UCITS NOTICES 2013

Transcription

UCITS NOTICES 2013

2013
UCITS NOTICES
UCITS NOTICES
Undertakings for Collective Investment in
Transferable Securities authorised under
European Communities (Undertakings for
Collective Investment in Transferable
Securities) Regulations 2011
October 2013
UCITS NOTICES
Explanatory Memorandum
European Communities (Undertakings for Collective Investment in Transferable
Securities) Regulations 2011 ("the Regulations"), implement Directive 2009/65/EC
on the Co-ordination of Laws, Regulations and Administrative Provisions relating to
Undertakings for Collective Investment in Transferable Securities (UCITS). The
Central Bank of Ireland ("the Central Bank") is designated in the Regulations as the
competent authority with responsibility for the authorisation and supervision of
UCITS. Accordingly, any unit trust, common contractual fund, open-ended variable
capital company or open-ended fixed capital company must be authorised by the
Central Bank in order to be established as a UCITS in Ireland.
The Central Bank has produced this series of UCITS Notices in order to:
(i)
explain and clarify various aspects of the Regulations; and
(ii)
set down conditions not contained in the Regulations with which UCITS must
conform.
This series of UCITS Notices must be read in conjunction with the Regulations. The
Notices do not purport to be a full or legal interpretation of the Regulations. UCITS
must comply with all of the provisions of the Regulations not just those provisions
referred to in the Notices. Where individual Regulations are quoted the Notices are
intended to act as guidelines. In the event of any difference or discrepancy between
the Notices and the Regulations the provisions of the Regulations will prevail.
Where a requirement of these Notices is amended or deleted, any legal proceedings,
or any investigation, disciplinary or enforcement action in respect of any requirement
may be continued, and any breach of the requirement so amended or deleted may
subsequently be the subject of a legal proceeding, investigation, disciplinary or
enforcement action by the Central Bank or other person, as if the requirement had not
been amended or deleted.
The following points should be noted:
(1) Collective investment schemes other than UCITS may be established as unit
trusts, under the Unit Trusts Act, 1990, investment companies under the
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Companies Act, 1990 Part XIII, investment limited partnerships under the
Investment Limited Partnerships Act, 1994 and common contractual funds
under the Investment Funds, Companies and Miscellaneous Provisions Act,
2005. The Central Bank has issued a separate set of Notices for collective
investment schemes other than UCITS.
(2)
These UCITS Notices also apply to the marketing, in Ireland, of a UCITS
established in another Member State.
(3)
Obligations imposed on a UCITS under the Regulations and under these
Notices are, in the case of a self-managed investment company, obligations of
the investment company and in the case of unit trusts and common contractual
funds or investment companies that have appointed a management company,
obligations of the management company.
(4)
Interpretation:
For the purposes of these Notices the following interpretations and definitions
shall apply:
Actively-managed UCITS ETF: An actively-managed UCITS ETF is a UCITS
ETF, the manager of which has discretion over the composition of its portfolio,
subject to the stated investment objectives and policies, (as opposed to a UCITS
ETF which tracks an index and does not have such discretion). An activelymanaged UCITS ETF generally tries to outperform an index.
Annual tracking difference: The difference between the annual return of the
index-tracking UCITS and the annual return of the tracked index.
Associated company:
This term has the same meaning as is given to
“associated undertaking” in the European Communities (Companies: Group
Accounts) Regulations, 1992 (S.I. No. 201 of 1992). In general this states that
companies are associated where a significant influence may be exercised by one
company over the operating and financial policy of another. This is deemed to
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be the case where 20 % or more of the voting rights in one company are owned
directly or indirectly by another.
Central Bank's Licensing Requirements:
The Licensing and Supervision
Requirements and Standards for Credit Institutions as issued by the Central
Bank from time to time.
Best execution:
The best price available in the market, exclusive of any
charges but taking account of any other exceptional circumstances such as
counterparty risk, order size or client instructions.
Board of directors: The board of directors of the management company or selfmanaged investment company.
Client: Any natural or legal person, or any other undertaking including a
UCITS, to whom a management company provides a service of collective
portfolio management or, in the case of a management company, services
pursuant to Regulation 16(2)(a).
Collective portfolio management: Management of UCITS and other collective
investment undertakings. Management includes the functions of investment
management, administration and marketing.
CIS:
This term refers to a UCITS or non-UCITS collective investment
undertaking.
Credit institution: A credit institution within the meaning of Directive
2006/48/EC.
Credit ratings: References to credit ratings are made in some of the notices.
The ratings referred to are Standard and Poors. An “equivalent rating” for the
purposes of these notices is one which has been provided by an internationally
recognised rating agency and which is deemed equivalent to the rating
stipulated in the notice. An “implied rating” arises where a decision on an
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unrated entity is made by a UCITS on the basis of a relationship between an
issuer and its rated parent, or where an issuer has a senior debt/long term rating
but no short term rating.
Counterparty risk: The risk of loss for the UCITS resulting from the fact that
the counterparty to a transaction may default on its obligations prior to the final
settlement of the transaction’s cash flow.
Durable medium:
An instrument which enables an investor to store
information addressed personally to that investor in a way that is accessible for
future reference for a period of time adequate for the purposes of the
information and which allows the unchanged reproduction of the information
stored.
ESMA: European Securities and Markets Authority
Fund Administration Services:
The administration of CIS, including the
performance of valuation services or fund accounting services or acting as
transfer agents or registration agents for such CIS.
Group companies: Companies which are included in the same group for the
purposes of consolidated accounts, as defined in accordance with Directive
83/349/EEC1 or in accordance with recognised international accounting rules.
Indicative net asset value: A measure of the intraday value of the net asset
value of a UCITS ETF based on the most up-to-date information.
The
indicative net asset value is not the value at which investors on the secondary
market purchase and sell their units.
Index-tracking UCITS: A UCITS the strategy of which is to replicate or track
the performance of an index or indices, for example, through synthetic or
physical replication.
1
Seventh Council Directive of 13 June 1983 based on article 54(3)(g) of the Treaty on consolidated
accounts
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Index-tracking leveraged UCITS: A UCITS the strategy of which is to have a
leveraged exposure to an index or exposure to a leveraged index.
Individual portfolio management: Discretionary portfolio management on a
client-by-client basis.
Investment and borrowing restrictions: For the purposes of the application of
investment and borrowing restrictions, references in Notices UCITS 9, UCITS
10 and UCITS 11 to "assets" and "value of the fund" means net assets of a
UCITS. UCITS may be established with mixed investment objectives. In these
circumstances the investment restrictions applicable to particular types of assets
apply to the net asset value of the UCITS as a whole.
Liquid: money market instruments/transferable securities are regarded as being
liquid where they can be repurchased, redeemed or sold at limited cost, in terms
of low fees and narrow bid/offer spread, and with very short settlement delay.
Liquidity risk: The risk that a position in the UCITS portfolio cannot be sold,
liquidated or closed at limited cost in an adequately short time frame and that
the ability of the UCITS to comply at any time with Regulation 104(1) is
thereby compromised.
Management company: A company whose regular business is collective
portfolio management.
Market risk: The risk of loss for the UCITS resulting from fluctuation in the
market value of positions in the UCITS portfolio attributable to changes in
market variables, such as interest rates, foreign exchange rates, equity and
commodity prices or an issuer’s credit worthiness.
Multilateral trading facility:
A multilateral trading facility as defined in
Article 14 of Directive 2004/39/EC of the European Parliament and of the
Council on markets in financial instruments.
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Operational risk: The risk of loss for the UCITS resulting from inadequate
internal processes and failures in relation to people and systems of the
management company/self-managed investment company or from external
events, and includes legal and documentation risk and risk resulting from the
trading, settlement and valuation procedures operated on behalf of the UCITS.
Related company: This term has the same meaning as in the Companies Act,
1990 (Section 140(5)). In general this states that companies are related where
50 % of the paid up capital of, or 50 % of the voting rights in, one company are
owned directly or indirectly by another.
Relevant person: In the case of a UCITS management company or selfmanaged investment company a relevant person means any of the following:
a)
a director, partner or equivalent, or manager of the management company
or investment company;
b)
an employee of the management company or investment company, as well
as any other natural person whose services are placed at the disposal and
under the control of the management company or investment company
and who is involved in the provision by the management company or
investment company of collective portfolio management;
c)
a natural person who is directly involved in the provision of services to
the management company under a delegation arrangement to third parties
for the purpose of the provision by the management company of collective
portfolio management.
Senior management:
The person or persons who effectively conduct the
business of a management company or self-managed investment company in
accordance with Regulation 17(1)(c).
Supervisory function: The relevant persons or body or bodies responsible for
the supervision of its senior management and for the assessment and periodical
review of the adequacy and effectiveness of the risk management process and of
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the policies, arrangements and procedures put in place to comply with the
obligations under the Regulations.
Tracking error: The volatility of the difference between the return of the
index-tracking UCITS and the return of the index or indices tracked.
Trustee: The trustee function in respect of a unit trust, a common contractual
fund or an investment company includes the custodian function.
Unitholder: This term means any natural or legal person holding one or more
units in a UCITS and applies to a shareholder in the case of an investment
company, a participant in a common contractual fund and a unitholder in the
case of a unit trust.
UCITS ETF: A UCITS ETF is 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 significantly vary from
its net asset value and where applicable its indicative net asset value.
Units: This term applies to shares of an investment company and units of a unit
trust or a common contractual fund.
Central Bank of Ireland
February 2013
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LIST of UCITS NOTICES
UCITS 1
Information and document requirements of the Central Bank
of Ireland in support of an application for authorisation as a
UCITS
July 2011
1
UCITS 2
Supervisory and reporting requirements and conditions for
UCITS management companies , UCITS self-managed
investment companies and administration companies
authorised by the Central Bank of Ireland
February 2013
4
UCITS 3
Trustees - eligibility criteria
July 2011
33
UCITS 4
Trustees – duties, supervisory and reporting requirements
and conditions
December 2011
35
UCITS 5
Supervisory and reporting requirements and conditions for
UCITS authorised by the Central Bank of Ireland
December 2011
43
UCITS 6
Prospectus
February 2013
49
UCITS 7
Information to be included in the monthly returns
July 2011
61
UCITS 8
Publication of annual and half-yearly reports
May 2013
62
UCITS 9
Eligible assets and investment restrictions
July 2011
71
UCITS 10
Financial derivative instruments
October 2013
86
UCITS 11
Borrowing powers
December 2011
115
UCITS 12
Techniques and instruments, including Repurchase/Reverse
Repurchase Agreements and Securities Lending, for the
purposes of efficient portfolio management
March 2013
117
UCITS 13
Umbrella UCITS
December 2011
122
UCITS 14
Dealings by promoter, manager, trustee, investment adviser
and group companies
May 2013
125
UCITS 15
Cross-border notification of UCITS
December 2011
127
UCITS 16
Code of conduct in relation to collective portfolio
management
July 2011
130
UCITS 17
Money Market Funds
July 2011
140
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UCITS 18
Master-Feeder Structures
December 2011
147
UCITS 19
Key Investor Information Document
February 2013
160
UCITS 20
Exchange Traded Funds
February 2013
163
UCITS 21
Financial Indices
February 2013
165
Annex I
Capital compliance requirement – guidance and regulatory
report
February 2013
169
Annex II
Requirements on outsourcing of administration activities in
relation to CIS
July 2011
184
October 2013
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UCITS 1.3
Undertakings for Collective Investment in Transferable Securities
Information and document requirements of the Central Bank of
Ireland in support of an application for authorisation as a UCITS
Obligations are derived directly from provisions of the Regulations, or are conditions
imposed by the Central Bank of Ireland (the Central Bank) under Regulation 123(3)
of the Regulations.
General Information Required for all UCITS
An application for authorisation of a UCITS shall be made in writing to the Central
Bank. Applications must contain the following information:
1.
the name of the UCITS;
2.
a statement of the general nature of the investment objectives of the UCITS;
3.
the prospectus;
4.
the full name and address of the promoter of the UCITS. Sufficient information
concerning the promoter to enable the Central Bank to be satisfied as to its
expertise, integrity and adequacy of financial resources.
This information
should include, inter alia, details of shareholders, latest audited accounts and
details of overseas regulatory status (if any), in accordance with Guidance Note
2/96 – Promoters of Collective Investment Schemes;
5.
where a UCITS proposes to employ the services of a management company the
following information is to be supplied in respect of that company:
(i)
full name and address;
(ii)
memorandum and articles of association;
(iii) the names of the directors, the company secretary, and the shareholders;
(iv) sufficient information in respect of all directors and shareholders to enable
the Central Bank to be satisfied that they have appropriate expertise and
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are of good reputation and, in the case of shareholders, that they have
appropriate financial resources, in accordance with Notice UCITS 2 and
Guidance Note 4/07;
6.
the full name and address of the proposed trustee;
7.
the full name and address of the proposed investment manager, if it is different
from the management company or investment company and a copy of the
relevant agreement with the investment manager.
Sufficient information
concerning the investment manager to enable the Central Bank to be satisfied as
to its expertise, integrity and adequacy of financial resources. This information
should include, inter alia, details of shareholders, latest audited accounts and
details of the overseas regulatory status (if any), in accordance with Policy
Document - Investment managers and investment advisers to authorised
collective investment schemes (CIS) – approval and disclosure - November
2004;
8.
the full name and address of the auditor;
9.
the full name and address of any third party which has been contracted by the
UCITS, or management company acting for the UCITS, to carry out its work
and copies of the relevant agreements with the third party.
Sufficient
information concerning any third party involved to enable the Central Bank to
be satisfied as to its expertise, integrity and adequacy of financial resources.
This information should include, inter alia, details of shareholders, latest audited
accounts and details of overseas regulatory status (if any);
10.
such additional information as the Central Bank may specify in the course of
determining individual applications.
Additional Information Required for Unit Trusts and Common Contractual
Funds
An application for authorisation of a unit trust scheme or a common contractual fund
shall be made in writing to the Central Bank by the management company.
Applications must contain the following additional information:
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11.
the trust deed or deed of constitution;
12.
the agreement with the trustee, in the case of a common contractual fund.
Additional Information Required for Investment Companies
An application for authorisation of an investment company shall be made in writing to
the Central Bank by the investment company.
Applications must contain the
following additional information:
13.
the full name and address of the investment company and the memorandum and
articles of association;
14.
the names of the directors and the company secretary. Sufficient information in
respect of all directors to enable the Central Bank to be satisfied that they have
appropriate expertise and are of good reputation.
This information should
include, inter alia, a curriculum vitae in the case of each director;
15.
a copy of the agreement between the company and the trustee.
Applications
All applications should be addressed to:
Funds Authorisation Unit
Securities and Markets Supervision Division
Block D
Iveagh Court
Harcourt Road
Dublin 2.
July 2011
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UCITS 2.6
Supervisory and reporting requirements and conditions for UCITS
management companies, UCITS self-managed investment companies
and administration companies authorised by the Central Bank of
Ireland
of the Regulations.
UCITS management companies
A management company may be authorised to provide collective portfolio
management and individual portfolio management services. It may not be authorised
solely to provide individual portfolio management services. A management company
which is authorised to provide individual portfolio management services may also be
authorised to provide investment advice and safekeeping and administration in
relation to units of collective investment schemes.
UCITS self-managed investment companies
A UCITS investment company, which does not designate a management company, (a
self-managed investment company), is also subject to this Notice. The applicable
requirements are specified in paragraph 95.
In accordance with the Regulations, management companies, and where relevant selfmanaged investment companies, must take into account the nature, scale and
complexity of their business and the nature and range of services and activities
undertaken in the course of that business when applying certain requirements of the
Regulations, which are also included in this Notice. The relevant requirements are set
out in paragraphs 23(ii), 24, 25, 46, 50, 52, 59, 72-74 and 77. The business plan
submitted by a management company or self-managed investment company, in
accordance with paragraph 2 must outline the range of activities to be undertaken at
the outset and indicate how the relevant requirements have been addressed. The
business plan must be updated to take account of any material increase in the
activities carried out by the management company which would affect these
requirements.
Application requirements
1.
The Central Bank may not grant authorisation to a management company unless
inter alia:
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(i)
the applicant is a body corporate with its registered office and its head
office in Ireland;
(ii)
it meets with specific capital requirements;
(iii) its shareholders, directors and managers satisfy tests in relation to fitness
and probity;
(iv) its directors and managers are sufficiently experienced in relation to the
type of CIS, both UCITS and non-UCITS, to be managed; and
(v)
2.
its group structure does not prevent the effective supervision by the
Central Bank.
An application for authorisation as a management company must be made by
submitting:
(i)
A completed application form signed by two directors of the applicant
management company;
(ii)
Completed individual questionnaires (IQ) in respect of;
(a) each director and senior manager;
(b) each individual who has a direct or indirect holding of shares or
other interest in the proposed management company, which
represents 10% or more of the capital or voting rights in the
management company;
(c) any other individual who is in a position to exercise a significant
influence over the management of the management company.
(iii)
A detailed business plan which takes account of the requirements of
Regulation 18.
Organisational requirements
3.
A management company must ensure that when allocating functions internally,
senior management and, where appropriate, the supervisory function, are
responsible for the management company’s compliance with its obligations
under the Regulations.
4.
A management company shall ensure that its senior management:
(i)
is responsible for the implementation of the general investment policy for
each managed CIS, as defined, where relevant, in the prospectus, the trust
deed, deed of constitution or the instruments of incorporation of an
investment company;
(ii)
oversees the approval of investment strategies for each managed CIS;
(iii) is responsible for ensuring that the management company has a permanent
and effective compliance function, even if this function is performed by a
third party;
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(iv) ensures and verifies on a periodic basis that the general investment policy,
the investment strategies and the risk limits of each managed CIS are
properly and effectively implemented and complied with, even if the risk
management function is performed by third parties;
(v)
approves and reviews on a periodic basis the adequacy of the internal
procedures for undertaking investment decisions for each managed CIS,
so as to ensure that such decisions are consistent with the approved
investment strategies;
(vi) approves and reviews on a periodic basis the risk management policy and
arrangements, processes and techniques for implementing that policy
including the risk limit system for each managed CIS.
The responsibilities set out in sub-paragraphs (i) - (vi) cannot be delegated and
must be carried out by senior management.
5.
A management company shall ensure that senior management and, where
appropriate, the supervisory function shall:
6.
(i)
assess and periodically review the effectiveness of the policies,
arrangements and procedures put in place to comply with the obligations
in the Regulations;
(ii)
take appropriate measures to address any deficiencies.
A management company must ensure that senior management and, where
appropriate, the supervisory function receives on a frequent basis, and at least
annually, written reports on matters of compliance, internal audit and risk
management indicating in particular whether appropriate remedial measures
have been taken in the event of any deficiencies.
7.
A management company must ensure that senior management receives on a
regular basis reports on the implementation of investment strategies and of the
internal procedures for taking investment decisions, referred to in paragraph
4(ii) – (v) above.
8.
A management company must establish, implement and maintain decision
making procedures and an organisational structure which clearly and in a
documented manner specifies reporting lines and allocates functions and
responsibilities. The board must appoint a Chairman on a permanent basis.
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9.
The organisation of a management company must be structured such that no one
person can decide on the direction of the management company without the
endorsement of another.
10.
In accordance with good corporate governance principles, the Central Bank
considers that the board of a management company is responsible as a whole for
the following managerial functions:
(i)
decision making: The board must have clear responsibility and
competence in relation to all material decisions affecting the operation and
conduct of the business of the management company;
(ii)
monitoring compliance: The board must put in place procedures
designed to ensure compliance with all applicable legal and regulatory
requirements of the management company itself and all CIS under
management;
(iii) risk management: The board must put in place procedures designed to
ensure that all applicable risks pertaining to the management company and
to CIS under management can be identified, monitored and managed at all
times;
(iv) monitoring of investment policy, investment strategies and performance:
The board must put in place procedures to ensure and verify that the
investment policies and strategies of each CIS are complied with and to
ensure availability of up to date information on portfolio performance;
(v)
financial control: The board must put in place procedures to ensure all
relevant accounting records of the management company and of CIS
under management are properly maintained and are readily available,
including production of annual and half-yearly financial statements;
(vi) monitoring of capital: The board must put in place procedures to ensure
compliance with regulatory capital requirements;
(vii) internal audit: The board must put in place procedures to ensure
effective internal audit procedures for the management company and for
CIS under management;
(viii) supervision of delegates: The board must have clear structures in place
for the ongoing monitoring of work delegated to third parties;
(ix) complaints handling: The board must have arrangements in place to
ensure that complaints from unitholders are addressed promptly and
effectively;
(x) accounting policies and procedures: The board must have procedures in
place to ensure that proper accounting policies and procedures are
employed in respect of the management company and all CIS under
management.
11.
(i)
A management company may delegate functions subject to the provisions
of the Regulations which inter alia require that measures are put in place
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which enable the persons who conduct the business of the management
company to monitor effectively at any time the activity of the undertaking
to which the mandate is given. Moreover a management company shall
not delegate functions to the extent that it becomes a letterbox entity.
(ii)
The liability of a management company shall not be affected by the
delegation by the management company of any functions to third parties.
Note: The Central Bank considers that in order for a management company to
discharge its responsibilities under the Regulations, the management
company must exercise care and diligence in choosing and appointing
third parties, so as to ensure that the third party has and maintains the
expertise, competence and standing appropriate to discharge the
responsibilities concerned. The management company must maintain an
appropriate level of supervision over the third parties and make
appropriate inquiries from time to time to confirm that the obligations of
the third party continue to be competently discharged. This does not
purport to be a legal interpretation of the Regulations and the
corresponding provisions of Directive 2009/65/EC.
12. Where a management company delegates activities the business plan must
identify the board member or other individual ("designated persons") who will,
on a day-to-day basis, monitor and control each of the individual activities
identified in paragraph 10. The board of the management company must
formally adopt a statement of responsibility in relation to the functions and the
procedures which will apply in each case.
13.
Where a management company delegates activities, the business plan must
provide for the following requirements in relation to the reports to be received
by the designated person and the required action, in the context of each function
identified in paragraph 10:
(i)
Types of reports received: A list of reports which the designated person
will receive from parties who have an involvement, by delegation or
otherwise, in the performance of the function and the identity of those
third parties.
(ii)
Frequency of the reports: The provisions relating to frequency must
include procedures for immediate reporting to the designated person of all
material issues which arise.
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(iii) Action carried out: Circumstances in which action by a designated person
is required and procedures to be followed by the designated person in this
event, including escalation to the board.
14.
A management company must ensure that all relevant persons are aware of the
procedures which must be followed for the proper discharge of their
responsibilities.
15.
A management company must establish, implement and maintain adequate
internal control mechanisms designed to secure compliance with decisions and
procedures at all levels of the management company.
16.
A management company must establish, implement and maintain effective
internal reporting and communication of information at all levels of the
management company as well as effective information flows with any third
party involved.
17.
A management company must maintain adequate and orderly records of its
business and internal organisation.
18.
A management company must establish, implement and maintain systems and
procedures that are adequate to safeguard the security, integrity and
confidentiality of information, taking into account the nature of the information
in question.
19.
A management company must establish, implement and maintain an adequate
business continuity policy aimed at ensuring, in the case of an interruption to its
systems and procedures, the preservation of essential data and functions, and the
maintenance of services and activities, or, where that is not possible, the timely
recovery of such data and functions and the timely resumption of its services
and activities.
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20.
(i)
A management company must establish, implement and maintain
accounting policies and procedures that enables the management company
to deliver in a timely manner to the Central Bank financial accounts which
reflect a true and fair view of its financial position and which comply with
all applicable accounting standards and rules.
(ii)
Half-yearly financial and annual audited accounts of the management
company must be submitted to the Central Bank. The half-yearly accounts
must be submitted within two months and the annual accounts within four
months of the relevant reporting period. Both half-yearly and annual
accounts must be accompanied by the Minimum Capital Requirement
Report, which forms part of these Notices. Annual audited accounts of
the direct parents of the management company must also be submitted
together with the accounts of any company within the group specified by
the Central Bank.
21.
A management company must monitor and, on a regular basis, evaluate the
adequacy and effectiveness of its systems, internal control mechanisms and
arrangements established in accordance with this Notice and to take appropriate
measures to address any deficiencies.
Directors
22.
(i)
Appointments to the office of director or alternate director require the
prior approval of the Central Bank;
(ii)
Departures from the office of director and the reason for the departure
must be notified to the Central Bank immediately;
(iii) The board must not have directors in common with the board of the
trustee of the CIS under management;
(iv) A minimum of two directors must be Irish residents;
(v)
Directors are required to disclose to their board any concurrent
directorships which they hold on the boards of authorised CIS and/or
related entities which supply services to such CIS.
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Resources
23.
A management company must
(i)
satisfy the Central Bank, on a continuing basis, that it has adequate
management resources to conduct its activities effectively.
(ii)
employ personnel with the skills, knowledge and expertise necessary for
the discharge of the responsibilities allocated to them.
24.
A management company must retain the necessary resources and expertise so as
to effectively monitor the activities, including activities in relation to the
valuation of OTC derivatives, carried out by third parties on the basis of an
arrangement with the management company, especially with regard to the
management of risk associated with those arrangements.
25.
A management company must ensure that the performance of multiple functions
by relevant persons does not and is not likely to prevent those relevant persons
from discharging any particular function soundly, honestly and professionally.
Capital
26.
A UCITS management company must have at all times:
(i) initial capital of at least €125,000 (“Initial Capital Requirement”) plus
the Additional Amount (if required), as set out in paragraph 27; or
(ii)
one quarter of its total expenditure taken from the most recent annual
accounts (“Expenditure Requirement”). (However the Central Bank
reserves the right to increase this amount should it be deemed not to
reasonably reflect the current position of the management company);
whichever is higher (“Minimum Capital Requirement”).
27.
When the net asset value of the CIS under management exceeds €250,000,000,
a management company must provide an additional amount of capital equal to
0.02% of the amount by which the net asset value exceeds €250,000,000
(“Additional Amount”). A management company need not provide up to 50%
of the Additional Amount if it benefits from a guarantee of the same amount
given by a credit institution or insurance undertaking and the form of guarantee
is approved by the Central Bank.
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28.
The total of the Initial Capital Requirement and the Additional Amount required
to be held by a management company is not required to exceed €10,000,000.
29.
A management company is required to have financial resources, calculated in
accordance with paragraph 6 of Minimum Capital Requirement Report, Notes
on Compilation, (UCITS Management Company), at least equal to its Minimum
Capital Requirement (“Financial Resources”).
30.
A management company is required to hold the higher of the Expenditure
Requirement or the Initial Capital Requirement in the form of Eligible Assets,
as specified in paragraph 7 of Minimum Capital Requirement Report, Notes on
Compilation (UCITS Management Company). Eligible Assets must be easily
accessible and free from any liens or charges and maintained outside the
management company’s group.
31.
A management company must be in a position to demonstrate its compliance
with the Minimum Capital Requirement throughout the reporting period.
32.
Any Subordinated Loan Capital or Eligible Capital Contribution, (as
provided in paragraph 6.4 of Minimum Capital Requirement Report, Notes on
Compilation, (UCITS Management Company)), incorporated in the calculation
of Financial Resources (including repayment) is subject to the prior approval of
the Central Bank.
Subordinated Loan Capital may not be incorporated in the
calculation of the Initial Capital Requirement.
33.
Specific details and notes in relation to these requirements are contained in
Minimum Capital Requirement Report, Notes on Compilation, (UCITS
Management Company). This document and the Minimum Capital Requirement
Report are contained in Annex I to these Notices. These documents may be
amended from time to time and form part of the UCITS Notices.
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Accounting procedures
34.
(i)
A management company must employ accounting policies and procedures
for each CIS under management so as to ensure the protection of
unitholders.
(ii)
The accounts of a CIS shall be kept in such a way that all assets and
liabilities of the CIS can be directly identified at all times.
(iii) If a CIS is an umbrella fund, separate accounts shall be maintained for
each sub-fund.
35.
A management company must establish, implement and maintain accounting
policies and procedures in accordance with the accounting rules of the UCITS
home Member States, so as to ensure that the calculation of the net asset value
of each UCITS is accurately effected, on the basis of the accounting, and that
subscription and redemption orders can be properly executed at that net asset
value.
36.
A management company must establish appropriate procedures to ensure the
proper and accurate valuation of the assets and liabilities of a UCITS in
accordance with the valuation rules of the UCITS home Member State.
Recording of portfolio transactions
37.
A management company must ensure, for each portfolio transaction relating to
CIS under management, that a record of information which is sufficient to
reconstruct the details of the order and the executed transaction is produced
without delay.
The record shall include:
(i) the name or other designation of the CIS and of the person acting on
account of the CIS;
(ii)
the details necessary to identify the instrument in question;
(iii) the quantity;
(iv) the type of order or transaction;
(v)
the price;
(vi) for orders, the date and exact time of the transmission of the order and
name or other designation of the person to whom the order was
transmitted or for transactions, the date and exact time of the decision to
deal and execution of the transaction;
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(vii) the name of the person transmitting the order or executing the transaction;
(viii) where applicable, the reasons for the revocation of the order; and
(ix) for executed transactions, the counterparty and execution venue 1
identification.
Recording of subscription and redemption orders
38.
A management company must take all reasonable steps to ensure that the CIS
subscription and redemption orders received are centralised and recorded
immediately after receipt of any such order.
The record shall include information on the following:
(i)
the relevant CIS;
(ii)
the person giving or transmitting the order;
(iii) the person receiving the order;
(iv) the date and time of the order;
(v)
the terms and means of payment;
(vi) the type of order;
(vii) the date of execution of the order;
(viii) the number of units subscribed or redeemed;
(ix) the subscription or redemption price for each unit;
(x)
the total subscription or redemption value of the units; and
(xi) the gross value of the order including charges for subscription or net
amount after charges for redemption.
Electronic data processing
39.
A management company must make appropriate arrangements for suitable
electronic systems so as to permit the timely and proper recording of each
portfolio transaction or subscription or redemption order.
1
An ‘execution venue’ shall mean a regulated market as referred to under Article 4(1)(14) of
Directive 2004/39/EC, a multilateral trading facility as referred to in Article 4(1)(15) of that
Directive, a systematic internaliser as referred to in Article 4(1)(7) of that Directive, or a market
maker or other liquidity provider or an entity that performs a similar function in a third country to
the functions performed by any of the foregoing.
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40.
A management company must ensure a high level of security during the
processing of electronic data as well as the integrity and confidentiality of the
recorded information.
Recordkeeping requirements
41.
A management company shall retain, in a readily accessible form, for a period
of at least six years, a full record of each transaction entered into by it (whether
on its own behalf or on behalf of CIS under management) and all records
required to demonstrate compliance with the provisions of the Regulations,
including conditions imposed by the Central Bank and any records required by
the Central Bank under Regulation 126. Original documentation should be
retained where appropriate. Any record shall be produced for inspection to the
Central Bank within a reasonable period of time and, where it is not retained in
legible form, must be capable of being reproduced in that form.
42.
In the event of the termination of its authorisation by the Central Bank, a
management company is required to retain the records referred to in paragraph
41 for the outstanding term of the six year period.
43.
Where a management company transfers its responsibilities in relation to a CIS
to another management company, the transferring management company must
ensure that records for the past six years are accessible to the receiving
management company.
44.
A management company must have adequate procedures for the maintenance,
security, privacy and preservation of records and working papers belonging to
the management company or to CIS under management so that they are
reasonably safeguarded against loss, unauthorised access, alteration or
destruction.
45.
The records shall be retained in a medium that allows the storage of information
in a way accessible for future reference by the Central Bank, and in such form
and manner that the following conditions are met:
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(i)
the Central Bank must be able to access them readily and to reconstitute
each key stage of the processing of each portfolio transaction;
(ii)
it must be possible for any corrections or other amendments, and the
contents of the records prior to such corrections or amendments, to be
easily ascertained; and
(iii) it must not be possible for the records to be otherwise manipulated or
altered.
Permanent compliance function
46.
policies and procedures designed to detect any risk of failure by the
management company to comply with its obligations under the Regulations, as
well as the associated risks, and put in place adequate measures and procedures
designed to minimise such risk and to enable the Central Bank to exercise its
powers effectively under the Regulations.
47.
A management company must establish and maintain a permanent and effective
compliance function which operates independently and which has the following
responsibilities:
48.
(i)
to monitor and, on a regular basis, to assess the adequacy and
effectiveness of the measures, policies and procedures put in place in
accordance with paragraph 46 and the actions taken to address any
deficiencies in the management company’s compliance with its
obligations;
(ii)
to advise and assist the relevant persons responsible for carrying out
services and activities to comply with the management company’s
obligations under the Regulations.
In order to enable the compliance function referred to in paragraph 47 to
discharge its responsibilities properly and independently, management
companies shall ensure that the following conditions are satisfied:
(i)
the compliance function must have the necessary authority, resources,
expertise and access to all relevant information;
(ii)
a compliance officer must be appointed and must be responsible for the
compliance function and for any reporting on a frequent basis, and at least
annually, to the senior management on matters of compliance, indicating
in particular whether the appropriate remedial measures have been taken
in the event of any deficiencies;
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(iii) the relevant persons involved in the compliance function must not be
involved in the performance of services or activities they monitor; and
(iv) the method of determining the remuneration of the relevant persons
involved in the compliance function must not compromise their
objectivity and must not be likely to do so.
A management company shall not be required to comply with sub-paragraphs
(iii) or (iv) where it is able to demonstrate that in view of the nature, scale and
complexity of its business and the nature and range of its services and activities,
that requirement is not proportionate and that its compliance function continues
to be effective.
Permanent internal audit function
49.
A management company must, where appropriate and proportionate in view of
the nature, scale and complexity of the business and the nature and range of the
collective portfolio management activities undertaken in the course of that
business, to establish and maintain an internal audit function which is separate
and independent from the other functions and activities of the management
company.
50.
The internal audit function referred to in paragraph 49 shall have the following
responsibilities:
(i)
to establish, implement and maintain an audit plan to examine and
evaluate the adequacy and effectiveness of a management company’s
systems, internal control mechanisms and arrangements;
(ii)
to issue recommendations based on the result of work carried out in
accordance with paragraph 50(i);
(iii) to verify compliance with the recommendations referred to in paragraph
50(ii); and
(iv) to report in relation to internal audit matters in accordance with paragraph
6.
Permanent risk management function
51.
A management company must establish and maintain a permanent risk
management function.
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52.
The risk management function referred to in paragraph 51 must be
hierarchically and functionally independent from operating units.
53.
A management company must be able to demonstrate that appropriate
safeguards against conflicts of interest have been adopted so as to allow an
independent performance of risk management activities and that its risk
management process satisfies the requirements of Regulation 69.
54.
The permanent risk management function must:
(i)
implement the risk management policy and procedures;
(ii)
ensure compliance with the UCITS risk limit system, including statutory
limits concerning global exposure and counterparty risk in accordance
with paragraphs 11 to 24 of Schedule 9 of the Regulations and Notice
UCITS 10;
(iii) provide advice to the board of directors as regards the identification of the
risk profile of each managed UCITS;
(iv) provide regular reports to the board of directors and, where it exists, the
supervisory function, on:
(v)
(a)
the consistency between the current levels of risk incurred by each
managed UCITS and the risk profile agreed for that UCITS;
(b)
the compliance of each managed UCITS with relevant risk limit
systems;
(c)
the adequacy and effectiveness of the risk management process,
indicating in particular whether appropriate remedial measures have
been taken in the event of any deficiencies;
provide regular reports to the senior management outlining the current
level of risk incurred by each managed UCITS and any actual or
foreseeable breaches to their limits, so as to ensure that prompt and
appropriate action can be taken;
(vi) review and support, where appropriate, the arrangements and procedures
for the valuation of OTC derivatives as referred to in paragraphs 25 to 28
of Schedule 9 to the Regulations and Notice UCITS 10.
The risk management function must have the necessary authority and access to
all relevant information necessary to fulfil the tasks set out in this paragraph.
Personal transactions
55.
arrangements aimed at preventing the following activities in the case of any
relevant person who is involved in activities that may give rise to a conflict of
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interest, or who has access to inside information within the meaning of Article
1(1) of Directive 2003/6/EC or other confidential information relating to CIS or
transactions with or for CIS by virtue of an activity carried out by him on behalf
of the management company.
(i)
entering into a personal transaction which fulfils at least one of the
following criteria:
(a)
(b)
(c)
(ii)
that person is prohibited from entering into that personal transaction
within the meaning of Directive 2003/6/EC;
it involves the misuse or improper disclosure of confidential
information;
it conflicts or is likely to conflict with an obligation of the
management company under Directive 2009/65/EC or under
Directive 2004/39/EC.
advising or procuring, other than in the proper course of his employment
or contract for services, any other person to enter into a transaction in
financial instruments which, if a personal transaction of the relevant
person, would be covered by point (i) of this paragraph or by points (a) or
(b) of Article 25(2) of Directive 2006/73/EC, or would otherwise
constitute a misuse of information relating to pending orders; and
(iii) disclosing, other than in the normal course of his employment or contract
for services and without prejudice to Article 3(a) of Directive 2003/6/EC,
any information or opinion to any other person if the relevant persons
know, or reasonably ought to know, that as a result of that disclosure that
other person will or would be likely to take either of the following steps:
56.
(a)
to enter into a transaction in financial instruments which, where a
personal transaction of the relevant person would be covered by
point (i) of this paragraph or by points (a) or (b) of Article 25(2) of
Directive 2006/73/EC, or would otherwise constitute a misuse of
information relating to pending orders; or
(b)
to advise or procure another person to enter into such a transaction.
The arrangements required under paragraph 55 shall in particular be designed to
ensure that:
(i)
each relevant person covered by paragraph 55 is aware of the restrictions
on personal transactions, and of the measures established by a
management company in connection with personal transactions and
disclosure, in accordance with paragraph 55;
(ii)
a management company is informed promptly of any personal transaction
entered into by a relevant person, either by notification of that transaction
or by other procedures enabling the management company to identify
such transactions;
(iii) Where certain activities are performed by third parties, a management
company shall ensure that the entity performing the activity maintains a
record of personal transactions entered into by any relevant person and
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provides that information to the management company promptly on
request;
(iv) a record is kept of the personal transactions notified to a management
company or identified by it, including any authorisation or prohibition in
connection with such a transaction.
57.
Paragraphs 55 and 56 shall not apply to the following kinds of personal
transactions:
58.
(i)
personal transactions effected under a discretionary portfolio management
service where there is no prior communication in connection with the
transaction between the portfolio manager and the relevant person or other
person for whose account the transaction is executed;
(ii)
personal transactions in UCITS or units in CIS that are subject to
supervision under the law of a Member State which requires an equivalent
level of risk spreading in their assets, where the relevant person and any
other person for whose account the transactions are effected are not
involved in the management of the undertaking.
For the purposes of paragraphs 55, 56 and 57 ‘personal transaction’ means a
trade in a financial instrument effected by or on behalf of a relevant person,
where at least one of the following criteria are met:
(i)
that relevant person is acting outside the scope of the activities he carries
out in that capacity;
(ii)
the trade is carried out for the account of any of the following persons:
(a)
(b)
(c)
the relevant person;
any person with whom he has a family relationship, or with whom
he has close links;
any person whose relationship with the relevant person is such that
the relevant person had a direct or indirect material interest in the
outcome of the trade, other than a fee or commission for the
execution of the trade.
Conflict of interests
59.
A management company must establish, implement and maintain an effective
conflicts of interests policy. That policy shall be set out in writing and shall be
appropriate to the size and organisation of the management company and the
nature, scale and complexity of its business. Where a management company is a
member of a group, the policy shall also take into account any circumstances of
which the management company is or should be aware which may give rise to a
conflict of interest resulting from the structure and business activities of other
members of the group.
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60.
The conflicts of interest policy established in accordance with paragraph 59
shall include the following:
(i) the identification of, with reference to the collective portfolio management
activities carried out by or on behalf of a management company, the
circumstances which constitute or may give rise to a conflict of interest
entailing a material risk of damage to the interests of the CIS or one or
more other clients;
(ii) Procedures to be followed and measures to be adopted in order to manage
such conflicts.
61.
For the purposes of identifying the types of conflict of interest that arise in the
course of providing services and activities and whose existence may damage the
interests of a CIS, a management company must take into account, by way of
minimum criteria, the question of whether the management company or a
relevant person, or a person directly or indirectly linked by way of control to the
management company, is in any of the following situations, whether as a result
of providing collective portfolio management activities or otherwise:
(i)
the management company or that person is likely to make a financial gain,
or avoid a financial loss, at the expense of the CIS;
(ii)
the management company or that person has an interest in the outcome of
a service or an activity provided to the CIS or another client or of a
transaction carried out on behalf of the CIS or another client, which is
distinct from the CIS interest in that outcome;
(iii) the management company or that person has a financial or other incentive
to favour the interest of another client or group of clients over the interests
of the CIS;
(iv) the management company or that person carries on the same activities for
the CIS and for another client or clients which are not CIS;
(v)
62.
the management company or that person receives or will receive from a
person other than the CIS an inducement in relation to collective portfolio
management activities provided to the CIS, in the form of monies, goods
or services, other than the standard commission or fee for that service.
A management company must, when identifying the types of conflict of
interests, take into account:
(i)
the interests of the management company, including those deriving from
its belonging to a group or from the performance of services and
activities, the interests of the clients and the duty of the management
company towards the CIS;
(ii)
the interests of two or more managed CIS.
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63.
Where a management company or any of its delegates, successfully negotiates
the recapture of a portion of the commissions charged by brokers or dealers in
connection with the purchase and/or sale of securities for a CIS, the rebated
commission shall be paid to the CIS.
64.
The procedures and measures provided for in paragraph 60(ii) must be designed
to ensure that relevant persons engaged in different business activities involving
a conflict of interest carry on those activities at a level of independence
appropriate to the size and activities of a management company and of the
group to which it belongs and to the materiality of the risk of damage to the
interests of clients.
65.
The procedures to be followed and measures to be adopted in accordance with
paragraph 60(ii) shall include the following where necessary and appropriate for
a management company to ensure the requisite degree of independence:
(i)
effective procedures to prevent or control the exchange of information
between relevant persons engaged in collective portfolio management
activities involving a risk of a conflict of interest where the exchange of
information may harm the interests of one or more clients;
(ii)
the separate supervision of relevant persons whose principal functions
involve carrying out collective portfolio management activities on behalf
of, or providing services to, clients or to investors whose interests may
conflict, or who otherwise represent different interests that may conflict,
including those of the management company;
(iii) the removal of any direct link between the remuneration of relevant
persons principally engaged in one activity and the remuneration of, or
revenues generated by, different relevant persons principally engaged in
another activity, where a conflict of interest may arise in relation to those
activities;
(iv) measures to prevent or limit any person from exercising inappropriate
influence over the way in which a relevant person carries out collective
portfolio management activities:
(v)
measures to prevent or control the simultaneous or sequential involvement
of a relevant person in separate collective portfolio management activities
where such involvement may impair the proper management of conflicts
of interest.
Where the adoption or the practice of one or more of these measures and
procedures does not ensure the requisite degree of independence, the
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management company must adopt such alternative or additional measures and
procedures as are necessary and appropriate for those purposes.
66.
A management company must keep and regularly update a record of the types
of collective portfolio management activities undertaken by or on behalf of the
management company in which a conflict of interest entailing a material risk of
damage to the interests of one or more CIS or other clients has arisen or, in the
case of an ongoing collective portfolio management activity, may arise.
67.
Where the organisational or administrative arrangements made by a
management company for the management of conflicts of interest are not
sufficient to ensure, with reasonable confidence, that risks of damage to the
interests of CIS or the unitholders will be prevented, the senior management or
other competent internal body of the management company must be promptly
informed in order for them to take any necessary decision to ensure that in any
case the management company acts in the best interests of the CIS and of the
unitholders.
68.
A management company shall report situations referred to in paragraph 67 to
unitholders and clients by any appropriate durable medium and give reasons for
its decision.
Strategies for the exercise of voting rights
69.
A management company must develop adequate and effective strategies for
determining when and how voting rights attached to instruments held in the
managed portfolio are to be exercised, to the exclusive benefit of the CIS
concerned.
70.
The strategy referred to in paragraph 69 shall determine measures and
procedures for:
(i)
monitoring relevant corporate events;
(ii)
ensuring that the exercise of voting rights is in accordance with the
investment objectives and policy of the relevant CIS;
(iii) preventing or managing any conflicts of interest arising from the exercise
of voting rights.
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71.
A summary description of the strategies referred to in paragraph 69 shall be
made available to investors. Details of the actions taken on the basis of those
strategies shall be made available to the unitholders free of charge and on their
request.
Risk management policy
72.
A management company must establish, implement and maintain an adequate
and documented risk management policy which identifies the risks the UCITS
under management are or might be exposed to.
73.
The risk management policy shall comprise such procedures as are necessary to
enable the management company to assess for each UCITS it manages the
exposure of that UCITS to market, liquidity and counterparty risks, and the
exposure of the UCITS to all other risks, including operational risks, which may
be material for each UCITS under management.
74.
The risk management policy must address at least the following taking into
account the nature, scale and complexity of the business of the management
company and of the UCITS under management:
(i)
the techniques, tools and arrangements that enable the management
company to comply with the obligations set out in paragraphs 7 to 13 of
Schedule 9 to the Regulations and Notice UCITS 10;
(ii)
the allocation of responsibilities within the management company
pertaining to risk management;
(iii) the terms, contents and frequency of reporting of the risk management
function referred to in paragraphs 51-54 above to the board of directors
and to senior management and, where appropriate, to the supervisory
function.
75.
A management company must assess, monitor and periodically review:
(i)
the adequacy and effectiveness of the risk management policy and of the
arrangements, processes and techniques referred to in paragraphs 77 and
78 and paragraph 19 of Notice UCITS 10;
(ii)
the level of compliance by the management company with the risk
management policy and with arrangements, processes and techniques
referred to in paragraphs 77 and 78 and paragraph 19 of Notice UCITS
10;
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(iii) the adequacy and effectiveness of measures taken to address any
deficiencies in the performance of the risk management process.
76.
Any material changes to the risk management policy must be notified to the
Central Bank.
77.
A management company must adopt adequate and effective arrangements,
processes and techniques which are consistent with the risk profile of UCITS
under management, in order to:
78.
(i)
measure and manage at any time the risks which the UCITS under
management are or might be exposed to;
(ii)
ensure compliance with limits concerning global exposure and
counterparty risk in accordance with Regulations and Notice UCITS 10.
For the purposes of paragraph 77, a management company must take the
following actions for each UCITS under management:
(i)
put in place such risk measurement arrangements, processes and
techniques as are necessary to ensure that the risks of taken positions and
their contribution to the overall risk profile are accurately measured on the
basis of sound and reliable data and that the risk measurement
arrangements, processes and techniques are adequately documented;
(ii)
conduct, where appropriate, periodic back-tests in order to review the
validity of risk measurement arrangements which include model-based
forecasts and estimates;
(iii) conduct, where appropriate, periodic stress tests and scenario analyses to
address risks arising from potential changes in market conditions that
might adversely impact the UCITS;
(iv) establish, implement and maintain a documented system of internal limits
concerning the measures used to manage and control the relevant risks for
each UCITS taking into account all risks which may be material to the
UCITS as referred to in paragraphs 72-74 and ensuring consistency with
the UCITS risk-profile;
(v)
ensure that the current level of risk complies with the risk limit system as
set out in point (iv) for each UCITS;
(vi) establish, implement and maintain adequate procedures that, in the event
of actual or anticipated breaches to the risk limit system of the UCITS,
result in timely remedial actions in the best interests of unitholders.
79.
A management company must employ an appropriate liquidity risk management
process in order to ensure that each UCITS under management is able to comply
at any time with Regulation 104(1). Where the UCITS under management may
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employ efficient portfolio management transactions, in accordance with Notice
UCITS 12, the management company should take these operations into account
when developing the liquidity risk management process in order to ensure that
the UCITS are able to comply at any time with their redemption obligations.
80.
Where appropriate, a management company must conduct stress tests which
enable assessment of the liquidity risk of UCITS under management under
exceptional circumstances.
81.
A management company must ensure that for each UCITS under management
the liquidity profile of the investments of the UCITS is appropriate to the
redemption policy laid down in the trust deed, deed of constitution or articles of
association and/or the prospectus.
Management companies which provide individual portfolio management services
82.
A management company which is authorised to provide individual portfolio
management services must, with respect to the additional activity, comply with
the provisions of the European Communities (Markets in Financial Instruments)
Regulations 2007 ("the MiFID Regulations"), which are specified in Regulation
16(4).
In addition the management company must comply with the Client Asset
Requirements, imposed by the Central Bank under Regulation 79 of the MiFID
Regulations.
83.
A management company may not invest all or a part of an investor's portfolio in
units of CIS under management, unless it receives the prior approval of the
investor.
Relationship with the Central Bank
84.
In addition to the provisions of the Regulations, a management company is
required to consult with the Central Bank prior to (i)
engaging in any significant new activities; or
(ii)
establishing new branches, offices or subsidiaries.
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85.
A management company is required to be open and co-operative in its dealings
with the Central Bank and with all other relevant supervisory authorities. This
requirement includes, but is not limited to, an obligation on the management
company to notify the Central Bank as soon as it becomes aware of (i)
any breaches of the Regulations or of the Central Bank's requirements
which are applicable to the management company;
(ii) breaches of other Irish legislation which may be of prudential concern to
the Central Bank or which may impact on the reputation or good standing
of the management company;
(iii) the commencement of any significant legal proceedings by or against the
management company;
(iv) any situations or events which impact, or potentially impact, on the
management company to a significant extent;
(v) the imposition on the management company of fines by another
supervisory authority; or
(vi) a visit to the management company by another supervisory authority.
86.
A management company is required to obtain the prior approval of the Central
Bank in respect of a proposed change of its name. In addition, a management
company is required to notify the Central Bank promptly of any change to the
management company’s address, telephone number or facsimile number.
87.
A management company is required to participate in such meetings as the
Central Bank considers necessary to review its operations and its business
developments. The management company is required, for the purposes of such
meetings to supply any additional material as may be specified by the Central
Bank, including internal auditors’ reports, operating procedures and
management letters issued by the management company’s auditors and/or by
the auditors of CIS under management.
In addition, the Central Bank may
conduct inspections of the operations of a management company if these are
deemed necessary or appropriate.
88.
A management company is required to state, on its headed paper, that it is
regulated by the Central Bank. A management company must ensure that any
references in publicity material to the role of the Central Bank in relation to its
supervision of the management company’s activities are not misleading.
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89.
Approval of the Central Bank is required in respect of any proposed change in
direct or indirect ownership or in qualifying holdings. A qualifying holding for
the purpose of this condition is defined as a shareholding of 10 % or more of a
management company.
90.
A management company is required to respond to correspondence and to any
requests for information from the Central Bank in a timely and thorough
manner and within any period of time that may be specified by the Central
Bank.
91.
A management company which provides management services to CIS not
authorised by the Central Bank must be satisfied that the prospectus issued by
the CIS does not imply, in any way, that the CIS is regulated by the Central
Bank.
A management company is required to submit a quarterly return containing the
following aggregate information for all such CIS under management, within
each base currency category:
-
domicile of the CIS
-
number of CIS
-
number of unitholders
-
total net asset value.
The Central Bank may request information on CIS not authorised by the
Central Bank in order to effectively perform its role as supervisor of Irish
service providers. Such requests do not imply any regulatory or supervisory
role for the Central Bank in respect of such CIS.
Financial control and management information
92.
A management company is required to maintain records that are adequate for
the purposes of financial control and management information.
93.
A management company shall ensure that its records contain as a minimum the
following:
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UCITS NOTICES
Financial
(i) details of all money received and expended by the management company
whether on its own behalf or on behalf of CIS under management, together
with details of how such receipts and payments arose;
(ii) a record of all income and expenditure of the management company
explaining its nature;
(iii) a record of all assets and liabilities of the management company, long and
short positions and off balance sheet items, including any commitments or
contingent liabilities;
(iv) details of all purchases and sales of investment instruments by the
management company distinguishing those which are made by the
management company on its own account and those which are made on
behalf of CIS under management;
(v) any working papers necessary to show the preparation of any return
submitted to the Central Bank;
(vi) management information records maintained in a manner such that they
disclose, or are capable of disclosing, in a prompt and appropriate manner,
the financial and business information which will enable the management
company to:
(a)
identify, quantify, control and manage the management company’s
risk exposures;
(b)
make timely and informed decisions;
(c)
monitor the performance of all aspects of the management
company’s business on an up-to-date basis; and
(d)
monitor the quality of the management company’s assets.
Company Secretarial
(vii) the share register;
(viii) the register of directors’ and secretary’s interests;
(ix) signed copies of the minutes of meetings of the board of directors;
(x)
94.
other statutory documents required under the Companies Acts.
A management company must notify the Central Bank in advance of any
proposed change of auditor and the reasons for the proposed change.
Conditions relating to investment companies which do not designate a
management company (self-managed investment companies)
95.
A self-managed investment company must
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UCITS NOTICES
(i)
have an initial capital of at least €300,000
(ii)
comply with the provisions of paragraphs 1-32, 9-13, 51-54, 59-81, 85-87,
90 and 92-94 of this Notice and, with effect from 1 July 2013, comply
with the provisions of paragraphs 4 (excluding 4(iii)), 5-8, 14-20(i), 21,
23(ii), 24, 25, 34-42, 44, 45 and 55-58 of this Notice. References to
“management company” should be taken to refer to self-managed
investment company.
Conditions relating to administration companies authorised by the Central Bank
and providing services to UCITS
96.
An administration company must have at all times:
(i)
initial capital of at least €125,000 (“Initial Capital Requirement”); or
(ii)
one quarter of its total expenditure taken from the most recent annual
accounts (“Expenditure Requirement”) (However the Central Bank
reasonably reflect the current position of the administration company);
97.
An administration company is required to have financial resources, calculated in
accordance with paragraph 5 of Minimum Capital Requirement Report, Notes
on Compilation (Administration Company and Trustee Company), at least equal
to its Minimum Capital Requirement (“Financial Resources”).
98.
An administration company’s Minimum Capital Requirement must be held in
the form of Eligible Assets, as specified in paragraph 6 of Minimum Capital
Requirement Report, Notes on Compilation (Administration Company and
Trustee Company). Eligible Assets must be easily accessible and must be free
from any liens or charges and maintained outside of the administration
company’s group.
99.
An administration company must be in a position to demonstrate its compliance
with the Minimum Capital Requirement throughout the reporting period.
100. Any Subordinated Loan Capital or Eligible Capital Contribution, (as
provided in paragraph 5.4 of Minimum Capital Requirement Report, Notes on
2
Requirements in paragraphs 1 and 2 in relation to shareholders are not applicable to self-managed
investment companies
30
UCITS NOTICES
Compilation, (Administration Company and Trustee Company)), incorporated in
the calculation of Financial Resources (including repayment) is subject to the
prior approval of the Central Bank.
Subordinated Loan Capital may not be
incorporated in the calculation of the Initial Capital Requirement.
101. Specific details and notes in relation to these capital requirements are contained
in
Minimum
Capital
Requirement
Report,
(Administration Company and Trustee Company).
Notes
on
Compilation,
This document and the
Minimum Capital Requirement Report are contained in Annex I. These
documents may be amended from time to time and form part of the UCITS
Notices.
102. An administration company is required to identify an officer at management
level, who shall be located in the State, with responsibility for compliance with
all legal and regulatory requirements and for co-operation and liaison with the
relevant regulatory authorities. Such person is to be designated the compliance
officer and must have the necessary access to systems and records.
The
administration company is required to ensure that the compliance officer reports
to the board of the administration company at each such meeting, but at least
quarterly.
103. An administration company must satisfy the Central Bank, on a continuing
basis, that it has adequate control systems and accounting procedures to
facilitate effective management of the administration company and to ensure
that the administration company is in a position to satisfy the Central Bank’s
supervisory and reporting requirements and compliance with these Notices.
104. An administration company is required to develop and maintain policies and
systems to identify, monitor and control risk arising in respect of the
administration company’s activities, including operational risk and the risk of
fraud.
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UCITS NOTICES
105. An administration company must comply with the Central Bank’s requirements
on outsourcing of administration activities, as set out in Annex II to these
Notices, in relation to CIS to which it provides fund administration services.
106. Paragraphs 14-23 and 84-94 of this Notice also apply to an administration
company. References to "management company" should be taken to refer to
"administration company" and references to "CIS under management" to "CIS
under administration".
February 2013
32
UCITS NOTICES
UCITS 3.2
Trustees - eligibility criteria
of the Regulations.
1.
The assets of a unit trust, a common contractual fund or an investment company
must be entrusted to a trustee for safe-keeping in accordance with the
Regulations. The assets shall belong exclusively to the UCITS. The assets shall
be segregated from the assets of either the trustee or its agents or both and shall
not be used to discharge directly or indirectly liabilities or claims against any
other undertaking or entity and shall not be available for any such purpose.
2.
The trust deed in the case of a unit trust, the deed of constitution in the case of a
common contractual fund and the articles of association in the case of an
investment company shall lay down the conditions for the replacement of the
trustee and rules to ensure the protection of unitholders in the event of such
replacement. The trustee may not be replaced without the approval of the
Central Bank.
3.
A trustee must either have its registered office in the State or have established a
place of business in the State if its registered office is in another Member State.
4.
Entities eligible to act as trustee are:
(a)
a credit institution authorised in the State with paid-up share capital which
is not less than the limit specified in the Central Bank's Licensing
Requirements,
UCITS NOTICES
(b)
a branch, established in the State, of a credit institution with a paid-up
share capital which is not less than the limit specified in the Central
Bank's Licensing Requirements, or
(c)
a company incorporated in the State which
(i)
is wholly owned by a credit institution, provided the liabilities of the
trustee are guaranteed by the credit institution and the credit
institution has paid-up share capital which is not less than the limit
specified in the Central Bank's Licensing Requirements; or
(ii)
is wholly owned by an institution in a non-Member State which is
deemed by the Central Bank to be the equivalent of such a credit
institution, provided the liabilities of the trustee are guaranteed by
the parent institution and the parent institution has a paid-up share
capital which is not less than the limit specified in the Central
Bank's Licensing Requirements; or
(iii) is wholly owned by an institution or company either in a Member
State or in a non-Member State which is deemed by the Central
Bank to be an institution or company which provides unitholders
with protection equivalent to that provided by a trustee under
Regulation 35(2)(a), (b) or (c)(i) or (c)(ii) and provided the
liabilities of the company acting as trustee are guaranteed by the
institution or company and the institution or company has a paid-up
share capital which is not less than the limit specified in the Central
Bank’s Licensing Requirements.
5.
A trustee must satisfy the Central Bank that it has the appropriate expertise and
experience to carry out its functions under the Regulations. The trustee must
satisfy the Central Bank that it has sufficient management resources to
effectively conduct its business. In addition its directors and managers should
be persons of integrity and have an appropriate level of knowledge and
experience.
The trustee must organise and control its internal affairs in a
reasonable manner with proper records and adequate arrangements for ensuring
that employees are suitable, adequately trained and properly supervised. There
should be well defined procedures in place to ensure compliance with
regulations and the trustee should deal with regulators in an open and cooperative manner.
July 2011
34
UCITS NOTICES
UCITS 4.6
Trustees – duties, supervisory and reporting requirements and
conditions
of the Regulations.
1.
The trustee must ensure that the sale, issue, repurchase, redemption and
cancellation of units effected by or on behalf of a unit trust, a common
contractual fund or an investment company are carried out in accordance with
the Regulations and in accordance with the trust deed, the deed of constitution
or memorandum and articles of association.
2.
The trustee must ensure that the value of units is calculated in accordance with
the Regulations and the trust deed of a unit trust, the deed of constitution of a
common contractual fund and the articles of association of an investment
company.
3.
The trustee must carry out the instructions of the management company unless
they conflict with the Regulations, the trust deed or the deed of constitution.
The trustee must carry out the instructions of the investment company unless
they conflict with the Regulations or the memorandum and articles of
association.
4.
The trustee must ensure that in transactions involving a unit trust's, a common
contractual fund's or an investment company's assets, any consideration is
remitted to it within time limits which are acceptable market practice in the
context of a particular transaction.
UCITS NOTICES
5.
The trustee must ensure that a unit trust's, a common contractual fund's or an
investment company's income is applied in accordance with the Regulations, the
trust deed, the deed of constitution or memorandum and articles of association.
6.
The trustee must enquire into the conduct of the management company or the
investment company in each annual accounting period and report thereon to the
unit holders. The trustee's report shall be delivered to the management company
or investment company in good time to enable the management company or
investment company to include a copy of the report in its annual report. The
trustee's Report shall state whether in the trustee's opinion the unit trust, the
common contractual fund or the investment company has been managed in that
period:
(i)
in accordance with the limitations imposed on the investment and
borrowing powers of the manager or investment company and trustee by
the trust deed, the deed of constitution or memorandum and articles of
association and the Regulations; and
(ii)
otherwise in accordance with the provisions of the trust deed, the deed of
constitution or memorandum and articles of association and the
Regulations.
If the management company or investment company does not comply with (i) or
(ii) above, the trustee must state why this is the case and outline the steps which
the trustee has taken to rectify the situation.
Where there has been a change of trustee during the accounting period, the
annual report must include a trustee report from both the retiring and new
trustee to cover their respective periods of appointment.
7.
The trustee must notify the Central Bank promptly of any material breach of the
Regulations, conditions imposed by the Central Bank or provisions of the
prospectus with regard to a unit trust, common contractual fund or investment
company.
8.
The duties provided for in paragraphs 1 - 7 may not be delegated by the trustee
to a third party. These duties must be carried out in the State.
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UCITS NOTICES
9.
A trustee company may not also act as a management company or investment
company.
10.
The board of directors of the trustee acting for a UCITS must not have directors
in
common
with
the
board
of
directors
of
the
management
company/administration company or the investment company.
11.
The management company or investment company and the trustee must act
independently and solely in the interests of the unitholders.
12.
A trustee must send to the Central Bank any information and returns which are
specified by the Central Bank.
13.
The trustee of a unit trust must create or cancel units in accordance with the
conditions laid down in the trust deed and on receipt of a written instruction
from the management company. The trustee may refuse to create or cancel
units if he is of the opinion that it is not in the interest of participants for such
units to be created or cancelled. The trustee is not permitted to create or cancel
units during any period in which redemption of units is suspended.
14.
The trustee may issue registered certificates or bearer securities, representing
one or more portions of the UCITS, or alternatively, in accordance with the
provisions of the trust deed, the deed of constitution or the articles of
association, written confirmations of entry in the register of units or fractions of
units without limitation as to the splitting-up of units.
15.
The trustee will be liable to the management company or investment company
and the unitholders for any loss suffered by them as a result of its unjustifiable
failure to perform its obligations or its improper performance of them. Liability
to unitholders may be invoked either directly or indirectly through the
management company, depending on the legal nature of the relationship
between the trustee, the management company and the unitholders.
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UCITS NOTICES
16.
The liability of a trustee will not be affected by the fact that it has entrusted to a
third party some or all of the assets in its safe-keeping.
Note: The Central Bank considers that in order for the trustee to discharge its
responsibility under the Regulations, the trustee must exercise care and
diligence in choosing and appointing a third party as a safe-keeping agent
so as to ensure that the third party has and maintains the expertise,
competence and standing appropriate to discharge the responsibilities
concerned. The trustee must maintain an appropriate level of supervision
over the safe-keeping agent and make appropriate inquiries from time to
time to confirm that the obligations of the agent continue to be
competently discharged. This does not purport to be a legal interpretation
of these Regulations and the corresponding provisions of Directive
2009/65/EC.
17.
The trustee must:
(i)
ensure that there is legal separation of non-cash assets held under custody
and that such assets are held on a fiduciary basis. In jurisdictions where
fiduciary duties are not recognised the trustee must ensure that the legal
entitlement of the UCITS to the assets is assured;
(ii)
maintain appropriate internal control systems to ensure that records
clearly identify the nature and amount of all assets under custody, the
ownership of each asset and where documents of title to that asset are
located.
Where the trustee utilises the services of a sub-custodian the trustee must ensure
that these standards are maintained by the sub-custodian.
18.
Where the trustee utilises the services of a global sub-custodian the trustee must
ensure that:
(i)
the non-cash assets are held on a fiduciary basis by the global subcustodian’s network of custodial agents. This should be confirmed by
those agents on a regular basis. In jurisdictions where fiduciary duties are
not recognised the trustee must ensure that the legal entitlement of the
scheme to the assets is assured;
(ii)
the trustee must maintain records of the location and amounts of all
securities held by each of the custodial agents;
(iii) the relationship between the trustee and the global sub-custodian should
be set out in a formal contract between the two entities.
19.
A trustee company which is not a credit institution or a branch of a credit
institution must comply with the following conditions:
(i)
The firm must have at all times:
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UCITS NOTICES
 initial capital of at least €125,000 (”Initial Capital Requirement”); or
 one quarter of its total expenditure taken from the most recent annual
accounts (”Expenditure Requirement”). (However, the Central Bank
reasonably reflect the current position of the trustee company),
A firm is required to have financial resources, calculated in accordance
with paragraph 5 of the Minimum Capital Requirement Report, Notes on
Compilation (Administration Company and Trustee Company), at least
equal to its Minimum Capital Requirement (“Financial Resources”).
The firm’s Minimum Capital Requirement must be held in the form of
Eligible Assets, as specified in paragraph 6 of the Minimum Capital
Requirement Report, Notes on Compilation (Administration Company and
Trustee Company). Eligible Assets must be easily accessible and must be
free from any liens or charges and maintained outside the firm’s group.
The firm must be in a position to demonstrate its compliance with the
Minimum Capital Requirement throughout the reporting period.
Any Subordinated Loan Capital or Eligible Capital Contribution (as
provided for in paragraph 5.4 of the Minimum Capital Requirement
Report, Notes on Compilation (Administration Company and Trustee
Company)) incorporated in the calculation of Financial Resources
(including repayment) is subject to the prior approval of the Central Bank.
Subordinated Loan Capital may not be incorporated in the calculation of
the Initial Capital Requirement.
Specific details and notes in relation to these requirements are contained
in the Minimum Capital Requirement Report, Notes on Compilation
(Administration Company and Trustee Company). This document and the
Minimum Capital Requirement Report are contained in Annex I. These
documents may be amended from time to time and form part of the
UCITS Notices.
(ii) Appointments to the office of director or alternate director of the company
require the prior approval of the Central Bank. Departures from the office
of director must be notified to the Central Bank immediately.
(iii) A minimum of two directors of the company must be Irish residents.
(iv) Approval of the Central Bank is required in respect of any proposed
change in ownership or in significant shareholdings. A significant
shareholding for the purpose of this condition is defined as a shareholding
of 10 % or more in the company.
(v)
Half-yearly financial and annual audited accounts of the company must be
submitted to the Central Bank. The half-yearly accounts must be
submitted within two months and the annual accounts within four months
39
UCITS NOTICES
of the relevant reporting period. Annual audited accounts of the corporate
shareholder(s) of the company must also be submitted.
20.
The trustee is obliged to satisfy the Central Bank on a continuing basis that it
has sufficient management resources to effectively conduct its business. In
addition, its directors and managers should be persons of integrity and have an
appropriate level of knowledge and experience. The trustee must organise and
control its internal affairs in a reasonable manner, with proper records and
adequate arrangements for ensuring that employees are suitable, adequately
trained and properly supervised. There should be well defined procedures in
place to ensure compliance with regulations and the trustee should deal with
regulators in an open and co-operative manner.
21.
Review meetings will be held by the Central Bank with the trustee as required
by the Central Bank. A trustee is required, for the purposes of such meetings, to
supply any additional material as may be specified by the Central Bank,
including internal auditors’ reports, operating procedures and management
letters issued by the trustee’s auditors.
22.
The Central Bank requires that the procedures to be followed in relation to the
replacement of a trustee must be approved by the board of the investment
company or management company in the case of a unit trust or common
contractual fund. In addition the Central Bank requires confirmation from both
the retiring trustee and new trustee that they are satisfied with the transfer of
assets.
23.
Trustees providing trustee/custodial services to CIS not authorised by the
Central Bank must be satisfied that the prospectus issued by the CIS does not
imply, in any way, that the CIS is regulated by the Central Bank.
The firm is required to submit a quarterly return containing the following
aggregate information for all CIS not authorised by the Central Bank to which
services are provided, within each base currency category:
-
domicile of the CIS
number of schemes
number of unitholders
total net asset value.
40
UCITS NOTICES
Information is not required in respect of those CIS, which are included in the
return prepared by an authorised firm in accordance with paragraph 91 of Notice
UCITS 2.
The Central Bank may request information on non-Irish CIS in order to
effectively perform its role as supervisor of Irish service providers.
Such
requests do not imply any regulatory or supervisory role for the Central Bank in
respect of non-Irish CIS.
24.
Where the management company of a UCITS authorised by the Central Bank is
established in another Member State, the trustee must enter into a written
agreement with the management company in accordance with the Regulations.
The agreement must at least include the following:
(i)
a description of the procedures, including those related to the safekeeping, to be adopted for each type of asset of the UCITS entrusted to
the trustee;
(ii)
a description of the procedures to be followed where the management
company envisages a modification of the trust deed, deed of constitution
or articles of association or prospectus of the UCITS, and identifying
when the trustee should be informed, or where a prior agreement from the
trustee is needed to proceed with the modification;
(iii) a description of the means and procedures by which the trustee will
transmit to the management company all relevant information that the
management company needs to perform its duties including a description
of the means and procedures related to the exercise of any rights attached
to financial instruments, and the means and procedures applied in order to
allow the management company and the UCITS to have timely and
accurate access to information relating to the accounts of the UCITS. The
details of such means and procedures may be included in a separate
written service level agreement;
(iv) a description of the means and procedures by which the trustee will have
access to all relevant information it needs to perform its duties. The details
of such means and procedures may be included in a separate written
service level agreement;
(v)
a description of the procedures by which the trustee has the ability to
enquire into the conduct of the management company and to assess the
quality of information transmitted, including by way of on-site visits;
41
UCITS NOTICES
(vi)
a description of the procedures by which the management company can
review the performance of the trustee in respect of the trustee’s
contractual obligations;
(vii) a list of all the information that needs to be exchanged between the
UCITS, the management company and the trustee related to the
subscription, redemption, issue, cancellation and repurchase of units of the
UCITS;
(viii) the confidentiality obligations applicable to the parties to the agreement;
(ix) information on the tasks and responsibilities of the parties to the
agreement in respect of obligations relating to the prevention of money
laundering and the financing of terrorism, where applicable;
(x)
an undertaking by both parties to the agreement to provide details, on a
regular basis, of any third parties appointed by the trustee or the
management company to carry out their respective duties;
(xi) an undertaking that, upon request by one of the parties, the other party
will provide information on the criteria used for selecting the third party
and the steps taken to monitor the activities carried out by the selected
third party;
(xii) a statement that a trustee’s liability as referred to in the Regulations shall
not be affected by the fact that it has entrusted to a third party all or some
of the assets in its safe-keeping;
(xiii) the period of validity of the agreement;
(xiv) the conditions under which the agreement may be amended or terminated;
(xv) the conditions which are necessary to facilitate transition to another
trustee and, in case of such transition the procedure by which the trustee
shall send all relevant information to the other trustee;
(xvi) a provision that the laws of Ireland apply to the agreement.
Where the trustee and the management company agree to the use of electronic
transmission for part or all of the information that flows between them, the
agreement must contain provisions to ensure that a record is kept of such
information.
December 2011
42
UCITS NOTICES
UCITS 5.4
Supervisory and reporting requirements and conditions for UCITS
authorised by the Central Bank of Ireland
Obligations are derived directly from provisions of the Regulations or are conditions
of the Regulations.
1.
A UCITS which temporarily suspends the repurchase or redemption of its units
must inform the Central Bank immediately and in any event within the working
day on which such suspension took effect.
2.
The trust deed, the deed of constitution or the investment company’s
memorandum and articles of association may not be amended without the
approval of the Central Bank.
3.
A UCITS must send a monthly return to the Statistics Department of the Central
Bank and its annual and half-yearly reports to the Central Bank, as well as any
other reports requested by the Central Bank. The contents of the monthly return,
annual and half-yearly reports are set out in separate Notices.
4.
A UCITS must send a quarterly Survey of Collective Investment Undertakings
(OFI1 Form) return to the Statistics Department of the Central Bank within ten
working days of the end-quarter to which it refers. A UCITS must also submit a
Funds Annual Survey of Liabilities return to the Statistics Department of the
Central Bank, along with the OFI1 Form, for the first quarter of each year.
5.
The following shall apply to directors of investment companies:
(i)
Appointments to the office of director or alternate director require the
prior approval of the Central Bank;
(ii)
Departures from the office of director and the reason for the departure
must be notified to the Central Bank immediately;
UCITS NOTICES
(iii) The board of directors must not have directors in common with the
board of directors of its trustee;
(iv) A minimum of two directors must be Irish residents; and
(v)
6.
Directors are required to disclose to their board any concurrent
directorships which they hold on the boards of authorised collective
investment schemes and/or related entities which supply services to such
schemes.
Material changes to the regulatory status, shareholder structure and financial
standing of the promoter must be notified to the Central Bank.
7.
The Central Bank must be notified in advance of proposed amendments to the
following documentation:
(i)
prospectus;
(ii)
material agreements entered into with third parties.
The Central Bank may object to the amendments notified to it and amendments
objected to by the Central Bank may not be made.
8.
The management company of a UCITS may not be replaced without the
approval of the Central Bank. The trust deed, the deed of constitution or the
management agreement shall lay down the conditions for the replacement of the
management company and rules to ensure the protection of unit holders in the
event of such replacement.
9.
The Central Bank must be notified in advance of any proposal to replace third
parties which have contracted (directly or indirectly) with a UCITS to carry out
services. The Central Bank may object to the proposals and replacements
objected to by the Central Bank may not proceed.
10.
The Central Bank requires that the procedures to be followed in relation to the
replacement of a management company or administration company must be
approved by the board of the investment company or management company in
the case of a unit trust or common contractual fund.
44
UCITS NOTICES
11.
The UCITS is required to notify the Central Bank in advance, of any proposed
change of auditor, and of the reasons for the proposed change.
12.
The trust deed in the case of a unit trust, the deed of constitution in the case of a
common contractual fund and the articles of association in the case of an
investment company shall lay down the conditions for the creation and
cancellation of units.
13.
Unless otherwise provided for in the trust deed, the deed of constitution or the
articles of association, the value of the assets of a UCITS shall be based, in the
case of securities traded on a stock exchange or on a regulated market, on the
last known stock exchange or market quotation unless such quotation is not
representative. For securities not so quoted and for securities which are so
quoted but for which the latest quotation is not representative, the value shall be
based on probable realisation value which must be estimated with care and in
good faith. Financial derivative instruments shall be valued by a method clearly
defined in the trust deed, the deed of constitution or the articles of association.
14.
The assets of a UCITS may only be purchased and sold at prices which are in
conformity with the criteria set out in paragraph 13.
15.
Units of a UCITS shall be issued or sold at a price arrived at by dividing the net
asset value of the UCITS by the number of units outstanding; such price may
be increased by duties and charges. The prospectus must disclose the charges
relating to the sale or issue of units.
Units may not be issued, or if issued must be cancelled, unless the equivalent of
the net issue price is paid into the assets of the UCITS within a reasonable time,
which is specified in the prospectus. This shall not preclude the distribution of
bonus units.
16.
Units shall be redeemed or repurchased at a price arrived at by dividing the net
asset value of the UCITS by the number of units outstanding; such price may
be decreased by duties and charges. The prospectus must disclose the charges
relating to the redemption or repurchase of units. The maximum charge relating
45
UCITS NOTICES
to the redemption or repurchase of units as provided for in the trust deed, the
deed of constitution or the articles of association may not be increased without
approval on the basis of a majority of votes cast at general meeting. In the event
of an increase in the redemption or repurchase charge a reasonable notification
period must be provided by the UCITS to enable unitholders redeem their units
prior to the implementation of the increase.
The prospectus must disclose the period within which redemption proceeds will
normally be paid or discharged to investors.
17.
The trust deed, the deed of constitution or the articles of association shall
determine the frequency of the calculation of the issue and repurchase prices.
These prices must be made available with similar frequency.
18.
The management company or the investment company or the trustee shall issue
registered certificates or bearer securities, representing one or more portions of
the UCITS which it manages, or alternatively, in accordance with the provisions
of the trust deed, the deed of constitution or the articles of association, written
confirmation of entry in the register of units or fractions of units without
limitation as to the splitting of units.
Rights attaching to fractions of units are exercised in proportion to the fraction
of a unit held except for voting rights which can only be exercised by whole
units.
All certificates and bearer securities must be signed by the management
company or the investment company and by the trustee. Such signatures may
be reproduced mechanically.
19.
The trust deed shall prescribe the remuneration and the expenditure which the
management company and trustee are empowered to charge to a unit trust, the
method of calculation of such remuneration and the costs to be borne by the unit
trust.
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UCITS NOTICES
The deed of constitution shall prescribe the remuneration and the expenditure
which the management company is empowered to charge to a common
contractual fund, the method of calculation of such remuneration and the costs
to be borne by the common contractual fund.
The articles of association shall prescribe the nature of the costs to be borne by
the investment company.
The maximum annual fee1 charged by a management company of a unit trust, a
common contractual fund or an investment company as provided for in the trust
deed, deed of constitution or management agreement may not be increased
without approval on the basis of a majority of votes cast at general meeting2. In
the event of an increase in the annual fee a reasonable notification period must
be provided by the UCITS to enable unitholders redeem their units prior to the
implementation of the increase.
The provisions of this paragraph are also
applicable to the annual fee charged by an investment manager where this fee is
paid directly out of the assets of the UCITS.
20.
The trust deed, the deed of constitution or the articles of association shall lay
down the conditions and manner of application of income.
21.
UCITS may not grant loans or act as a guarantor on behalf of third parties. This
is without prejudice to the right of a UCITS to acquire debt securities. It will
not prevent UCITS from acquiring transferable securities, money market
instruments, CIS or financial derivative instruments, which are not fully paid.
22.
A change to the investment objectives, or a material change to the investment
policies of a UCITS, as disclosed in the prospectus, may not be effected without
the prior written approval of all unitholders or without approval on the basis of a
majority of votes cast at general meeting. “Material” shall be taken to mean,
although not exclusively:
1
2
The annual fee includes any performance related fee charged by the management company or by
the investment manager.
If the fee disclosed in the prospectus is less than the maximum fee permitted in these documents,
unitholder approval will also be required for an increase in the fee disclosed in the prospectus
unless the prospectus also provides that a higher fee may be charged.
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UCITS NOTICES
“changes which would significantly alter the asset type, credit quality,
borrowing limits or risk profile of the UCITS”.
In the event of a change of investment objectives and/or investment policy, on
the basis of a majority of votes cast at a general meeting, a reasonable
notification period must be provided by the UCITS to enable unitholders
redeem their units prior to implementation of these changes.
23.
A UCITS must notify the Central Bank on receipt of approval to market units in
a jurisdiction other than a Member State of the European Union.
December 2011
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UCITS NOTICES
UCITS 6.6
Prospectus
of the Regulations.
Publication
1.
A UCITS must publish a prospectus which must be dated and the essential
elements of which must be kept up to date.
2.
The prospectus may be provided in a durable medium or by means of a website.
A paper copy shall be delivered to investors free of charge on request. Where a
prospectus is provided using a durable medium the conditions set out in Article
38 of Commission Regulation 583/2010 apply.
3.
The prospectus must contain sufficient information for investors to make an
informed judgement of the investment proposed to them and in particular of the
risks attached to that investment. Moreover the prospectus must include a clear
and easily understandable explanation of the UCITS risk profile.
4.
Material changes to the content of the prospectus must be notified to unitholders
in the subsequent periodic report.
5.
The prospectus may be translated into other languages provided that any such
translations shall only contain the same information and shall have the same
meaning as in the prospectus submitted to the Central Bank.
Advertising
6.
All marketing communications to investors shall be clearly identifiable as such.
They shall be fair, clear and not misleading. In particular, any marketing
UCITS NOTICES
communication comprising an invitation to purchase units of UCITS that
contains specific information about a UCITS shall make no statement that
contradicts or diminishes the significance of the information contained in the
prospectus and the key investor information document (see Notice UCITS 19).
It shall indicate that a prospectus exists and that the key investor information
document is available. It shall specify where and in which language such
information or documents may be obtained by investors or potential investors or
how they may obtain access to them.
7.
All publicity comprising an invitation to purchase the units of a UCITS must
indicate that a key investor information document and a prospectus exist and the
places where these may be obtained or how the public may have access to them.
8.
The name of the UCITS and its regulatory status must be clearly shown in the
advertisement.
9.
Advertising must not contain information which is false or misleading or
presented in a manner which is deceptive. Advertising should refer to the key
investor information document and prospectus issued by the UCITS and must
not be inconsistent with these.
10. UCITS marketing their units in Ireland or marketing their units in jurisdictions
with no statutory regulation of marketing must comply with the following
advertising standards:
(i)
The design and presentation of an advertisement should allow it to be
easily and clearly understood. Where footnotes are used they should be of
sufficient size and prominence to be easily legible; where appropriate they
should be linked to the relevant part of the main copy.
(ii)
An advertisement should always be designed and presented so that any
person who looks at it can see immediately that it is an advertisement.
(iii) Any statements made or risk warnings given in an advertisement must not
be obscured or disguised in any way by the content, design or format of
the advertisement.
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UCITS NOTICES
(iv) An advertisement should not mislead investors about any matter likely to
influence their attitudes to the investment either by inaccuracy, ambiguity,
exaggeration, omission or otherwise.
(v)
All advertisements should be prepared with care and with the conscious
aim of ensuring that potential investors fully grasp the nature of any
commitment into which they may enter. The fact that the complexities of
finance may well be beyond many of those to whom the opportunity being
offered will appeal should be taken into account and accordingly
advertisements must not take advantage of inexperience or credulity.
(vi) When an advertisement contains any forecast or projection, whether of a
specific growth rate or of a specific return or rate of return it should make
clear the basis upon which that forecast or projection is made, explaining
for instance
-
whether reinvestment of income is assumed
whether account has been taken of the incidence of any taxes or
duties and, if so, how
whether the forecast or projected rate of return will be subject to any
deductions other than upon premature realisation or otherwise.
(vii) Advertisements leading to the employment of money in anything the
value of which is not guaranteed should clearly indicate that the value of
the investment can go down as well as up and that the return upon the
investment will therefore necessarily be variable.
(viii) An advertisement must not describe an investment as guaranteed or
partially guaranteed unless there is a legally enforceable agreement with a
third party who undertakes, in the case of a full guarantee to meet, in full,
an investor's claim under the guarantee, or in the case of a partial
guarantee to meet, to whatever extent is stated in the advertisement, the
investor's claim under the guarantee. Where values are guaranteed
sufficient detail should be included to give the reader a fair view of the
nature of the guarantee.
(ix) All advertisements making claims, whether specific or not, as to
anticipated growth in value or rate of return should include a note, to be
given due prominence, to the effect, as appropriate, that neither past
experience nor the current situation are necessarily accurate guides to the
future.
(x)
Any advertisement which contains information on past performance must
also contain the following warning:
"Past performance may not be a reliable guide to future performance".
(xi) When any advertisement quotes past experience in support of a forecast or
projected growth in the value or rate of return it should not mislead in
relation to present prospects and should indicate the circumstances in
which and the period over which such experience has been gained in a
way that is fair and representative.
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UCITS NOTICES
(xii) When investors are offered the facility of planned withdrawal from capital
as an income equivalent (e.g. by cashing in units of the UCITS) the
advertiser should ensure that the effect of such withdrawals upon the
investment is clearly explained.
(xiii) When claims to investment skill are based upon an asserted increase in the
value of particular items purchased or recommended for purchase by the
advertiser in the past he should be adequately able to substantiate that the
purchase or recommendation upon which his assertion is based was made
at the time claimed and that the present value asserted for the investment
corresponds to the price actually obtained for identical items when sold in
the open market in the period immediately preceding the appearance of
the advertisement. No claim to an increase in the value of investments or
collectibles should be based upon the performance within a given market
of selected items only unless substantiation for the claim can be provided
in the form set out above.
(xiv) Phrases such as tax-free, tax-paid should not be used
-
unless it is made clear which particular tax(es) and/or duties are
involved and
the advertiser states as clearly as possible what liabilities may arise
and by whom they will be paid.
(xv) When the achievement or maintenance of the return claimed or offered for
a given investment is in any way dependent upon the assumed effects of
tax or duty this should be clearly explained and the advertisement should
make it clear that no undertaking can be given that the fiscal system may
not be revised with consequent effect upon the return offered.
(xvi) Where an advertisement relates to a high volatility UCITS it must state
that the investment may be subject to sudden and large falls in value, and,
if it is the case, that the investor could lose the total value of the initial
investment.
(xvii) Where a UCITS is described as being likely to yield income or as being
suitable for an investor particularly seeking income from the investment,
and where the income from the UCITS can fluctuate, the advertisement
must contain the following warning:
"Income may fluctuate in accordance with market conditions and taxation
arrangements".
(xviii)Where a UCITS is denominated in a currency other than that of the
country in which the advertisement is issued, the advertisement must
contain the following warning:
"Changes in exchange rates may have an adverse effect on the value price
or income of the product".
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UCITS NOTICES
(xix) An advertisement should, where relevant,
-
state that the difference at any one time between the sale and
repurchase price of units in the UCITS means that the investment
should be viewed as medium to long term;
-
refer to the impact of a redemption charge.
Contents
11.
The prospectus must contain at least the following information:
(A)
Information concerning the UCITS
(i)
Name, form in law, and, if applicable, registered office and head office if
different from the registered office.
(ii)
Identity and brief details of the financial group promoting the UCITS.
(iii)
Date of establishment or incorporation of the UCITS and indication of
duration, if limited.
(iv)
Statement of the place where the trust deed, the deed of constitution or
the articles of association, if not annexed and periodic reports may be
obtained, free of charge.
(v)
Brief indications relevant to unitholders of the tax system applicable to
the UCITS. Details of whether deductions are made at source from the
income and capital gains paid by the UCITS to unitholders.
(vi)
Accounting and distribution dates. The time limit (if any) after which
entitlement to dividend lapses and procedure in this event.
(vii)
Name and address of auditor.
(viii) In the case of investment companies:
-
(ix)
names and positions in the company of the directors. Their
experience both current and past, which is relevant to the UCITS.
Details of their main activities outside the company where these are
of significance with respect to that company.
authorised share capital.
Details of the types and main characteristics of the units and in
particular:
-
the nature of the right (real, personal or other) represented by the
unit;
original securities or certificates providing evidence of title, entry
in a register or in an account;
characteristics of the units, registered or bearer. Indication of any
denominations which may be provided for;
indication of unitholders’ voting rights;
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UCITS NOTICES
-
circumstances in which winding-up of the UCITS can be decided
on and winding-up procedure, in particular as regards the rights of
unitholders.
(x)
Where applicable, indication of stock exchanges or markets where the
units of the UCITS are listed or dealt in.
(xi)
Procedures and conditions of issue and sale of units.
(xii)
Procedures and conditions for repurchase or redemption of units,
including the period within which redemption proceeds will normally be
paid or discharged to investors. Circumstances in which repurchase or
redemption may be temporarily suspended.
(xiii) Description of rules for determining and applying income.
(xiv)
Information concerning the arrangements for making payments to
unitholders, purchasing or redeeming units and making available
information concerning the UCITS.
(xv)
Description of the UCITS investment objectives (e.g. capital growth or
income) and investment policy (e.g. specialisation in geographical or
industrial sectors). The description must be comprehensive and
accurate, readily comprehensible to investors and sufficient to enable
investors make an informed judgement on the investment proposed to
them. The description should include any limitations on that investment
policy, and borrowing powers which may be used in the management of
the UCITS.
(xvi)
Description of the UCITS intentions regarding techniques and
instruments which may be used for the purposes of efficient portfolio
management, in accordance with Notice UCITS 12 and Guidance Note
3/03. 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 conflicts of interest that
may arise. Disclosure should also include:
(a) information on the impact of efficient portfolio management
techniques on the performance of the UCITS; and
(b) policy regarding direct and indirect operational costs and fees
arising in the context of these techniques, in accordance with
paragraph 19 of Notice UCITS 12.
(xvii) Clear information on the collateral policy of the UCITS arising from
OTC derivative transactions or efficient portfolio management
techniques. Disclosure should include permitted types of collateral, level
of collateral required and haircut policy and, in the case of cash
collateral, re-investment policy (including the risks arising from the reinvestment policy).
(xviii) A statement that the UCITS will, on request, provide supplementary
information to unitholders relating to the risk management methods
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UCITS NOTICES
employed, including the quantitative limits that are applied and any
recent developments in the risk and yield characteristics of the main
categories of investments.
(xix)
Rules for the valuation of assets.
(xx)
Determination of the sale or issue price and the repurchase or
redemption price of units, in particular:
-
(xxi)
the method and frequency of the calculation of those prices;
information concerning the charges relating to the sale or issue and
the repurchase, or redemption of units;
the means, places and frequency of the publication of those prices.
In the case of umbrella UCITS:
the charges, if any, applicable to switching of investments from one
sub-fund to another;
the extent to which one sub-fund can invest in another and the
conditions which apply to such investments.
(xxii) The manner, amount and calculation of remuneration payable by the
UCITS to the management company, directors of the investment
company, the trustee or third parties, and reimbursement of costs by the
scheme to the management company, directors of the investment
company, the trustee or to third parties. All other costs and expenses
which will be borne by the UCITS, including costs of establishment.
All information on remuneration, costs and expenses to be borne by the
UCITS must be contained in the same section of the prospectus and in a
form that can be easily understood and analysed.
(xxiii) Investment companies within the meaning of Regulation 49(1) shall also
indicate;
-
the method and frequency of calculation of the net asset value of
units;
the means, place and frequency of the publication of the value;
the stock exchange in the country of marketing the price on which
determines the price of transactions effected outside stock
exchanges in that country.
(xxiv) Profile of the typical investor for whom the UCITS is designed.
(B)
Information concerning a management company
(i)
Name, form in law, registered office and head office if different from the
registered office. If the company is part of a group, the name of that
group and the ultimate parent. Date of incorporation of the company and
indication of duration if limited.
(ii)
If the company manages other collective investment schemes, indication
of those other schemes.
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UCITS NOTICES
(iii)
Names and positions in the company of the members of the
administrative, management and supervisory bodies. Their experience,
both current and past, which is relevant to the scheme. Details of their
main activities outside the company where those are of significance with
respect to that company.
(iv)
Amount of the prescribed capital with an indication of the capital paidup.
(C)
Information concerning a trustee
(i)
Name, form in law, registered office and head office if different from the
registered office.
(ii)
Main activity.
(D)
Information concerning investment advisers
Information concerning the advisory firms or external investment
advisers who give advice under contract which is paid for out of the
assets of the UCITS.
(i)
Name of the firm or adviser.
(ii)
Material provisions of the contract with the management company or
investment company which may be relevant to the unitholders,
excluding those relating to remuneration.
(iii)
Other significant activities.
(E)
General information
(i)
The prospectus must state that the authorisation of the UCITS is not an
endorsement or guarantee of the UCITS by the Central Bank nor is the
Central Bank responsible for the contents of the prospectus and must
incorporate the following statement:
“The authorisation of this UCITS by the Central Bank shall not
constitute a warranty as to the performance of the UCITS and the
Central Bank shall not be liable for the performance or default of
the UCITS.”
(ii)
The prospectus must identify, and describe in a comprehensive manner,
the risks applicable to investing in that particular UCITS. In particular
the prospectus should make reference to:
(a) the fact that prices of units may fall as well as rise;
(b) the desirability of consulting a stockbroker or financial adviser
about the contents of the prospectus; and
(c) where relevant, the fact that the difference at any one time between
the sale and repurchase price of units in the UCITS means that the
investment should be viewed as medium to long term.
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UCITS NOTICES
(iv)
Details of the persons who accept responsibility for information
contained in the prospectus.
(v)
In the event that a stated minimum viable size is not reached within a
specified period the prospectus must state that the UCITS will return any
subscriptions to the unitholders and apply to the Central Bank for
revocation of its authorisation.
(vi)
A description of the potential conflicts of interest which could arise
between the management company, investment adviser and the UCITS,
with details, where applicable, of how these are going to be resolved.
(vii)
A description of soft commission arrangements which may be entered
into by a management/administration company of a UCITS.
(viii) The name of any third party which has been contracted by the
management company or investment company to carry out its work.
(ix)
Material provisions of the contracts between third parties and the
management company or investment company which may be relevant to
unitholders, excluding those relating to remuneration.
Additional information requirements for specific UCITS
12.
UCITS with investment objectives which involve a higher than average degree
of risk (e.g. UCITS investing in emerging markets or in warrants) must
recommend that an investment in the UCITS should not constitute a substantial
proportion of an investment portfolio and may not be appropriate for all
investors. This warning must be inserted and highlighted at the beginning of the
prospectus and the prospectus must contain a full description of the risks
involved.
13. Where the net asset value of a UCITS is likely to have a high volatility due to its
portfolio composition or the portfolio management techniques that may be used,
a prominent statement drawing attention to this characteristic must be included
in the prospectus.
14. The prospectus must provide additional disclosure if the UCITS falls under the
following categories:
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UCITS NOTICES
UCITS which use financial derivative instruments ("FDI")
A UCITS which may engage in transactions in FDI must include a prominent
statement to this effect, which will indicate if FDI may be used for investment
purposes and/or solely for the purposes of hedging. This statement must also
indicate the expected effect of FDI transactions on the risk profile of the UCITS.
A description of the permitted types of FDI and the extent to which the UCITS
may be leveraged must be provided.
Where a UCITS will invest principally in FDI, it must insert a warning of this
intention at the beginning of the prospectus and any other promotional literature.
A UCITS must disclose the method used to calculate global exposure (i.e.
commitment approach, relative VaR or absolute VaR).
UCITS using VaR approaches must disclose the expected level of leverage and
the possibility of higher leverage levels. Leverage should be calculated as the
sum of the notionals of the derivatives used. This may be supplemented with
leverage calculated on the basis of a commitment approach. The creation of
leveraged exposure to an index via FDI, or the inclusion of a leverage feature in
an index, must also be taken into account in meeting the prospectus disclosure
requirements.
When using the relative VaR approach, information on the reference portfolio
must be disclosed.
A UCITS using total return swaps, or other financial derivative instruments with
the same characteristics, should include the following:
(a) Information on the underlying strategy or index and composition of the
investment portfolio or index;
(b) information on the counterparty(ies) to the transactions;
(c) a description of the risk of counterparty default and the effect on investor
returns; and
(d) details on the extent to which the counterparty assumes any discretion over
the composition or management of the UCITS investment portfolio or over
the underlying of the financial derivative instruments, and whether the
approval of the counterparty is required in relation to any UCITS investment
portfolio transaction.
Where the counterparty has discretion over the composition or management of
the UCITS investment portfolio or of the underlying of the financial derivative
instrument, the agreement between the UCITS and the counterparty should be
considered as an investment management delegation arrangement and should
comply with the UCITS requirements on delegation. In this case the prospectus
must identify the counterparty as an investment manager.
Funds of Funds
A UCITS which may invest more than 20% of its assets in other CIS must
include a prominent statement to this effect in the prospectus and in any
promotional literature which it issues.
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UCITS NOTICES
The prospectus must disclose the maximum level of management fees that may
be charged to the CIS in which it invests.
Cash/Money Market Funds
A UCITS which may invest substantially in deposits or money market
instruments must provide a risk warning 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 principal invested in the UCITS is
capable of fluctuation.
A UCITS which may invest substantially in deposits with credit institutions
must include a prominent statement to this effect in the prospectus and in any
promotional literature which it issues.
Index-Tracking Funds
A UCITS which replicates a stock or debt securities index must include a
prominent statement to this effect in the prospectus and any other promotional
literature.
The prospectus of an index-tracking UCITS should include:
(a) a clear description of the index including information on the underlying
components or details of the website where the exact composition of the
index is published;
(b) information on how the index will be tracked (for example, whether it will
follow a full or sample based physical replication model or a synthetic
replication) and the implications of the chosen method for unitholders 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, such as transaction costs, small illiquid
components or dividend re-investments.
Index Tracking leveraged funds
The prospectus for an index-tracking leveraged UCITS should include the
following information:
(a) 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;
(b) a description of the impact of any reverse leverage (i.e. short exposure);
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UCITS NOTICES
(c) 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.
Structured UCITS
A structured UCITS, as defined in Article 36(1) of Commission Regulation No
583/2010, must ensure that the prospectus:
(a)
contains full disclosure regarding the investment policy, underlying
exposure and payoff formulas in clear language which can be easily
understood by the retail investor; and
(b)
includes 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.
Further guidance is provided in Guidance Note 3/07 - Undertakings for
Collective Investment in Transferable Securities (UCITS): Structured Products
and Complex Trading Strategies – Prospectus Disclosure Requirements.
February 2013
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UCITS 7.3
Information to be included in the monthly returns
of the Regulations.
1.
Total gross asset value of the UCITS at end-month.
2.
Total net asset value of the UCITS at end-month.
3.
Number of units in circulation at end-month.
4.
Net asset value per unit at end-month.
5.
Payments received from the issues of units during month.
6.
Payments made for the repurchase of units during month.
7.
Net amount from issues and repurchases during month.
This return must be submitted to the Statistics Department of the Central Bank within
10 working days of the end-month to which it refers.
July 2011
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UCITS NOTICES
UCITS 8.5
Publication of annual and half-yearly reports
of the Regulations.
1.
A UCITS must publish an annual report for each financial year and a half-yearly
report covering the first six months of the financial year.
Dates for the initial reports issued by a UCITS will be agreed with the Central
Bank at the time of authorisation.
The accounting information given in the annual report must be audited by one
or more persons empowered to audit accounts in accordance with the
Companies Acts. The auditor’s report, including any qualifications, shall be
reproduced in full in the annual report.
2.
The annual and half-yearly report must be published within the following timelimits, with effect from the ends of the periods to which they relate:
3.
(i)
four months in the case of the annual report;
(ii)
two months in the case of the half-yearly report.
The annual report must contain the information outlined in Appendix A to this
notice. The half-yearly report must contain the information outlined in
Appendix B to this notice.
4.
The annual and half-yearly reports must be sent to the Central Bank.
UCITS NOTICES
5.
The latest annual report and any subsequent half-yearly report published must
be offered to investors free of charge before the conclusion of a contract.
6.
The annual and half-yearly reports must be available to the public at the places
specified in the prospectus.
7.
The annual and half-yearly reports shall be supplied to unitholders free of
charge on request.
May 2013
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UCITS NOTICES
APPENDIX A
Information to be contained in the annual report
The annual report must include the following as well as any significant information
which will enable investors to make an informed judgement on the development of
the activities of the UCITS and its results.
1.
Statement of assets and liabilities or balance sheet to separately show the
following:
-
transferable securities;
money market instruments;
CIS
deposits with credit institutions
financial derivative instruments
other assets;
total assets;
liabilities;
net asset value.
2.
Number of units in circulation.
3.
Net asset value per unit.
4.
Analysis of portfolio, distinguishing between:
(i)
transferable securities and money market instruments admitted to official
stock exchange listing or traded on a regulated market;
(ii)
transferable securities and money market instruments other than those
referred to in paragraph (i);
(iii) recently issued transferable securities of the type referred to in Regulation
68(1)(d);
(iv) UCITS and non-UCITS CIS;
(v)
deposits;
(vi) financial derivative instruments dealt in on a regulated market;
(vii) OTC financial derivative instruments;
and analysed in accordance with the most appropriate criteria in the light of the
investment policy of the UCITS (e.g. in accordance with economic,
UCITS NOTICES
geographical or currency criteria) as a percentage of net assets; for each of the
above investments the proportion it represents of the total assets of the UCITS
should be stated.
5.
A statement of changes in the composition of the portfolio during the reference
period.
To ensure that unitholders can identify significant changes in the
disposition of the assets of the UCITS only material changes are required to be
included in the published statement. These are defined as aggregate purchases
of a security exceeding 1 % of the total value of purchases for the period and
aggregate disposals greater than 1 % of the total value of sales. At a minimum
the largest 20 purchases and 20 sales must be given.
6.
Statement of the developments concerning the assets of the UCITS during the
reference period, including the following:
-
7.
income from investments;
other income;
management charges;
trustee's charges;
other charges and taxes;
net income;
distributions and income reinvested;
changes in capital account;
appreciation or depreciation of investments;
any other changes affecting the assets and liabilities of the UCITS;
transaction costs
A UCITS which invests more than 20% of its assets in other CIS must
disclose the management fees charged to the underlying CIS.
A comparative table covering the last three financial years and including, for
each financial year, at the end of the financial year:
-
8.
the total net asset value;
the net asset value per unit.
Investments by sub-funds within an umbrella investment company in the units
of other sub-funds within the umbrella must be disclosed in accordance with
industry adopted standards. The policies adopted to disclose cross-investments
must be explained in a note to the accounts.
9.
A general description of the use of financial derivative instruments,
and
efficient portfolio management techniques during the reporting period and the
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resulting amount of commitments. This description should identify the types of
financial derivative instruments concerned, including OTC derivatives, the
underlying exposures and where relevant the type and amount of collateral
received to reduce counterparty exposure.
It should indicate the purposes
behind the use of the various instruments together with the attendant risks to
allow unitholders assess their nature.
Open financial derivative positions at reporting date should be marked to market
and specifically identified in the portfolio statement.
Information on open
option positions should include the strike price, final exercise date and an
indication whether such positions are covered or not. Counterparties to OTC
derivatives should also be identified.
Treatment of realised and unrealised gains or losses arising from financial
derivative transactions and from the use of efficient portfolio management
techniques should be explained in a note to the accounts.
UCITS which have engaged in efficient portfolio management techniques
should disclose:
(i)
the exposure obtained through efficient portfolio management techniques;
(ii)
the identity of the counterparty(ies) to these efficient portfolio
management techniques;
(iii) the type and amount of collateral received by the UCITS to reduce
counterparty exposure; and
(iv) the revenues arising from efficient portfolio management techniques for
the entire reporting period together with the direct and indirect operational
costs and fees incurred.
A UCITS must disclose the method used to calculate global exposure (i.e.
commitment approach, relative VaR or absolute VaR). When using relative
VaR, information on the reference portfolio must be provided.
UCITS using VaR approaches must disclose the level of leverage employed
during the relevant period. Leverage should be calculated as the sum of the
notionals of the derivatives used. This may be supplemented with leverage
calculated on the basis of a commitment approach. The creation of leveraged
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exposure to an index via FDI, or the inclusion of a leverage feature in an index,
must also be taken into account in meeting the prospectus disclosure
requirements. The VaR measure must also be published; in this respect the
information provided should, at a minimum, include the lowest, the highest and
the average utilization of the VaR limit calculated during the financial year.
The model and inputs used for calculation (i.e. calculation model, confidence
level, holding period, length of data history) must be provided.
10.
In the case of index-tracking UCITS, the size of the tracking error at the end of
the period under review together with an explanation of any divergence between
the anticipated and realised tracking error for the relevant period. The report
should also disclose and explain the annual tracking difference between the
performance of the UCITS and the performance of the index tracked.
11.
Report on the activities of the financial year.
12.
Trustee's report.
13.
A description of soft commission arrangements affecting the UCITS during the
period.
14.
A description of any material changes in the prospectus during the reporting
period.
15.
A list of exchange rates used in the report.
16.
Auditor’s report.
17.
A report from the board of directors in accordance with paragraph 4 of Notice
UCITS 14.
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APPENDIX B
Information to be contained in the half-yearly report
1.
Statement of assets and liabilities or balance sheet to separately show the
following:
-
money market instruments;
CIS;
deposits with credit institutions;
financial derivative instruments;
other assets;
total assets;
liabilities;
net asset value.
2.
Number of units in circulation.
3.
Net asset value per unit.
4.
Analysis of portfolio, distinguishing between:
(i)
transferable securities and money market instruments admitted to official
stock exchange listing or traded on a regulated market;
(ii)
transferable securities and money market instruments other than those
referred to in paragraph (i);
(iii) recently issued transferable securities of the type referred to in Regulation
68(1)(d);
(iv) CIS;
(v)
deposits;
(vi) financial derivative instruments dealt in on a regulated market;
(vii) OTC financial derivative instruments;
and analysed in accordance with the most appropriate criteria in the light of the
investment policy of the UCITS (e.g. in accordance with economic,
geographical or currency criteria) as a percentage of net assets; for each of the
above investments the proportion it represents of the total assets of the UCITS
should be stated (as per annual report).
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5.
A statement of changes in the composition of the portfolio during the reference
period.
To ensure that unitholders can identify significant changes in the
disposition of the assets of the UCITS only material changes are required to be
included in the published statement. These are defined as aggregate purchases
of a security exceeding 1 % of the total value of purchases for the period and
aggregate disposals greater than 1 % of the total value of sales. At a minimum
the largest 20 purchases and 20 sales must be given.
6.
A description of soft commission arrangements affecting the UCITS during the
reference period.
7.
Investments by sub-funds within an umbrella investment company in the units
of other sub-funds within the umbrella must be disclosed in accordance with
industry adopted standards. The policies adopted to disclose cross-investments
must be explained in a note to the accounts.
8.
A general description of the use of financial derivative instruments and efficient
portfolio management techniques during the reporting period and the resulting
amount of commitments. This description should identify the types of financial
derivative instruments concerned, including OTC derivatives, the underlying
exposures and where relevant the type and amount of collateral received to
reduce counterparty exposure. It should indicate the purposes behind the use of
the various instruments together with the attendant risks to allow unitholders
assess their nature.
Open financial derivative positions at reporting date should be marked to market
and specifically identified in the portfolio statement.
Information on open
option positions should include the strike price, final exercise date and an
indication whether such positions are covered or not. Counterparties to OTC
derivatives should also be identified.
Treatment of realised and unrealised gains or losses arising from financial
derivative transactions and from the use of efficient portfolio management
techniques should be explained in a note to the accounts.
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UCITS which have engaged in efficient portfolio management techniques
should disclose:
(i)
the exposure obtained through efficient portfolio management techniques;
(ii)
the identity of the counterparty(ies) to these efficient portfolio
management techniques;
(iii) the type and amount of collateral received by the UCITS to reduce
counterparty exposure; and
(iv) the revenues arising from efficient portfolio management techniques for
the entire reporting period together with the direct and indirect operational
costs and fees incurred.
9.
In the case of an index-tracking UCITS, the size of the tracking error at the end
of the period under review.
10.
A description of any material changes in the prospectus during the reporting
period.
11.
A list of exchange rates used in the report.
12.
Where a UCITS has paid or proposes to pay an interim dividend, the half yearly
report must indicate the results after tax for the half-year concerned and the
interim dividend paid or proposed.
13.
A report from the board of directors in accordance with paragraph 4 of Notice
UCITS 14.
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UCITS 9.5
Eligible Assets and Investment Restrictions
of the Regulations.
Eligible Assets
1.
Investments of a UCITS are confined to:
(i)
transferable securities and money market instruments which are either
admitted to official listing on a stock exchange in a Member State or nonMember State or which are dealt on a market which is regulated,
operating regularly, recognised and open to the public in a Member State
or non-Member State;
(ii)
recently issued transferable securities which will be admitted to official
listing on a stock exchange or other market (as described above) within a
year. However, a UCITS may invest no more than 10 % of its assets in
these securities. This restriction will not apply in relation to investment
by a UCITS in certain US securities known as Rule 144A securities
provided that:
- the securities are issued with an undertaking to register with the US
Securities and Exchanges Commission within one year of issue; and
- the securities are not illiquid securities i.e. they may be realised by the
UCITS within seven days at the price, or approximately at the price, at
which they are valued by the UCITS.
The trust deed, deed of constitution or articles of association must list all
of the stock exchanges and markets on which the UCITS may invest.
Restrictions in respect of individual stock exchanges and markets may be
imposed by the Central Bank on a case-by-case basis.
(iii) money market instruments, other than those dealt in on a regulated
market.
(iv) units of UCITS.
UCITS NOTICES
(v)
units of non-UCITS CIS as prescribed in paragraph 1.3.
(vi) deposits with credit institutions as prescribed in paragraph 1.4.
(vii) financial derivative instruments as prescribed in Notice UCITS 10.
1.1 Transferable Securities
This term means:
-
shares in companies and other securities equivalent to shares in
companies (‘shares’),
-
bonds and other forms of securitised debt (‘debt securities’),
-
other negotiable securities which carry the right to acquire any such
transferable securities by subscription or exchange,
other than the techniques and instruments referred to in Regulation 69(2)(a), and
which fulfil the criteria set out below:
(a)
the potential loss which the UCITS may incur with respect to holding
those instruments is limited to the amount paid for them1;
(b)
their liquidity does not compromise the ability of the UCITS to comply
with Regulation 104(1);
(c)
reliable valuation is available for them as follows:
(i) in the case of securities admitted to or dealt in on a regulated market as
referred to in subparagraphs (a) to (d) of Regulation 68(1), in the form
of accurate, reliable and regular prices which are either market prices
or prices made available by valuation systems independent from
issuers;
(ii) in the case of other securities as referred to in Regulation 68(2)(a), in
the form of a valuation on a periodic basis which is derived from
information from the issuer of the security or from competent
investment research;
(d)
appropriate information is available for them as follows:
(i) in the case of securities admitted to or dealt in on a regulated market as
referred to in subparagraphs (a) to (d) of Regulation 68(1), in the form
of regular, accurate and comprehensive information to the market on
the security or, where relevant, on the portfolio of the security;
(ii) in the case of other securities as referred to in Regulation 68(2)(a), in
the form of regular and accurate information to the UCITS on the
security or, where relevant, on the portfolio of the security;
1
(e)
they are negotiable;
(f)
their acquisition is consistent with the investment objectives or the
investment policy, or both, of the UCITS;
A partly paid security must not expose the UCITS to loss beyond the amount to be paid for it.
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(g)
their risks and their contribution to the overall risk profile of the portfolio
are adequately captured by the risk management process of the UCITS
which must be assessed on an on-going basis.
For the purposes of subparagraphs (b) and (e), and unless there is information
available to the UCITS that would lead to a different determination, financial
instruments which are admitted or dealt in on a regulated market in accordance
with Regulation 68(1)(a), (b) or (c) shall be presumed not to compromise the
ability of the UCITS to comply with Regulation 104(1) and shall also be
presumed to be negotiable.
For the purposes of subparagraph (b) above, where information is available to
the UCITS that would lead it to determine that a transferable security could
compromise the ability of the UCITS to comply with Regulation 104(1) the
UCITS must assess its liquidity risk.
The liquidity risk is a factor that the UCITS must consider when investing in
any financial instrument in order to be compliant with the portfolio liquidity
requirement to the extent required by Regulation 104(1). In taking this prudent
approach, the following are examples of the matters a UCITS may need to
consider:
-
the volume and turnover in the transferable security;
-
if price is determined by supply and demand in the market, the issue size,
and the portion of the issue that the asset manager plans to buy; also
evaluation of the opportunity and timeframe to buy or sell;
-
where necessary, an independent analysis of bid and offer prices over a
period of time may indicate the relative liquidity and marketability of the
instrument, as may the comparability of available prices;
-
in assessing the quality of secondary market activity in a transferable
security, analysis of the quality and number of intermediaries and market
makers dealing in the transferable security concerned should be
considered.
In the case of transferable securities which are not admitted to trading on a
regulated market as defined in Regulation 68(1)(a) to (d), liquidity cannot
automatically be presumed. The UCITS will therefore need to assess the
liquidity of such securities where this is necessary to meet the requirements of
Regulation 104(1).
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UCITS NOTICES
If the security is assessed as insufficiently liquid to meet foreseeable redemption
requests, the security must only be bought or held if there are sufficiently liquid
securities in the portfolio so as to be able to meet the requirements of Regulation
104(1).
In the case of transferable securities which are not admitted to trading on a
regulated market as defined in Regulation 68(1)(a) to (d) negotiability cannot
automatically be presumed. The UCITS must assess the negotiability of
securities held in the portfolio, with a view to ensuring compliance with the
requirements of Regulation 104(1).
1.1.1 Closed Ended Funds
“Transferable securities” include:
(a)
Units in closed-ended funds, constituted as investment companies or as
unit trusts, which fulfil the following criteria:
(i) they fulfil the criteria set out in paragraph 1.1;
(ii) they are subject to corporate governance mechanisms applied to
companies;
(iii)where asset management activity is carried out by another entity on
behalf of the closed ended fund, that entity is subject to national
regulation for the purpose of investor protection.
(b)
units in closed-ended funds constituted under the law of contract which
fulfil the following criteria:
(i) they fulfil the criteria set out in paragraph 1.1;
(ii) they are subject to corporate governance mechanisms equivalent to
those applied to companies as referred to in subparagraph 1.1.1 (a)(ii);
(iii)they are managed by an entity which is subject to national regulation
for the purpose of investor protection.
In assessing whether the corporate governance mechanisms for closed
ended funds in contractual form are equivalent to investment companies,
the following factors are indicators which can be used as a guidance:
Unit holders' rights. The contract on which the fund is based should
provide for:
(i) right to vote of the unit holders in the essential decision making
processes of the fund (including appointment and removal of asset
management company, amendment to the contract which set up the
fund, modification of investment policy, merger, liquidation);
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UCITS NOTICES
(ii) right to control the investment policy of the fund through appropriate
mechanisms.
The assets of the fund should be separate and distinct from that of the asset
manager and the fund must be subject to liquidation rules adequately protecting
the unit holders.
A UCITS may not make investment in closed ended funds for the purposes of
circumventing the investment limits set out in the Regulations.
1.1.2 Structured Financial Instruments
“Transferable securities” include financial instruments which:
(a)
fulfil the criteria set out in paragraph 1.1;
(b)
are backed by, or linked to the performance of, other assets, which may
differ from those referred to in Regulation 68(1); provided that where a
financial instrument covered by this subparagraph contains an embedded
derivative component as referred to in Regulation 69(4)(c) and 69(5), the
requirements of Regulation 69(1), (2), (4) and (6) shall apply to that
component.
1.2 Money Market Instruments
This term means instruments normally dealt in on the money market which are
liquid, and have a value which can be accurately determined at any time. These
shall be understood by a reference to the following paragraphs:
(a)
financial instruments which are admitted to trading or dealt in on a
regulated market in accordance with Regulation 68(1)(a) to (c);
(b)
financial instruments which are not admitted to trading.
1.2.1.The reference to money market instruments as instruments normally dealt in on
the money market shall be understood as a reference to financial instruments
which fulfil one of the following criteria:
(a)
they have a maturity at issuance of up to and including 397 days;
(b)
they have a residual maturity of up to and including 397 days;
(c)
they undergo regular yield adjustments in line with money market
conditions at least every 397 days;
(d)
their risk profile, including credit and interest rate risks, corresponds to
that of financial instruments which have a maturity as referred to in
subparagraphs (a) or (b), or are subject to a yield adjustment as referred to
in subparagraph (c).
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1.2.2.The reference to money market instruments as instruments which are liquid shall
be understood as a reference to financial instruments which can be sold at
limited cost in an adequately short time frame, taking into account the obligation
of the UCITS to repurchase or redeem its units at the request of any unit holder.
When assessing the liquidity of a money market instrument, the following
cumulative factors have to be taken into account:
At the instrument level:
(i)
frequency of trades and quotes for the instrument in question;
(ii)
number of dealers willing to purchase and sell the instrument, willingness
of the dealers to make a market in the instrument in question, nature of
market place trades (times needed to sell the instrument, method for
soliciting offers and mechanics of transfer);
(iii) size of issuance/program;
(iv) possibility to repurchase, redeem or sell the money market instrument in a
short period (e.g. seven business days), at limited cost, in terms of low fees
and bid/offer prices and with very short settlement delay;
At the fund level, the following relevant factors should be considered in order to
ensure that any individual money market instrument would not affect the
liquidity of the UCITS at the fund level:
(i)
unit holder structure and concentration of unit holders of the UCITS;
(ii)
purpose of funding of unit holders;
(iii) quality of information on the fund's cash flow patterns;
(iv) prospectuses’ guidelines on limiting withdrawals.
The fact that some of these conditions are not fulfilled does not automatically
imply that the financial instruments should be considered as non-liquid. These
elements must ensure that UCITS will have sufficient planning in the structuring
of the portfolio and in foreseeing cash flows in order to match anticipated cash
flows with the selling of appropriately liquid instruments in the portfolio to meet
those demands.
1.2.3 The reference to money market instruments as instruments which have a value
which can be accurately determined at any time shall be understood as a
reference to financial instruments for which accurate and reliable valuations
systems, which fulfil the following criteria, are available:
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(a)
they enable the UCITS to calculate a net asset value in accordance with the
value at which the financial instrument held in the portfolio could be
exchanged between knowledgeable willing parties in an arm’s length
transaction;
(b)
they are based either on market data or on valuation models including
systems based on amortised costs.
With respect to the criterion "value which can be accurately determined at any
time", if the UCITS considers that an amortization method can be used to assess
the value of a money market instrument, it must ensure that this will not result in
a material discrepancy between the value of the money market instrument and
the value calculated according to the amortization method as set out in Notice
UCITS 17 – Money Market Funds.
1.2.4.The criteria referred to in paragraphs 1.2.2 and 1.2.3 shall be presumed to be
fulfilled in the case of financial instruments which are normally dealt in on the
money market and which are admitted to, or dealt in on, a regulated market in
accordance with Regulation 68(1)(a) to (c), unless there is information available
to the UCITS that would lead to a different determination.
Where the
presumption of "liquidity" and "accurate valuation" cannot be relied upon, the
money market instrument should be subject to an appropriate assessment by the
UCITS.
1.2.5.The reference in Regulation 68(1)(h) to money market instruments, other than
those dealt in on a regulated market, provided that the issue or the issuer is itself
regulated for the purpose of protecting investors and savings shall be understood
as a reference to financial instruments which fulfil the following criteria:
(a)
they fulfil one of the criteria set out in paragraph 1.2.1 and all the criteria
set out in paragraphs 1.2.2 and 1.2.3;
(b)
appropriate information is available for them, including information which
allows an appropriate assessment of the credit risks related to the
investment in such instruments, taking into account paragraphs 1.2.6, 1.2.7
and 1.2.8 of this definition;
(c)
they are freely transferable.
1.2.6 For money market instruments covered by Regulation 68(1)(h)(ii) and (h)(iv) or
for those which are issued by a local or regional authority of a Member State or
by a public international body but are not guaranteed by a Member State or, in
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the case of a federal State which is a Member State, by one of the members
making up the federation, appropriate information as referred to in paragraph
1.2.5 (b) shall consist in the following:
(a)
information on both the issue or the issuance programme and the legal and
financial situation of the issuer prior to the issue of the money market
instrument;
(b)
updates of the information referred to in subparagraph (a) on an annual
basis and whenever a significant event occurs;
(c)
the information referred to in subparagraph (a) verified by appropriately
qualified third parties not subject to instructions from the issuer. Such
third parties should specialise in the verification of legal or financial
documentation and be composed of persons meeting professional
standards of integrity;
(d)
available and reliable statistics on the issue or the issuance programme.
1.2.7.For money market instruments covered by Regulation 68(1)(h)(iii), appropriate
information as referred to in paragraph 1.2.5(b) shall consist of the following:
(a)
information on the issue or the issuance programme or on the legal and
financial situation of the issuer prior to the issue of the money market
instrument;
(b)
updates of the information referred to in subparagraph (a) on a regular
basis and whenever a significant event occurs;
(c)
available and reliable statistics on the issue or the issuance programme or
other data enabling an appropriate assessment of the credit risks related to
the investment in such instruments.
1.2.8 For all money market instruments covered by Regulation 68(1)(h)(i), except
those referred to in paragraph 1.2.6 of this definition and those issued by the
European Central Bank or by a central bank from a Member State, appropriate
information as referred to in paragraph 1.2.5(b) shall consist of information on
the issue or the issuance programme or on the legal and financial situation of the
issuer prior to the issue of the money market instrument.
1.2.9.The reference in Regulation 68(1)(h)(iii) to an establishment which is subject to
and complies with prudential rules considered by the Bank to be at least as
stringent as those laid down in a Community Act shall be understood as a
reference to an issuer which is subject to and complies with prudential rules and
fulfils one of the following criteria:
(a)
it is located in the European Economic Area;
(b)
it is located in the OECD countries belonging to the Group of Ten;
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(c)
it has at least investment grade rating;
(d)
it can be demonstrated on the basis of an in-depth analysis of the issuer
that the prudential rules applicable to that issuer are at least as stringent as
those laid down in a Community Act.
1.2.10.The reference in Regulation 68(1)(h)(iv) to securitisation vehicles shall be
understood as a reference to structures, whether in corporate, trust or contractual
form, set up for the purpose of securitisation operations.
1.2.11.The reference in Regulation 68(1)(h)(iv) to banking liquidity lines shall be
understood as a reference to banking facilities secured by a financial institution
which itself complies with Regulation 68(1)(h)(iii).
1.3 CIS of the open-ended type
A UCITS may invest in CIS of the open-ended type if the CIS are
(i)
CIS within the meaning of Regulation 4(3) and (4); and
(ii)
prohibited from investing more than 10% of net assets in other open-ended
CIS.
1.3.1 Investment in CIS which are not UCITS may not, in aggregate, exceed 30% of
the net assets of a UCITS. Acceptable CIS are set down in the Central Bank's
Guidance Note 2/03.
1.3.2 When a UCITS invests in the units of other CIS that are managed, directly or by
delegation, by the same management company or by any other company with
which the management company is linked by common management or control,
or by a substantial direct or indirect holding, that management company or other
company may not charge subscription, conversion or redemption fees on
account of the UCITS investment in the units of such other CIS.
1.3.3 Where a commission (including a rebated commission) is received by a manager
/investment manager/investment adviser company by virtue of an investment in
the units of another CIS, this commission must be paid into the property of the
UCITS.
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1.4
Deposits with credit institutions
A UCITS may invest in deposits provided that they are repayable on demand or
have the right to be withdrawn, will mature in no more than 12 months and are
made with a credit institution which falls under one of the following categories:
(i)
a credit institution authorised in the European Economic Area (EEA)
(European Union Member States, Norway, Iceland, Liechtenstein);
(ii)
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 (Switzerland, Canada, Japan, United States);
(iii) a credit institution authorised in Jersey, Guernsey, the Isle of Man,
Australia or New Zealand.
1.4.1. A UCITS may hold ancillary liquid assets.
Risk spreading rules
2.
A UCITS may invest no more than 10% of its net assets in transferable
securities and money market instruments other than those referred to in
paragraph 1 above.
3.
A UCITS may not invest more than 20% of its net assets in any one CIS. Where
the underlying CIS is an umbrella fund, each sub-fund of that umbrella fund
may be regarded as if it were a separate CIS for the purposes of this limit. The
assets of the CIS in which a UCITS has invested do not have to be taken into
account when complying with the investment restrictions in this Notice.
4.
A UCITS may invest no more than 10% of its net assets in transferable
securities or money market instruments issued by the same body provided that
the total value of transferable securities and money market instruments held in
issuing bodies in each of which it invests more than 5%, is less than 40%.
5.
A UCITS may not invest more than 20% of its net assets in deposits made with
the same credit institution.
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Deposits with any one credit institution, other than those specified in paragraph
1.4 (i), (ii) and (iii) above, held as ancillary liquidity, must not exceed 10% of
net assets. This limit may be raised to 20% in the case of deposits made with the
trustee.
6.
The risk exposure of a UCITS to a counterparty to an OTC derivative may not
exceed 5% of net asset value. This limit is raised to 10% in the case of credit
institutions listed in paragraph 1.4 (i) (ii) and (iii) above.
7.
A combination of two or more of the following issued by, or made or
undertaken with, the same body may not exceed 20% of the net asset value of a
UCITS:
- investments in transferable securities or money market instruments;
- deposits, and/or
- counterparty risk exposures arising from OTC derivatives transactions.
8.
The limit of 10% in paragraph 4 above is raised to 25% in the case of bonds that
are issued by a credit institution which has its registered office in a Member
State and is subject by law to special public supervision designed to protect
bond-holders2. If a UCITS invests more than 5% of its net assets in these bonds
issued by one issuer, the total value of these investments may not exceed 80%
of the net asset value of the UCITS.
9.
The limit of 10% in paragraph 4 above is raised to 35% if the transferable
securities or money market instruments are issued or guaranteed by a Member
State or its local authorities or by a non-Member State or public international
body of which one or more Member States are members.
10.
The transferable securities and money market instruments referred to in
paragraphs 8 and 9 shall not be taken into account for the purpose of applying
the limit of 40% referred to in paragraph 4.
2
Information concerning the bonds considered as eligible investments for UCITS in accordance
with this provision is available from http://ec.europa.eu/internal_market/investment/legal_texts/instruments_en.htm
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UCITS NOTICES
11.
The limits referred to in paragraphs 4, 5, 6, 7, 8 and 9 above may not be
combined, so that exposure to a single body shall not exceed 35% of the net
assets of a UCITS.
12.
Group companies are regarded as a single issuer for the purposes of paragraphs
4 - 9 above. However a limit of 20% of net assets may be applied to investment
in transferable securities and money markets instruments within the same group.
13.
The Central Bank may authorise a UCITS to invest up to 100% of its net assets
in different transferable securities and money market instruments issued or
guaranteed by any Member State, its local authorities, non-Member State or
public international body of which one or more Member States are members,
provided it is satisfied that unit holders have protection equivalent to that of unit
holders in UCITS complying with the limits in paragraphs 4 to 9 above. The
following conditions shall apply to such a UCITS:
(i)
the UCITS must hold securities from at least 6 different issues with
securities from any one issue not exceeding 30% of the net assets of the
UCITS;
(ii)
the UCITS must specify in its trust deed, deed of constitution or articles of
association the names of the States, local authorities or public
international bodies issuing or guaranteeing securities in which it intends
to invest more than 35% of its net assets;
(iii) the UCITS must specify in its prospectus and promotional literature that
the Central Bank has granted authorisation for this type of investment and
must indicate the States, local authorities and/or public international
bodies in which it intends to invest or has invested more than 35% of its
net assets.
Index tracking UCITS
14.
Notwithstanding the provisions of paragraph 4, a UCITS may, in accordance
with its trust deed, deed of constitution or memorandum and articles of
association, invest up to 20% of net assets in shares and/or debt securities issued
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by the same body where the investment policy of the UCITS is to replicate an
index. The index must be recognised by the Central Bank on the basis that it is:
(i)
sufficiently diversified which shall be understood as a reference to an
index which complies with the risk diversification rules set out in
Regulation 71;
(ii)
represents an adequate benchmark for the market to which it refers, which
shall be understood as a reference to an index whose provider uses a
recognised methodology which generally does not result in the exclusion
of a major issuer of the market to which it refers; and
(iii) is published in an appropriate manner, which shall be understood as a
reference to an index which fulfils the following criteria:
(a) it is accessible to the public;
(b) the index provider is independent from the index-replicating UCITS.
The provisions of (b) shall not preclude index providers and the UCITS forming
part of the same economic group, provided that effective arrangements for the
management of conflicts of interest are in place.
15.
The limit in paragraph 14 may be raised to 35% and applied to a single issuer,
where this is justified by exceptional market conditions.
16.
The reference in paragraph 14 to replication of the composition of a shares or
debt securities index shall be understood as replication of the composition of the
underlying assets of the index, including the use of derivatives or other
techniques and instruments as referred to in Regulation 69(2).
General provisions
17.
An investment company may acquire real and personal property which is
required for the purpose of its business.
18.
A UCITS may not acquire either precious metals or certificates representing
them. This provision does not prohibit a UCITS from investing in transferable
securities or money market instruments issued by a corporation whose main
business is concerned with precious metals.
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19.
An investment company, or management company acting in connection with all
of the CIS which it manages, may not acquire any shares carrying voting rights
which would enable it to exercise significant influence over the management of
an issuing body.
20.
A UCITS may acquire no more than:
(i)
10 % of the non-voting shares of any single issuing body;
(ii)
10 % of the debt securities of any single issuing body;
(iii) 25 % of the units of any single CIS;
(iv) 10 % of the money market instruments of any single issuing body.
NOTE: The limits laid down in (ii), (iii) and (iv) above may be disregarded at
the time of acquisition if at that time the gross amount of the debt securities or
of the money market instruments, or the net amount of the securities in issue
cannot be calculated.
21.
Paragraphs 19 and 20 above shall not be applicable to:
(i)
transferable securities and money market instruments issued or guaranteed
by a Member State or its local authorities;
(ii)
transferable securities and money market instruments issued or guaranteed
by a non-Member State;
(iii) transferable securities and money market instruments issued by public
international bodies of which one or more Member States are members;
(iv) shares held by a UCITS in the capital of a company incorporated in a nonMember State which invests its assets mainly in the securities of issuing
bodies with their registered offices in that State where under the
legislation of that State such a holding represents the only way in which
the UCITS can invest in the securities of issuing bodies in that State. This
waiver is applicable only if in its investment policies the company from
the non-Member State complies with the limits set out in paragraphs 3 to
12 and paragraphs 19 to 20 above, and provided that where these limits
are exceeded, paragraphs 23 and 24 below are observed;
(v)
shares held by an investment company or investment companies in the
capital of subsidiary companies carrying on only the business of
management, advice or marketing in the country where the subsidiary is
located, in regard to the repurchase of units at unitholders' request
exclusively on their behalf.
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22.
UCITS need not comply with the limits laid down in this Notice when
exercising subscription rights attaching to transferable securities or money
market instruments which form part of their assets.
23.
The Central Bank may allow recently authorised UCITS to derogate from the
provisions of paragraph 1.3.1 and paragraphs 3 to 15 above for six months
following the date of their authorisation, provided they observe the principle of
risk spreading.
24.
If the limits laid down in paragraph 1.3.1 and paragraphs 3 through 15 above are
exceeded for reasons beyond the control of a UCITS, or as a result of the
exercise of subscription rights, the UCITS must adopt as a priority objective for
its sales transactions the remedying of that situation, taking due account of the
interests of its unitholders.
25.
Neither an investment company, nor a management company or a trustee acting
on behalf of a unit trust or a management company of a common contractual
fund, may carry out uncovered sales of:
(i)
(ii)
(iii)
(iv)
money market instruments3;
units of CIS; or
financial derivative instruments.
Risk Management
26.
A UCITS must employ a risk management process to monitor, measure and
manage the risks attached to the positions and their contribution to the overall
risk profile of the portfolio.
July 2011
3
Any short selling of money market instruments by UCITS is prohibited.
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UCITS 10.10
Financial Derivative Instruments
of the Regulations.
The provisions of this Notice apply whenever a UCITS proposes to engage in
transactions in financial derivative instruments ("FDI") whether transactions are for
investment purposes or for the purposes of hedging. Provisions in relation to the
calculation of global exposure are also applicable where a UCITS engages in repo
transactions, through which additional leverage is generated through the reinvestment of collateral, as envisaged by paragraph 10 of Notice UCITS 12.
For the purposes of this Notice, “relevant institutions” refers to those institutions
specified in sub-paragraphs 1.4 (i), (ii) and (iii) of Notice UCITS 9.
Permitted FDI
1.
A UCITS may invest in FDI provided that:
(i)
(ii)
the relevant reference items or indices, consist of one or more of the
following1:
- instruments referred to in paragraph 1 (i) - (vi) of Notice UCITS 9
including financial instruments having one or several characteristics of
those assets;
-
financial indices;
-
interest rates;
-
foreign exchange rates;
-
currencies;
the FDI do not expose the UCITS to risks which it could not otherwise
assume (e.g. gain exposure to an instrument/issuer/currency to which the
UCITS cannot have a direct exposure);
(iii) the FDI do not cause the UCITS to diverge from its investment objectives;
1
FDI on commodities are excluded
UCITS NOTICES
(iv) the reference in 1(i) above to financial indices shall be understood as a
reference to indices which fulfil the following criteria and the provisions
of both Notice UCITS 21 and Guidance Note 2/07:
(a) they are sufficiently diversified, in that the following criteria are
fulfilled:
(i) the index is composed in such a way that price movements or
trading activities regarding one component do not unduly influence
the performance of the whole index;
(ii) where the index is composed of assets referred to in Regulation
68(1), its composition is at least diversified in accordance with
Regulation 71;
(iii) where the index is composed of assets other than those referred to
in Regulation 68(1), it is diversified in a way which is equivalent to
that provided for in Regulation 71;
(b) they represent an adequate benchmark for the market to which they
refer, in that the following criteria are fulfilled:
(i) the index measures the performance of a representative group of
underlyings in a relevant and appropriate way;
(ii) the index is revised or rebalanced periodically to ensure that it
continues to reflect the markets to which it refers following criteria
which are publicly available;
(iii) the underlyings are sufficiently liquid, which allows users to
replicate the index, if necessary;
(c) they are published in an appropriate manner, in that the following
criteria are fulfilled:
(i) their publication process relies on sound procedures to collect
prices and to calculate and to subsequently publish the index value,
including pricing procedures for components where a market price
is not available;
(ii) material information on matters such as index calculation,
rebalancing methodologies, index changes or any operational
difficulties in providing timely or accurate information is provided
on a wide and timely basis.
Where the composition of assets which are used as underlyings by FDI
does not fulfil the criteria set out in (a), (b) or (c) above, those FDI shall,
where they comply with the criteria set out in Regulation 68(1)(g), be
regarded as FDI on a combination of the assets referred to in Regulation
68(1)(g)(i) excluding financial indices; and
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(v)
where a UCITS enters into a total return swap or invests in other financial
derivative instruments with similar characteristics, the assets held by the
UCITS must comply with Regulations 70, 71, 72, 73 and 74 .
2.
Credit derivatives are permitted where:
(i)
they allow the transfer of the credit risk of an asset as referred to in
paragraph 1(i) above, independently from the other risks associated with
that asset;
(ii)
they do not result in the delivery or in the transfer, including in the form of
cash, of assets other than those referred to in Regulations 68(1) and (2);
(iii) they comply with the criteria for OTC derivatives set out in paragraph 4
below; and
(iv) their risks are adequately captured by the risk management process of the
UCITS, and by its internal control mechanisms in the case of risks of
asymmetry of information between the UCITS and the counterparty to the
credit derivative resulting from potential access of the counterparty to nonpublic information on firms the assets of which are used as underlyings by
credit derivatives. The UCITS must undertake the risk assessment with
the highest care when the counterparty to the FDI is a related party of the
UCITS or the credit risk issuer.
3.
FDI must be dealt in on a market which is regulated, operating regularly,
recognised and open to the public in a Member State or non-Member State. The
trust deed, the deed of constitution or the articles of association must list the
markets on which the UCITS may invest. Restrictions in respect of individual
stock exchanges and markets may be imposed by the Central Bank on a caseby-case basis.
4.
Notwithstanding paragraph 3, a UCITS may invest in FDI dealt in over-thecounter, "OTC derivatives" provided that:
(i)
the counterparty is a credit institution listed in sub-paragraphs 1.4 (i), (ii)
or (iii) of Notice UCITS 9 or an investment firm, authorised in accordance
with the Markets in Financial Instruments Directive in an EEA Member
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State, or is an entity subject to regulation as a Consolidated Supervised
Entity (“CSE”) by the US Securities and Exchange Commission;
(ii)
In the case of a counterparty which is not a credit institution, the
counterparty has a minimum credit rating of A-2 or equivalent, or is
deemed by the UCITS to have an implied rating of A-2 or equivalent.
Alternatively, an unrated counterparty will be acceptable where the UCITS
is indemnified or guaranteed against losses suffered as a result of a failure
by the counterparty, by an entity which has and maintains a rating of A-2
or equivalent;
(iii) in the case of subsequent novation of the OTC derivative contract, the
counterparty is one of:

the entities set out in paragraph (i) or;

a central counterparty (CCP) authorised, or recognised by ESMA,
under Regulation (EU) No 648/2012 on OTC derivatives, central
counterparties and trade repositories (EMIR) or, pending
recognition by ESMA under Article 25 of EMIR, an entity
classified as a derivatives clearing organisation by the Commodity
Futures Trading Commission or a clearing agency by the SEC
(both CCP).
(iv) risk exposure to the counterparty does not exceed the limits set out in
Regulation 70(1)(c). In this regard the UCITS shall calculate the exposure
using the positive mark-to-market value of the OTC derivative contract
with that counterparty. The UCITS may net the derivative positions with
the same counterparty, provided that the UCITS is able to legally enforce
netting arrangements with the counterparty. Netting is only permissible
with respect to OTC derivative instruments with the same counterparty and
not in relation to any other exposures the UCITS may have with the same
counterparty;
5.
Risk exposure to an OTC derivative counterparty may be reduced where the
counterparty will provide the UCITS with collateral. UCITS may disregard the
counterparty risk on condition that the value of the collateral, valued at market
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price and taking into account appropriate discounts, exceeds the value of the
amount exposed to risk at any given time.
6.
Collateral received must at all times meet with the requirements set out in
paragraphs 6-13 of Notice UCITS 12.
7.
Collateral passed to an OTC derivative counterparty by or on behalf of a UCITS
must be taken into account in calculating exposure of the UCITS to counterparty
risk as referred to in Regulation 70(1)(c). Collateral passed may be taken into
account on a net basis only if the UCITS is able to legally enforce netting
arrangements with this counterparty.
Calculation of issuer concentration risk and counterparty exposure risk
8.
UCITS must calculate issuer concentration limits as referred to in Regulation 70
on the basis of the underlying exposure created through the use of FDI pursuant
to the commitment approach.
9.
The risk exposures to a counterparty arising from OTC derivatives and efficient
portfolio management techniques must be combined when calculating the OTC
counterparty limit as referred to in Regulation 70(1)(c).
10. A UCITS must calculate exposure arising from initial margin posted to and
variation margin receivable from a broker relating to exchange-traded or OTC
derivatives, which is not protected by client money rules or other similar
arrangements to protect the UCITS against the insolvency of the broker, within
the OTC counterparty limit as referred to in Regulation 70(1)(c).
11. The calculation of issuer concentration limits as referred to in Regulation 70
must take account of any net exposure to a counterparty generated through a
securities lending or repurchase agreement. Net exposure refers to the amount
receivable by a UCITS less any collateral provided by the UCITS. Exposures
created through the reinvestment of collateral must also be taken into account in
the issuer concentration calculations.
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12. When calculating exposures for the purposes of Regulation 70, a UCITS must
establish whether its exposure is to an OTC counterparty, a broker or a clearing
house.
13. Position exposure to the underlying assets of FDI, including embedded FDI in
transferable securities money market instruments or CIS, when combined where
relevant with positions resulting from direct investments, may not exceed the
investment limits set out in Regulations 70 and 73. When calculating issuerconcentration risk, the FDI (including embedded FDI) must be looked through
in determining the resultant position exposure. This position exposure must be
taken into account in the issuer concentration calculations. It must be calculated
using the commitment approach when appropriate or the maximum potential
loss as a result of default by the issuer if more conservative. It must also be
calculated by all UCITS, regardless of whether they use VaR for global
exposure purposes.
This provision does not apply in the case of index based FDI provided the
underlying index is one which meets with the criteria set out in Regulation
71(1).
14. A transferable security or money market instrument embedding a FDI shall be
understood as a reference to financial instruments which fulfil the criteria for
transferable securities or money market instruments set out in Notice UCITS 9
and which contain a component which fulfils the following criteria:
(a)
by virtue of that component some or all of the cash flows that otherwise
would be required by the transferable security or money market instrument
which functions as host contract can be modified according to a specified
interest rate, financial instrument price, foreign exchange rate, index of
prices or rates, credit rating or credit index, or other variable, and therefore
vary in a way similar to a stand-alone derivative;
(b)
its economic characteristics and risks are not closely related to the
economic characteristics and risks of the host contract;
(c)
it has a significant impact on the risk profile and pricing of the transferable
security or money market instrument.
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15. A transferable security or a money market instrument shall not be regarded as
embedding a FDI where it contains a component which is contractually
transferable independently of the transferable security or the money market
instrument. Such a component shall be deemed to be a separate financial
instrument.
Cover requirements
16. A UCITS must, at any given time, be capable of meeting all its payment and
delivery obligations incurred by transactions involving FDI.
17. Monitoring of FDI transactions to ensure they are adequately covered must form
part of the risk management process of the UCITS.
18. A transaction in FDI which gives rise, or may give rise, to a future commitment
on behalf of a UCITS must be covered as follows:
(i)
in the case of FDI which automatically, or at the discretion of the UCITS,
are cash settled a UCITS must hold, at all times, liquid assets which are
sufficient to cover the exposure.
(ii)
in the case of FDI which require physical delivery of the underlying asset,
the asset must be held at all times by a UCITS. Alternatively a UCITS may
cover the exposure with sufficient liquid assets where:
(a) the underlying assets consists of highly liquid fixed income securities;
and/or
(b) the UCITS considers that the exposure can be adequately covered
without the need to hold the underlying assets, the specific FDI are
addressed in the risk management process, and details are provided in
the prospectus.
Risk management process and reporting
19.
A UCITS must provide the Central Bank with details of its proposed risk
management process vis-à-vis its FDI activity. The initial filing is required to
include information in relation to:
(i)
Permitted types of FDI, including embedded derivatives in
transferable securities and money market instruments;
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UCITS NOTICES
(ii)
Details of the underlying risks;
(iii) Relevant quantitative limits and how these will be monitored and
enforced;
(iv) Methods for estimating risks.
Material amendments to the initial filing must be notified to the Central Bank in
advance. The Central Bank may object to the amendments notified to it and
amendments and/or associated activities objected to by the Central Bank may
not be made.
20. A UCITS must submit a report to the Central Bank on its FDI positions on an
annual basis. The report, which must contain information which reflects a true
and fair view of the types of derivative instruments used by the UCITS, the
underlying risks, the quantitative limits and the methods used to estimate those
risks, must be submitted with the annual report of the UCITS. A UCITS must,
at the request of the Central Bank, provide this report at any time.
Calculation of Global Exposure
21. A UCITS must calculate its global exposure, as referred to in Regulation 69(4),
on at least a daily basis, as either of the following:
22.
(i)
the incremental exposure and leverage generated by the UCITS through
the use of FDI, including embedded derivatives, which may not exceed
the total of the UCITS net asset value;
or
(ii)
the market risk of the UCITS portfolio.
A UCITS, other than a leveraged index-tracking UCITS, may calculate its
global exposure by using the commitment approach, the value at risk approach
or other advanced risk measurement methodologies as may be appropriate. For
the purposes of this provision, ‘value at risk’ shall mean a measure of the
maximum expected loss at a given confidence level over a specific time period.
The UCITS must ensure that the method selected is appropriate, taking into
account the investment strategy of the UCITS, the types and complexities of the
FDI used and the proportion of the UCITS portfolio which comprises FDI. A
leveraged index-tracking UCITS must calculate its global exposure by using the
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UCITS NOTICES
commitment approach or the relative Value-at-Risk approach as set out in
Appendix 3 to this Notice.
23.
Where a UCITS employs techniques and instruments including repurchase
agreements in order to generate additional leverage or exposure to market risk,
in accordance with the Regulations and Notice UCITS 12, the UCITS must take
these transactions into consideration when calculating global exposure.
24.
The limits on global exposure must be complied with on an ongoing basis.
Depending on the investment strategy of the UCITS it may be necessary to
calculate global exposure intra-day.
25.
UCITS must select an appropriate methodology to calculate global exposure
which must be based on the assessment by the UCITS of its risk profile
resulting from its investment policy (including its use of FDI). The selected
methodology must be one which ESMA has published guidelines.
26.
A UCITS must use an advanced risk measurement methodology (supported by a
stress testing program) such as the Value-at-Risk (VaR) approach to calculate
global exposure where:
(i)
the UCITS engages in complex investment strategies which represent
more than a negligible part of the UCITS investment policy; and/or
(ii)
the UCITS has more than a negligible exposure to exotic derivatives;
and/or
(iii) the commitment approach does not adequately capture the market risk of
the UCITS portfolio.
27.
The use of a commitment or VaR approach or any other methodology to
calculate global exposure does not exempt UCITS from the requirement to
establish appropriate internal risk management measures and limits.
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UCITS NOTICES
Commitment approach
28.
A UCITS using the commitment approach must ensure that its global exposure
does not exceed its total net asset value. The UCITS may not therefore be
leveraged in excess of 100% of net asset value. Conversion methodologies are
set out in Appendix 1 to this Notice.
29.
Where the commitment approach is used for the calculation of global exposure,
a UCITS must apply this approach to all FDI positions, including embedded
derivatives, whether used as part of the UCITS general investment policy, for
purposes of risk reduction or for the purposes of efficient portfolio management.
30.
Where the commitment approach is used for the calculation of global exposure,
a UCITS must convert each FDI position into the market value of an equivalent
position in the underlying asset of that derivative (standard commitment
approach).
31.
A UCITS may take account of netting and hedging arrangements when
calculating global exposure, where these arrangements do not disregard obvious
and material risks and result in a clear reduction in risk exposure.
(i)
Netting arrangements are defined as combinations of trades on FDI
and/or security positions which refer to the same underlying asset,
irrespective – in the case of FDI– of the contracts' due date; and where the
trades on FDI and/or security positions are concluded with the sole aim of
eliminating the risks linked to positions taken through the other FDI
and/or security positions.
(ii)
Hedging arrangements are defined as combinations of trades on FDI
and/or security positions which do not necessarily refer to the same
underlying asset and where the trades on financial derivative instruments
and/or security positions are concluded with the sole aim of offsetting
risks linked to positions taken through the other FDI and/or security
positions.
Conditions in relation to netting and hedging arrangements are set out in
Appendix 2 to this Notice. If a UCITS uses a conservative calculation rather
than an exact calculation of the commitment for each FDI, hedging and netting
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UCITS NOTICES
arrangements cannot be taken into account to reduce commitment on the
derivatives involved if it results in an underestimation of the global exposure.
32.
Where the use of FDI does not generate incremental exposure for a UCITS, the
underlying exposure need not be included in the commitment calculation.
33.
Where the commitment approach is used, temporary borrowing arrangements
entered into on behalf of the UCITS in accordance with Regulation 103 need
not be included in the global exposure calculation.
34.
A FDI is not taken into account when calculating the commitment if it fulfils all
of the following characteristics:
(i)
It swaps the performance of financial assets held in the UCITS portfolios
for the performance of other reference financial assets;
(ii)
It totally offsets the market risk of the swapped assets held in the UCITS
portfolio so that the UCITS performance (e.g. performance of the net asset
value) does not depend on the performance of the swapped assets; and
(iii) It includes neither additional optional features, nor leverage clauses nor
other additional risks as compared to a direct holding of the reference
financial assets.
35.
A FDI is not taken into account when calculating the commitment if it meets
both of the following conditions:
(i)
The combined holding by the UCITS of a FDI relating to a financial asset
and cash which is invested in risk free assets is equivalent to holding a
cash position in the given financial asset; and
(ii)
The FDI is not considered to generate any incremental exposure and
leverage or market risk.
Commitment approach – structured UCITS
36.
A structured UCITS, as defined in Article 36(1) of Commission Regulation No
583/2010, which complies in full with the following criteria, may calculate
global exposure using the commitment approach as set out in paragraph 37:
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(i)
the UCITS is passively managed 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;
(ii)
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;
(iii) an investor can only be exposed to one payoff profile at any time during
the life of the UCITS;
(iv) the use of the commitment approach as set out in paragraphs 28-35 above
to calculate global exposure for the individual scenarios is appropriate
taking into account the provisions of paragraphs 21-27 above.
(v)
the UCITS has a final maturity not exceeding 9 years;
(vi) the UCITS does not accept new subscriptions from the public after the
initial marketing period;
(vii) the maximum loss the UCITS can suffer when the portfolio switches from
one payoff profile to another must be limited to 100% of the initial offer
price; and
(viii) 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 Regulations based on the
initial net asset value of the UCITS.
37.
The calculation method is the commitment approach as described in paragraphs
28-35 above but adjusted as follows:
(i)
The formula based investment strategy for each pre-defined payoff is
broken down into individual payoff scenarios.
(ii)
The FDI implied in each scenario are assessed to establish whether the
derivative may be excluded from the calculation of global exposure under
paragraphs 34 and 35 above.
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UCITS NOTICES
(iii) The UCITS then calculates the global exposure of the individual scenarios
to assess compliance with the global exposure limit of 100% of net asset
value.
38.
A structured UCITS must ensure that the prospectus:
(i)
contains full disclosure regarding the investment policy, underlying
exposure and payoff formulas in clear language which can be easily
understood by the retail investor; and
(ii)
includes 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.
Value at Risk (VaR) approach
39.
Calculation of global exposure using the VaR approach must consider all the
positions of the UCITS portfolio.
40.
A UCITS must always set the maximum VaR limit according to its defined risk
profile.
41.
A UCITS can use the relative VaR approach or the absolute VaR approach to
calculate global exposure as set out in Appendix 3 to this Notice. A UCITS is
responsible for deciding which VaR approach is the most appropriate
methodology given the risk profile and investment strategy of the UCITS. The
decision and its underlying assumptions must be fully documented.
42.
A UCITS must be able to demonstrate that the VaR approach it uses is
appropriate and there must be consistency in the choice of the type of VaR used.
43.
The VaR model should take into account, as a minimum, general market risk
and, if applicable, idiosyncratic risk. The event (and/or default) risks to which a
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UCITS is exposed following its investments should be taken into account, as a
minimum, in the stress testing program. If the proposed risk measurement
framework should prove inadequate, the Central Bank may impose stricter
measures for the UCITS.
44.
The choice of the appropriate model remains the responsibility of the UCITS.
When selecting the VaR model, the UCITS must ensure that the model is
appropriate with regard to the investment strategy being pursued and the types
and complexity of the financial instruments used.
45.
The VaR model should provide for completeness and it should assess the risks
with a high level of accuracy. In particular:
(i)
All the positions of the UCITS portfolio should be included in the VaR
calculation.
(ii)
The model should adequately capture all the material market risks
associated with portfolio positions and, in particular, the specific risks
associated with FDI. For that purpose, all the risk factors which have
more than a negligible influence on the fluctuation of the portfolio’s value
should be covered by the VaR model.
(iii) The quantitative models used within the VaR framework (pricing tools,
estimation of volatilities and correlations, etc) should provide for a high
level of accuracy.
(iv) All data used within the VaR framework should provide for consistency,
timeliness and reliability.
46.
When assessing the global exposure by means of a relative or absolute VaR
approach, a UCITS must comply with the quantitative and qualitative minimum
requirements set out in Appendix 3 to this Notice.
Back Testing
47. A UCITS must monitor the accuracy and performance of its VaR model (i.e.
prediction capacity of risk estimates) by conducting a back testing program. The
back testing program should provide, for each business day, a comparison of the
one-day VaR measure generated by the UCITS model for the UCITS end-of-day
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positions to the one-day change of the UCITS portfolio value by the end of the
subsequent business day.
48. A UCITS must carry out the back testing program at least on a monthly basis,
subject to always performing retroactively the comparison for each business day
as detailed above.
49
A UCITS should determine and monitor the ‘overshootings’ on the basis of this
back testing program. An ‘overshooting’ is a one-day change in the portfolio’s
value that exceeds the related one-day value-at-risk measure calculated by the
model. If the back testing results reveal a percentage of ‘overshootings’ that
appears to be too high, the UCITS must review the VaR model and make
appropriate adjustments.
50. If the number of overshootings for a UCITS for the most recent 250 business
days exceeds 4 in the case of a 99% confidence interval, the UCITS senior
management must be informed (at least on a quarterly basis) and the Central
Bank must be informed on a semi-annual basis. The information should contain
an analysis and explanation of the sources of ‘overshootings’ and a statement of
what measures, if any, were taken to improve the accuracy of the model. The
Central Bank may take measures and apply stricter criteria to the use of VaR if
the ‘overshootings’ exceed an unacceptable number.
Stress testing
51. A UCITS using the VaR approach must conduct a rigorous, comprehensive and
risk-adequate stress testing program in accordance with the qualitative and
quantitative requirements set out in this Notice. Stress tests should be carried out
on a regular basis, at least once a month. Additionally, they should be carried
out 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.
52. The stress testing program must be designed to measure any potential major
depreciation of a UCITS value as a result of unexpected changes in the relevant
market parameters and correlation factors. Conversely, where appropriate, it
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should also measure changes in the relevant market parameters and correlation
factors, which could result in major depreciation of a UCITS value.
53. The stress tests should be adequately integrated into the UCITS risk
management process and the results should be considered when making
investment decisions for the UCITS. The design of the stress tests should be
adapted in line with the composition of the UCITS and the market conditions
that are relevant for the UCITS.
54. The stress tests should cover all risks which affect the value or the fluctuations
in value of the UCITS to any significant degree. In particular, those risks which
are not fully captured by the VaR model used, should be taken into account.
55. The stress tests should be appropriate for analyzing potential situations in which
the use of significant leverage would expose the UCITS to significant downside
risk and could potentially lead to the default of the UCITS (i.e. NAV <0).
56. The stress tests should focus on those risks which, though not significant in
normal circumstances, are likely to be significant in stress situations, such as the
risk of unusual correlation changes, the illiquidity of markets in stressed market
situations or the behaviour of complex structured products under stressed
liquidity conditions.
57. A UCITS must implement clear procedures relating to the design of, and
ongoing adaptation of the stress tests. A program for carrying out stress tests
must be developed on the basis of such procedures which must include an
explanation why the program is suitable for the UCITS. Completed stress tests
together with their results must be clearly documented as must the reasons
behind any intention to deviate from the program.
VaR: Additional safeguards
58. A UCITS which calculates global exposure using a VaR methodology must
regularly monitor its leverage.
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59. A UCITS must supplement the VaR / Stress Testing framework, where
appropriate by taking into account the risk profile and the investment strategy
being pursued, with other risk measurement methods.
October 2013
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Appendix 1
Conversion Methodologies
1.
The commitment conversion methodology for standard derivatives is always the
market value of the equivalent position in the underlying asset. This may be
replaced by the notional value or the price of the futures contract where this is
more conservative. For non-standard derivatives, where it is not possible to
convert the derivative into the market value or notional value of the equivalent
underlying asset, an alternative approach may be used provided that the total
amount of the derivatives represent a negligible portion of the UCITS portfolio.
2.
The following steps must be taken by a UCITS when calculating global
exposure using the commitment approach:
(a)
Calculate the commitment of each individual derivative (as well as any
embedded derivatives and leverage linked to EPM techniques).
(b)
Identify netting and hedging arrangements. For each netting or hedging
arrangement, calculate a net commitment as follows:
(i) Gross commitment is equal to the sum of the commitments of the
individual FDI (including embedded FDI) after FDI netting;
(ii) If the netting or hedging arrangement involves security positions,
the market value of security positions can be used to offset gross
commitment;
(iii) The absolute value of the resulting calculation is equal to net
commitment.
Global exposure is then equal to the sum of:
(i) The absolute value of the commitment of each individual derivative
not involved in netting or hedging arrangements; and
(ii) The absolute value of each net commitment after the netting or
hedging arrangements as described above; and
(iii) The sum of the absolute values of the commitment linked to the
efficient portfolio management techniques.
(c)
3.
The calculation of gross and net commitment must be based on an exact
conversion of the FDI position into the market value of an equivalent position in
the underlying asset of that FDI.
UCITS NOTICES
4.
The commitment calculation of each FDI position should be converted to the
base currency of the UCITS using the spot rate.
5.
Where any currency derivative has 2 legs that are not in the base currency of the
fund, both legs must be taken into account in the commitment calculation.
Conversion Methodologies – Standard Derivatives
6.
The following conversion methods should be applied to the non-exhaustive list
of standard derivatives below.
(a) Futures
- Bond Future:
Number of contracts * notional contract size * market price of the cheapest-todeliver reference bond
- Interest Rate Future:
Number of contracts * notional contract size
- Currency Future:
Number of contracts * notional contract size
- Equity Future:
Number of contracts * notional contract size * market price of underlying equity
share
- Index Futures:
Number of contracts * notional contract size * index level
(b) Plain Vanilla Options (bought/sold puts and calls)
- Plain Vanilla Bond Option:
Notional contract value * market value of underlying reference bond * delta
- Plain Vanilla Equity Option:
Number of contracts*notional contract size* market value of underlying equity
share * delta
- Plain Vanilla Interest Rate Option:
Notional contract value * delta
- Plain Vanilla Currency Option:
Notional contract value of currency leg(s) * delta
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- Plain Vanilla Index Options:
Number of contracts*notional contract size* index level * delta
- Plain Vanilla Options on Futures:
Number of contracts*notional contract size* market value of underlying asset *
delta
- Plain Vanilla Swaptions:
Reference swap commitment conversion amount (see below) * delta
- Warrants and Rights:
Number of shares/bonds * market value of underlying referenced instrument *
delta
(c) Swaps
- Plain Vanilla Fixed/Floating Rate Interest Rate and Inflation Swaps
Market value of underlying (the notional value of the fixed leg may also be
applied)
- Currency Swap:
Notional value of currency leg(s)
- Cross currency Interest Rate Swaps:
- Basic Total Return Swap:
Underlying market value of reference asset(s)
- Non-Basic Total Return Swap:
Cumulative underlying market value of both legs of the TRS
- Single Name Credit Default Swap:
Protection Seller – The higher of the market value of the underlying reference
asset or the notional value of the Credit Default Swap.
Protection Buyer – Market value of the underlying reference asset
- Contract for Differences:
Number of shares/bonds * market value of underlying referenced instrument
(d) Forwards
- FX forward:
- Forward Rate Agreement:
Notional value
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(e) Leveraged exposure to indices or indices with embedded leverage
A derivative providing leveraged exposure to an underlying index, or indices
that embed leveraged exposure to their portfolio, must apply the standard
applicable commitment approach to the assets in question.
Conversion Methodologies – Embedded Derivatives
7.
The following conversion method should be applied to the non-exhaustive list
below of financial instruments which embed derivatives.
- Convertible Bonds:
Number of referenced shares * market value of underlying reference shares *
delta
- Credit Linked Notes:
Market value of underlying reference asset(s)
- Partly Paid Securities:
Number of shares/bonds * market value of underlying referenced instruments
- Warrants and Rights:
Number of shares/bonds * market value of underlying referenced instrument *
delta
Conversion Methodologies – Non-Standard (Exotic) Derivatives
8.
The following instruments are given as examples of non-standard FDI with the
related commitment methodology to be used.
- Variance Swaps
Variance swaps are contracts that allow investors to gain exposure to the
variance (squared volatility) of an underlying asset and, in particular, to trade
future realized (or historical) volatility against current implied volatility.
According to market practice, the strike and the variance notional are
expressed in terms of volatility. For the variance notional, this gives:
var iance notional 
vega notional
2 x strike
The vega notional provides a theoretical measure of the profit or loss resulting
from a 1% change in volatility.
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As realised volatility cannot be less than zero, a long swap position has a
known maximum loss. The maximum loss on a short swap is often limited by
the inclusion of a cap on volatility. However without a cap, a short swap’s
potential losses are unlimited.
The conversion methodology to be used for a given contract at time t is:
Variance Notional * (current) Variancet (without volatility cap)
Variance Notional * min [(current) Variance t; volatility cap2] (with volatility
cap)
whereby: (current) variance t is a function of the squared realized and implied
volatility, more precisely:
(current ) var iance t 
t
T t
* realized volatility (0, t ) 2 
* implied volatility (t , T ) 2
T
T
- Volatility Swaps
By analogy with the variance swaps, the following conversion formulae
should be applied to volatility swaps:
Vega Notional * (current) Volatility t (without volatility cap)
Vega Notional * min [(current) Volatilityt; volatility cap] (with volatility cap)
Whereby the (current) volatilityt is a function of the realized and implied
volatility.
9.
Barrier (knock-in knock-out) Options
Number of contracts * notional contract size * market value of underlying
equity share*maximum delta
Whereby the maximum delta is equal to the highest (if positive) or lowest (if
negative) value that the delta of the option may attain taking into account all
possible market scenarios.
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Appendix 2
Netting and Hedging
Netting
1.
A UCITS may net positions:
(i)
between FDI, provided they refer to the same underlying asset, even if the
maturity date of the FDI is different;
(ii)
between a FDI (whose underlying asset is a transferable security, money
market instrument or a collective investment undertaking) and that same
corresponding underlying asset;
(iii) UCITS that invest primarily in interest rate derivatives may make use of
specific duration-netting rules in order to take into account the correlation
between the maturity segments of the interest rate curve
Duration-Netting
2.
The duration-netting rules cannot be used if it would lead to an incorrect
assessment of the risk profile of the UCITS. UCITS availing of these netting
rules should not include other sources of risk (e.g. volatility) in their interest rate
strategy. Therefore, for example, interest rate arbitrage strategies may not apply
these netting rules.
3.
The use of these duration-netting rules cannot generate any unjustified level of
leverage through investment in short-term positions. Thus, for example, shortdated interest rate derivatives cannot be the main source of performance for a
UCITS with medium duration if it makes use of this netting methodology.
4.
A UCITS interest rate derivative should be converted into its equivalent
underlying asset position according to the following methodology:
UCITS NOTICES
1. Allocate each interest rate FDI to the appropriate range (‘bucket’) of the
following maturity-based ladder:
Bucket
1
2
3
4
Maturities range
0 - 2 years
2 - 7 years
7 - 15 years
> 15 years
2. Calculate the equivalent underlying asset position of each interest rate
derivative instrument as its duration divided by the target duration of the
UCITS and multiplied by the market value of the underlying asset:
Equivalent underlying asset position 
durationFDI
 MtM Underlying
durationtarget
where:
- durationFDI is the duration (sensitivity to interest rates) of the interest rate
derivative instrument,
- durationtarget is in line with the investment strategy, the directional
positions and with the expected level of risk at any time and will be
regularised otherwise. It is also in line with the portfolio duration under
normal market conditions.
- MtM underlying is the market value of the underlying asset as detailed in
paragraph 2.1
3. Net the long and short equivalent underlying asset positions within each
bucket. The amount of the former which is netted with the latter is the netted
position for that bucket.
4. Net the amount of the remaining unnetted long (or short) position in the
bucket (i) with the amount of the remaining short (long) position remaining
in the bucket (i+1).
5. Net the amount of the unnetted long (or short) position in the bucket (i) with
the amount of the remaining short (long) position remaining in the bucket
(i+2).
6. Calculate the netted amount between the unnetted long and short positions of
the two most remote buckets.
7. The UCITS calculates its total global exposure as the sum of:
(a) 0% of the netted position for each bucket;
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(b) 40% of the netted positions between two adjoining buckets (i) and
(i+1);
(c) 75% of the netted positions between two remote buckets separated by
another one, meaning buckets (i) and (i+2);
(d) 100% of the netted positions between the two most remote buckets;
and
(e) 100% of the remaining unnetted positions.
5.
A UCITS making use of the duration-netting rules, which are optional, can still
make use of the hedging framework set out below. However, only the interest
rate derivatives which are not included in hedging arrangements can still make
use of duration-netting rules.
Hedging
6.
Hedging arrangements may only be taken into account when calculating global
exposure if they offset the risks linked to some assets and, in particular, if they
comply with all the following criteria:
(i)
investment strategies that aim to generate a return should not be
considered as hedging arrangements;
(ii)
there should be a verifiable reduction of risk at the UCITS level;
(iii) the risks linked to FDI, i.e. general and specific if any, should be offset;
(iv) they should relate to the same asset class; and
(v)
7.
they should be efficient in stressed market conditions.
Notwithstanding the above criteria, FDI used for currency hedging purposes
(i.e. that do not add any incremental exposure, leverage and/or other market
risks) may be netted when calculating the UCITS global exposure.
8.
For the avoidance of doubt, no market neutral or long/short investment
strategies will comply with all the criteria laid down above.
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Appendix 3
Calculation of Global Exposure using the Value at Risk (Var)
Approach
Relative VaR approach
1.
Under the relative VaR approach the global exposure of the UCITS is calculated
as follows:
(i)
Calculate the VaR of the UCITS current portfolio (which includes
derivatives);
(ii)
Calculate the VaR of a reference portfolio;
(iii) Check that the VaR of the UCITS portfolio is not greater than twice the
VaR of the reference portfolio in order to ensure a limitation of the global
leverage ratio of the UCITS to 2. This limit can be presented as follows:
(VaR UCITS  VaR Reference Portfolio)
 100  100%
VaR Reference Portfolio
2.
The reference portfolio and the related processes should comply with the
following criteria:
(i)
(ii)
The reference portfolio should be unleveraged and should, in particular,
not contain any FDI or embedded FDI, except that;
(a)
a UCITS engaging in a long/short strategy may select a reference
portfolio which uses FDI to gain the short exposure;
(b)
a UCITS which intends to have a currency hedged portfolio may
select a currency hedged index as a reference portfolio.
The risk profile of the reference portfolio should be consistent with the
investment objectives, policies and limits of the UCITS portfolio;
(iii) If the risk/return profile of a UCITS changes frequently or if the definition
of a reference portfolio is not possible, then the relative VaR method
should not be used.
(iv) The process relating to the determination and the ongoing maintenance of
the reference portfolio should be integrated in the risk management process
and be supported by adequate procedures. Guidelines governing the
composition of the reference portfolio should be developed. In addition,
the actual composition of the reference portfolio and any changes should
be clearly documented.
UCITS NOTICES
Absolute VaR approach
3.
The absolute VaR approach limits the maximum VaR that a UCITS can have
relative to its Net Asset Value (NAV).
VaR approach: Quantitative requirements
4.
Calculation Standards: The absolute VaR of a UCITS cannot be greater than
20% of its NAV.
5.
The calculation of the absolute and relative VaR should be carried out in
accordance with the following parameters:
(i)
one-tailed confidence interval of 99 %;
(ii)
holding period equivalent to 1 month (20 business days);
(iii) effective observation period (history) of risk factors of at least 1
year (250 business days) unless a shorter observation period is
justified by a significant increase in price volatility (for instance
extreme market conditions);
(iv) quarterly data set updates, or more frequent when market prices are
subject to material changes;
(v)
6.
at least daily calculation.
A confidence interval and/or a holding period differing from the default
parameters above may be used by a UCITS provided the confidence interval is
not below 95% and the holding period does not exceed 1 month (20 days).
7.
For UCITS referring to an absolute VaR approach, the use of other calculation
parameters goes together with a rescaling of the 20% limit to the particular
holding period and/or confidence interval. The rescaling can only be done under
the assumption of a normal distribution with an identical and independent
distribution of the risk factor returns by referring to the quantiles of the normal
distribution and the square root of time rule.
VaR approach: Qualitative requirements
8.
The Regulations and Notice UCITS 2 provide that the risk management
function is responsible inter alia for ensuring compliance with the UCITS risk
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limit system, including statutory limits concerning global exposure. In this
regard the risk management function is responsible for:
(i)
sourcing, testing, maintaining and using the VaR model on a day-to-day
basis;
(ii)
supervising the process relating to the determination of the reference
portfolio if the UCITS reverts to a relative VaR approach;
(iii) ensuring on a continuous basis that the model is adapted to the UCITS
portfolio;
(iv) performing continuous validation of the model;
(v)
validating and implementing a documented system of VaR limits
consistent with the risk profile of the UCITS that is to be approved by
senior management and the board of directors;
(vi) monitoring and controlling the VaR limits;
(vii) monitoring on a regular basis the level of leverage generated by the
UCITS;
(viii) producing on a regular basis reports relating to the current level of the
VaR measure (including back testing and stress testing) for senior
management.
9.
The VaR model and the related outputs should represent an integral part of the
daily risk management work. In addition, they should be integrated in the
regular investment process lead by the investment managers as part of the risk
management program to keep the UCITS risk profile under control and
consistent with its investment strategy.
10.
Following initial development, the model should undergo a validation by a party
independent of the building process for ensuring that the model is conceptually
sound and captures adequately all material risks. This validation process must
also be carried out following any significant change to the model. A significant
change could relate to the use of a new product by the UCITS, the need to
improve the model following the back testing results, or a decision taken by the
UCITS to change certain aspects of the model in a significant way.
11.
The risk management function should perform ongoing validation of the VaR
model (this includes, but is not limited to back testing) in order to ensure the
accuracy of the model’s calibration. The review should be documented. Where
necessary, the model should be adjusted.
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Documentation and procedures
12.
The documentation requirements referred to in paragraph 72 of Notice UCITS 2
should be taken to include an adequate documentation of the VaR model and the
related processes and techniques, thereby covering, among others:
(i)
the risks covered by the model;
(ii)
the model’s methodology;
(iii)
the mathematical assumptions and foundations;
(iv)
the data used;
(v)
the accuracy and completeness of the risk assessment;
(vi)
the methods used to validate the model;
(vii)
the back testing process;
(viii)
the stress testing process;
(ix)
the validity range of the model; and
(x)
the operational implementation.
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UCITS 11.3
Borrowing powers
of the Regulations.
1.
Neither an investment company, nor a management company or trustee acting
on behalf of a unit trust or a common contractual fund, may borrow money.
2.
An investment company may borrow up to 10% of its assets and a unit trust or a
common contractual fund may borrow up to 10% of the value of the fund,
provided this borrowing is on a temporary basis. A trustee may give a charge
over the assets of the UCITS in order to secure borrowings. Credit balances
(e.g. cash) may not be offset against borrowings when determining the
percentage of borrowings outstanding.
3.
An investment company may borrow up to 10% of its assets to make possible
the acquisition of real property required for the purpose of its business. In this
case the total borrowing referred to in this paragraph and paragraph 2 above
must not exceed 15% of the investment company's assets.
4.
A UCITS may acquire foreign currency by means of a back-to-back loan
agreement.
Foreign currency obtained in this manner is not classed as
borrowings for the purposes of the borrowing restriction contained in
Regulation 103 (and paragraph 2 above) provided that the offsetting deposit
equals or exceeds the value of the foreign currency loan outstanding.
UCITS NOTICES
However, where foreign currency borrowings exceed the value of the back-toback deposit, any excess is regarded as borrowing for the purposes of
Regulation 103 (and paragraph 2 above).
December 2011
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UCITS 12.7
Techniques and Instruments, including Repurchase/Reverse
Repurchase Agreements and Securities Lending, for the purposes of
efficient portfolio management
of the Regulations.
For the purposes of this Notice, “relevant institutions” refers to those institutions
specified in sub-paragraphs 1.4(i), (ii) and (iii) of Notice UCITS 9.
1.
UCITS may employ techniques and instruments relating to transferable
securities and money market instruments subject to the Regulations and to
conditions imposed by the Central Bank. The use of these techniques and
instruments should be in line with the best interests of the UCITS.
2.
Techniques and instruments which relate to transferable securities or money
market instruments and which are used for the purpose of efficient portfolio
management shall be understood as a reference to techniques and instruments
which fulfil the following criteria:
(i)
they are economically appropriate in that they are realised in a costeffective way;
(ii)
they are entered into for one or more of the following specific aims:
(a) reduction of risk;
(b) reduction of cost;
(c) generation of additional capital or income for the UCITS with a level
of risk which is consistent with the risk profile of the UCITS and the
risk diversification rules set out in Notice UCITS 9;
(iii) their risks are adequately captured by the risk management process of the
UCITS, and
UCITS NOTICES
(iv) they cannot result in a change to the UCITS declared investment objective
or add substantial supplementary risks in comparison to the general risk
policy as described in its sales documents.
3.
Financial derivative instruments used for efficient portfolio management, in
accordance with paragraph 1, must also comply with the provisions of Notice
UCITS 10 and Guidance Note 3/03.
Repurchase/Reverse Repurchase agreements and Securities Lending
4.
Repurchase/reverse repurchase agreements and securities lending (“efficient
portfolio management techniques”) may only be effected in accordance with
normal market practice.
5.
All assets received by a UCITS in the context of efficient portfolio management
techniques should be considered as collateral and should comply with the
criteria set down in paragraph 6 below.
6.
Collateral must, at all times, meet with the following criteria:
(i)
Liquidity: Collateral received other than cash should be highly liquid
and traded on a regulated market or multilateral trading facility with
transparent pricing in order that it can be sold quickly at a price that is
close to pre-sale valuation. Collateral received should also comply with
the provisions of Regulation 74.
(ii)
Valuation: Collateral received should be valued on at least a daily basis
and assets that exhibit high price volatility should not be accepted as
collateral unless suitably conservative haircuts are in place.
(iii) Issuer credit quality: Collateral received should be of high quality.
(iv) Correlation: Collateral received should be issued by an entity that is
independent from the counterparty and is not expected to display a high
correlation with the performance of the counterparty.
(v)
Diversification (asset concentration): Collateral should be sufficiently
diversified in terms of country, markets and issuers with a maximum
exposure to a given issuer of 20% of the UCITS net asset value. When
UCITS are exposed to different counterparties, the different baskets of
collateral should be aggregated to calculate the 20% limit of exposure to a
single issuer.
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(vi) Immediately available: Collateral received should be capable of being
fully enforced by the UCITS at any time without reference to or approval
from the counterparty.
7.
Risks linked to the management of collateral, such as operational and legal
risks, should be identified, managed and mitigated by the risk management
process.
8.
Collateral received on a title transfer basis should be held by the trustee. For
other types of collateral arrangement, the collateral can be held by a third party
custodian which is subject to prudential supervision, and which is unrelated to
the provider of the collateral.
9.
Non-cash collateral cannot be sold, pledged or re-invested.
10. Cash collateral may not be invested other than in the following:
(i)
deposits with relevant institutions;
(ii)
high-quality government bonds;
(iii) reverse repurchase agreements provided the transactions are with credit
institutions subject to prudential supervision and the UCITS is able to
recall at any time the full amount of cash on an accrued basis;
(iv) short-term money market funds as defined in the ESMA Guidelines on a
Common Definition of European Money Market Funds (ref CESR/10049).
11. In accordance with paragraph 2(iv) of this Notice, invested cash collateral
should be diversified in accordance with the diversification requirement
applicable to non-cash collateral. Invested cash collateral may not be placed on
deposit with the counterparty or a related entity.
12.
A UCITS receiving collateral for at least 30% of its assets should have an
appropriate stress testing policy in place to ensure regular stress tests are carried
out under normal and exceptional liquidity conditions to enable the UCITS to
assess the liquidity risk attached to the collateral. The liquidity stress testing
policy should at least prescribe the following:
a)
design of stress test scenario analysis including calibration, certification
and sensitivity analysis;
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UCITS NOTICES
13.
b)
empirical approach to impact assessment, including back-testing of
liquidity risk estimates;
c)
reporting frequency and limit/loss tolerance threshold/s; and
d)
mitigation actions to reduce loss including haircut policy and gap risk
protection.
A UCITS should have in place a clear haircut policy adapted for each class of
assets received as collateral. When devising the haircut policy, a UCITS should
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 paragraph 12. This policy should be documented and should
justify each decision to apply a specific haircut, or to refrain from applying any
haircut, to a certain class of assets.
14.
The counterparty to a repurchase/reverse repurchase agreement or securities
lending agreement must have a minimum credit rating of A-2 or equivalent, or
must be deemed by the UCITS to have an implied rating of A-2 or equivalent.
Alternatively, an unrated counterparty will be acceptable where the UCITS is
indemnified or guaranteed against losses suffered as a result of a failure by the
counterparty, by an entity which has and maintains a rating of A-2 or
equivalent.
15.
A UCITS should ensure that it is able at any time to recall any security that has
been lent out or terminate any securities lending agreement into which it has
entered.
16.
A UCITS that enters into a reverse repurchase agreement should ensure that it is
able at any time to recall the full amount of cash or to terminate the reverse
repurchase agreement on either an accrued basis or a mark-to-market basis.
When the cash is recallable at any time on a mark-to-market basis, the mark-tomarket value of the reverse repurchase agreement should be used for the
calculation of the net asset value of the UCITS.
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17.
A UCITS that enters into a repurchase agreement should ensure that it is able at
any time to recall any securities subject to the repurchase agreement or to
terminate the repurchase agreement into which it has entered.1
18.
Repurchase/reverse repurchase agreements or securities lending do not
constitute borrowing or lending for the purposes of Regulation 103 and
Regulation 111 respectively.
19.
A UCITS should disclose in the prospectus the policy regarding direct and
indirect operational costs/fees arising from efficient portfolio management
techniques that may be deducted from the revenue delivered to the UCITS.
These costs and fees should not include hidden revenue. The UCITS should
disclose the identity of the entity(ies) to which the direct and indirect costs and
fees are paid and indicate if these are related parties to the UCITS management
company or the trustee.
20.
All the revenues arising from efficient portfolio management techniques, net of
direct and indirect operational costs, should be returned to the UCITS.
March 2013
1
Fixed-term repurchase and reverse repurchase agreements that do not exceed seven days should be
considered as arrangements on terms that allow the assets to be recalled at any time by the UCITS.
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UCITS 13.6
Umbrella UCITS
of the Regulations.
NOTE: The Regulations describe an umbrella fund as a UCITS which is divided into
two or more sub-funds and Part 8 of the Regulations applies to each subfund of an umbrella fund as if the sub-fund were a separate UCITS.
1.
Where a UCITS is constituted as an umbrella UCITS, each sub-fund of the
UCITS must comply with the Regulations and conditions governing UCITS.
2.
The prospectus of an umbrella UCITS must clearly state the charges, if any,
applicable to the exchange of units in one sub-fund for units in another.
3.
The trust deed, deed of constitution or articles of association of an umbrella
UCITS must provide that the assets of each sub-fund shall belong exclusively to
the relevant sub-fund and shall not be used to discharge directly or indirectly the
liabilities of or claims against any other sub-fund and shall not be available for
any such purpose.
4.
The prospectus of a UCITS investment company established as an umbrella
UCITS, must include the words "An umbrella fund with segregated liability
between sub-funds". Investment companies constituted as umbrella UCITS
which were authorised and commenced trading before 30 June 2005 and which
do not have segregated liability between sub-funds must clearly disclose the
potential risks to investors arising from the absence of the segregation of
liability between sub-funds.
UCITS NOTICES
5.
A unit trust or a common contractual fund constituted as an umbrella UCITS
may produce separate periodic reports for individual sub-funds. In such cases,
the report of each sub-fund must name the other sub-funds and state that the
reports of such sub-funds are available free of charge on request from the
management company.
6.
In accordance with company law, an investment company constituted as an
umbrella UCITS must include accounts for all sub-funds of that company in the
periodic reports issued by the company.
7.
An umbrella UCITS which has been authorised by the Central Bank must obtain
the Central Bank’s prior approval for each sub-fund. Details of proposed subfunds, and the amendment or supplement to the prospectus which will set out
the investment objectives and policy for the new sub-funds, must be submitted
for approval. Where a supplement to the prospectus is issued the supplement
must state that the UCITS is constituted as an umbrella UCITS and name the
other existing sub-funds.
8.
Investment by a sub-fund within an umbrella UCITS in the units of another subfund within the umbrella is subject to the following, in addition to the
provisions of paragraph 1.3 and paragraph 3 of Notice UCITS 9:
9.
(i)
investment must not be made in a sub-fund which itself holds units in
other sub-funds within the umbrella;
(ii)
the investing sub-fund may not charge an annual management fee in
respect of that portion of its assets invested in other sub-funds within the
umbrella. 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.
Investment by a sub-fund within a UCITS investment company established as an
umbrella UCITS, in the units of another sub-fund within the umbrella, by way of
transfer for consideration1, is subject to prior notification to the Central Bank.
1
Regulation 40(5)(a) permits an umbrella investment company to acquire shares in a sister subfund by way of subscription or transfer for consideration. It is expected that, generally, such
cross-investments will be processed as subscriptions, under normal dealing arrangements. In the
event that a transfer for consideration is proposed the UCITS must notify the Central Bank in
advance setting out the rationale behind the proposed transaction.
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10. In accordance with the ESMA guidelines to simplify the notification procedure
of UCITS (Ref: CESR 06-120b), a UCITS umbrella is recommended to have one
prospectus and one annual and half-yearly report dealing with all sub-funds in
the umbrella.
December 2011
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UCITS NOTICES
UCITS 14.5
Dealings by promoter, manager, trustee, investment adviser
and group companies
Obligations are conditions imposed by the Central Bank of Ireland (the Central Bank)
under Regulation 123(3) of the Regulations.
1.
Any transaction carried out with a UCITS by a promoter, manager, trustee,
investment adviser and/or associated or group companies of these (“connected
parties”) must be carried out as if negotiated at arm’s length. Transactions must
be in the best interests of the unitholders.
2.
Transactions permitted are subject to:
(i)
certified valuation by a person approved by the trustee, or the UCITS in
the case of transactions involving the trustsee, as independent and
competent; or
(ii)
execution on best terms on organised investment exchanges under their
rules; or
(iii) where (i) and (ii) are not practical, execution on terms which the trustee,
or the UCITS in the case of transactions involving the trustee, is satisfied
conform to the principles outlined in 1 above.
The trustee may hold funds for a UCITS subject to the provisions of Section 30
of the Central Bank Act, 1989. Funds held by a trustee for a UCITS must be
held on terms which comply with paragraph 1 above.
3.
Where it is envisaged that such transactions may be entered into, there must be
full disclosure in the prospectus issued by the UCITS.
UCITS NOTICES
4.
The periodic reports must state whether:
(i)
the board of directors are satisfied that there are arrangements (evidenced
by written procedures) in place, to ensure that the obligations set out in
paragraph 1 above are applied to all transactions with connected parties;
and
(ii)
the board of directors are satisfied that transactions with connected parties
entered into during the period complied with the obligations set out in
paragraph 1.
May 2013
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UCITS NOTICES
UCITS 15.6
Cross-border notification of UCITS
of the Regulations.
UCITS authorised under the Regulations:
1.
A UCITS which proposes to market its units in another Member State must
submit a notification letter to the Central Bank.
2.
The notification letter, which must be in the form prescribed by the host
Member State, must include information on arrangements made for marketing
units of the UCITS in the host Member State, including where relevant in
respect of share classes.
3.
The following documents in relation to the UCITS, duly translated if necessary,
in accordance with the Regulations, must be enclosed with the notification
letter, together with a link to indicate where the latest electronic copy of them
may be obtained in the future:
(i)
The trust deed, the deed of constitution or the memorandum and articles
of association;
(ii)
The latest prospectus;
(iii) The latest annual report and any subsequent half-yearly report; and
(iv) The key investor information document.
4.
The notification letter and attachments must be submitted by email to the
Central Bank to: [email protected].
5.
The documents referred to in paragraph 3 and any translations of them must be
kept up to date. The UCITS shall notify any amendments to these documents to
the competent authorities of the host Member State.
UCITS NOTICES
6.
The paragraphs referred to in paragraph 3 must be made available on a website
of the UCITS, or a website of its management company, or on another website
designated by the UCITS in the notification letter submitted in accordance with
paragraph 1 or any updates of it. Any document made available on a website
shall be provided in an electronic format in common use. UCITS must ensure
that the UCITS host Member State has access to this website.
7.
In the event of a change to the information provided in the notification letter
regarding arrangements made for marketing or in relation to the share classes to
be marketed, the UCITS shall notify the competent authorities of the host
Member State in writing and in advance of implementing the change.
8.
A UCITS must notify the Central Bank in the event that it ceases to market units
in another Member State.
UCITS authorised in another Member State:
9.
A UCITS authorised in another Member State which markets its units in Ireland
must take adequate measures to ensure that facilities are available in Ireland for
making payments to unit holders, repurchasing and redeeming units and making
available to them all information which UCITS are obliged to provide. The
Central Bank must be provided with a written confirmation from the entity
providing these facilities (the facilities agent) that it has agreed to act for the
UCITS.
10.
The key investor information document must be distributed within Ireland in
English or Irish.
11.
12.
The prospectus must provide the following information for Irish investors:
(i)
details of the facilities agent and the facilities maintained;
(ii)
provision of Irish tax laws, if applicable.
A facilities agent must have all of the documents which a UCITS is required to
provide to investors available for Irish resident investors. The agent must also
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UCITS NOTICES
provide information to investors on how a redemption request can be made and
how redemption proceeds will be paid.1
13.
The UCITS must comply with the advertising standards set out in paragraph 10
of Notice UCITS 6.
14.
The name of the UCITS and the name and address of the facilities agent will be
placed on a list of UCITS marketing in Ireland, which will be made available to
the public on request.
15.
The UCITS must notify the Central Bank in advance of any change to the
information regarding the arrangements for marketing provided in the
notification letter in accordance with Article 93(1) of Directive 2009/65/EC.
16.
The UCITS must notify the Central Bank of any amendments to the documents
provided in accordance with Article 93(2) of Directive 2009/65/EC and shall
indicate where those documents can be obtained electronically.
17.
Notifications in accordance with paragraphs 15 and 16 can be forwarded to
[email protected]. Further details in relation to this
procedure are available from www.centralbank.ie.
18.
Where the UCITS ceases marketing to Irish investors, or in the case of an
umbrella UCITS ceases marketing some sub-funds, the UCITS must inform the
Central Bank in writing.
December 2011
1
A facilities agent is not required to receive and transmit the redemption order to the UCITS or the
redemption proceeds to the investor.
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UCITS NOTICES
UCITS 16.2
Code of conduct in relation to collective portfolio management
Obligations are derived directly from provisions of the Regulations or are conditions
of the Regulations.
General principles
1.
A management company must ensure that unitholders of CIS under
management are treated fairly.
2.
A management company shall refrain from placing the interests of any group of
unitholders in CIS under management above the interests of any other group of
unitholders in CIS under management.
3.
A management company shall ensure in all transactions that it:
(i)
acts honestly and fairly in conducting its business activities in the best
interests of the CIS under management, the unitholders in those CIS and
the integrity of the market;
(ii)
acts with due skill, care and diligence in the best interests of the CIS under
management, the unitholders in those CIS and the integrity of the market;
(iii) has and employs effectively the resources and procedures that are
necessary for the proper performance of its business activities;
(iv) makes a reasonable effort to avoid conflicts of interests and, when they
cannot be avoided, ensures that the CIS under management and the
unitholders in those CIS are fairly treated; and
(vi)
complies with the letter and the spirit of all regulatory requirements
applicable to the conduct of its business so as to promote the best interests
of unitholders in the CIS under management and the integrity of the
market.
UCITS NOTICES
4.
A management company must ensure that fair, correct and transparent pricing
models and valuation systems are used for CIS under management, in order to
comply with the duty to act in the best interests of the unitholders.
A
management company must be able to demonstrate that the CIS portfolios have
been accurately valued.
5.
A management company must act in such a way as to prevent undue costs being
charged to the CIS and its unitholders.
6.
A management company must not, in any written communication or agreement,
save as permitted by applicable legislation, seek to exclude or restrict any legal
liability or duty of care which it has under the Regulations or conditions
imposed by the Central Bank to a CIS under management.
In particular, unless it is reasonable to do so in the circumstances, a
management company must not, in any written communication or agreement,
seek to exclude or restrict:
(i)
any duty to act with skill, care and diligence which is owed to the CIS
under management; or
(ii)
any liability owed to CIS under management, for failure to exercise the
degree of skill, care and diligence which may reasonably be expected of it
in the provision of collective portfolio management.
A management company must not try, unreasonably, to rely on any provision
seeking to exclude or restrict any such duty or liability.
7.
A management company must apply appropriate policies and procedures for
preventing malpractices that might reasonably be expected to affect the stability
and integrity of the market. In particular:
(i)
a management company must have procedures in place to prevent late
trading.
(ii)
a management company must have procedures in place to take into
account the risks associated with market timing.
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Due diligence requirements
8.
A management company must ensure a high level of diligence in the selection
and ongoing monitoring of investments, in the best interests of CIS under
management and the integrity of the market.
9.
A management company must ensure it has adequate knowledge and
understanding of the assets in which the CIS under management are invested.
10.
A management company must establish written policies and procedures on due
diligence and implement effective arrangements for ensuring that investment
decisions on behalf of the CIS under management are carried out in compliance
with the objectives, investment strategy and risk limits of the CIS.
11.
When implementing the risk management policy of the UCITS under
management, a management company must, where appropriate after taking into
account the nature of a proposed investment, formulate forecasts and perform
analyses concerning the investment’s contribution to the UCITS portfolio
composition, liquidity and risk and reward profile, before carrying out the
investment. The analyses must only be carried out on the basis of reliable and
up-to-date information, both in quantitative and qualitative terms.
12.
A management company must exercise due skill, care and diligence when
entering into, managing or terminating any arrangements with third parties in
relation to the performance of risk management activities, including activities
with regard to the valuation of OTC derivatives. Before entering into such
arrangements, management companies must take the necessary steps in order to
verify that the third party has the ability and capacity to perform the risk
management activities reliably, professionally and effectively. The management
company must establish methods for the on-going assessment of the standard of
performance of the third party.
Handling of subscription and redemption orders
13.
Where a management company carries out a subscription or redemption order
from a unitholder, it must notify the unitholder, by means of a durable medium,
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UCITS NOTICES
confirming execution of the order as soon as possible, and no later than the first
business day following execution or, where the confirmation is received by the
management company from a third party, no later than the first business day
following receipt of confirmation from the third party.
14.
Paragraph 13 shall not apply where the notice would contain the same
information as a confirmation that is to be promptly dispatched to the unitholder
by another person.
15.
The notice referred to in paragraph 13 must, where applicable, include the
following information:
(i)
the management company identification;
(ii)
the name or other designation of the unitholder;
(iii) the date and time of receipt of the order and method of payment;
(iv) the date of execution;
(v)
the CIS identification;
(vi) the nature of the order (subscription or redemption);
(vii) the number of units involved;
(viii) the unit value at which the units were subscribed or redeemed;
(ix) the reference value date;
(x)
the gross value of the order including charges for subscription or net
amount after charges for redemptions;
(xi) the total sum of the commissions and expenses charged and, where the
unitholder so requests, an itemised breakdown.
16.
Where orders for a unitholder are executed periodically, a management
company must either take the action specified in paragraph 13 or provide the
unitholder, at least once every six months, with the information listed in
paragraph 15 in respect of those transactions.
17.
A management company must supply a unitholder, upon request, with
information about the status of his order.
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Best execution
18.
A management company must act in the best interests of the CIS under
management when executing decisions to deal on behalf of those CIS in the
context of the management of their portfolios.
19.
For the purposes of paragraph 18, a management company must take all
reasonable steps to obtain the best possible result for the CIS under
management, taking into account price, costs, speed, likelihood of execution
and settlement, order size and nature, or any other consideration relevant to the
execution of the order.
The relative importance of such factors must be
determined by reference to the following criteria:
(i)
the objectives, investment policy and risks specific to the CIS under
management, as indicated in the prospectus or as the case may be in the
trust deed, deed of constitution or articles of association of those CIS;
(ii)
the characteristics of the order;
(iii) the characteristics of the financial instruments that are the subject of that
order;
(iv) the characteristics of the execution venues to which that order can be
directed.
20.
A management company must establish and implement effective arrangements
for complying with the obligation referred to in paragraph 19. In particular, a
management company must establish and implement a policy to allow them to
obtain, for the orders of the CIS under management, the best possible result in
accordance with paragraph 19.
21.
In cases where the CIS under management are investment companies, a
management company must obtain the prior consent of the investment company
on the execution policy.
22.
A management company must make available appropriate information to
unitholders on the policy established in accordance with paragraphs 18-20 and
on any material changes to its policy.
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23.
A management company must monitor on a regular basis the effectiveness of its
arrangements and policy for the execution of orders in order to identify and,
where appropriate, correct any deficiencies.
24.
A management company must review the execution policy on an annual basis.
A review must be carried out whenever a material change occurs that affects the
management company’s ability to continue to obtain the best possible result for
the CIS under management.
25.
A management company must be able to demonstrate that it has executed orders
on behalf of the CIS under management in accordance with its execution policy.
26.
A management company must act in the best interests of the CIS under
management when placing orders to deal on behalf of such CIS with other
entities for execution, in the context of the management of their portfolios.
27.
A management company must take all reasonable steps to obtain the best
possible result for the CIS under management taking into account price, costs,
speed, likelihood of execution and settlement, size, nature or any other
consideration relevant to the execution of the order. The relative importance of
such factors must be determined by reference to paragraph 19.
28
A management company must establish and implement a policy to enable the
management company comply with the obligation referred to in paragraph 27.
The policy must identify, in respect of each class of instruments, the entities
with which the orders may be placed. A management company must only enter
into arrangements for execution where such arrangements are consistent with
obligations laid down in paragraphs 26 and 27. Management companies must
make available to unitholders appropriate information on the policy established
in accordance with this paragraph and on any material changes to this policy.
29.
A management company must monitor on a regular basis the effectiveness of
the policy established in accordance with paragraph 27 and, in particular, the
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UCITS NOTICES
execution quality of the entities identified in that policy and, where appropriate,
correct any deficiencies.
30.
A management company must review the policy on an annual basis. Such a
review must also be carried out whenever a material change occurs that affects
the management company’s ability to continue to obtain the best possible result
for the CIS under management.
31.
A management company must be able to demonstrate that it has placed orders
on behalf of the CIS under management in accordance with the policy
established in accordance with paragraph 27.
Handling of orders
32.
A management company must establish and implement procedures and
arrangements which provide for the prompt, fair and expeditious execution of
portfolio transactions on behalf of CIS under management.
33.
The procedures and arrangements implemented by a management company
referred to in paragraph 32 must satisfy the following conditions:
(i)
ensure that orders executed on behalf of CIS under management are
promptly and accurately recorded and allocated;
(ii)
execute otherwise comparable orders for CIS under management
sequentially and promptly unless the characteristics of the order or
prevailing market conditions make this impracticable, or the interests of
such CIS require otherwise.
34.
Financial instruments or sums of money, received in settlement of the executed
orders must be promptly and correctly delivered to the account of the
appropriate CIS under management.
35.
A management company must not misuse information relating to pending
orders for CIS under management and must take all reasonable steps to prevent
the misuse of such information by any of its relevant persons.
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36.
A management company may not aggregate an order for a CIS under
management with an order for another CIS under management or with an order
for its own account, unless the following conditions are met:
(i)
it must be unlikely that the aggregation of orders will operate overall to
the disadvantage of any of the CIS or clients involved;
(ii)
an order allocation policy must be established and implemented, providing
in sufficiently precise terms for the fair allocation of aggregated orders,
including how the volume and price of orders determines allocations and
the treatment of partial executions.
37.
Where a management company aggregates an order for a CIS under
management with one or more orders of other such CIS or clients and the
aggregated order is partially executed, it must allocate the related trades in
accordance with its order allocation policy.
38.
A management company which has aggregated transactions for own account
with one or more CIS under management or other clients’ orders must not
allocate the related trades in a way that is detrimental to such CIS or another
client.
39.
Where a management company aggregates an order for a CIS under
management or another client with a transaction for own account and the
aggregated order is partially executed, it must allocate the related trades to such
CIS or other clients in priority over those for own account.
40.
If a management company is able to demonstrate to the CIS under management
or its other client on reasonable grounds that it would not have been able to
carry out the order on such advantageous terms without aggregation, or at all, it
may allocate the transaction for own account proportionally, in accordance with
the policy referred to in paragraph 36(ii).
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Complaints handling
41.
A management company must establish, implement and maintain effective and
transparent procedures for the reasonable and prompt handling of complaints
received from unitholders.
42.
A management company must maintain a file of all written complaints received,
including a record of their response and the action, if any, taken as a result of
the complaint.
43.
A management company shall ensure that it has adequate written procedures in
place for the effective consideration and proper handling of complaints.
44.
Where it appears to a management company that the complainant is not satisfied
with the outcome of the investigation into their complaint, the management
company shall ensure that the complainant is notified of their right to refer the
matter to the Central Bank.
45.
Unitholders must be able to file complaints free of charge. Information
regarding complaints procedures must be made available to unitholders free of
charge and on request.
Inducements
46.
A management company will not be regarded as acting honestly, fairly and
professionally in accordance with the best interests of the CIS under
management if, in relation to the activities of investment management and
administration to such CIS, it pays or is paid any fee or commission, or provides
or is provided with any non-monetary benefit, other than the following:
(i)
a fee, commission or non-monetary benefit paid or provided to or by the
CIS under management or a person on behalf of such CIS;
(ii)
a fee, commission or non-monetary benefit paid or provided to or by a
third party or a person acting on behalf of a third party, where the
following conditions are satisfied:
(a) the existence, nature and amount of the fee, commission or benefit, or,
where the amount cannot be ascertained, the method of calculating
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UCITS NOTICES
that amount, must be clearly disclosed to the CIS under management
in a manner that is comprehensive, accurate and understandable, prior
to the provision of the related service;
(b) the payment of the fee or commission, or the provision of the nonmonetary benefit must be designed to enhance the quality of the
relevant service and not impair compliance with the management
company’s duty to act in the best interests of the CIS under
management.
(iii) proper fees which enable or are necessary for the provision of the relevant
service, including custody costs, settlement and exchange fees, regulatory
levies or legal fees, and which, by their nature, cannot give rise to
conflicts with the management company’s duties to act honestly, fairly
and professionally in accordance with the best interests of the CIS under
management.
47.
For the purposes of paragraph 46(ii)(a), a management company may disclose
the essential terms of the arrangements relating to the fee, commission or nonmonetary benefit in summary form, provided that the management company
undertakes to disclose further details at the request of the unitholder and
provided that it honours that undertaking.
Conditions relating to self-managed investment companies
48.
An investment company which does not designate a management company
must comply with the provisions of this Notice with the exception of paragraph
21. References to “management company” should be taken to refer to “selfmanaged investment company”.
July 2011
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UCITS NOTICES
UCITS 17.0
Money market funds
of the Regulations.
A UCITS which labels or markets itself as a money market fund must comply with this
Notice. It must classify itself as a “Short-Term Money Market Fund” or a “Money
Market Fund”.
Weighted Average Maturity (“WAM”): WAM is a measure of the average length of time to maturity
of all of the underlying securities in the money market fund weighted to reflect the relative holdings in
each instrument, assuming that the maturity of a floating rate instrument is the time remaining until the
next interest rate reset to the money market rate, rather than the time remaining before the principal
value of the security must be repaid. In practice, WAM is used to measure the sensitivity of a money
market fund to changing money market interest rates.
Weighted Average Life (“WAL”): WAL is the weighted average of the remaining life (maturity) of
each security held in a money market fund, meaning the time until the principal is repaid in full
(disregarding interest and not discounting). Contrary to what is done in the calculation of the WAM,
the calculation of the WAL for floating rate securities and structured financial instruments does not
permit the use of interest rate reset dates and instead only uses a security’s stated final maturity. WAL
is used to measure the credit risk, as the longer the reimbursement of principal is postponed, the higher
is the credit risk. WAL is also used to limit the liquidity risk.
Constant net asset value (“NAV”) Money Market Funds: A constant or stable NAV money market
fund seeks to maintain an unchanging face value NAV (for example $1/€1 per unit/share). Income in
the fund is accrued daily and can either be paid out to the investor or used to purchase more units in the
fund. Assets are generally valued on an amortised cost basis which takes the acquisition cost of the
security and adjusts this value for amortisation of premiums (or discounts) until maturity.
1.
A money market fund must indicate in its prospectus and in its Key Investor
Information Document whether it is a Short-Term Money Market Fund or a
Money Market Fund. It must also include a risk warning drawing attention to
the difference between the nature of a deposit and the nature of an investment in
a money market fund with particular reference to the risk that the principal
invested in a money market fund is capable of fluctuation.
UCITS NOTICES
2.
A UCITS must provide appropriate information to investors on the risk and
reward profile of the fund so as to enable investors identify any specific risks
linked to the investment strategy of the money market fund.
(i)
In the case of Money Market Funds this must take account of the longer
WAM and WAL.
(ii)
In the case of all money market funds this must take account, where
relevant, of investment in new asset classes, financial instruments or
investment strategies with unusual risk and reward profiles.
Short-Term Money Market Funds
3.
A Short-Term Money Market Fund must have a primary investment objective of
maintaining the principal of the fund and aim to provide a return in line with
money market rates.
4.
Investments are limited to high quality money market instruments, as
determined by the UCITS, which comply with the criteria for money market
instruments as set out in the Regulations and deposits with credit institutions.
5.
To determine “high quality”, the following factors must at least be taken into
account:
(i)
the credit quality of the instrument, (a money market instrument may not
be considered to be of high quality unless it has been awarded one of the
two highest available short-term credit ratings by each recognised credit
rating agency that has rated the instrument, or, if the instrument is not
rated, it is of an equivalent quality as determined by the UCITS). Credit
quality must be monitored on an ongoing basis;
(ii)
the nature of the asset class represented by the instrument;
(iii) the operational and counterparty risk, in the case of structured financial
instruments;
(iv) the liquidity profile.
6.
Investments are limited to securities or instruments with a residual maturity
until the legal redemption date of less than or equal to 397 days.
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UCITS NOTICES
7.
A Short-Term Money Market Fund must provide daily NAV and price
calculations and have daily subscriptions and redemptions of units.
8.
The WAM of the portfolio must not exceed 60 days.
9.
The WAL of the portfolio must not exceed 120 days. When calculating the
WAL for securities, including structured financial instruments, the UCITS must
base the maturity calculation on the residual maturity until the legal redemption
of the instruments. However, when a financial instrument embeds a put option,
the exercise date of the put option may be used instead of the legal residual
maturity only if the following conditions are fulfilled at all times:
(i)
the put option can be freely exercised by the UCITS at its exercise date;
(ii)
the strike price of the put option remains close to the expected value of the
instrument at the next exercise date; and
(iii) the investment strategy of the UCITS implies that there is a high
probability that the option will be exercised at the next exercise date.
10.
When calculating the WAM and WAL, the impact of financial derivative
instruments (“FDI”), deposits and efficient portfolio management techniques
must be taken into account.
11.
Direct or indirect exposure to equities or commodities, including through FDI,
is not permitted.
12.
FDI may only be used when these are in line with the money market investment
strategy of the UCITS. FDI which give exposure to foreign exchange may only
be used for hedging purposes.
Investment in non-base currencies is not
permitted unless the exposure is fully hedged.
13.
Investment in other CIS is not permitted unless those CIS are also Short-Term
Money Market Funds.
14.
A Short-Term Money Market Fund may have either a constant or fluctuating
NAV.
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Money Market Funds
15.
A Money Market Fund must have a primary investment objective of
maintaining the principal of the fund and aim to provide a return in line with
money market rates.
16.
Investments are limited to high quality money market instruments, as
determined by the UCITS, which comply with the criteria for money market
instruments as set out in the Regulations and deposits with credit institutions.
17.
To determine “high quality”, the following factors must at least be taken into
account:
(i)
the credit quality of the instrument, (a money market instrument may not
be considered to be of high quality unless it has been awarded one of the
two highest available short-term credit ratings by each recognised credit
rating agency that has rated the instrument, or, if the instrument is not
rated, it is of an equivalent quality as determined by the UCITS). Credit
quality must be monitored on an ongoing basis;
(ii)
the nature of the asset class represented by the instrument;
(iii) the operational and counterparty risk, in the case of structured financial
instruments;
(iv) the liquidity profile.
18.
Investments are limited to securities or instruments with a residual maturity
until the legal redemption date of less than or equal to 2 years, provided that the
time remaining until the next interest reset date is less than or equal to 397 days.
Floating rate securities must reset to a money market rate or index.
19.
A Money Market Fund must provide daily NAV and price calculations and have
daily subscriptions and redemptions of units.
20.
The WAM of the portfolio must not exceed 6 months.
21.
The WAL of the portfolio must not exceed 12 months. When calculating the
WAL for securities, including structured financial instruments, the UCITS must
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UCITS NOTICES
base the maturity calculation on the residual maturity until the legal redemption
of the instruments. However, when a financial instrument embeds a put option,
the exercise date of the put option may be used instead of the legal residual
maturity only if the following conditions are fulfilled at all times:
(i)
the put option can be freely exercised by the UCITS at its exercise date;
(ii)
the strike price of the put option remains close to the expected value of the
instrument at the next exercise date; and
(iii) the investment strategy of the UCITS implies that there is a high
probability that the option will be exercised at the next exercise date.
22.
When calculating the WAM and WAL, the impact of FDI, deposits and efficient
portfolio management techniques must be taken into account.
23.
Direct or indirect exposure to equities or commodities, including through FDI,
is not permitted.
24.
FDI which give exposure to foreign exchange may only be used for hedging
purposes.
Investment in non-base currencies is not permitted unless the
exposure is fully hedged.
25.
Investment in other collective investment schemes is not permitted unless those
collective investment schemes are Short-Term Money Market Funds or Money
Market Funds.
26.
A Money Market Fund must have a fluctuating NAV.
Short-Term Money Market Funds – valuation on the basis of amortised cost
27.
Short-Term Money Market Funds are permitted to follow an amortised cost
valuation methodology provided the UCITS or, where relevant, its delegate
have demonstrable expertise in the operations of money market funds which
follow this method of valuation. This condition is satisfied where:
(i)
the Short-Term Money Market Fund has obtained a triple-A rating from
an internationally recognised rating agency; or
(ii)
the management company or investment manager is engaged in the
management, or has been engaged in the management, of a triple-A rated
money market fund; or
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UCITS NOTICES
(iii) in exceptional circumstances, the management company or investment
manager may provide sufficient information to the Central Bank to
demonstrate appropriate expertise in the operation of this type of money
market fund. Such applications will be considered on a case-by-case basis
and should be submitted in advance of the application for authorisation of
the money market fund.
28.
The UCITS must be satisfied that the persons responsible for the operation of
the Short-Term Money Market Fund including under any delegation
arrangements have and continue to have the necessary expertise.
29.
The UCITS must carry out a weekly review of discrepancies between the
market value and the amortised cost value of the money market instruments.
Escalation procedures must be in place to ensure that material discrepancies
between the market value and the amortised cost value of a money market
instrument are brought to the attention of personnel charged with the investment
management of the UCITS. In this regard:
(i) discrepancies in excess of 0.1% between the market value and the amortised
cost value of the portfolio are brought to the attention of the management
company or the investment manager;
(ii) discrepancies in excess of 0.2% between the market value and the amortised
cost value of the portfolio are brought to the attention of senior
management/directors of the management company or the board of directors
and the trustee.
30.
If discrepancies in excess of 0.3% between the market value and the amortised
cost value of the portfolio occur a daily review must take place. The UCITS
must notify the Central Bank with an indication of the action, if any, which will
be taken to reduce such dilution.
31.
The trust deed, deed of constitution or articles of association must provide for
the escalation procedures set out in paragraph 29 and 30 or, alternatively,
provide that a review of the amortised cost valuation vis-à-vis market valuation
will be carried out in accordance with the requirements of the Central Bank.
Weekly reviews and any engagement of escalation procedures must be clearly
documented.
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UCITS NOTICES
32.
The UCITS must engage in monthly portfolio analysis incorporating stress
testing to examine portfolio returns under various market scenarios to determine
if the portfolio constituents are appropriate to meet pre-determined levels of
credit risk, interest rate risk, market risk and investor redemptions. The results
of the periodic analysis must be available to the Central Bank on request.
33.
Money Market Funds are not permitted to follow an amortised cost valuation
methodology.
Transitional provisions
34.
Short-Term Money Market Funds and Money Market Funds authorised before 1
July 2011 are allowed a transitional period to 31 December 2011 to comply with
either paragraphs 3-14 or 15-26 of this Notice, as appropriate.
July 2011
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UCITS 18.1
Master-Feeder Structures
of the Regulations.
Feeder UCITS
1.
A feeder UCITS is a UCITS, or a sub-fund of an umbrella UCITS, which has
been approved to invest, in accordance with the provisions of Regulation 79(1),
at least 85% of its assets in units of another UCITS or sub-fund of an umbrella
UCITS (the master UCITS).
2.
A feeder UCITS may hold up to 15% of net assets in one or more of the
following:
(i)
ancillary liquid assets, in accordance with Regulation 68(2);
(ii)
financial derivative instruments (“FDI”), which may only be used for
hedging purposes, in accordance with Regulations 68(1)(g) and 69(2) to
(4);
(iii) movable and immovable property which is essential for the direct pursuit
of the business, if the feeder UCITS is an investment company.
3.
For the purposes of compliance with Regulation 69(2) to (4), a feeder UCITS
shall calculate its global exposure related to FDI by combining its own direct
exposure under paragraph 2(ii) with either:
(i)
the master UCITS actual exposure to FDI in proportion to the feeder
UCITS investment into the master; or
(ii)
the master UCITS potential maximum exposure to FDI provided for in the
master UCITS fund rules or instruments of incorporation in proportion to
the feeder UCITS investment into the master UCITS.
UCITS NOTICES
4.
Prior approval from the Central Bank is required before a UCITS, or sub-fund
of an umbrella UCITS, may operate as a feeder UCITS. Applications for
approval of a feeder UCITS must, in addition where relevant to the application
requirements set out in Notice UCITS 1, be accompanied by the following:
(i)
the trust deed, deed of constitution or articles of association of the feeder
UCITS and of the master UCITS;
(ii)
the prospectus of the feeder UCITS and of the master UCITS;
(iii) the key investor information document of the feeder UCITS and of the
master UCITS;
(iv) the agreement between the feeder UCITS and the master UCITS or the
internal conduct of business rules;
(v)
where applicable, the information to be provided to unit holders as set out
in paragraph 6 below;
(vi) where applicable, the information sharing agreement between the trustee
and the trustee (or depositary) of the master UCITS;
(vii) where applicable, the information sharing agreement between the auditor
of the feeder UCITS and the master UCITS;
(viii) where applicable, an attestation from the competent authority of the
master UCITS regarding the status of the master UCITS.
5.
The prospectus of a feeder UCITS must, in addition to the requirements set out
in Notice UCITS 6, contain the following information:
(i)
a prominent statement to the effect that the UCITS is a feeder UCITS and
names the master UCITS in which it permanently invests 85% or more of
its net assets. This statement must also be contained in any relevant
marketing communications;
(ii)
the investment objective and policy, including the risk profile. Whether
the performance of the feeder UCITS and master UCITS are identical or
to what extent and for which reasons they differ, including a description
of any investments made in accordance with paragraph 2;
(iii) a brief description of the master UCITS, its organisation, its investment
objective and policy, including the risk profile and an indication of how
the prospectus of the master UCITS may be obtained;
(iv) a summary of the agreement between the feeder UCITS and the master
UCITS or a summary of the internal conduct of business rules;
(v)
an indication of how unitholders may obtain further information in
relation to the master UCITS and in relation to the agreement between the
feeder UCITS and the master UCITS;
(vi) a description of all remuneration and reimbursement of costs payable by
the feeder UCITS by virtue of its investment in the master UCITS as well
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UCITS NOTICES
as the aggregate charges of the feeder UCITS and of the master UCITS;
and
(vii) a description of the tax implications for the feeder UCITS arising from the
investment in the master UCITS.
6.
Where a non-feeder UCITS proposes to convert to a feeder UCITS or a feeder
UCITS proposes to change its master UCITS paragraph 22 of Notice UCITS 5
applies. The following information must be provided to unitholders at least 30
days before the proposed investment in the master and investment as a feeder
UCITS cannot take place before that period has expired:
(i)
a statement that the investment by the feeder UCITS in the master UCITS
has been approved by the Central Bank;
(ii)
the key investment information document of the feeder UCITS and of the
master UCITS;
(iii) the date on which the UCITS or feeder UCITS will become a feeder
UCITS in the master UCITS;
(iv) a statement that unitholders have the right to request redemption of their
units, within 30 days, without charge (other than those retained by UCITS
or feeder UCITS to cover disinvestment costs).
7.
The annual report of a feeder UCITS must, in addition to the requirements set
out in Notice UCITS 8, include a statement on the aggregate charges of the
feeder UCITS and the master UCITS. Both the annual and half-yearly reports
of the feeder UCITS shall indicate how the annual and half-yearly reports of the
master UCITS can be obtained.
8.
A feeder UCITS must send the prospectus, the key investor information
document, any amendments to the key investor information document, the
annual report and the half-yearly report of the master UCITS to the Central
Bank. A paper copy of the prospectus and the reports of the master UCITS shall
be provided by the feeder UCITS to investors on request and free of charge.
9.
A feeder UCITS may suspend the repurchase, redemption or subscription of its
units where the units of the master UCITS are suspended.
10.
A feeder UCITS must monitor effectively the activity of the master UCITS in
accordance with Regulation 85(1). In performing that obligation the feeder
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UCITS NOTICES
UCITS may rely on information and documents received from the master
UCITS, or where applicable, its management company, depositary and auditor,
unless there is reason to doubt their accuracy.
11.
Any distribution fee, commission or other monetary benefit received by a feeder
UCITS, or any person acting on behalf of the feeder UCITS, in connection with
investment in the master UCITS, shall be paid into the assets of the feeder
UCITS.
Liquidation of the master UCITS
12.
In the event that a master UCITS is liquidated, a feeder UCITS must also be
liquidated unless the feeder UCITS has obtained approval from the Central
Bank to invest as a feeder UCITS in another master UCITS or to convert to a
non-feeder UCITS.
13.
A feeder UCITS must submit the following to the Central Bank within two
months from the date on which the master UCITS informed it of the binding
decision to liquidate. (In the event that the master UCITS notification is made
more than five months before the liquidation date the notification by the feeder
UCITS must be made at least three months before that date):
Where the UCITS intends to invest as a feeder UCITS in another master:
(i)
an application for approval of that investment;
(ii)
an application for approval of the proposed amendment to the trust deed,
deed of constitution or articles of association;
(iii) the amendments to the prospectus and key investor information
(iv) the other documents referred to in paragraph 4.
Where the UCITS intends to convert to a non-feeder UCITS:
(i)
(ii)
the amendments to the prospectus and key investor information.
Where the UCITS intends to be liquidated:
(i)
14.
a notification of that intention.
On receipt of approval from the Central Bank the feeder UCITS must notify the
master UCITS of this decision.
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UCITS NOTICES
15.
The feeder UCITS shall take measures to comply with the requirements of
paragraph 6 as soon as possible.
16.
In the event that payment of the liquidation proceeds is to be executed by the
master UCITS before the new investment date as feeder or non-feeder UCITS,
the proceeds may be accepted by the feeder UCITS in cash or in-kind. These
liquidation proceeds may only be re-invested for the purposes of efficient cash
management pending the new investment date.
17.
A feeder UCITS must inform its unitholders of its intention to be liquidated
without undue delay.
Merger or division of the master UCITS
18.
In the event that a master UCITS merges with another UCITS, or a master
UCITS is divided into two or more UCITS, a feeder UCITS must be liquidated,
unless the feeder UCITS has obtained approval from the Central Bank to:
(i)
continue as a feeder UCITS of the master UCITS or another UCITS
resulting from the merger;
(ii)
invest as a feeder UCITS in another master UCITS; or
(iii) convert to a non- feeder UCITS.
19.
A feeder UCITS must submit the following to the Central Bank within one
month from the date on which it received information regarding the planned
merger or division.
(In the event that the master UCITS provides the
information more than four months before the proposed effective date the
notification by the feeder UCITS must be made at least three months before that
date):
Where the UCITS intends to continue as a feeder UCITS of the same
master (i.e. the master UCITS is the receiving UCITS in a proposed merger
and the master UCITS is to continue materially unchanged as one of the
resulting UCITS in a proposed division):
(i)
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UCITS NOTICES
(ii)
where applicable, an application for approval of the proposed amendment
to the trust deed, deed of constitution or articles of association;
(iii) where applicable, the amendments to the prospectus and key investor
information document.
Where the UCITS intends to invest as a feeder UCITS in another master,
including a master UCITS resulting from the merger/division (i.e. the
master UCITS is the merging UCITS and, due to the merger, the feeder
UCITS becomes a unitholder of the receiving UCITS):
(i)
(ii)
(iii) the amendments to the prospectus and key investor information document;
(iv) the other documents referred to in paragraph 4.
Where the UCITS intends to convert to a non-feeder UCITS:
(i)
(ii)
the amendments to the prospectus and key investor information document.
Where the UCITS intends to be liquidated:
(i)
20.
a notification of that intention.
On receipt of approval from the Central Bank the feeder UCITS must notify the
master UCITS of this decision.
21.
The feeder UCITS shall take measures to comply with the requirements of
paragraph 6 as soon as possible.
22.
In the event that payment of the redemption proceeds is to be executed by the
master UCITS before the new investment date as feeder or non-feeder UCITS,
the proceeds may be accepted by the feeder UCITS in cash or in-kind. These
liquidation proceeds may only be re-invested for the purposes of efficient cash
management pending the new investment date.
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23.
A feeder UCITS must inform its unitholders and its master UCITS of its
intention to be liquidated without undue delay.
Master UCITS
24.
A master UCITS is a UCITS, or a sub-fund of an umbrella UCITS, which:
(i)
has, among its unitholders, at least one feeder UCITS;
(ii)
is not itself a feeder UCITS; and
(iii) does not hold units of a feeder UCITS.
25.
If a master UCITS has at least two feeder UCITS as unitholders the master
UCITS may choose whether or not to raise capital from other investors.
26.
A master UCITS must provide its feeder UCITS with all documents and
information necessary for the feeder UCITS to comply with its obligations.
27.
In the event that a master UCITS and its feeder UCITS have different
accounting years, the auditor of the master UCITS must make an ad hoc report
on the closing date of the feeder UCITS.
28.
A master UCITS must immediately inform the Central Bank of the identity of
each feeder UCITS which invests in its units.
29.
A master UCITS may not charge subscription or redemption fees to its feeder
UCITS.
30.
A master UCITS must have arrangements in place in order to ensure the timely
availability of all information the master UCITS is obliged to provide under the
Regulations.
Common provisions for feeder and master UCITS
31.
A feeder UCITS must enter into an agreement with a master UCITS prior to
investment therein. The agreement must be available, on request and free of
charge, to all unitholders. It must contain the following:
Access to information:
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UCITS NOTICES
(i)
how and when the master UCITS provides the feeder UCITS with a
copy of its trust deed, deed of constitution or articles of association,
prospectus and key investor information document or any amendment
thereto;
(ii)
how and when the master UCITS informs the feeder UCITS of a
delegation of investment management and risk management functions to
third parties;
(iii)
where applicable, how and when the master UCITS provides the feeder
UCITS with internal operational documents, such as its risk management
process and its compliance reports;
(iv)
what details of breaches by the master UCITS of the law, the trust deed,
the deed of constitution or articles of association and the agreement
between the master UCITS and the feeder UCITS of which the master
UCITS shall notify the feeder UCITS and the manner and timing of this
notification;
(v)
where the feeder UCITS uses FDI for hedging purposes, how and when
the master UCITS will provide the feeder UCITS with information about
its actual exposure to FDI to enable the feeder UCITS to calculate its
own global exposure in accordance with paragraph 3;
(vi)
a statement that the master UCITS informs the feeder UCITS of any
other information-sharing arrangements entered into with third parties
and where applicable, how and when the master UCITS makes those
other information-sharing arrangements available to the feeder UCITS;
Basis of investment and disinvestment by the feeder UCITS:
(vii)
the share classes of the master UCITS which are available for investment
by the feeder UCITS;
(viii) the charges and expenses to be borne by the feeder UCITS, and details
of any rebate or retrocession of charges or expenses by the master
UCITS;
(ix)
if applicable, the terms on which any initial or subsequent transfer of
assets in kind may be made from the feeder UCITS to the master
UCITS;
Standard dealing arrangements:
(x)
coordination of the frequency and timing of the net asset value
calculation process and the publication of prices of units;
(xi)
coordination of transmission of dealing orders by the feeder UCITS,
including, where applicable, the role of transfer agents or any other third
party;
(xii)
where applicable, any arrangements necessary to take account of the fact
that either or both UCITS are listed or traded on a secondary market;
(xiii) where necessary, other appropriate measures to ensure compliance with
the requirements of paragraph 33 below;
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(xiv)
where the units of the feeder UCITS and the master UCITS are
denominated in different currencies, the basis for conversion of dealing
orders;
(xv)
settlement cycles and payment details for purchases or subscriptions and
repurchases or redemptions of units of the master UCITS including,
where agreed between the parties, the terms on which the master UCITS
may settle redemption requests by a transfer of assets in kind to the
feeder UCITS, particularly in the case of liquidation or merger as
referred to in paragraphs 12 and 18;
(xvi)
procedures to ensure enquiries and complaints from unitholders are
handled appropriately;
(xvii) where the trust deed, deed of constitution or articles of association and
prospectus of the master UCITS give it certain rights or powers in
relation to unitholders, and the master UCITS chooses to limit or forego
the exercise of all or any such rights and powers in relation to the feeder
UCITS, a statement of the terms on which it does so;
Events affecting dealing arrangements:
(xviii) the manner and timing of a notification by either UCITS of the
temporary suspension and the resumption of repurchase, redemption,
purchase or subscription of units of that UCITS;
(xix)
arrangements for notifying and resolving pricing errors in the master
UCITS;
Standard arrangements for the audit report:
(xx)
where the feeder UCITS and the master UCITS have the same
accounting years, the coordination of the production of their periodic
reports;
(xxi)
where the feeder UCITS and the master UCITS have different
accounting years, arrangements for the feeder UCITS to obtain any
necessary information from the master UCITS to enable it to produce its
periodic reports on time and which ensure that the auditor of the master
UCITS is in a position to produce an ad hoc report on the closing date of
the feeder UCITS in accordance with paragraph 27;
Changes to standing arrangements:
(xxii)
the manner and timing of notice to be given by the master UCITS of
proposed and effective amendments to its trust deed, deed of constitution
or articles of association, prospectus and key investor information
document, if these details differ from the standard arrangements for
notification of unitholders laid down in the master UCITS trust deed,
deed of constitution or articles of association or prospectus;
(xxiii)
the manner and timing of notice by the master UCITS of a planned or
proposed liquidation, merger, or division;
(xxiv)
the manner and timing of notice by either UCITS that it has ceased or
will cease to meet the qualifying conditions to be a feeder UCITS or a
master UCITS respectively;
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(xxv)
the manner and timing of notice by either UCITS that it intends to
replace its management company, its depositary, its auditor or any third
party which is mandated to carry out investment management or risk
management functions;
(xxvi) the manner and timing of notice of other changes to standing
arrangements that the master UCITS undertakes to provide;
Choice of applicable law:
(xxvii) where the feeder UCITS and the master UCITS are authorised under the
Regulations the law of Ireland will apply to the agreement and both
parties must agree to the exclusive jurisdiction of the courts of Ireland;
(xxviii) if either the feeder UCITS or the master UCITS is authorised under the
Regulations, the applicable law must be either the law of Ireland or the
law of the other party’s home Member State and both parties must agree
to the exclusive jurisdiction of the courts of the Member State whose law
they have stipulated as applicable to the agreement.
32.
Where the feeder UCITS and the master UCITS are managed by the same
management company the agreement referred to in paragraph 31 may be
replaced with internal conduct of business rules, which shall contain the
following:
Conflicts of interest:
(i)
appropriate measures to mitigate conflicts of interest that may arise
between the feeder UCITS and the master UCITS, or between the feeder
UCITS and other unitholders of the master UCITS, to the extent that these
are not sufficiently addressed by the measures applied by the management
company in accordance with Regulations 22(2)(b), 23(1)(e), 24(1)(e) and
71(1)(b).
Basis of investment and divestment by the feeder UCITS
(ii)
the share classes of the master UCITS which are available for investment
by the feeder UCITS;
(iii) the charges and expenses to be borne by the feeder UCITS, and details of
any rebate or retrocession of charges or expenses by the master UCITS;
(iv) where applicable, the terms on which any initial or subsequent transfer of
assets in kind may be made from the feeder UCITS to the master UCITS;
Standard dealing arrangements
(v)
coordination of the frequency and timing of the net asset value calculation
process and the publication of prices of units;
(vi) coordination of transmission of dealing orders by the feeder UCITS,
including, if applicable, the role of transfer agents or any other third party;
(vii) where applicable, any arrangements necessary to take account of the fact
that either or both UCITS are listed or traded on a secondary market;
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(viii) appropriate measures to ensure compliance with the requirements of
paragraph 33 below;
(vix) where the feeder UCITS and the master UCITS are denominated in
different currencies, the basis for conversion of dealing orders;
(x)
settlement cycles and payment details for purchases and redemptions of
units of the master UCITS including, where agreed between the parties,
the terms on which the master UCITS may settle redemption requests by a
transfer of assets in kind to the feeder UCITS, particularly in the case of
liquidation or merger referred to in paragraphs 12 and 18;
(xi) where the trust deed, deed of constitution or articles of association and
prospectus of the master UCITS give it certain rights or powers in relation
to unitholders, and the master UCITS chooses to limit or forego the
exercise of all or any such rights and powers in relation to the feeder
UCITS, a statement of the terms on which it does so;
Events affecting dealing arrangements
(xii) the manner and timing of notification by either UCITS of the temporary
suspension and the resumption of the repurchase, redemption or
subscription of units of UCITS;
(xiii) arrangements for notifying and resolving pricing errors in the master
UCITS;
Standard arrangements for the audit report
(xiv) where the feeder UCITS and the master UCITS have the same accounting
years, the coordination of the production of their periodic reports;
(xv) where the feeder UCITS and the master UCITS have different accounting
years, arrangements for the feeder UCITS to obtain any necessary
information from the master UCITS to enable it to produce its periodic
reports on time and which ensure that the auditor of the master UCITS is
in a position to make an ad hoc report on the closing date of the feeder
UCITS in accordance with paragraph 27.
33.
A master UCITS and a feeder UCITS must take appropriate measures to
coordinate the timing of their net asset value calculations and publications in
order to avoid market timing in their units, preventing arbitrage opportunities.
Depositaries
34.
The trustee of a master UCITS must immediately inform the Central Bank, its
feeder UCITS and the trustee/depositary of the feeder UCITS of any
irregularities it detects with regard to the master UCITS which are deemed to
have a negative impact on the feeder UCITS. These include, but are not limited
to:
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(i)
errors in the net asset value calculation of the master UCITS;
(ii)
errors in transactions for or settlement of the purchase, subscription or
request to repurchase or redeem units in the master UCITS undertaken by
the feeder UCITS;
(iii) errors in the payment or capitalisation of income arising from the master
UCITS, or in the calculation of any related withholding tax;
(iv) breaches of the investment objectives, policy or strategy of the master
UCITS, as described in its trust deed, deed of constitution or articles of
association, prospectus or key investor information;
(v)
35.
breaches of investment and borrowing limits set out in the Regulations or
in the trust deed, deed of constitution or articles of association, prospectus
or key investor information document.
If a feeder UCITS and a master UCITS have different trustees/depositaries the
trustee of the feeder UCITS must enter into an information sharing agreement
with the trustee or depositary of the master UCITS prior to investment. It shall
include the following – for the purposes of this paragraph the term depositary is
used to refer to the trustee of an Irish UCITS and the depositary of a non-Irish
UCITS:
(i)
the identification of the documents and categories of information which
are to be routinely shared between both depositaries, and whether such
information or documents are provided by one depositary to the other or
made available on request;
(ii)
the manner and timing, including any applicable deadlines, of the
transmission of information by the depositary of the master UCITS to the
depositary of the feeder UCITS;
(iii) the coordination of the involvement of both depositaries, to the extent
appropriate in view of their respective duties under national law, in
relation to operational matters, including:
(a)
the procedure for calculating the net asset value of each UCITS,
including any measures appropriate to protect against the activities
of market timing in accordance with paragraph;
(b) the processing of instructions by the feeder UCITS to purchase,
subscribe or request the repurchase or redemption of units in the
master UCITS, and the settlement of such transactions, including
any arrangement to transfer assets in kind;
(iv) the coordination of accounting year-end procedures;
(v)
what details of breaches by the master UCITS of the law and the fund
rules or instrument of incorporation the depositary of the master UCITS
shall provide to the depositary of the feeder UCITS and the manner and
timing of their provision;
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(vi) the procedure for handling ad hoc requests for assistance from one
depositary to the other;
(vii) identification of particular contingent events which ought to be notified by
one depositary to the other on an ad hoc basis, and the manner and timing
in which this will be done.
Auditors
36.
The auditor of a feeder UCITS must report on any irregularities revealed in the
audit report of the master UCITS and on their impact on the feeder UCITS.
37.
If a feeder UCITS and a master UCITS have different auditors, those auditors
must enter into an information sharing agreement prior to investment. It must
contain the following:
(i)
the identification of the documents and categories of information which
are to be routinely shared between both auditors;
(ii)
whether the information or documents referred to in point (i) are to be
provided by one auditor to the other or made available on request;
(iii) the manner and timing, including any applicable deadlines, of the
transmission of information by the auditor of the master UCITS to the
auditor of the feeder UCITS;
(iv) the coordination of the involvement of each auditor in the accounting
year-end procedures for the respective UCITS;
(v)
identification of matters that shall be treated as irregularities disclosed in
the audit report of the auditor of the master UCITS for the purposes of
paragraph 36;
(vi) the manner and timing for handling ad hoc requests for assistance from
one auditor to the other, including a request for further information on
irregularities disclosed in the audit report of the auditor of the master
UCITS;
(vii) provisions on the preparation of the audit reports referred to in Regulation
82(2) and 93 and the manner and timing for the provision of the audit
report for the master UCITS and drafts of it to the auditor of the feeder
UCITS;
(viii) the manner and timing by which the auditor of the master UCITS is to
make the ad hoc report and to provide it and drafts of it to the auditor of
the feeder UCITS, where the feeder UCITS and the master UCITS have
different accounting year-end dates.
December 2011
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UCITS 19.1
Key Investor Information Document
of the Regulations.
Publication
1.
A UCITS must draw up a key investor information document for investors,
which shall be referred to as “KIID”.
2.
The contents of the KIID constitute pre-contractual information. The KIID
must be fair, clear and not misleading and must be consistent with the
prospectus drawn up in accordance with Notice UCITS 6.
3.
The KIID must be provided to investors free of charge in good time before their
proposed subscription for units in such UCITS. It may be provided in a durable
medium or by means of a website. A paper copy shall be delivered to investors
free of charge on request. Where a prospectus is provided using a durable
medium the conditions set out in Article 38 of Commission Regulation
583/2010 apply.
4.
The essential elements of the KIID must be kept up-to-date and the up-to-date
version must be available from the website of the UCITS1.
5.
A UCITS must send the KIID and any amendments thereto, to the Central Bank.
6.
The KIID must include appropriate information about the essential
characteristics of the UCITS. It must be provided to investors so that they are
reasonably able to understand the nature and the risks of the investment product
1
This includes a website of an entity related to the UCITS, for example the management company.
UCITS NOTICES
that is being offered to them, and consequently, to take, investment decisions on
an informed basis.
7.
The KIID must include the following elements, which must be comprehensible
to an investor without any reference to other documents:
(i)
the name of the UCITS;
(ii)
a short description of its investment objectives and investment policy;
(iii) past-performance presentation, or where relevant, performance scenarios
(iv) costs and associated charges; and
(v)
risk/reward profile of the investment, including appropriate guidance and
warnings in relation to the risks associated with investments in the
relevant UCITS.
8.
In the case of an index-tracking UCITS, the KIID must include, in summary
form, information on how the index will be tracked (for example, whether it will
follow a full or sample based physical replication model or a synthetic
replication) and the implications of the chosen method for unitholders in terms
of their exposure to the underlying index and counterparty risk.
9.
In the case of an index-tracking leveraged UCITS, the KIID must include, in
summary form, the following information:
(a) 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;
(b) a description of the impact of any reverse leverage (i.e. short exposure);
(c) 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.
10.
The KIID must clearly specify where and how to obtain additional information
relating to the proposed investment. This must at least include information on
where and how the prospectus and the annual and half-yearly reports of the
UCITS can be obtained, on request and free of charge at any time. It must also
specify the language in which such information is available to investors.
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11.
The KIID shall be written in a concise manner and in non-technical language
and shall be presented in a way that is likely to be understood by retail
investors.
12.
The KIID must comply with Commission Regulation 583/2010 and guidelines
issued by ESMA. These guidelines are specified in Guidance Note 1/11. The
KIID shall be drawn up in accordance with the format prescribed in Guidance
Note 1/11.
February 2013
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UCITS 20.0
Exchange Traded Funds
of the Regulations.
Identifier and specific disclosure
1.
A UCITS ETF should use the identifier ‘UCITS ETF’ which identifies it as an
exchange-traded fund. This identifier should be used in:
(a) its name;
(b) the trust deed, deed of constitution or articles of association;
(c) the prospectus;
(d) the key investor information document; and
(e) marketing communications.
2.
A UCITS which is not a UCITS ETF may not use the ‘UCITS ETF’ identifier
nor ‘ETF’ nor ‘exchange-traded fund’.
3.
A UCITS ETF should disclose clearly in its prospectus, key investor
information document and marketing communications the policy regarding
portfolio transparency and where information on the portfolio may be obtained,
including where the indicative net asset value, if applicable, is published.
4.
A UCITS ETF should disclose clearly in its prospectus how the indicative net
asset value is calculated, if applicable, and the frequency of calculation.
Actively-managed UCITS ETFs
5.
An actively-managed UCITS ETF should inform investors clearly in its
prospectus, key investor information document and marketing communications
of that fact.
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UCITS NOTICES
6.
An actively-managed UCITS ETF should disclose clearly in its prospectus, key
investor information document and marketing communications how it will meet
the stated investment policy including, where applicable, its intention to
outperform an index.
Treatment of secondary market investors of UCITS ETFs
7.
Where units of a UCITS ETF purchased on a secondary market are generally
not redeemable from the UCITS, the prospectus and marketing communications
of the UCITS should include the following warning:
‘UCITS ETF’s units purchased on the secondary market cannot usually be
sold directly back to UCITS ETF. Investors must buy and sell units on a
secondary market with the assistance of an intermediary (e.g. a stockbroker)
and may incur fees for doing so. In addition, investors may pay more than the
current net asset value when buying units and may receive less than the
current net asset value when selling them.’
8.
If the stock exchange value of the units of the UCITS ETF significantly varies
from its net asset value, investors who have acquired their units (or, where
applicable, any right to acquire a unit that was granted by way of distributing a
respective unit) on the secondary market should be allowed to sell them directly
back to the UCITS ETF1. In such situations, information should be
communicated to the regulated market indicating that the UCITS ETF is open
for direct redemptions at the level of the UCITS ETF.
9.
A UCITS ETF should disclose in its prospectus the process to be followed by
investors who purchased their units on the secondary market should the
circumstances described in paragraph 8 arise, as well as the potential costs
involved. The costs should not be excessive.
February 2013
1
For example, this may apply in cases of market disruption such as the absence of a market maker.
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UCITS NOTICES
UCITS 21.0
Financial Indices
of the Regulations.
The requirements set out in this Notice apply in respect of financial indices which are
referred to in paragraphs14-16 of Notice UCITS 9 and paragraph 1 of Notice UCITS
10 and these requirements are additional to the requirements in those paragraphs.
Disclosure requirements set out in this Notice are in addition to disclosure
requirements set out in Notice UCITS 6.
1.
When a UCITS intends to make use of the increased diversification limits
referred to in Regulation 71, this should be disclosed clearly in the prospectus
together with a description of the exceptional market conditions which justify
this investment.
2.
A UCITS is not permitted to invest in a financial index which has a single
component that has an impact on the overall index return which exceeds the
diversification requirements set out in Regulation 71. Accordingly, in the case
of a leveraged index, the impact of one component on the overall return of the
index, after having taken into account the leverage, must respect the same
diversification requirements.
3.
A UCITS may not invest in commodity indices that do not consist of different
commodities. Sub-categories of the same commodity should be considered as
being the same commodity for the calculation of the diversification limits.1 Sub-
1
For instance commodities from different regions or markets or derived from the same primary
products by an industrialised process. As an example, WTI Crude Oil, Brent Crude Oil, Gasoline
or Heating Oil contracts should be considered as being all sub-categories of the same commodity –
oil.
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UCITS NOTICES
categories of a commodity should not be considered as being the same
commodity if they are not highly correlated. With respect to the correlation
factor, two components of a commodity index that are sub-categories of the
same commodity can be considered as not being highly correlated if 75% of the
correlation observations are below 0.8. For that purpose the correlation
observations should be calculated (i) on the basis of equally-weighted daily
returns of the corresponding commodity prices and (ii) from a 250-day rolling
time window over a 5-year period.
4.
A UCITS must be able to demonstrate that an index satisfies the index criteria
in Regulation 71 and in Notices UCITS 9 and UCITS 10, including that of being
a benchmark for the market to which it refers. For that purpose:
5.
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 UCITS
should be able to demonstrate that this does not affect the objective nature
of the index calculation methodology.
An index should not be considered as being an adequate benchmark of a market
if it has been created and calculated on the request of one, or a very limited
number of, market participants and according to the specifications of those
market participants.
6.
A UCITS may not invest in a financial index whose rebalancing frequency
prevents investors from being able to replicate the financial index. Indices
which rebalance on an intraday or daily basis do not satisfy this criterion.
Technical adjustments made to financial indices (such as leveraged indices or
volatility target indices) according to publicly available criteria should not be
considered as rebalancing in the context of this paragraph.
7.
The prospectus must disclose the rebalancing frequency and its effects on the
costs within the strategy.
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UCITS NOTICES
8.
A UCITS may not invest in financial indices for which the full calculation
methodology to, inter alia, enable investors to replicate the financial index, is
not disclosed by the index provider. This includes the provision of detailed
information on index constituents, index calculation (including effect of
leverage within the index), re-balancing methodologies, index changes and
information on any operational difficulties in providing timely or accurate
information. Calculation methodologies should not omit important parameters
or elements to be taken into account by investors to replicate the financial index.
This information should be easily accessible, free of charge, by investors and
prospective investors, for example, via the internet. Information on the
performance of the index should be freely available to investors.
9.
A UCITS may not invest in financial indices that do not publish their
constituents together with their respective weightings. This information should
be easily accessible, free of charge, by investors and prospective investors, for
example, via the internet. Weightings may be published after each re-balancing
on a retrospective basis. This information should cover the previous period
since the last rebalancing and include all levels of the index.
10.
A UCITS may not invest in financial indices whose methodology for the
selection and the rebalancing of the components is not based on a set of predetermined rules and objective criteria.
11.
A UCITS may not invest in financial indices whose index provider accepts
payments from potential index components for inclusion in the index.
12.
A UCITS may not invest in financial indices whose methodology permits
retrospective changes to previously published index values (‘backfilling’).
13.
A UCITS is required to carry out appropriate documented due diligence on the
quality of the index. This due diligence should take into account whether the
index methodology contains an adequate explanation of the weightings and
classification of the components on the basis of the investment strategy and
whether the index represents an adequate benchmark. The due diligence should
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UCITS NOTICES
also cover matters relating to the index components. The UCITS should also
assess the availability of information on the index including:
14.
(a)
whether there is a clear narrative description of the benchmark;
(b)
whether there is an independent audit and the scope of such an audit;
(c)
the frequency of index publication and whether this will affect the ability
of the UCITS to calculate its net asset value.
The UCITS should ensure that the financial index is subject to independent
valuation.
February 2013
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UCITS NOTICES
Annex I
MINIMUM CAPITAL REQUIREMENT REPORT
NOTES ON COMPILATION
(UCITS MANAGEMENT COMPANY)
1.
This Minimum Capital Requirement Report must be submitted to the Central
Bank by a UCITS management company with the half yearly and annual
audited accounts at the reporting intervals specified in paragraph 20 of Notice
UCITS 2. The Minimum Capital Requirement Report and these Notes on
Compilation thereto form part of the UCITS Notices. The Minimum Capital
Requirement Report must be signed by a director or a senior manager of the
UCITS management company.
2.
Initial Capital Requirement
2.1 The Initial Capital Requirement specified in Notice UCITS 2 is €125,000.
3.
3.1
Additional Amount
When the net asset value of the CIS1 under management exceeds €250,000,000,
a UCITS management company must provide an additional amount of capital2
equal to 0.02% of the amount by which the net asset value exceeds
€250,000,000 (“Additional Amount”).
3.2
A UCITS management company need not provide up to 50% of the Additional
Amount if:
(i) it benefits from a guarantee of the same amount given by a credit institution
or insurance undertaking; and
(ii) the form of guarantee is approved by the Central Bank.
3.3
The total of the Initial Capital Requirement and the Additional Amount required
to be held by a UCITS management company is not required to exceed
€10,000,000.
3.4
A UCITS management company is required to provide the total of its assets
under management at each reporting date to facilitate assessment of whether it
is required to provide the Additional Amount.
1
CIS include UCITS and non-UCITS for which the manager is the designated management
company.
See paragraph 6 below as to what assets can be taken into account in meeting this requirement.
2
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UCITS NOTICES
4.
4.1
Expenditure Requirement
The Expenditure Requirement is calculated as one quarter of a UCITS
management company’s total expenditure taken from the most recent annual
accounts.3 However, the Central Bank reserves the right to increase this amount
should it be deemed not to reasonably reflect the current position of the UCITS
management company.
4.2
Total expenditure includes all expenditure incurred by a UCITS management
company. The following may be deducted from the expenditure figure:
(a) Depreciation;
(b) Profit shares, bonuses etc.;
(c) Net losses arising in the translation of foreign currency balances;
(d) Shared commissions paid (other than to officers and staff of the UCITS
management company) that have been previously agreed with the
Central Bank; and
(e) Exceptional and extraordinary non-recurring expense items which have
been previously agreed with the Central Bank.
4.3
All deductions from the total expenditure figure should be either clearly
identified in the most recent audited annual accounts or supported with a letter
from the auditors confirming the figures.
5.
5.1
Minimum Capital Requirement
A UCITS management company’s Minimum Capital Requirement is the
higher of:
 the Initial Capital Requirement plus the Additional Amount (if required);
or
 the Expenditure Requirement.
6.
6.1
Financial Resources
A UCITS management company is required to have Financial Resources at
least equal to its Minimum Capital Requirement.
6.2
Financial Resources for a UCITS management company will be based on the
half yearly accounts or the annual audited accounts, whichever is most recent.
3
The Minimum Capital Requirement Report submitted with the audited annual accounts must
take the total expenditure figure from those accounts. For example, the Minimum Capital
Requirement Report submitted with the audited annual accounts for 2010 will take the total
expenditure figure from those 2010 audited annual accounts.
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UCITS NOTICES
6.3
Financial Resources are calculated as the aggregate of:
 Fully paid up equity capital;
 Perpetual non-cumulative preference shares;
 Eligible Capital Contribution (see 6.4 below);
 Qualifying Subordinated Loan Capital (see 6.4 below);
 Share premium account;
 Disclosed revenue and capital reserves (excluding revaluation reserves);
 Interim net profits (may only be included if they have been audited); and
 Other reserves.
Less

6.4
Current year losses not included in disclosed revenue and capital
reserves above.
Conditions for Eligible Capital Contributions and Subordinated Loan
Capital
The following conditions apply to Eligible Capital Contributions and to
Subordinated Loan Capital (both perpetual and redeemable):
(a) The prior approval of the Central Bank must be obtained in respect of the
inclusion of the Eligible Capital Contribution or Subordinated Loan
Capital in the Financial Resources for capital adequacy purposes.
(b) The Central Bank must be provided with documentary evidence4 that the
Eligible Capital Contribution or Subordinated Loan Capital has been
received by the UCITS management company.
(c) The UCITS management company must use the Capital Contribution
Agreement, Perpetual Loan Subordination Agreement or the Loan
Subordination Agreement (for redeemable Subordinated Loan Capital),
without amendment. These documents are available on the Central
Bank’s website.
The following additional conditions apply to the use of redeemable
Subordinated Loan Capital:
(a) The extent to which such loans rank as Financial Resources will be
reduced on a straight-line basis over the last five years before repayment
date.
4
Documentary evidence should include a copy of the original bank statement showing receipt of
the relevant funds by the UCITS management company. The Central Bank may request
independent confirmation of the receipt of additional capital, for example, auditor confirmation.
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UCITS NOTICES
(b)The qualifying amount of redeemable subordinated debt is calculated as
follows:
Remaining term to maturity __________
Gross Amount
__________
Less Amortisations
__________
= Qualifying Amount
__________
7.
7.1
Eligible Assets
A UCITS management company is required to hold the higher of the
Expenditure Requirement or the Initial Capital Requirement in the form of
Eligible Assets. Eligible Assets must be easily accessible and free from any
liens or charges and maintained outside the UCITS management company’s
group.
7.2
The Central Bank requires Eligible Assets to be held in an account that is
separate to the account(s) used by a UCITS management company for the dayto-day running of its business.
7.3 Eligible Assets are calculated as follows:
Total Assets (Non-current Assets plus Current Assets)
Less the following ineligible assets
 Fixed assets
7.4

Intangible assets

Cash or cash equivalents held with group companies

Debtors

Bad debt provisions

Prepayments

Intercompany amounts (gross)

Loans

CIS investments which are not daily dealing (see 7.4 below)

Any other assets which are not easily accessible not included above.
When a UCITS management company invests all or part of its capital in one or
more CIS, the Central Bank reviews the relationships linking the CIS and the
UCITS management company. It is the Central Bank’s view that it is likely that
where the UCITS management company invests in CIS promoted by other
group companies or to which other group companies provide services, its access
to those CIS is likely to be restricted, in the event that the related firm gets into
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UCITS NOTICES
difficulty. Accordingly, investments in such CIS will not rank as Eligible
Assets for the purposes of satisfying the UCITS management company’s
Minimum Capital Requirement.
8.
A UCITS management company must be in a position to demonstrate its
ongoing compliance with the capital adequacy requirements outlined in this
document. Where a UCITS management company’s financial position changes
materially at any time between reporting dates, which would impact on its
compliance with its regulatory capital requirements, it must notify the Central
Bank immediately and take any necessary steps to rectify its position.
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UCITS NOTICES
MINIMUM CAPITAL REQUIREMENT REPORT1
UCITS MANAGEMENT COMPANY
NAME OF FIRM: __________________________________________________________________
Period under review: ____________________________ Currency:
_____________
1.
INITIAL CAPITAL REQUIREMENT PLUS ADDITIONAL AMOUNT
€125,000 (A)
Assets under Management at Reporting Date
Excess over €250,000,000 (if applicable)
Additional Amount (if applicable) [0.02% of Excess over
€250m]
(B)
Initial Capital Requirement (A) plus Additional Amount (B) (if
applicable)
(The amount to be included at (C) is not required to exceed €10,000,000.)
2.
(C)
EXPENDITURE REQUIREMENT
Total Expenditure (taken from P&L Account)
LESS:
Depreciation
Profit Shares, Bonuses, etc
Net losses on translation of foreign currency balances
Shared Commissions paid (Note 4.2(d))
Exceptional and Extraordinary Items (Note 4.2e))
Any other Non-recurring Expense (Note 4.2(e))
Net Qualifying Expenditure
EXPENDITURE REQUIREMENT [One quarter of Net Qualifying Expenditure]
1
This Minimum Capital Requirement Report and the Notes on Compilation hereto form part of the UCITS Notices.
174
(D)
UCITS NOTICES
3.
MINIMUM CAPITAL REQUIREMENT
Higher of initial capital requirement plus Additional Amount (if applicable) (C) and Expenditure
Requirement (D)
MINIMUM CAPITAL REQUIREMENT – [Higher of (C) and (D)]
4.
(E
)
FINANCIAL RESOURCES
Equity Capital fully paid up
Perpetual Non-cumulative Preference Shares
Eligible Capital Contributions
Qualifying Subordinated Loan Capital (See ‘Note on Qualifying Subordinated
Loan Capital’ below)
Share Premium Account
Disclosed Revenue and Capital Reserves
(excluding Revaluation Reserves) (from most recent audited figures)
Audited Interim Net Profits (Note 6.3)
Other Reserves
Total
LESS: Current Year Losses not included in Disclosed Reserves and Capital
Reserves above
(F)
FINANCIAL RESOURCES
5. ELIGIBLE ASSETS (Must be held outside the Group)
Total Non-current Assets (taken from Balance Sheet)
Current Assets (taken from Balance Sheet)
TOTAL ASSETS
Less: Ineligible Assets
Fixed Assets
Intangible Assets
Cash held with group companies
Debtors
Bad Debt Provisions
Prepayments
Intercompany Amounts (gross)
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UCITS NOTICES
Loans
Collective investment schemes which are not daily dealing (Note 7.4)
Any other assets which are not easily accessible not included above
Total Ineligible Assets
(G)
ELIGIBLE ASSETS
Additional Amount covered by guarantee previously agreed with Central Bank(H)
(if applicable)
Are Financial Resources (F) plus Additional Amount covered by guarantee (H)
(if applicable) at least equal to Minimum Capital Requirement (E)?
Are Eligible Assets (G) at least equal to the higher (D) or (A)?
YES / NO
YES / NO
Where are Eligible Assets held?
(Attach recent independent statement evidencing location)
Was the firm in compliance with the capital adequacy requirements throughout the period
under review? (Note 8)
Note on Qualifying Subordinated Loan Capital
The qualifying amount of redeemable subordinated debt is calculated as follows:
Gross Amount
__________
Less Amortisations
__________
= Qualifying Amount
__________
Signature, Position and Date
(of Director/Senior Manager)
176
YES / NO
UCITS NOTICES
NOTES ON COMPILATION
(ADMINISTRATION COMPANY AND TRUSTEE COMPANY)
1.
This Minimum Capital Requirement Report must be submitted to the Central
Bank by an administration company or trustee company, (each a “Firm” for the
purposes of these Notes), with the half yearly and annual audited accounts at the
reporting intervals specified in paragraph 20 of Notice UCITS 2 and paragraph
19 of Notice UCITS 4. The Minimum Capital Requirement Report and these
Notes on Compilation thereto form part of the UCITS Notices. The Minimum
Capital Requirement Report must be signed by a director or a senior manager of
the Firm.
2.
2.1
The Initial Capital Requirement specified in UCITS Notice 2 and UCITS
Notice 4 is €125,000.
3.
3.1
Expenditure Requirement
The Expenditure Requirement is calculated as one quarter of a Firm’s total
expenditure taken from the most recent annual accounts.2 However, the Central
Bank reserves the right to increase this amount should it be deemed not to
reasonably reflect the current position of the Firm.
3.2
Total expenditure includes all expenditure incurred by a Firm. The following
may be deducted from the expenditure figure:
(a) Depreciation;
(b) Profit shares, bonuses etc.;
(c) Net losses arising in the translation of foreign currency balances;
(d) Shared commissions paid (other than to officers and staff of the Firm) that
have been previously agreed with the Central Bank; and
(e) Exceptional and extraordinary non-recurring expense items which have
been previously agreed with the Central Bank.
2
The Minimum Capital Requirement Report submitted with the audited annual accounts must
take the total expenditure figure from those accounts. For example, the Minimum Capital
Requirement Report submitted with the audited annual accounts for 2010 will take the total
expenditure figure from those 2010 audited annual accounts.
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UCITS NOTICES
3.3
4.
4.1
All deductions from the total expenditure figure should be either clearly
identified in the most recent annual audited accounts or supported with a letter
from the auditors confirming the figures.
Minimum Capital Requirement
A Firm’s Minimum Capital Requirement is the higher of:
 the Initial Capital Requirement; or
 the Expenditure Requirement.
5.
5.1
Financial Resources
A Firm is required to have Financial Resources at least equal to its Minimum
Capital Requirement.
5.2
Financial Resources for a Firm will be based on the half yearly accounts or the
annual audited accounts, whichever is most recent.
5.3
Financial Resources are calculated as the aggregate of:
 Fully paid up equity capital;
 Perpetual non-cumulative preference shares;
 Eligible Capital Contribution (see 5.4 below);
 Qualifying Subordinated Loan Capital (see 5.4 below);
 Share premium account;
 Disclosed revenue and capital reserves (excluding revaluation reserves);
 Interim net profits (may only be included if they have been audited); and
 Other reserves.
Less

5.4
Current year losses not included in disclosed revenue and capital
reserves above.
Conditions for Eligible Capital Contributions and Subordinated Loan
Capital
The following conditions apply to Eligible Capital Contributions and to
Subordinated Loan Capital (both perpetual and redeemable):
(a) The prior approval of the Central Bank must be obtained in respect of the
inclusion of the Eligible Capital Contribution or Subordinated Loan
Capital in the Financial Resources for capital adequacy purposes.
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(b) The Central Bank must be provided with documentary evidence3 that the
Eligible Capital Contribution or Subordinated Loan Capital has been
received by the Firm.
(c) The Firm must use the Capital Contribution Agreement, Perpetual Loan
Subordination Agreement or the Loan Subordination Agreement (for
redeemable Subordinated Loan Capital), without amendment. These
documents are available on the Central Bank’s website.
The following additional conditions apply to the use of redeemable
Subordinated Loan Capital:
(a) The extent to which such loans rank as Financial Resources will be
reduced on a straight-line basis over the last five years before repayment
date.
(b) The qualifying amount of redeemable subordinated debt is calculated as
follows:
Gross Amount
__________
Less Amortisations
__________
= Qualifying Amount
_________
6
6.1
Eligible Assets
A Firm is required to hold the higher of the Expenditure Requirement or the
Initial Capital Requirement in the form of Eligible Assets. Eligible Assets must
be easily accessible and free from any liens or charges and maintained outside
the Firm’s group.
6.2
The Central Bank requires Eligible Assets to be held in an account that is
separate to the account(s) used by a Firm for the day-to-day running of its
business.
6.3 Eligible Assets are calculated as follows:
Total Assets (Non-current Assets plus Current Assets)
Less the following ineligible assets
 Fixed assets
 Intangible assets
 Cash or cash equivalents held with group companies
 Debtors
3
Documentary evidence should include a copy of the original bank statement showing receipt of
the relevant funds by the Firm. The Central Bank may request independent confirmation of the
receipt of additional capital, for example, auditor confirmation.
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





Bad debt provisions
Prepayments
Intercompany amounts (gross)
Loans
CIS which are not daily dealing (see 6.4 below)
Any other assets which are not easily accessible not included above.
6.4
When a Firm invests all or part of its capital in one or more CIS, the Central
Bank reviews the relationships linking the CIS and the Firm. It is the Central
Bank’s view that it is likely that where the Firm invests in CIS promoted by
other group companies or to which other group companies provide services, its
access to those CIS is likely to be restricted, in the event that the related Firm
gets into difficulty. Accordingly, investments in such CIS will not rank as
Eligible Assets for the purposes of satisfying the Firm’s Minimum Capital
Requirement.
7.
A Firm must be in a position to demonstrate its ongoing compliance with the
capital adequacy requirements outlined in this document. Where a Firm’s
financial position changes materially at any time between reporting dates, which
would impact on its compliance with its regulatory capital requirements, it must
notify the Central Bank immediately and take any necessary steps to rectify its
position.
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ADMINISTRATION COMPANY / TRUSTEE COMPANY
NAME OF FIRM:
_____________________________________________________________________
Period under review: ___________________________ Currency: ___________
1.
INITIAL CAPITAL REQUIREMENT
ADMINISTRATION COMPANY / TRUSTEE COMPANY
2.
€125,000 (A)
EXPENDITURE REQUIREMENT
Total Expenditure (taken from P&L Account)
LESS:
Depreciation
Profit Shares, Bonuses, etc
Net losses on translation of foreign currency balances
Shared Commissions paid (Note 3.2(d))
Exceptional and Extraordinary Items (Note 3.2(e))
Any other Non-recurring Expense (Note 3.2(e))
Net Qualifying Expenditure
EXPENDITURE REQUIREMENT [One quarter of Net Qualifying Expenditure]
3.
(B)
MINIMUM CAPITAL REQUIREMENT
Higher of Initial Capital Requirement (A) and Expenditure Requirement (B)
MINIMUM CAPITAL REQUIREMENT – [Higher of (A) and (B)]
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(C
)
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4.
FINANCIAL RESOURCES
Equity Capital fully paid up
Perpetual Non-cumulative Preference Shares
Eligible Capital Contributions
Qualifying Subordinated Loan Capital (See ‘Note on Qualifying Subordinated Loan
Capital’ below)
Share Premium Account
Disclosed Revenue and Capital Reserves
(excluding Revaluation Reserves) (from most recent audited figures)
Audited Interim Net Profits (Note 5.3)
Other Reserves
Total
LESS: Current Year Losses not included in Disclosed Reserves and Capital
Reserves above
FINANCIAL RESOURCES
5.
(D)
ELIGIBLE ASSETS (Must be held outside the Group)
Total Non-current Assets (taken from Balance Sheet)
Current Assets (taken from Balance Sheet)
TOTAL ASSETS
Less: Ineligible Assets
Fixed Assets
Intangible Assets
Cash held with group companies
Debtors
Bad Debt Provisions
Prepayments
Intercompany Amounts (gross)
Loans
Collective investment schemes which are not daily dealing (Note 6.4)
Any other assets which are not easily accessible not included above
Total Ineligible Assets
ELIGIBLE ASSETS
(E)
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Are Financial Resources (D) at least equal to Minimum Capital Requirement (C)?
YES / NO
Are Eligible Assets (E) at least equal to (C)?
YES / NO
Where are Eligible Assets held?
(Attach recent independent statement evidencing location)
Was the firm in compliance with the capital adequacy requirements throughout the
period under review? (Note 7)
Note on Qualifying Subordinated Loan Capital
The qualifying amount of redeemable subordinated debt is calculated as follows:
Gross Amount
__________
Less Amortisations
__________
= Qualifying Amount
__________
Signature, Position and Date
(of Director / Senior Manager)
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YES / NO
UCITS NOTICES
Annex II
REQUIREMENTS ON OUTSOURCING OF ADMINISTRATION
ACTIVITIES IN RELATION TO CIS
Introduction
These requirements incorporate and are consistent with the rules on outsourcing
contained in MiFID Directive 2004/39/EC and MiFID implementing Directive
2006/73/EC and with the Committee of European Banking Supervisors (“CEBS”)
Guidelines on Outsourcing published on 14 December 2006.
Administration firms are authorised and supervised by the Central Bank of Ireland
(“the Central Bank”) under the Investment Intermediaries Act, 1995. These firms are
appointed by management companies and boards of directors of Irish authorised and
non-Irish CIS who retain responsibility for the delegated functions and who must
ensure that the regulatory requirements applicable to the functions are complied with
on an ongoing basis.
The purpose of these requirements is to promote greater consistency of approach and
certainty in relation to the principles applied by the Central Bank in relation to
outsourcing by administration firms of services provided to CIS.
Part 1: Definitions
For the purposes of these requirements, the following definitions apply:
a) outsourcing: an administration firm’s use of a third party to perform
administration activities that would normally be undertaken by the
administration firm, now or in the future. The outsourcing service provider
may itself be an authorised or unauthorised entity. The purchasing by the
administration firm of services, goods or facilities without information about,
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UCITS NOTICES
or belonging to, the administration firm coming within the control of the
supplier or the purchasing by the administration firm of standardized products,
such as market information or office inventory does not constitute outsourcing
and is not subject to these Requirements.
b) core administration activities: the final checking and release of the CIS net
asset value (“NAV”) calculation for dealing purposes1 and the maintenance of
the shareholder register.
c) outsourcing service provider: the supplier of goods, services or facilities,
including another administration firm, and/or an affiliated entity within a
corporate group.
d) administration firm: a company which has been authorised by the Central
Bank and appointed to provide administration services to CIS.
e) senior management: persons who effectively direct the business of the
administration firm, this includes the firm’s board of directors and other
persons who effectively direct the business of the firm.
f) “chain” outsourcing: outsourcing where the outsourcing service provider
subcontracts elements of the service to other providers.
Part 2: Requirements on outsourcing addressed to administration firms
Requirement 1
The ultimate responsibility for the proper management of the risks associated
with outsourcing or the outsourced activities lies with the administration firm’s
senior management.
1
Where the NAV calculation is released by the outsourcing service provider the final check must be
completed by the administration company on the following day.
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1.1
All outsourcing regimes must ensure that the outsourcing of functions to an
outsourcing service provider does not impair the ability of the Central Bank to
supervise the administration firm.
1.2
Responsibility for outsourced functions must always be retained by the
administration firm.
The outsourcing of functions does not relieve the
administration firm of its regulatory responsibilities for its authorised activities
or the function concerned.
1.3
The administration firm must retain adequate core competence at a senior
operational level in-house to enable them to have the capability to resume the
performance of an outsourced activity, in extremis.
1.4
Outsourcing shall not affect the administration firm’s full and unrestricted
responsibilities under, and its ability to comply with, applicable CIS legislation
and the conditions with which the administration firm must comply in order to
be authorised by the Central Bank.
1.5
The relationship and obligations of the administration firm towards its CIS
clients must not be altered.
Requirement 2
Outsourcing arrangements can never result in the delegation of senior
management’s responsibility.
2.1
The outsourcing of core management functions is considered generally to be
incompatible with the senior management’s obligation to run the enterprise
under their own responsibility. Core management functions include, inter alia,
setting the risk strategy, the risk policy, and, accordingly, the risk-bearing
capacity of the firm. Hence, management functions such as the setting of
strategies and policies in respect of the administration firm’s risk profile and
control, the oversight of the operation of the firm’s processes and the final
responsibility towards clients and the Central Bank must not be outsourced.
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With respect to mind and management of the administration firm, adequate and
effective control and decision-making must continue to be exercised by the
Requirement 3
3(a) An administration firm may not outsource services and activities unless the
outsourcing service provider has the appropriate authorisation to carry out the
outsourced services and activities if required by the outsourcing service
providers national legal framework.
3(b) The responsibilities and obligations identified in Requirement 1 and 2 may
not be outsourced.
3(c) Core administration activities may not be outsourced.
3(d) Any area of activity of an administration firm other than those identified in
3(b) and 3(c) may be outsourced provided that such outsourcing does not impair:
(i)
the orderliness of the conduct of the administration firm’s business or
of the financial services provided;
(ii)
the senior management's ability to manage and monitor the
administration firm’s business and its authorised activities;
(iii) the ability of other internal governance bodies, such as the board of
directors or the audit committee, to fulfil their oversight tasks;
(iv) the supervision of the administration firm by the Central Bank; and
(v)
the administration firm’s ability to have full access and control over
the administration systems and to generate a full set of the books and
records for each CIS serviced.
3.1
These Requirements do not affect the principle of the administration firm’s
ultimate responsibility (Requirement 1) for all authorised activities. The
senior management of the administration firm shall be responsible for any
outsourced activity. Senior management must therefore take suitable
measures to ensure that the outsourced activities continue to meet the
performance and quality standards that would apply if their own institution
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UCITS NOTICES
were to perform the relevant activities in house.
These measures must
include, but are not necessarily limited to, having a detailed Service Level
Agreement in place, continuously monitoring and checking the quality of the
outsourced activities and reviewing the systems and processes that the
outsourcing service provider has in place and any SAS 70 audits carried out.
3.2
The Final check and release of each CIS NAV is a core administration
activity which must be performed by the administration firm. This review
must be completed prior to the release of the NAV for dealing purposes and
should be completed, signed and dated by a senior staff member within the
administration firm. In exceptional circumstances the administration firm
may release the NAV for dealing purposes provided the final check is
performed on the following day. Documentary evidence of this review must
be maintained by the administration firm and made available to the Central
Bank on request.
3.3
The shareholder register for each CIS must be maintained by the
This means that the administration firm maintains
oversight and control of the register and can reproduce the full register at
any time.
3.4
The administration firm must inform the Central Bank in writing of any
activity to be outsourced.
This notification must afford the Central Bank
sufficient time to consider the proposal and should include the following
information:

The activities to be outsourced;

The identity of the impacted CIS;

The name of the outsourcing service provider (indicating whether this
firm is part of the administration firm’s group and its regulatory status,
if any);

The location where the outsourced activity will be carried out.
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The administration firm must also submit written confirmation from senior
management that these Requirements have been fully complied with in
relation to the outsourced activities. In the event that the administration firm
does not comply with any of these Requirements, the Central Bank may
require the outsourcing arrangement to be terminated and the administrati on
firm may face administrative sanction.
It is not necessary to notify the Central Bank when additional CIS are added
to a previously cleared outsourcing arrangement. The Central Bank may
request up-to-date details of all outsourcing arrangements including the
impacted CIS at any time. Any change to the activities which are outsourced
must be notified to the Central Bank in accordance with the procedure
outlined above.
3.5
Within one month of receipt of the proposed outsourcing notification the
Central Bank will inform the administration firm whether further
information regarding the outsourcing arrangement is required or whether
the firm may proceed with its proposals. The Central Bank may impose, at
its discretion, specific conditions on the outsourcing activities, in addition to
these Requirements. In doing so, the Central Bank will consider factors
such as the size of the administration firm and its compliance history, the
nature of the outsourced activity, the characteristics and market position of
the outsourcing service provider, the duration of the contract and the
potential for the outsourcing arrangement to generate conflicts of interest.
3.6
If the outsourcing proposal does not proceed within 12 months of the Central
Bank’s confirmation that it may proceed, the Central Bank will view the
proposal as lapsed. The administration firm must resubmit the notification
of the outsourcing proposals if it is intended to proceed with them at a later
date.
3.7
An administration firm must inform the Central Bank of any material
development affecting the outsourcing service provider and its ability to
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UCITS NOTICES
fulfil its obligations to customers. In this regard, the outsourcing servi ce
provider must be required to disclose to the administration firm any
development that may have a material impact on its ability to carry out the
outsourced functions effectively and in compliance with applicable laws and
regulatory requirements.
3.8
Due to possible data protection risks and risks to effective supervision by the
Central Bank, administration firms must take special care when entering into
and managing outsourcing agreements in order to ensure that it can comply
with these Requirements and with legal obligations under data protection
legislation.
3.9
Intra-group outsourcing is also covered by these Requirements. The Central
Bank will take specific circumstances into consideration, including the
extent to which the administration firm controls the service provider or has
the ability to influence its actions and the extent to which the service
provider is included in the consolidated supervision of the group, when
assessing the risks associated with an intra-group outsourcing arrangement
and the treatment to apply to such arrangements.
3.10 The service provider must have the ability and capacity to perform the
outsourced functions, services or activities reliably and professionally.
Requirement 4
4(a) The administration firm must have a documented policy on its approach to
outsourcing, including contingency plans and exit strategies.
4(b) An administration firm must conduct its business in a controlled and sound
manner at all times.
4.1
The administration firm must have a documented policy that covers all aspects
of outsourcing, whether the outsourcing takes place within the firm’s group or
not.
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4.2
When drawing up the policy the administration firm must recognise that no
form of outsourcing is risk free. The policy must recognise that the management
of intra-group outsourcing must be proportionate to the risks presented by these
arrangements.
4.3
The policy must explicitly consider the potential effects of outsourcing on
certain significant functions (e.g. the ability of the internal audit and compliance
function to carry out their roles) when conducting the risk analysis prior to
outsourcing.
4.4
The policy must ensure that the outsourcing service provider's financial
performance and essential changes in the service provider’s organisation
structure and ownership structure are appropriately monitored and assessed by
the administration firm's management so that any necessary corrective measures
can be taken promptly.
4.5
The administration firm must specify the internal units or individuals that are
responsible for monitoring and managing each outsourcing arrangement.
4.6
The policy must address the main phases that make up the life cycle of the
administration firm’s outsourcing arrangements:
(a)
the decision to outsource or change an existing outsourcing arrangement
(the decision making phase);
(b)
due diligence checks on the outsourcing service provider, including both
pre-contractual and ongoing due diligence checks. These checks should
include periodic visits to the outsourcing service provider;
(c)
drafting a written outsourcing contract and service level agreement (the
pre contractual drafting phase);
(d)
the implementation, monitoring, and management of an outsourcing
arrangement (the contractual phase). This may include the following up of
changes affecting the outsourcing service provider (e.g. major change in
ownership, strategies, profitability of operations);
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UCITS NOTICES
(e)
dealing with the expected or unexpected termination of a contract and
other service interruptions (the post contractual phase). In particular,
administration firms must plan and implement arrangements to maintain
the continuity of their business in the event that the provision of services
by an outsourcing service provider fails or deteriorates to an unacceptable
degree, or the firm experiences other changes. This policy must include
contingency planning and a clearly defined exit strategy.
4.7
The administration firm’s existing clients must be made aware of the
outsourcing arrangement, if applicable, and future clients must be advised of the
arrangement prior to the commencement of business.
Requirement 5
An administration firm must appropriately manage the risks associated with its
outsourcing arrangements.
5.1
Compliance with this Requirement must include an ongoing assessment by the
administration firm of the operational risks and the concentration risk associated
with all its outsourcing arrangements. An administration firm must inform the
Central Bank of any material development in relation to the management of
these risks.
Requirement 6
6(a) All outsourcing arrangements must be subject to a formal and
comprehensive contract or service level agreement. The outsourcing contract
must oblige the outsourcing service provider to protect confidential information.
6(b) In managing its relationship with an outsourcing service provider the
administration firm must ensure that the contract or services level agreement
includes details of the responsibilities of both parties and provides that a quality
control description is put in place.
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6.1
Any outsourcing arrangement must be based on a clear written legally binding
contract or service level agreement.
6.2
An administration firm must ensure that the written contract or service level
agreement takes account of the following (bearing in mind other specific
national rules and legislation):
(a)
The operational activity that is to be outsourced must be clearly defined;
(b)
The precise requirements concerning the performance of the service must
be specified and documented, taking account of the objective of the
outsourcing solution. The outsourcing service provider's ability to meet
performance requirements in both quantitative and qualitative terms and
its ability to meet these Requirements must be assessable in advance;
(c)
The respective rights and obligations of the administration firm and the
outsourcing service provider must be precisely defined and specified. This
must also serve to ensure compliance with laws and supervisory
regulations and guidelines for the duration of the outsourcing
arrangement;
(d)
In order to underpin an effective policy for managing and monitoring the
outsourced activities, the contract or service level agreement must include
a termination and exit management clause, where proportionate and if
deemed necessary, which allows the activities being provided by the
outsourcing service provider to be transferred to another outsourcing
service provider or to be reincorporated into the administration firm;
(e)
The contract or service level agreement must cover the protection of
confidential information and any other specific provisions relating to
handling confidential information. Whenever information is subject to
confidentiality rules at the level of the administration firm, at least the
same level of confidentiality must be ensured by the outsourcing service
provider;
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UCITS NOTICES
(f)
The contract must ensure that the outsourcing service provider's
performance is continuously monitored and assessed so that any necessary
corrective measures can be taken promptly;
(g)
The contract or service level agreement must include an obligation on the
outsourcing service provider to allow the administration firm's compliance
and internal audit departments complete access to its data and its external
auditors full and unrestricted rights of inspection and auditing of that data;
(h)
outsourcing service provider to allow direct access by the Central Bank
and its authorised officers and agents to relevant data and its premises as
required;
(i)
outsourcing service provider to immediately inform the administration
firm of any material changes in circumstances which could have a
material impact on the continuing provision of services. This may require
obtaining consents from affected parties such as the parent company and
relevant home supervisory authority;
(j)
The outsourcing contract or service level agreement shall contain
provisions allowing the administration firm to terminate the contract or
service level agreement if so required by the Central Bank.
6.3
When drafting the contract or service level agreement the administration firm
must bear in mind that the level of monitoring, assessment, inspection and
auditing required by the contract or service level agreement must be
proportionate to the risks involved and the size and complexity of the
outsourced activity.
6.4
The contract or service level agreement should normally contain a mixture of
quantitative and qualitative performance targets, to enable an administration
firm to assess the adequacy of service provision.
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UCITS NOTICES
6.5
In addition to the administration firm evaluating the outsourcing service
provider on an ongoing basis, the administration firm must also consider the
need to evaluate the performance of its outsourcing service provider using
mechanisms such as key performance indicators (including price delivery times,
error rates and reconciliation breaks), service delivery reports, self-certification
or independent review by the administration firm, or the outsourcing service
provider's, internal and/or external auditors. In particular, the Central Bank
requires that the administration firm’s internal auditors will examine the
operation of the outsourcing arrangement within the first 12 months of its
operation and a copy of their report sent to the Central Bank. In addition, the
compliance function of the administration firm will be requested to submit a
similar review of the outsourcing arrangement to the Central Bank. Additional
periodic reports may be required by the Central Bank during the course of any
outsourcing arrangement.
6.6
The administration firm must be prepared to take remedial action if the
outsourcing service provider's performance is inadequate. In this regard, the
administration firm must have sufficiently detailed knowledge of the
outsourcing service provider’s processes and the necessary resources to enable
it to take such remedial action.
Requirement 7
7(a) The administration firm must take account of the risks associated with
“chain” outsourcing.
7(b) The administration firm must only agree to chain outsourcing if the subcontractor will also fully comply with the obligations existing between the
administration firm and the outsourcing service provider, including obligations
and commitments to the Central Bank.
7(c) The administration firm must take appropriate steps to address the risk of
any weakness or failure in the provision of the sub-contracted activities having a
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UCITS NOTICES
significant effect on the outsourcing service provider's ability to meet its
responsibilities under the outsourcing agreement.
7.1
The sub-outsourcing of outsourced activities and functions to third parties (subcontractors) must be treated by the administration firm like a primary
outsourcing measure. Compliance with these conditions must be ensured
contractually, for example by a clause in the outsourcing contract requiring the
prior consent of the administration firm to the possibility and the modalities of
sub-outsourcing.
7.2
The administration firm must ensure that the outsourcing service provider
agrees that the contractual terms agreed with the sub-contractor will always
conform, or at least not be contradictory, to the provisions of the agreement with
the administration firm.
Requirement 8
The administration firm must provide the Central Bank with access to relevant
data held by the outsourcing service provider and the right for the Central Bank
to conduct onsite inspections at an outsourcing service provider’s premises.
8.1
The administration firm must ensure that contracts with outsourcing service
providers grant the Central Bank the right to information and to inspection,
admittance and access (including access to databases), as well as the right to
give directions or instructions, which the Central Bank needs in order to
exercise its supervisory functions.
8.2
The administration firm must seek to ensure that information be made available
to the Central Bank by the outsourcing service provider's external auditor.
8.3
The administration firm must ensure that, in relation to any outsourced activity,
it and its outsourcing service provider can comply with formal orders or
instructions issued by the Central Bank to the administration firm.
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UCITS NOTICES
8.4
The administration firm must ensure that the Central Bank can obtain detailed
information about any outsourcing processes which might undermine the
stability of the consolidated group.
8.5
In the case of outsourcing to service providers abroad, the administration firm is
responsible for ensuring that the Central Bank can exercise its information
gathering rights, including its right to demand documents and audits and
compatible with the overall legal framework, its inspection rights.
8.6
The administration firm must, prior to engaging in outsourcing, consider and set
out in a risk management document what alternative measures could adequately
mitigate the risks involved.
197
T +353 1 224 6000
F +353 1 671 6561
www.centralbank.ie
[email protected]
Bosca OP 559, Sráid an Dáma, Baile Átha Cliath 2, Éire
PO. Box No 559, Dame Street, Dublin 2, Ireland

UCITS NOTICES 2013

Transcription

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