- d)the subsidiary must not appoint any third parties or enter into any contractual arrangements appointing third parties unless the UCITS is a party to such appointments or contractual arrangements; (
- e)the prospectus of the UCITS must contain the following: (
- i)a statement referring to the ability to establish wholly owned subsidiaries in accordance with this Regulation; (
- ii)that the names of any subsidiaries will be contained in the annual report. (
- f)the annual report of the UCITS must include a schedule of subsidiaries established; (
- g)the constitutional document of the UCITS must provide for the ability of the UCITS to establish wholly owned subsidiaries with the prior approval of the Bank; (
- h)the constitutional document of the UCITS must provide that the assets and shares of the subsidiary will be held by the Irish depositary; (
- i)the constitutional document of the subsidiary must include provisions which restrict the subsidiary from acting other than under the control of the UCITS and which restrict any person or entity other than UCITS from holding shares in the subsidiary; (
- j)the constitutional document of the subsidiary must include a sole object, or provision of equivalent effect, that reflects the investment objective and policy of the UCITS; (
- k)the constitutional document of the subsidiary must provide that the assets and shares of the subsidiary are held by the Irish depositary; (
- l)the assets held by the subsidiary must be valued in accordance with the UCITS’ valuation rules. Chapter 2 Investment Restrictions Investment funds 11.
(1)Where, by virtue of an investment in the units of another investment fund, a responsible person, an investment manager or an investment adviser receives a commission on behalf of the UCITS (including a rebated commission), the responsible person shall ensure that the relevant commission is paid into the property of the UCITS.
(2)Where a responsible person invests the assets of a sub-fund within an umbrella UCITS in the units of another sub-fund within that umbrella UCITS, that investment is subject to the requirements in paragraph
(3), in addition to the provisions of paragraph
(1).
(3)The requirements for the purposes of paragraph
(2)are the following: (
- a)the investment shall not be made in a sub-fund which itself holds units in any other sub-fund within the umbrella UCITS; (
- b)where a responsible person, on behalf of a sub-fund (the “Investing Fund”) of an umbrella UCITS invests in the units of other sub-funds of that umbrella (each a “Receiving Fund”), the rate of the annual management fee which investors in the Investing Fund are charged in respect of that portion of the Investing Fund’s assets invested in Receiving Funds (whether such fee is paid directly at the Investing Fund level, indirectly at the level of the Receiving Funds or a combination of both) shall not exceed the rate of the maximum annual management fee which investors in the Investing Fund may be charged in respect of the balance of the Investing Fund’s assets, such that there shall be no double charging of the annual management fee to the Investing Fund as a result of its investments in the Receiving Fund. This provision is also applicable to the annual fee charged by an investment manager where this fee is paid directly out of the assets of the UCITS.
(4)Where a responsible person proposes that a sub-fund within an umbrella UCITS will invest in the units of another sub-fund within that umbrella by way of transfer for consideration, that responsible person shall, in writing, notify the Bank of that proposal and of the rationale for the proposed investment, in advance of the proposed date of investment. Recently issued transferable securities 12.
(1)Subject to paragraph
(2), a responsible person shall not invest any more than 10 per cent of the assets of a UCITS in securities of the type to which Regulation 68
(1)(d) of the UCITS Regulations applies.
(2)Paragraph
(1)does not apply to investment by a responsible person in US securities known as “Rule 144A securities” provided that - (
- a)the relevant securities have been issued with an undertaking to register the securities with the SEC within one year of issue, and (
- b)the securities can be realised by the UCITS within seven days at the price, or approximately at the price, at which they are valued by the UCITS. Financial derivative instruments 13.
(1)For the purpose of Regulation 70 of the UCITS Regulations and the calculation of issuer concentration limits of a UCITS, a responsible person shall - (
- a)include any net exposure to a counterparty generated through a securities lending or repurchase agreement, where net exposure means the amount receivable by a UCITS less any collateral provided by the UCITS, (
- b)include exposures created through the reinvestment of collateral, and (
- c)establish whether the exposure of the UCITS is to an OTC counterparty, a broker, a central counterparty or a clearing house.
(2)The position exposure of a UCITS, if any, to the underlying assets of an FDI, including an FDI that is embedded in transferable securities, money-market instruments or investment funds, when combined with positions resulting from direct investments - (a) shall be calculated in accordance with paragraph
(3), and (b) shall not exceed the investment limits set out in Regulations 70 and 73 of the UCITS Regulations.
(3)For the purposes of paragraph
(2)- (
- a)when calculating issuer-concentration risk, the FDI (including embedded FDI) must be looked through in determining the resultant position exposure and this position exposure shall be taken into account in the issuer concentration calculations, (
- b)a responsible person shall calculate the position exposure of the UCITS using the commitment approach or the maximum potential loss as a result of default by the issuer approach, whichever is greater, and (
- c)a responsible person shall calculate the position exposure, regardless of whether a UCITS uses VaR for global exposure purposes.
(4)Paragraph
(2)does not apply in the case of an index-based FDI provided the underlying index meets the criteria set out in Regulation 71
(1)of the UCITS Regulations. Borrowings by a UCITS 14.
(1)A responsible person shall not offset credit balances of a UCITS, such as cash, against borrowings, when determining the percentage of borrowings that are outstanding.
(2)A responsible person shall ensure that a UCITS with foreign currency borrowings which exceed the value of the back to back deposit treats that excess as borrowing for the purpose of Regulation 103 of the UCITS Regulations. Chapter 3 Financial Derivative Instruments Cover requirements 15.
(1)Where the initial margin posted to and variation margin receivable from a broker relating to an exchange-traded derivative or an OTC derivative is not protected by client money rules or other similar arrangements to protect the UCITS in the event of the insolvency of the broker, the responsible person shall calculate exposure of the UCITS within the OTC counterparty limit as referred to in Regulation 70
(1)(c) of the UCITS Regulations.
(2)A responsible person shall ensure that, at all times - (
- a)the UCITS is capable of meeting all its payment and delivery obligations incurred by transactions involving FDI, (
- b)the risk management process of the UCITS includes the monitoring of FDI transactions to ensure that every such transaction is covered adequately, and (
- c)a transaction in FDI which gives rise to, or could potentially give rise to, a future commitment on behalf of a UCITS is covered in accordance with the conditions specified in paragraph
(3).
(3)The conditions to which subparagraph (c) of paragraph
(2)refers are the following: (
- a)in the case of an FDI that is, automatically or at the discretion of the UCITS, cash-settled, the UCITS must, at all times, hold liquid assets that are sufficient to cover the exposure; (
- b)in the case of an FDI that requires physical delivery of the underlying asset, either - (
- i)the asset must at all times be held by a UCITS, or (
- ii)where either or both of the conditions in subparagraphs (
- a)and (
- b)of paragraph
(4)applies, the UCITS must cover the exposure with sufficient liquid assets.
(4)The conditions to which paragraph
(3)(b)(
- ii)refers are the following: (
- a)the underlying asset consists, or the underlying assets consist, of highly liquid fixed income securities; (
- b)(
- i)the exposure can be covered without the need to hold the underlying assets; (
- ii)the specific FDI is addressed in the risk management process; (iii) details of the exposure are provided in the prospectus. Risk management process and reporting 16.
(1)A responsible person shall in writing notify the Bank of material amendments to the initial filing of the risk management process of a UCITS, in advance of the amendment being made.
(2)The Bank may object to the making of any proposed amendment that is notified to it under paragraph
(1).
(3)(a) No proposed amendment to which the Bank has objected under paragraph
(2)shall be made to the risk management process of a UCITS. (b) Where the Bank has objected under paragraph
(2)to the making of a proposed amendment to the risk management process of a UCITS, neither - (
- i)the relevant management company, nor (
- ii)the relevant UCITS, shall engage in any activity that is associated with or which would derive from the proposed amendment to which the objection has been made. Calculation of global exposure 17. A responsible person shall ensure that, at all times - (
- a)the UCITS complies with the limits on global exposure, (
- b)the UCITS establishes and implements appropriate internal risk management measures and limits, irrespective of whether the UCITS uses a commitment approach or the VaR approach or any other methodology to calculate global exposure. For the purpose of paragraph 12
(1)of Schedule 9 of the UCITS Regulations, a UCITS shall only select a methodology where ESMA has published guidelines on the selected methodology, and (c) it calculates the global exposure in accordance with Schedule 2. Global exposure: commitment approach (structured UCITS) 18.
(1)The responsible person of a structured UCITS shall only calculate global exposure of a structured UCITS using the commitment approach as set out in paragraphs 14 to 18 of Schedule 9 of the UCITS Regulations in the following circumstances: (
- a)the UCITS is managed passively and structured to achieve, at maturity, the pre-defined payoff and holds at all times the assets needed to ensure that this pre-defined payoff will be met; (
- b)the UCITS is formula-based and the pre-defined payoff can be divided into a limited number of separate scenarios which are dependent on the value of the underlying assets and which offer investors different payoffs; (
- c)an investor can be exposed to only one payoff profile at any time during the life of the UCITS; (
- d)the use of the commitment approach as set out in paragraphs 14 to 18 of Schedule 9 of the UCITS Regulations to calculate global exposure for the individual scenarios is appropriate taking into account the provisions of - (
- i)guideline 1, paragraph 2(
- d)of the ESMA Guidelines on Risk Measurement and the Calculation of Global Exposure for Certain Types of Structured UCITS (Ref: ESMA 4/2011/112), (
- ii)paragraphs 11 to 13 of Schedule 9 of the UCITS Regulations, and (iii) guidelines 1, 4 and 5 of box 1 of the ESMA Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (Ref: CESR/10-788); (
- e)the UCITS has a final maturity not exceeding nine years; (
- f)the UCITS does not accept new subscriptions from the public after the initial marketing period; (
- g)the maximum loss the UCITS can suffer when the portfolio switches from one payoff profile to another is limited to 100 per cent of the initial offer price; (
- h)the impact of the performance of a single underlying asset on the payoff profile, when the UCITS switches from one scenario to another, complies with the diversification requirements of the UCITS Regulations based on the initial net asset value of the UCITS.
(2)The responsible person of a structured UCITS shall use the commitment approach as set out in paragraphs 14 to 18 of Schedule 9 of the UCITS Regulations, adjusted as provided for in paragraph
(3), as the calculation method for a structured UCITS.
(3)The adjustments to which paragraph
(2)refers are that - (
- a)the formula-based investment strategy for each pre-defined payoff is broken down into individual payoff scenarios, (
- b)the FDI implied in each scenario is assessed to establish whether the derivative may be excluded from the calculation of global exposure under boxes 3 and 4 of the ESMA Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (Ref: CESR/10-788), and (
- c)the responsible person calculates the global exposure of the individual scenarios to assess compliance with the global exposure limit of 100 per cent of net asset value. Global exposure: Value at Risk approach 19.
(1)A responsible person that calculates the global exposure of a UCITS using the VaR approach shall consider all of the positions of the UCITS portfolio.
(2)A responsible person shall at all times set the maximum VaR limit of a UCITS according to its defined risk profile.
(3)A responsible person shall ensure that a UCITS that uses the VaR approach uses - (
- a)the relative VaR approach, or (
- b)the absolute VaR approach, whichever is the most appropriate methodology given the risk profile and investment strategy of the UCITS to calculate global exposure as set out in Schedule 4.
(4)For the purposes of paragraph
(3)- (
- a)a responsible person shall ensure that there is consistency in the choice of the type of VaR used by the UCITS, and (
- b)the decision as to whether to use the relative VaR approach or the absolute VaR approach, and the assumptions underlying that decision, must be documented fully by the responsible person.
(5)A responsible person shall ensure that - (
- a)the VaR approach used by the UCITS takes into account, as a minimum, general market risk and, if applicable, idiosyncratic risk, (
- b)the event risks or the default risks, or (as the case may
- be)both, to which the UCITS is exposed following its investments are also be taken into account in the stress testing programme for the purposes of Regulation 21, (
- c)the VaR approach used by the UCITS is appropriate having regard to the investment strategy that is being pursued and the types and complexity of the financial instruments used by the UCITS, (
- d)the VaR approach it selects for the UCITS - (
- i)provides for completeness, (
- ii)assesses the risks with a high level of accuracy, and (iii) complies with the conditions set out in paragraph
(6), and (e) in assessing the global exposure by means of a VaR approach, it complies with the quantitative and qualitative minimum requirements set out in Schedule 4.
(6)The conditions to which paragraph
(5)(d)(iii) refers are the following: (
- a)all the positions of the UCITS portfolio are included in the VaR calculation; (
- b)the approach captures adequately all the material market risks associated with portfolio positions and, in particular, the specific risks associated with FDI. For this purpose, the VaR approach must cover all the risk factors that have more than a negligible influence on the fluctuation of the portfolio’s value; (
- c)the quantitative models that are used within the VaR approach, including pricing tools, estimation of volatilities and correlations, shall provide for a high level of accuracy; (
- d)all data that is used within the VaR approach shall provide for consistency, timeliness and reliability. Back-testing 20.
(1)A responsible person shall conduct a back-testing programme for the UCITS for the purpose of monitoring the accuracy and performance of its VaR approach.
(2)The back-testing programme to which paragraph
(1)refers shall provide, for each business day, a comparison of - (
- a)the one-day VaR measure generated by the UCITS model for the UCITS end-of-day positions, and (
- b)the one-day change of the UCITS portfolio value by the end of the subsequent business day.
(3)The back-testing programme to which paragraph
(1)refers shall be conducted at least on a monthly basis, subject to always performing retroactively the comparison for each business day as detailed in paragraph
(2).
(4)A responsible person shall determine and monitor any overshooting of a UCITS on the basis of its back-testing programme.
(5)Where the results of the back-testing programme undertaken by virtue of this Regulation reveal a percentage of overshootings that exceeds 4 for the most recent 250 business days in the case of a 99 per cent confidence interval, the responsible person must review the VaR approach and make appropriate adjustments.
(6)Where, in the case of a 99 per cent confidence interval, the number of overshootings for a UCITS for the most recent 250 business days exceeds 4, the responsible person shall- (
- a)inform the senior management of the responsible person, at least quarterly, (
- b)inform the Bank, at least semi-annually, and (
- c)comply with paragraph
(7).
(7)A responsible person shall provide the senior management of the responsible person and the Bank with - (
- a)an analysis of the sources of overshootings, (
- b)an explanation of the sources of overshootings, and (
- c)a statement of what measures, if any, have been taken to improve the accuracy of the VaR approach.
(8)For the purposes of this Regulation, “overshooting” means a one-day change in the value of the relevant portfolio that exceeds the related one-day value-at-risk measure calculated by the VaR approach. Stress-testing 21.
(1)A responsible person shall, in accordance with paragraph
(2), conduct a rigorous, comprehensive and adequate stress-testing programme for a UCITS which uses the VaR approach.
(2)The requirements to which paragraph
(1)refers are the following: (a) the stress-testing programme shall be conducted in accordance with the qualitative and quantitative requirements of paragraphs
(5)and
(6); (
- b)without prejudice to subparagraph (c), stress tests shall be conducted regularly and in any event not less frequently than once a month; (
- c)stress tests shall be conducted whenever a change in the value or the composition of a UCITS or a change in market conditions makes it likely that the test results will differ significantly from the results of the then-most-recent stress test.
(3)A responsible person shall ensure that the stress-testing programme - (
- a)is designed to measure any potential major depreciation of the value of a UCITS as a result of unexpected changes in the relevant market parameters and correlation factors, and (
- b)measures changes in the relevant market parameters and correlation factors which could result in a major depreciation of the value of a UCITS.
(4)A responsible person shall - (
- a)integrate the stress tests required by this Regulation into the risk management process of a UCITS, (
- b)consider the results of the stress tests when making investment decisions for the UCITS, and (
- c)adapt the design of the stress tests in line with the composition of the UCITS and the market conditions that are relevant for the UCITS.
(5)A responsible person shall ensure that the stress tests - (
- a)cover all risks that affect the value or the fluctuations in value of the UCITS to any significant degree, (
- b)without prejudice to the generality of subparagraph (a), take into account those risks that are not fully captured by the VaR approach that is used, (
- c)are appropriate for analysing potential situations in which the use of significant leverage would expose the UCITS to significant downside risk and could potentially lead to the UCITS having a net asset value less than zero, and (
- d)focus on those risks which, though not significant in normal circumstances, are likely to be significant in stress situations, including the following: (
- i)the risk of unusual correlation changes; (
- ii)the illiquidity of markets in stressed market situations; (iii) the behaviour of complex structured products under stressed liquidity conditions.
(6)A responsible person shall - (
- a)establish and implement written clear procedures relating to the design of, and ongoing adaptation of, the stress tests of a UCITS, (
- b)on the basis of the procedures established and implemented in accordance with subparagraph (a), develop a written programme for conducting stress tests, (
- c)include in the programme developed in accordance with subparagraph (
- b)an explanation as to why the programme is suitable for the UCITS, and (
- d)document clearly, in the programme developed in accordance with subparagraph (
- b)- (
- i)completed stress tests, (
- ii)the results of completed stress tests, and (iii) the reasons behind any intention to deviate from the programme. Value at Risk approach: additional safeguards 22.
(1)A responsible person which calculates global exposure using a VaR approach for a UCITS shall monitor the leverage of the UCITS regularly.
(2)A responsible person shall ensure that the UCITS supplements both the VaR approach and the stress-testing framework, by taking into account the risk profile and the investment strategy that is being pursued, with other risk measurement methods. Chapter 4 Efficient Portfolio Management Portfolio management techniques 23.
(1)A responsible person shall only use efficient portfolio management techniques and instruments for the purposes of Regulation 69
(2)of the UCITS Regulations where same are in the best interests of the UCITS.
(2)A responsible person shall ensure that all the revenues arising from efficient portfolio management techniques, net of direct and indirect operational costs, are returned to the UCITS. Collateral 24.
(1)A responsible person shall ensure, in engaging in efficient portfolio management techniques and instruments, that - (
- a)every asset that is received by a UCITS as a result of engaging in efficient portfolio management techniques and instruments is treated as collateral, (
- b)such techniques comply with the criteria set down in paragraph
(2), and (c) at all times, collateral that is received by a UCITS meets the criteria specified in Schedule 3.
(2)A responsible person shall ensure that the UCITS risk management process identifies, manages and mitigates risks linked to the management of collateral, including operational risks and legal risks.
(3)(
- a)Where a UCITS receives collateral on a title transfer basis, the responsible person shall ensure that that collateral is held by the depositary. (
- b)Where a UCITS receives collateral on any basis other than a title transfer basis, that collateral may be held by a third party depositary provided that that depositary is subject to prudential supervision and is unrelated and unconnected to the provider of the collateral.
(4)A responsible person shall not sell, pledge or re-invest the non-cash collateral received by the UCITS.
(5)Where a responsible person invests the cash collateral received by the UCITS, such investments shall only be made in one or more of the following: (
- a)a deposit with a credit institution referred to in Regulation 7; (
- b)a high-quality government bond; (
- c)a reverse repurchase agreement, provided the transaction is with a credit institution referred to in Regulation 7 and the UCITS is able to recall at any time the full amount of cash on an accrued basis; (
- d)a short-term MMF as defined in Article 2
(14)of the Money Market Funds Regulation; (e) a Short-Term Money Market Fund as defined in Regulation 89 where such investment is made prior to 21 January 2019.
(6)Where a responsible person invests the cash collateral received by the UCITS - (
- a)that investment shall comply with the diversification requirements applicable to non-cash collateral, and (
- b)invested cash collateral shall not be placed on deposit with the counterparty or with any entity that is related or connected to the counterparty.
(7)A responsible person shall ensure that, where a UCITS receives collateral for at least 30 per cent of its assets - (a) there is in place a stress testing policy that prescribes the components set out in paragraph
(8), and (b) stress tests are carried out regularly under normal and exceptional liquidity conditions to enable the responsible person to assess the liquidity risk attached to the collateral.
(8)The components of the stress-testing policy to which paragraph
(7)refers are the following: (
- a)the design of stress test scenario analysis including calibration, certification and sensitivity analysis; (
- b)the empirical approach to impact assessment, including back-testing of liquidity risk estimates; (
- c)the reporting frequency and the threshold(
- s)for limits and losses; (
- d)the mitigation actions to be taken to reduce loss including haircut policy and gap risk protection.
(9)A responsible person shall, in accordance with paragraph
(10), establish and ensure adherence to a haircut policy for the UCITS, adapted for each class of assets received as collateral.
(10)The requirements to which paragraph
(9)refers are the following: (
- a)when devising the haircut policy, a responsible person shall take into account the characteristics of the assets, such as the credit standing or the price volatility, as well as the outcome of the stress tests performed in accordance with Regulation 21; (
- b)the responsible person shall document the haircut policy; (
- c)the responsible person shall justify and document each decision to apply a specific haircut or to refrain from applying any haircut, to any specific class of assets.
(11)Where a counterparty to a repurchase or a securities lending agreement, which has been entered into by the responsible person on behalf of the UCITS - (
- a)was subject to a credit rating by an agency registered and supervised by ESMA that rating shall be taken into account by the responsible person in the credit assessment process, and (
- b)where a counterparty is downgraded to A-2 or below (or comparable rating) by the credit rating agency referred to in subparagraph (
- a)this shall result in a new credit assessment being conducted of the counterparty by the responsible person without delay.
(12)A responsible person shall ensure that it is at all times able to recall any security that has been lent out or to terminate any securities lending agreement to which it is party. Repurchase and reverse repurchase agreements 25.
(1)A responsible person that enters into a reverse repurchase agreement on behalf of a UCITS shall ensure that the UCITS is at all times able to recall the full amount of cash or to terminate the relevant agreement on either an accrued basis or a mark-to-market basis.
(2)In circumstances in which cash is, by virtue of the obligation under paragraph
(1), recallable at any time on a mark-to-market basis, the responsible person shall use the mark-to-market value of the reverse repurchase agreement for the calculation of the net asset value of the UCITS.
(3)A responsible person that enters into a repurchase agreement shall ensure that a UCITS is at all times able to recall any securities that are subject to the repurchase agreement or to terminate the repurchase agreement into which it has entered. Chapter 5 Share Classes Creation of share classes in a UCITS 26.
(1)Subject to paragraphs
(2)and
(3), a responsible person may create a share class, or more than one share class, within the relevant UCITS, or within a sub-fund of an umbrella UCITS, only if the following conditions are satisfied: (
- a)the constitutional document of the UCITS provides for the creation of share classes and, in the case of an umbrella UCITS, the provision in the constitutional document to establish the way in which sub-funds, and share classes within sub-funds, are created, is clear and unambiguous; (
- b)each UCITS and, in the case of umbrella UCITS, each sub-fund thereof consists of a single common pool of assets; (
- c)the capital gains or losses and income arising from the common pool of assets must be distributed or must accrue equally to each unit-holder relative to their participation in the UCITS or sub-fund thereof, or must both be distributed and accrue in that manner; (
- d)unit-holders in a share class must be treated equally and fairly, or where there is more than one share class all unit-holders in the different share classes must be treated fairly.
(2)A responsible person shall ensure that all share classes within the UCITS or sub-funds thereof have the same dealing procedures and frequencies.
(3)Where a UCITS engages in currency hedging at the level of a share class, the responsible person shall do the following: (
- a)ensure that over-hedged positions do not exceed 105 per cent of the net asset value of the share class and under-hedged positions do not fall below 95 per cent of the portion of the net asset value of the share class where it is to be hedged against currency risk; (
- b)keep hedged positions under review to ensure that over-hedged positions and under-hedged positions do not exceed the level permitted by subparagraph (a); (
- c)in the review that is required by virtue of subparagraph (b), incorporate a procedure to ensure that any position that is materially in excess of 100 per cent of net assets shall not be carried forward from month to month; (
- d)clearly attribute transactions to a specific class; (
- e)not combine or offset currency exposures of different currency classes or allocate currency exposures of assets of the UCITS to separate share classes; (
- f)ensure that the costs and gains or losses of the hedging transactions will accrue solely to the relevant class; (
- g)implement stress tests to quantify the potential impact of losses on all share classes within the UCITS in the event of a share class exceeding its net asset value. The results of such stress test shall be made available to the Central Bank on request; (
- h)ensure that where the introduction of the share class gives rise to administrative costs, those costs are borne by the relevant share class; (
- i)ensure that – (I) any risk, or (II) any administrative costs, arising from the use of derivative overlay to hedge the currency risk in a share class is borne by the relevant share class only; (
- j)ensure the coverage available to a share class, either in the form of the underlying financial instrument or in the form of liquid assets, is sufficient to meet all future obligations of that share class; (
- k)ensure the notional of the derivative transaction does not lead to a payment or delivery obligation with a value exceeding that of the share class; (
- l)ensure that counterparty exposure is assessed at the level of the share class in accordance with Regulation 70
(1)(c) of the UCITS Regulations. Chapter 6 Constitutional Documents Fees 27.
(1)(
- a)Subject to subparagraph (b), a responsible person shall ensure that the constitutional document of the UCITS specifies, as applicable - (
- i)the maximum fee that may be charged by the management company, and (
- ii)the maximum fee that may be charged by an investment manager appointed by the responsible person, where that fee is paid directly out of the assets of the UCITS. (
- b)In the case of a UCITS constituted as an ICAV or investment company the matters specified in subparagraph (
- a)may be included in either the constitutional documents of the UCITS or in the relevant management agreement.
(2)Any fee, under paragraph
(1)that is specified as being payable to a management company or to an investment manager shall include any performance related fee that that management company or investment manager (as the case may be) may charge.
(3)(a) The maximum fee that may be charged by a management company or an investment manager pursuant to paragraph
(1)shall not be increased without approval of the unit-holders of the UCITS on the basis of a simple majority of votes cast in general meeting or such other majority as is specified in the constitutional document of the relevant UCITS or with the prior written approval of all unit-holders of the fund (in accordance with the constitutional documents). (b) If a fee that is disclosed in the prospectus for a UCITS is less than the maximum relevant fee that is permitted in the constitutional document, prior unit-holder approval is required for any proposed increase in the fee that is disclosed in the prospectus, unless the prospectus also provides that a fee greater than the fee disclosed in the prospectus may be charged.
(4)(
- a)A responsible person shall provide unit-holders of a UCITS with reasonable notice in the event of an increase in the maximum fee that may be charged by a management company or an investment manager. (
- b)Notice given for the purposes of subparagraph (
- a)must be sufficient to enable a unit-holder to redeem some or all of the unit-holder’s units prior to the implementation of the proposed increase. Investment 28. A responsible person shall include a list of the stock exchanges, markets and regulated derivatives markets in which the UCITS may invest in the constitutional document of the UCITS. Umbrella UCITS 29. A responsible person shall ensure that the constitutional document of an umbrella UCITS provides that the assets of each sub-fund - (
- a)belong exclusively to the relevant sub-fund, and (
- b)may not be used to discharge, directly or indirectly, the liabilities of or claims against any other sub-fund and are not available for any such purpose. Distributions out of, and charging of fees and expenses to, capital 30.
(1)A responsible person shall not make any distribution from, or charge any fee or expense to, the capital of a UCITS, unless permitted by the constitutional document of the UCITS.
(2)Where, in accordance with paragraph
(1), a responsible person is permitted by the constitutional document of a UCITS to make distributions from or charge fees and expenses to the capital of a UCITS, every such distribution or charge must be in accordance with any provisions contained in that constitutional document concerning the making of a distribution or the imposition of a charge.
(3)A responsible person of a UCITS which proposes to make distributions out of capital shall - (a) include the risk warning in its prospectus, as specified in Regulation 70
(1)(b), (
- b)ensure that any income statement issued to unitholders includes a statement to explain the effect of this accounting policy, including wording to the effect that the investor’s capital amount has been reduced, and (
- c)include the following in bold text in the subscription application form, if fees and expenses which may be charged to capital include management fees: “Unit holders should note that all or part of fees and expenses including (if applicable) management fees may be charged to the capital of the UCITS. This will have the effect of lowering the capital value of your investment.” Dealing in specie 31.
(1)A responsible person shall ensure that, where the constitutional document of a UCITS provides for subscription in specie, it also contains provisions that require, in respect of such a subscription in specie, that - (
- a)the nature of the assets to be transferred into the UCITS would qualify as investments of the UCITS in accordance with the investment objectives, policies and restrictions of the UCITS, (
- b)assets that are to be transferred must be vested with the depositary or arrangements must be made to vest the assets with the depositary, (
- c)the amount of units to be issued must not exceed the amount that would be issued for the cash equivalent of the subscription in specie, and (
- d)the depositary is satisfied that either - (
- i)the terms of any exchange will not be such as are likely to result in any material prejudice to the existing unit-holders of the UCITS, or (
- ii)there is unlikely to be any material prejudice to the existing unit-holders of the UCITS.
(2)(
- a)This paragraph does not apply to a UCITS ETF the original subscription to which was made in specie. (
- b)Subject to subparagraph (a), a responsible person shall ensure that, where the constitutional document of a UCITS provides for redemption in specie, it also contains provisions that require, in respect of such a redemption in specie, that - (
- i)redemption in specie is at the discretion of the UCITS and with the consent of the redeeming unit-holder, and (
- ii)asset allocation is subject to the approval of the depositary. (
- c)Notwithstanding subparagraph (b), where the redeeming unit-holder requests redemption of a number of units that represent 5 per cent or more of the net asset value of the UCITS, the responsible person may, without the consent of the redeeming unit holder, where utilising the discretion of the UCITS, determine to provide redemption in specie subject to such redemption being provided for in the constitutional documents and - (
- i)in that event the UCITS shall, if requested to do so, sell the assets on behalf of the unit-holder after the redemption has been effected, and (
- ii)the cost of any sale in accordance with clause (
- i)can be charged to the unit-holder.
(3)A responsible person shall ensure that, where the constitutional document of a UCITS provides for distribution in specie upon a winding up, it shall also require that, in respect of such a distribution in specie upon a winding up - (
- a)an ordinary resolution or the prior written approval of all unit-holders of the relevant fund or a resolution passed by such majority as is specified in the constitutional document, is required, and (
- b)the UCITS must sell the assets if a unit-holder requests it to do so, in which event the costs of such sale may be charged to the redeeming unit-holder. Replacement of depositary 32. For the purposes of Regulation 49, a responsible person shall ensure that the constitutional document of a UCITS provides that - (
- a)the appointment of the new depositary must be approved in advance by the Bank, (
- b)the current depositary may not retire until a new depositary is appointed in accordance with paragraph (a), and (
- c)if - (
- i)despite attempts by the responsible person to appoint a new depositary, no replacement for the current depositary has been appointed in accordance with this Regulation, and (
- ii)the current depositary is unwilling or unable to continue to act as such, then - (
- i)a general meeting of the UCITS shall be convened at which an ordinary resolution, or such a resolution passed by such majority as is specified in the constitutional document, to wind up or otherwise dissolve the UCITS is proposed, and (iI) the appointment of the current depositary may be terminated only upon the revocation of the authorisation of the UCITS. Chapter 7 Dealing Subscriptions and redemptions 33.
(1)(
- a)Subject to subparagraph (b), a responsible person shall not accept an application for subscription or redemption of units in a UCITS after the dealing deadline. (
- b)A responsible person may in exceptional circumstances accept an application for subscription or redemption of units in a UCITS after the dealing deadline, and before the valuation point, provided that - (
- i)the decision to accept the application after the dealing deadline has been approved by senior management of the responsible person, and (
- ii)the exceptional circumstances under which the application was received is fully documented by the responsible person.
(2)A responsible person shall pay the redemption proceeds to a redeeming unit-holder within ten business days of the relevant dealing deadline.
(3)Where - (
- a)the total requests for redemption on any dealing day for a UCITS or a sub-fund thereof exceed at least 10 per cent of the total number of units in the UCITS or sub-fund or at least 10 per cent of the net asset value of the UCITS or sub-fund, and (
- b)the responsible person decides to refuse to redeem any units in excess of 10 per cent of the total number of units in the UCITS or sub-fund or 10 per cent of the net asset value of the UCITS or sub-fund or such higher percentage that the responsible person may determine, the UCITS shall reduce pro rata any request for redemption on that dealing day and shall treat the redemption requests as if they were received on each subsequent dealing day until all the units to which the original request related have been redeemed.
(4)Where a UCITS temporarily suspends the repurchase or redemption of units in a UCITS in accordance with Regulation 104
(2)(a)(
- i)of the UCITS Regulations, a responsible person shall – (
- a)notify the Bank immediately upon the lifting of that temporary suspension by the UCITS, and (
- b)without prejudice to subparagraph (a), and in circumstances where the temporary suspension has not been lifted within 21 working days of application, provide the Bank with an update on the temporary suspension at the expiration of the 21 working day period and each subsequent period of 21 working days where the temporary suspension continues to apply. Chapter 8 Valuation Valuation policy 34.
(1)A responsible person shall establish and ensure adherence to a valuation policy that satisfies the requirements of paragraph
(2).
(2)(a) A valuation policy shall set out the valuation methodology of the assets of the UCITS, in accordance with paragraph
(3). (b) The valuation policy shall be included in the constitutional document of the UCITS.
(3)A valuation policy shall provide and ensure that - (
- a)the valuation methodologies of a UCITS and the pricing of units treat incoming, existing and outgoing investors in the UCITS fairly, (
- b)where the valuation policy is to calculate both a bid and offer price for units in a UCITS, the methodologies for both must be clear, unambiguous and disclosed, (
- c)the valuation methodologies, including provisions which allow for a switch from a mid-market to a bid or offer basis, are applied on a consistent basis throughout the life of a UCITS, and (
- d)there is consistency in the valuation methodologies adopted throughout the various categories of assets. Dealing 35.
(1)(
- a)A responsible person may deal in the units of a UCITS only at forward prices. (
- b)In this Regulation “forward prices” means the net asset value next computed after receipt of subscription or redemption requests.
(2)A responsible person shall ensure that the frequency of valuation set out in the constitutional document of a UCITS is consistent with dealing arrangements. Methods of valuation 36.
(1)A responsible person shall value the assets of a UCITS in accordance with Schedule 5 unless an alternative method of valuation has been agreed in advance with the Bank or the Bank has, in advance of a valuation date, required the responsible person to adopt an alternative method of valuation.
(2)Where a responsible person adjusts the value of an asset of a UCITS, the rationale for doing so must be documented clearly. Responsibility for valuation policy 37.
(1)A responsible person shall - (
- a)ensure that securities prices and currency rates used by a UCITS for valuation purposes are - (
- i)up-to-date, and (
- ii)provided by or obtained from a source that the responsible person considers to be reputable and reliable, and (
- b)keep the reliability of its sources of prices and rates under review.
(2)A responsible person shall establish and maintain systems and procedures to enable the responsible person to, at least, do the following in respect of the relevant UCITS: (
- a)verify uncertain prices and rates; (
- b)ensure that investment restrictions are not breached; (
- c)ensure that dividends, expenses and taxes are accounted for properly; (
- d)provide movement thresholds at which price movements are reviewed; (
- e)query prices in which there appears to be little or no movement over time; (
- f)provide for the valuation policy in relation to unlisted or illiquid securities; (
- g)provide for the valuation policy in relation to OTC derivatives.
(3)A responsible person shall ensure that full and detailed records of the valuations of a UCITS are maintained to permit any valuation to be reperformed.
(4)A responsible person shall ensure that reconciliation of cash, debtors and creditors of a UCITS takes place at the same frequency as the valuation. Anti-dilution levy 38. A responsible person may apply an anti-dilution levy to a UCITS only if the constitutional document of the relevant UCITS provides that - (
- a)in calculating the redemption price for the UCITS the responsible person may, on any dealing day on which there are net redemptions, adjust the redemption price by deducting an anti-dilution levy to cover dealing costs and to preserve the value of the underlying assets of the UCITS, and (
- b)in calculating the subscription price for the UCITS the responsible person may, on any dealing day on which there are net subscriptions, adjust the subscriptions price by adding an anti-dilution levy to cover dealing costs and to preserve the value of the underlying assets of the UCITS. Chapter 9 Remuneration Restriction on payment of certain fees 39. A responsible person shall not pay the fees and expenses of the directors of the management company directly out of the assets of the UCITS. Performance fees 40.
(1)A responsible person shall ensure that performance fees are only payable by the UCITS on – (
- a)achieving a new high net asset value over the life of the UCITS, or, (
- b)the out-performance of an index.
(2)Where performance fees are payable on achieving a new high net asset value, the responsible person shall ensure that - (
- a)no performance fee is accrued or paid until the net asset value per share exceeds - (
- i)the previous highest net asset value per share on which the performance fee was paid or accrued, or (
- ii)the initial offer price, if higher. The initial offer price shall be taken as the starting price for this calculation. (
- b)the performance fee is only payable or paid on the increase of the net asset value per share over the amount in subparagraph (a)(
- i)or (a)(ii), whichever is higher.
(3)Where performance fees are payable on the basis of out-performance of an index, the responsible person shall ensure that - (
- a)the index is consistent with the UCITS investment policy, (
- b)the performance fee is payable only on the amount by which the UCITS outperforms the index, and (
- c)any underperformance of the index in preceding periods is cleared before a performance fee becomes due in subsequent periods.
(4)In calculating the performance fees payable, the responsible person shall ensure - (
- a)that the calculation of the performance fee does not crystallise more than once per year, and (
- b)the performance fee is not paid more than once per year.
(5)The responsible person shall ensure that the calculation of the performance fee is verified by the depositary.
(6)Where a UCITS has multiple managers or advisers the responsible person shall ensure that a performance fee is payable only on the performance of that part of the portfolio for which the investment manager or adviser is responsible. Calculation of annual management fee of structured UCITS 41.
(1)A responsible person shall ensure that where a UCITS charges an annual management fee calculated on the initial offer price per share of the UCITS – (
- a)the UCITS is a structured UCITS which provides a pre-defined return to investors, and (
- b)the fee charged is a percentage of the initial offer price per share of the UCITS. Chapter 10 Transactions involving Connected Persons Interpretation: Chapter 10 of Part 2 42. In this Chapter, “connected person” means the management company or depositary to a UCITS; and the delegates or sub-delegates of such a management company or depositary (excluding any non-group company sub-custodians appointed by a depositary); and any associated or group company of such a management company, depositary, delegate or sub-delegate. Restrictions on transactions with connected persons 43.
(1)A responsible person shall ensure that any transaction between a UCITS and a connected person is - (
- a)conducted at arm’s length, and (
- b)in the best interests of the unit-holders of the UCITS.
(2)A responsible person may enter into a transaction, on behalf of a UCITS, with a connected person only if at least one of the conditions in paragraphs (a), (
- b)or (
- c)is complied with: (
- a)the value of the transaction is certified by either - (
- i)a person who has been approved by the depositary as being independent and competent, or (
- ii)a person who has been approved by the responsible person as being independent and competent in the case of transactions involving the depositary; (
- b)execution is on best terms on an organised investment exchange under the rules of the relevant exchange; (
- c)execution is on terms which the depositary or, in the case of a transaction involving the depositary, the responsible person is satisfied conform to the requirements set out in paragraph
(1)above.
(3)In the event of a transaction to which this Chapter applies - (a) the depositary or, in the case of a transaction involving the depositary, the responsible person shall document how it has complied with paragraph
(2), and (
- b)where a transaction is conducted in accordance with subparagraph (
- c)of paragraph
(2), the depositary or, in the case of a transaction involving the depositary, the responsible person shall document their rationale for being satisfied that the transaction conforms with the requirements set out in paragraph
(1). Chapter 11 Directed Brokerage Services Rebates of commission 44. A responsible person shall ensure that, where a person, acting on its behalf, successfully negotiates the recapture of a portion of any commission charged by a broker or a dealer in connection with the purchase or sale of securities, the rebate of commission is paid to the UCITS. Costs, fees and expenses of directed brokerage services 45.
(1)A responsible person shall only reimburse out of the assets of the UCITS the operator of a directed brokerage service or similar arrangement for the costs, fees and expenses of that directed brokerage service or similar arrangement where the requirements set out in paragraph
(2)are met.
(2)The requirements for the purposes of paragraph
(1)are the following: (
- a)the costs, fees and expenses of the relevant directed brokerage service or similar arrangement - (
- i)are reasonable and vouched properly, and (
- ii)have been incurred directly by the operator in providing the relevant services or arrangement; (
- b)the prospectus disclosure required by Regulation 72 has been made; (
- c)the operator of the directed brokerage services or other arrangement invoices the responsible person separately for the relevant costs, fees and expenses. PART 3 SUPERVISORY REQUIREMENTS General conditions 46.
(1)(
- a)Where a UCITS is authorised by the Bank as an umbrella UCITS, the responsible person shall on behalf of the UCITS obtain the prior approval of the Bank for the establishment of each sub-fund of that umbrella UCITS. (
- b)An application to the Bank for approval for the purposes of subparagraph (
- a)shall include - (
- i)details of proposed sub-funds, and (
- ii)the proposed amendment or the proposed supplement (as the case may
- be)to the prospectus which will set out the investment objectives and policy of each of the proposed new sub-funds. (
- c)The responsible person of a UCITS shall, unless disclosed in the annual report, ensure that the prospectus of the UCITS discloses the following: (
- i)a statement to the effect that relevant direct and indirect operational costs and fees, arising from efficient portfolio management techniques, may be deducted from the revenue delivered to the UCITS. These costs and fees should not include revenue; (
- ii)the identity of the entity to which the relevant direct and indirect operational costs and fees are paid; (iii) if the entity to which the relevant direct and indirect operational costs and fees are paid is a related party to the management company or the depositary, that fact.
(2)Subject to paragraph
(4), a responsible person shall notify the Bank of each of the following, should it arise: (
- a)any proposal to amend the prospectus of the UCITS; (
- b)any proposal to amend any material agreement that has been entered into with a third party by or on behalf of a UCITS; (
- c)any proposal to replace a third party that has entered into a material agreement with the UCITS; (
- d)any proposal to change the auditor of the UCITS and the reasons for the proposed change.
(3)A notification made for the purposes of paragraph
(2)shall include sufficient information on the proposal to enable the Bank to consider and assess the proposal.
(4)If the Bank objects to a proposal notified to the Bank pursuant to paragraph
(2)(a), (
- b)or (c), it shall not proceed. Relationship with the Bank 47. A responsible person shall ensure that - (
- a)each UCITS which has been authorised by the Bank establishes and maintains an email address for correspondence with the Bank, (
- b)the email address in subparagraph (
- a)is monitored on a daily basis, and (
- c)the Bank is informed in writing promptly of any change to the email address in subparagraph (a). Charges for redemption or repurchase of units 48.
(1)Subject to paragraph
(2), a responsible person shall not increase the maximum relevant charge without the prior approval of unit-holders given on the basis of a simple majority of votes cast in general meeting or with the prior written approval of all unit-holders of the relevant UCITS (in accordance with the constitutional document) or such other majority as is specified in the constitutional document of the relevant UCITS.
(2)A responsible person shall - (
- a)provide unit-holders with reasonable notice of any proposed increase in the relevant charge, and (
- b)permit a unit-holder to redeem any or all of the unit-holder’s units prior to the implementation of the proposed increase.
(3)In this Regulation, “relevant charge” means, in the context of a particular UCITS, a charge relating to the redemption or repurchase of units in that UCITS. Replacement of depositary 49.
(1)A responsible person shall establish and implement procedures that are to be followed for the purpose of replacing a depositary, which shall be approved by the board of the responsible person.
(2)Where a UCITS replaces its depositary, each of the retiring depositary and the new depositary shall notify the Bank as soon as practicable of whether that retiring depositary or new depositary (as the case may be) is satisfied or dissatisfied with the transfer of assets.
(3)A responsible person may terminate the appointment of the depositary only - (
- a)upon the appointment of a new depositary, or (
- b)upon the revocation of the authorisation of the UCITS. Replacement of management company or third party 50.
(1)A responsible person shall establish and implement procedures that are to be followed for the purpose of replacing the management company or administration company.
(2)The procedures for the replacement of a management company or an administration company shall be approved by the board of the responsible person. Monthly returns 51.
(1)A responsible person shall submit to the Bank periodic returns each of which complies with the requirements of paragraph
(2).
(2)The requirements for the purposes of paragraph
(1)are the following: (
- a)returns shall be made on a monthly basis; (
- b)each return shall relate to a complete calendar month; (
- c)a return shall be made to the Bank not later than the tenth business day of the month that is subsequent to the month to which the return relates; (
- d)each return subsequent to the first return shall be in respect of the calendar month that is subsequent to the month to which the most recently submitted return relates; (
- e)a return must be denominated in the base currency of the relevant UCITS; (
- f)a return shall include the following: (
- i)the Bank code issued to the sub-fund of the UCITS; (
- ii)the base currency of the UCITS; (iii) the type of UCITS, designated by investment strategy; (
- iv)the total gross asset value of the UCITS at month-end; (
- v)the total net asset value of the UCITS at month-end; (
- vi)the number of units in circulation at month-end; (vii) the net asset value per unit at month-end; (viii) payments received from the issues of units during the relevant month; (
- ix)payments made for the repurchase of units during the relevant month; (
- x)the net amount from issues and repurchases during the relevant month; (
- xi)the profit or loss arising from the operations of the UCITS in the relevant month; (xii) investment management fees (excluding performance fees) - (I) accrued, and (II) paid, in the relevant month; (xiii) all other charges, fees and expenses (excluding investment management fees) - (I) accrued, and (II) paid, in the relevant month. Quarterly returns 52.
(1)A responsible person shall submit to the Bank periodic returns in the format prescribed by the Bank from time to time and each of which complies with the requirements of paragraph
(2).
(2)The requirements for the purposes of paragraph
(1)are the following: (
- a)each return shall be known as a Money-Market and Investment Fund return; (
- b)returns shall be made on a quarterly basis; (
- c)each return shall relate to a period of three complete and consecutive calendar months; (
- d)a return shall be made to the Bank not later than the tenth business day of the month that is subsequent to the last of the months to which the return relates; (
- e)each return subsequent to the first return shall be in respect of the three-month period that is subsequent to the last of the months to which the most recently submitted return relates. PART 4 PROSPECTUS REQUIREMENTS General requirements 53.
(1)A responsible person shall ensure that it and the UCITS complies with the terms of the UCITS prospectus.
(2)A responsible person shall translate a prospectus of a UCITS into another language only if such translation contains the same information and has the same meaning as in the prospectus that has been submitted to the Bank.
(3)(
- a)A responsible person shall not make any change to the investment objectives, or any material change to the investment policy, of a UCITS, each as disclosed in the prospectus, unless unit-holders have, in advance and on the basis of a simple majority of votes cast in general meeting or with the prior written approval of all unit-holders of the relevant UCITS (in accordance with the constitutional document) or such other majority as is specified in the constitutional document of the relevant UCITS, approved the relevant change or changes. (
- b)For the purposes of subparagraph (a), a change would be “material” if, were it to be made, it would alter significantly the asset type, credit quality, borrowing limits or risk profile of the relevant UCITS.
(4)(a) A responsible person shall provide all unit-holders of the UCITS with reasonable notice of the relevant change or changes in the event that, in accordance with paragraph
(3), any change is made in the investment objectives or any material change is made in the investment policy. (
- b)Notice given for the purposes of subparagraph (
- a)must be sufficient to enable a unit-holder, acting reasonably, to redeem some or all of the unit-holder’s units prior to the implementation of the relevant change or changes.
(5)A responsible person shall, in the next-occurring periodic report, notify unit-holders of material changes to the content of the prospectus.
(6)A responsible person shall ensure that the prospectus - (
- a)lists those stock exchanges, markets and regulated derivatives markets on which assets of the UCITS are listed or traded, and (
- b)includes only those stock exchanges, markets and regulated derivatives markets which, at the date of the prospectus, satisfy the regulatory criteria. Advertising 54.
(1)A responsible person shall ensure that the name of a UCITS and its regulatory status is shown clearly in any advertisement relating to that UCITS.
(2)A responsible person shall ensure that an advertisement relating to a UCITS shall not contain information which is false or misleading or presented in a manner that is deceptive.
(3)A responsible person shall ensure that an advertisement relating to a UCITS shall refer to the key investor information document and the prospectus issued by the relevant UCITS.
(4)A responsible person shall ensure that no advertisement relating to a UCITS is inconsistent with any relevant provision of the key investor information document or of the prospectus issued by the relevant UCITS.
(5)Without prejudice to Regulation 97, a responsible person shall comply with the advertising standards set out in Schedule 6 where the relevant UCITS is - (
- a)authorised in a Member State other than the State and is marketing its units in the State, or (
- b)authorised in the State and is marketing its units in the State or in a state that does not have any statutory regulation of marketing. Prospectus: general 55. A responsible person shall ensure that the following matters are disclosed in the prospectus of a UCITS: (
- a)the identity and, in brief form, details of the financial group or entity that is promoting the UCITS; (
- b)details of the persons who accept responsibility for information contained in the prospectus; (
- c)details of the principal investment manager of the UCITS; (
- d)details of sub-investment managers, if these are paid out of the assets of the UCITS directly and a statement that details of sub-investment managers not paid out of the assets of the UCITS directly, if any, shall be available on request to unit-holders; (
- e)if the UCITS proposes to create hedged currency share classes, that fact; (
- f)the distribution provisions on the termination or winding up of the UCITS, in particular those affecting unit-holders; (
- g)details of the FDI exposures for the purposes of Regulation 15
(4)(b)(iii). Prospectus: investment policy 56.
(1)A responsible person shall ensure that the investment policy of a UCITS, as it is disclosed in the prospectus in accordance with the UCITS Regulations, shall set out - (
- a)the types of asset in which the UCITS proposes to invest, (
- b)the basis upon which the UCITS will select its investments, (
- c)the place or places in which a UCITS will invest, indicating the countries or regions in which such investments will be made, and (
- d)whether it is intended to seek exposure to a country or region through investment in companies or instruments that are listed or traded on a stock exchange or market that is located in another jurisdiction.
(2)A responsible person that proposes, on behalf of a UCITS, to take short positions shall, in the prospectus of the UCITS, disclose - (
- a)in relation to each of the categories of assets in which it may invest, whether the UCITS will take long positions or short positions or both, and (
- b)either - (
- i)the percentage, relative to the net asset value, of the anticipated - (I) maximum value of the long positions, and (II) maximum of the absolute values of the short positions, or (
- ii)the anticipated maximum of the ratio of the value of the long positions to the absolute value of the short positions.
(3)A responsible person shall ensure that a UCITS that uses FDI includes the following information in its prospectus: (
- a)a description of the types of FDI that the UCITS may use and the extent to which the UCITS may be leveraged; (
- b)the method used to calculate global exposure.
(4)A responsible person that uses, on behalf of a UCITS, the VaR approach shall, in the prospectus of the UCITS and in accordance with paragraph
(5), disclose - (
- a)the expected level of leverage of the UCITS, (
- b)that there is a possibility of higher leverage levels, and (
- c)information on the reference portfolio.
(5)For the purposes of paragraph
(4)- (
- a)leverage shall be calculated as the sum of the notionals of the derivatives that are used, (
- b)the calculation of leverage within subparagraph (
- a)may be supplemented with leverage calculated on the basis of a commitment approach, and (
- c)the creation of leveraged exposure to an index via FDI, or the inclusion of a leverage feature in an index, shall be taken into account in assessing compliance with the prospectus disclosure requirements of paragraph
(4).
(6)A responsible person that uses, on behalf of a UCITS, total return swaps, or other FDI with the same characteristics as a total return swap, shall include the following in the prospectus of the UCITS: (
- a)information on the underlying strategy or index and composition of the investment portfolio or index; (
- b)information on the counterparty to the transactions; (
- c)a description of the risk of counterparty default and the effect of any such default on investor returns; (
- d)details of the extent to which the counterparty assumes any discretion over the composition or management of the UCITS investment port-folio or over the underlying of the FDI; (
- e)whether the approval of the counterparty is required in relation to any UCITS investment portfolio transaction.
(7)If a counterparty has discretion over the composition or management of the UCITS investment portfolio or of the underlying of the FDI then the responsible person shall, in the prospectus of the UCITS, identify the counterparty as an investment manager. Financial index 57.
(1)A responsible person that uses, on behalf of a UCITS, a financial index for investment purposes shall, in the prospectus of the UCITS, provide sufficient disclosure to allow a prospective investor understand the following: (
- a)the market that the index is representing; (
- b)why the index is being used as part of the investment strategy of the UCITS; (
- c)whether the investment will be made directly, through investment in the constituents of the index, or indirectly, through an FDI; (
- d)where additional information on the index may be obtained.
(2)A responsible person that intends to make use, on behalf of a UCITS, of the increased diversification limits referred to in Regulation 71 of the UCITS Regulations, shall, in the prospectus of the relevant UCITS - (
- a)disclose the intention to make use of the increased diversification limits, and (
- b)provide a description of the exceptional market conditions that necessitate this investment.
(3)A responsible person shall, in the prospectus of the relevant UCITS, disclose the rebalancing frequency of the financial index in which it invests and its effects on the costs within the index. Structured UCITS 58. A responsible person of a structured UCITS shall ensure that the prospectus of the UCITS includes, in clear language that can be understood easily by a retail investor, disclosure of - (a) its investment policy, (b) the underlying exposure, (c) payoff formulas, and (d) where relevant – (i) the fee paying arrangement for an annual management fee, and (ii) a risk warning that such fee is fixed and not subject to the performance of the UCITS.
(2)A responsible person of a structured UCITS shall include in the prospectus of the UCITS a prominent risk warning informing investors who redeem their investment prior to maturity that they do not benefit from the pre-defined payoff and may suffer significant losses. Fund of funds 59. A responsible person that is permitted to invest more than 20 per cent of the net assets of the relevant UCITS in other investment funds shall, in the prospectus of that relevant UCITS and in any promotional literature issued, include a prominent statement to this effect. Index-tracking funds 60.
(1)A responsible person of an index-tracking UCITS shall include the following in the prospectus of the UCITS: (
- a)a description of the index including information on the underlying components or details of where the exact composition of the index is published; (
- b)information on how the index will be tracked and the implications of the chosen method for unit-holders in terms of their exposure to the underlying index and counterparty risk; (
- c)information on the anticipated level of tracking error in normal market conditions; (
- d)a description of factors that are likely to affect the ability of the UCITS to track the performance of the index, including transaction costs, small illiquid components and dividend re-investments.
(2)A responsible person of an index-tracking leveraged UCITS shall include the following information in the prospectus of the UCITS: (
- a)a description of the leverage policy and how the leverage policy is implemented; (
- b)the cost of the leverage (where relevant); (
- c)the risks associated with the leverage policy; (
- d)a description of the impact of any reverse leverage; (
- e)a description of how the performance of the UCITS may differ significantly from the multiple of the index performance over the medium term to the long term. Efficient portfolio management 61.
(1)A responsible person shall, in the prospectus of the relevant UCITS, include the following: (
- a)a description of its intentions regarding techniques and instruments which may be used for the purposes of efficient portfolio management. This should include reference to the techniques and instruments which the UCITS can utilise and a detailed description of the inherent risks, including counterparty risk and potential conflict of interest, that may arise; (
- b)information on the impact of efficient portfolio management techniques and instruments on the performance of the UCITS; (
- c)information on the policy regarding direct and indirect operational costs and fees arising in the context of these techniques; (
- d)information on the collateral policy of the UCITS arising from (as the case may
- be)OTC derivatives or efficient portfolio management techniques and instruments or both.
(2)A disclosure for the purposes of paragraph
(1)shall include the following: (
- a)permitted types of collateral; (
- b)the level of collateral required; (
- c)the haircut policy; (
- d)in the case of cash collateral - (
- i)the re-investment policy, and (
- ii)the risks arising from the re-investment policy. Dealing 62.
(1)A responsible person shall, in the prospectus of the relevant UCITS, disclose the following information in respect of dealing: (
- a)the initial offer period; (
- b)the initial offer price; (
- c)in bold typeface, prominently at the beginning of the prospectus (or the relevant supplement to the prospectus, where appropriate), the maximum redemption charge; (
- d)the time limits within which the equivalent of the net issue price is to be paid into the assets of the UCITS.
(2)A responsible person that proposes to apply an anti-dilution levy to subscriptions or redemptions shall, in the prospectus of the relevant UCITS, include a provision to the following effect - “In calculating the subscription or redemption price for the UCITS the directors may, on any dealing day on which there are net subscriptions or redemptions, adjust (as relevant) the subscription or redemption price by adding or deducting an anti-dilution levy to cover dealing costs and to preserve the value of the underlying assets of the UCITS.” Redemption in specie 63.
(1)Subject to paragraph
(3), where the prospectus of a UCITS provides for redemption in specie, the responsible person shall, in the prospectus of the relevant UCITS, also provide as follows: (
- a)redemption in specie is - (
- i)at the discretion of the UCITS, and (
- ii)subject to the consent of the redeeming unit-holder; (
- b)asset allocation is subject to the approval of the depositary; (
- c)a determination to provide redemption in specie may be at the sole discretion of the responsible person where the redeeming unit-holder requests redemption of a number of units that represent at least 5 per cent of the net asset value of the UCITS.
(2)In the event of a redemption in specie in accordance with subparagraph (c) of paragraph
(1)- (
- a)the responsible person shall, if so requested by the redeeming unit-holder, sell the assets on behalf of that unit-holder, and (
- b)the cost of the sale of the relevant units may be charged to the unit-holder.
(3)Paragraph
(1)does not apply to an exchange-traded fund where the original subscription was made in specie. Remuneration and costs arising 64.
(1)A responsible person shall ensure that the prospectus of the relevant UCITS includes - (
- a)in the same section of the prospectus and in a form that can be easily understood and analysed by unit-holders and prospective investors, information on remuneration, costs and expenses to be borne by the UCITS, and (
- b)the policy of the UCITS regarding direct and indirect operational costs and fees arising from efficient portfolio management techniques that may be deducted from the revenue delivered to the UCITS.
(2)A responsible person of an umbrella UCITS shall state clearly in the prospectus the charges (if any) that are applicable to the exchange of units in one sub-fund of the umbrella UCITS for units in another sub-fund of the umbrella UCITS. Umbrella UCITS 65.
(1)A responsible person of an umbrella UCITS investment company shall include the following statement in the prospectus - “An umbrella fund with segregated liability between sub-funds”.
(2)Where an umbrella UCITS issues a supplement to the prospectus in relation to the establishment of a new sub-fund, the supplement shall - (
- a)state that the UCITS is constituted as an umbrella UCITS, and (
- b)name the other existing sub-funds of that umbrella UCITS or ensure that the prospectus is updated to include the names of all existing sub-funds.
(3)Where an umbrella UCITS investment company was authorised by the Bank and commenced trading before 30 June 2005 and does not have segregated liability between sub-funds, the responsible person shall disclose clearly in the relevant prospectus the potential risks to investors arising from the absence of the segregation of liability between sub-funds. Authorisation status 66. A responsible person shall ensure that the prospectus of the UCITS - (
- a)states that the authorisation of the UCITS by the Bank is not an endorsement or guarantee of the UCITS by the Bank, (
- b)states that the Bank is not responsible for the contents of the prospectus, and (
- c)includes the following statement - “The authorisation of this UCITS by the Central Bank of Ireland shall not constitute a warranty as to the performance of the UCITS and the Central Bank of Ireland shall not be liable for the performance or default of the UCITS.” Risk disclosures 67.
(1)A responsible person shall, in the prospectus of the UCITS, disclose, and describe in a comprehensive manner, the risks that are applicable to investing in that particular UCITS.
(2)A disclosure for the purposes of paragraph
(1)shall make reference to at least the following: (
- a)the fact that prices of units may fall as well as rise; (
- b)that investors are recommended to consult a stockbroker or financial adviser about the contents of the prospectus; (
- c)where relevant, the fact that the difference at any one time between the sale and repurchase price of units in the UCITS arising from the repurchase charge means that the investment should be viewed as medium term to long term investment.
(3)A responsible person of a UCITS that has investment objectives or an investment policy that involves investing - (
- a)more than 20 per cent of the assets of the UCITS in emerging markets, (
- b)more than 30 per cent of the assets of the UCITS in bonds or warrants that are below investment grade, or both, shall insert a risk warning informing investors that an investment in the UCITS should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all investors.
(4)A risk warning notice for the purposes of paragraph
(3)- (
- a)shall be inserted and highlighted at the beginning of the prospectus (or the relevant supplement to the prospectus, where appropriate), and (
- b)must cross-refer to the more detailed disclosure of risk factors which are contained in the body of the prospectus (or supplement).
(5)Where paragraph
(3)applies the relevant prospectus (or the relevant supplement to the prospectus, where appropriate) shall contain a full description of the risks that are involved. UCITS that use financial derivative instruments
- A responsible person of a UCITS that intends to invest principally in FDIs shall insert a warning of this intention at the beginning of the relevant prospectus (or the relevant supplement to the prospectus, where appropriate) and of any other promotional literature. Cash and money-market funds
- A responsible person of a UCITS that has an investment objective or an investment policy that involves investing substantially in deposits or money-market instruments shall provide a risk warning in the prospectus drawing attention to the difference between the nature of a deposit and the nature of an investment in the UCITS, with particular reference to the risk that the value of the principal invested in the UCITS may fluctuate. Distributions out of capital 70.
(1)A responsible person may only make a distribution out of capital where the prospectus of the relevant UCITS includes each of the following: (
- a)an explanation of the rationale underlying the policy to make distributions out of capital; (
- b)in accordance with paragraph
(2), a risk warning, set out prominently at the front of the prospectus, that describes the effects of making a distribution from capital; (
- c)a statement that a distribution out of capital may have different tax implications to a distribution of income so that investors are recommended to seek advice in this regard; (
- d)a statement indicating the greater risk of capital erosion that exists and the likelihood that, due to capital erosion, the value of future returns would also be diminished.
(2)A risk warning referred to in paragraph
(1)(
- b)shall highlight that, in the event of the making of a distribution out of capital - (
- a)capital will be eroded, (
- b)the distribution is achieved by forgoing the potential for future capital growth, and (
- c)this cycle may continue until all capital is depleted.
(3)A responsible person shall charge fees and expenses, including management fees, to the capital of a UCITS only if the prospectus of the relevant UCITS includes each of the following: (
- a)a statement that fees and expenses, including management fees, or a portion of any such fee or expense, may be charged to capital; (
- b)an explanation of the rationale underlying the policy to charge fees and expenses to capital; (
- c)a risk warning, set out prominently in bold text at the front of prospectus, which states - “Unit-holders should note that all or part of fees and expenses, including (if applicable) management fees, may be charged to the capital of the UCITS. This will have the effect of lowering the capital value of your investment”; (
- d)a description of the effects that the charging of fees and expenses (including management fees) to capital may have, including that capital may be eroded.
(4)Where a UCITS invests more than 20 per cent in fixed-income instruments and the priority of the UCITS is the generation of income rather than capital growth, the responsible person shall ensure that - (
- a)this priority is disclosed in the prospectus of the relevant UCITS, and (
- b)the prospectus of the relevant UCITS includes a statement that a distribution made during the life of the UCITS must be understood as a type of capital reimbursement. Conflicts of interest 71.
(1)A responsible person shall include in the prospectus of the relevant UCITS a description of the potential conflicts of interest that could arise between the management company, investment manager and the UCITS and, where applicable, details of how such conflicts will be managed.
(2)A responsible person shall include in the prospectus of the relevant UCITS a description of soft commission arrangements that may be entered into by a responsible person or a connected person.
(3)Where it is envisaged that a UCITS and connected persons may enter into transactions with each other, the responsible person shall ensure that the prospectus discloses the fact that such transactions may occur.
(4)In this Regulation “connected person” has the meaning given to the term in Regulation
- Directed brokerage services and similar arrangements
- A responsible person shall, in the prospectus of the UCITS, disclose details of any directed brokerage services or similar arrangements that are operated in relation to the UCITS, including details of the services provided. Share classes 73.
(1)A responsible person that uses FDI at share class level shall include in the UCITS prospectus a clear description of the strategies that the UCITS pursues and the effect that this may have on the relevant share class.
(2)A responsible person shall ensure that the prospectus of the relevant UCITS includes the following: (
- a)a description of the general currency hedging strategies of the UCITS and the features of individual currency share classes; (
- b)where a UCITS intends to invest in any asset that is denominated in a currency other than the base currency at share class level, a disclosure - (
- i)as to whether it is the intention of the UCITS to hedge the resulting currency exposure back into the base currency and, if it is so intended, to what extent, and (
- ii)of the general costs and, if relevant, exchange rate risk that is associated with the currency strategy; (
- c)where a UCITS has established an unhedged currency share class, a disclosure - (
- i)that a currency conversion will take place upon subscriptions, redemptions and distributions at prevailing exchange rates, and (
- ii)that the value of the share expressed in the class currency will be subject to exchange rate risk in relation to the base currency; (
- d)where a UCITS has established hedged share classes, a disclosure of this fact, in accordance with paragraph
(3).
(3)A disclosure for the purposes of paragraph
(2)(
- d)shall state - (
- a)that, to the extent that hedging is successful, the performance of the class is likely to move in line with the performance of the underlying asset or assets, (
- b)that investors in the hedged class will not benefit if the class currency falls against the base currency or against the currency in which the assets of the UCITS are denominated, (
- c)the implications (for unit-holders) of the hedging policy, including at least the following - (
- i)a statement indicating the extent to which the UCITS intends to hedge against currency fluctuations and noting that, while not the intention, nonetheless over-hedged or under-hedged positions may arise due to factors outside of the control of the UCITS, (
- ii)a statement that over-hedged positions shall not exceed 105 per cent of the net asset value of the class and under-hedged positions shall not fall below 95 per cent of the net asset value of the class, (iii) a statement that the hedged positions will be kept under review to ensure that over-hedged positions and under-hedged positions do not exceed the permitted level, (
- iv)a statement that transactions will be attributable clearly to a specific class, (
- v)a statement that currency exposures of different currency classes may not be combined or offset and that currency exposures of assets of the UCITS may not be allocated to separate share classes, and (
- vi)a statement that the costs and gains or losses of the hedging transactions will accrue solely to the relevant class.
(4)A review for the purposes of paragraph 3(c)(iii) shall incorporate a procedure to ensure that any position materially in excess of 100 per cent of net assets is not carried forward from month to month. Performance fees 74.
(1)Where a UCITS provides for the payment of performance fees, a responsible person shall, in the prospectus of the relevant UCITS, disclose the following: (
- a)that the UCITS provides for the payment of performance fees; (
- b)the calculation period for determining the performance fees; (
- c)the first calculation period; (
- d)how the performance fees are calculated; (
- e)the percentage performance fee payable; (
- f)the accrual basis of the performance fees and when the performance fees are actually paid; (
- g)a risk warning that performance fees are based on net realised and net unrealised gains and losses as at the end of each calculation period and as a result, performance fees may be paid on unrealised gains which may subsequently never be realised; (
- h)where a UCITS has multiple managers or advisers, a risk warning that it is possible that performance fees may be payable to one or more of the investment managers or advisers where the overall net asset value of the fund may not have increased. PART 5 KEY INVESTOR INFORMATION DOCUMENT General 75. A responsible person shall ensure that a KIID for a UCITS complies with the following: (
- a)the ESMA Guidelines on clear language and layout of the key investor information document (Ref: CESR/10-1320); (
- b)the ESMA Guidelines on the methodology for calculation of the ongoing charges figure in the Key Investor Information Document (Ref: CESR/10-674); (
- c)the ESMA Guidelines on the methodology for the calculation of the synthetic risk and reward indicator in the Key Investor Information Document (Ref.: CESR/10-673); (
- d)the ESMA template for the Key Investor Information Document (Ref.: CESR/10-1321); (
- e)the ESMA Guidelines selection and presentation of performance scenarios in the Key Investor Information document for structured UCITS (Ref.: CESR/10-1318). Investment objective and policy 76.
(1)A responsible person shall ensure that the following are included in the KIID: (
- a)where a UCITS is established as an index-tracking UCITS, the KIID shall include, in summary form, information on how the index will be tracked and the implications of the chosen method for unit holders in terms of their exposure to the underlying index and counterparty risk; (
- b)where a UCITS is established as an index-tracking leveraged UCITS, the KIID shall include, in summary form, the following information: (
- i)a description of the leverage policy, how this is achieved (i.e. whether the leverage is at the level of the index or arises from the way in which the UCITS obtains exposure to the index), the cost of the leverage (where relevant) and the risks associated with this policy; (
- ii)a description of the impact of any reverse leverage; (iii) a description of how the performance of the UCITS may differ significantly from the multiple of the index performance over the medium to the long term.
(2)In relation to a structured UCITS, if the pre-determined pay-off is available only to those investors that buy units at a certain point and hold them until a certain date, the responsible person shall ensure that the relevant KIID - (
- a)includes a statement to this effect, (
- b)details the consequences for an investor of buying and selling units in the UCITS other than in instances in which the pre-determined pay-off is available, and (
- c)if a guarantee from an independent third party is offered, includes an explanation of such guarantee. Risk and reward profile 77.
(1)A responsible person shall calculate a synthetic risk and reward indicator in accordance with the methodology prescribed in ESMA Guidelines for the