As you may have been aware, the Central Bank recently proposed
to apply the "full UCITS IV regime" to UCITS organised as
self-managed investment companies
("SMICs") by 1 July 2013.
It was envisaged by the Central Bank that this would involve each
SMIC filing a draft revised business plan with the Central Bank
(updated for compliance with the newly applicable rules) for review
and adoption prior to the 1 July 2013 deadline.
The net effect of this "UCITS IV SMIC enhancement
process" was that the Central Bank would be applying all the
organisational requirements applicable to UCITS management
companies (as contained in the UCITS IV Management Company
Directive, to SMICs.
Over the last few months, Maples and Calder have led a project from
within the Legal & Regulatory Committee of the Irish Funds
Industry Association ("IFIA") to seek
clarification from the Central Bank on some fundamental questions
regarding this UCITS IV SMIC enhancement process.
This project resulted in a detailed memorandum being submitted to
the Central Bank from the IFIA on 21 March 2012. The memorandum
raised quite significant issues on the proposed UCITS IV SMIC
enhancement process and requested that the Central Bank engage in
substantive industry consultation before affected UCITS were
required to file updated business plans with the Central Bank
reflecting the proposed changes.
We are pleased to advise that this submission has been received
favourably by the Central Bank. In a letter to IFIA on 27 April
2012, the Central Bank accepts that it should revisit its position
and it now considers that it has more flexibility in prescribing
the organisational rules that should apply to SMICs post UCITS IV.
It is accepted that it is not appropriate or necessary for the full
requirements of the UCITS IV Management Company Directive apply to
SMICs. Instead, the Central Bank indicates that each organisational
rule should be considered individually as to its applicability to a
SMIC. This is viewed as consistent with the provision in Recital
(5) to the UCITS IV Management Company Directive which provides
that the Directive's rules on administrative procedures and
internal control mechanisms should apply to both UCITS management
companies and SMICs, taking into account the principle of
proportionality.
It is now the task of the IFIA Legal & Regulatory Committee to
consider the organisational rules in the UCITS IV Management
Directive (and the general provisions regarding SMIC organisation
requirements in the Level 1 UCITS IV Directive) and present
proposals to the Central Bank on what it considers to be an
appropriate framework for SMICs.
The Central Bank has indicated it will consider these proposals and
engage further with the Committee with a view to finalising a more
considered and proportionate set of enhanced UCITS IV organisation
rules for SMICs. Of most significance in this development is the
opportunity to make the case that the permanent compliance function
and internal audit function, as contained in the UCITS IV
Management Company Directive, are not appropriate for a SMIC
operating a delegation only business model and that specific and
proportionate rules in relation to compliance and internal audit
should apply to SMICs.
We would welcome the thoughts of any interested client that wishes
to provide any input in the IFIA Legal & Regulatory
Committee's response to the Central Bank's request for
proposals. The Central Bank has requested a response by 21 May
2012.
The deadlines for the receipt of revised business plans have been
postponed pending the outcome of this consultation process. The
Central Bank has indicated that revised deadlines will be agreed
once the final position on the scope of the rules for SMICs is
determined.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.