Arthur Cox recently participated in a committee which made various submissions to the Central Bank of Ireland (the "Central Bank") to ensure the ongoing competitiveness of Irish funds. As a consequence a number of important amendments have now been made to the notices and guidance notes issued by the Central Bank. The purpose of this briefing is to summarise the principal changes to the notices and guidance notes.

Regulated markets

The stock exchanges and markets on which UCITS and non-UCITS retail schemes are permitted to invest are required to be listed in the prospectus and the constitutional document of a fund (typically the articles of association or the trust deed). Although this list in the constitutional document was lengthy the list would typically need to be amended from time to time to include additional stock exchanges and markets. The amendment to the list of regulated markets was an easy process in the case of a unit trust as any amendment to the trust deed is regarded as a non-material amendment and therefore can be effected without unitholder approval. However, any proposal to expand the list of regulated markets in the case of a fund established in corporate form required an amendment to the articles of association. This meant that a general meeting of the fund company needed to be convened to amend the articles to expand the list of regulated markets. Any amendment to the articles requires a special resolution to be passed by a three quarters majority of those attending and voting at the general meeting. Consequently the process to achieve a change to the list of regulated markets was time-consuming and costly.

The Central Bank has now accepted that a fund's constitutional document need only cross refer to the list of regulated markets contained in the prospectus. Individual stock exchanges and markets no longer need to be listed in the constitutional document. This amendment is particularly helpful for funds established as companies.

We would suggest that any retail fund established in corporate form consider at its next annual general meeting (or at an extraordinary meeting if one is being convened for other matters) whether to amend the articles to cross refer to the stock exchanges and markets listed in the prospectus so that any additions to the list can be made more easily in the future.

New rules relating to qualifying investor funds

The eligibility criteria for qualifying investor funds was regarded as unduly restrictive and has now been replaced with new criteria which are more closely aligned with the MiFID requirements of what constitutes a professional client and which also allows for certification that an investor understands the nature of the proposed investment.

A qualifying investor is now defined as:

  • an investor who is a professional client within the meaning of Annex II of MiFID;
  • an investor who receives an appraisal from an EU bank, a MiFID firm or a UCITS management company that the investor has the appropriate expertise, experience and knowledge to understand adequately the investment in the fund; or
  • an investor who certifies that it is an informed investor by providing either a confirmation in writing that it has such experience in financial and business matters as would enable the investor to evaluate properly the merits and risks of the prospective investment or a confirmation that the investor's business involves, whether for its own account or for the account of others, the management, acquisition or disposal of property of the same kind.

In addition, the minimum subscription amount for a qualifying investor fund has been reduced from ¤250,000 to ¤100,000. The aggregate of an investor's investment in the various sub-funds of an umbrella are taken into account in reaching this amount.

Also, the exemption from the minimum subscription requirement and qualifying investor criteria is now extended to those within the promoter's group whereas previously it referred to those in the investment manager's group.

These changes are welcome as the range of eligible investors is widened significantly by amending both the criteria for a qualifying investor and the minimum subsription amount.

Promoter capitalisation

The Central Bank's requirement relating to the capitalisation of a promoter is that it must maintain net shareholders' funds equal to, or in excess of, ¤635,000. The promoter application form and the accompanying guidance note have been amended to include a requirement that the capitalisation requirement for a promoter be maintained during the life of the fund. A promoter seeking approval to act as such from the Central Bank will now need to submit a letter with the promoter application in which it confirms that it will maintain this level of capitalisation for so long as it acts as the promoter.

The Central Bank is still considering whether capital should be assessed on the basis of "Own funds" as defined under the Capital Requirements Directive and may amend this guidance note further.

UCITS dealing frequency

The requirement that a UCITS deal once a fortnight has now been amended to a minimum dealing frequency of twice per month at regular intervals. Dealing days should occur on a regular and frequent basis and not, for example, on two consecutive days in a month.

Extension of initial offer periods

The Central Bank has now accepted that extensions of initial offer periods may be made without prior notification to the Central Bank where no subscription monies have been received. Extensions of the initial offer period can now be notified to the Central Bank on an annual basis.

Irish facilities agents

A facilities agent in Ireland is required to be appointed to any UCITS fund intending to market its units in Ireland. The facility agent is no longer required to receive and transmit redemption orders or pay redemption proceeds to its investors.

New structure of the Central Bank

The Central Bank Reform Act, 2010, which commenced on 1 October 2010, creates a new single unitary body - the Central Bank of Ireland - responsible for both central banking and financial regulation. The new structure replaces the previous related entities, the Central Bank and the Financial Services Authority of Ireland. References in fund documentation should now be to the Central Bank as and when documentation is updated.

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.