Ireland: Legislative Basis For UCITS In Ireland

Originally published in A Guide to UCITS in Ireland

The legislative basis for UCITS in Ireland is founded on European law implemented domestically, expanded upon by UCITS related notices (the "UCITS Notices") issued by the Central Bank of Ireland (the "Central Bank") and with further clarification provided for in a series of Central Bank guidance notes ("Guidance Notes"), each of which – European and domestic legislation and the UCITS Notices and Guidance Notes – have evolved and been amended over time.

(i) European Legislation

The original UCITS Directive (Directive 85/611/EC) of 1985 established the UCITS product as a pan-European collective investment scheme which benefited from an EU-wide passport based on the concept of mutual recognition of Home State authorisation, setting down the legal forms which UCITS could take, their permitted investment and borrowing rules, liquidity requirements, prospectus disclosure rules and rules relating to annual and semi-annual reporting as well as rules relating to the role and duties of UCITS custodians/depositaries and their management companies.

Whilst amended in 1988, 1995 and in 2000, no substantive change to the UCITS product was made until 2002 with the introduction of the UCITS Management Company Directive (Directive 2001/107/EC) and the UCITS Product Directive (Directive 2001/108/EC), the Management Company and Product Directives referred to generally as "UCITS III". UCITS III represented a major overhaul of UCITS in terms of what they could invest in, how they could be offered and sold and how they were to be managed.

Given the experience of the original UCITS regime and an often inconsistent, as between EU Member States, application of its terms, the introduction of UCITS III was followed by the creation of CESR, the Committee of European Securities Regulators, now known as the European Securities and Markets Authority ("ESMA"), which was requested to advise on the interpretation of terms used within UCITS III with the aim of achieving a common agreed position on its interpretation and application. Following a series of consultations, CESR issued its final advices in January, 2006, followed in March, 2007 by a European Commission implementing Directive (Directive 2007/16/EC), referred to as the Eligible Assets Directive, which was in turn accompanied by CESR guidelines concerning UCITS eligible assets.

Adopted in June 2009, the most recent piece of European legislation is Directive 2009/65/EC, the "UCITS IV Directive". The UCITS IV Directive repealed all prior UCITS Directives and successive amendments thereto (with the exception of the Eligible Assets Directive).

The UCITS IV Directive and its accompanying Level 2 measures are supplemented by a number of Level 3 measures, (together, "UCITS IV"), which are listed below.

Level 2 measures:

• Commission Directive 2010/43/EU (organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company)
• Commission Directive 2010/44/EU (fund mergers, master-feeder structures and notification procedure)
• Commission Regulation (EU) No 583/2010 (key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website)
• Commission Regulation (EU) No 584/2010 (form and content of the standard notification letter and UCITS attestation, the use of electronic communication between competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities)

Level 3 measures:

• ESMA's Guidelines on a common definition of European money market funds (ref: CESR/10-049)
• ESMA's Guidelines on the methodology for the calculation of the synthetic risk and reward indicator in the Key Investor Information Document (ref: CESR/10-673)
• ESMA's Guidelines on the methodology for calculation of the ongoing charges figure in the Key Investor Information Document (ref: CESR/10-674)
• ESMA's Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (ref: CESR/10-788)
• Selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS (ref: CESR/10-1318)
• Transition from the Simplified Prospectus to the Key Investor Information document (ref: CESR/10-1319)
• ESMA's guide to clear language and layout for the Key Investor Information document (ref: CESR/10-1320)
• ESMA's template for the Key Investor Information document (ref: CESR/10- 1321)

(ii) Irish Legislation

The original 1985 UCITS Directive (as amended) was implemented into domestic Irish law by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (the "1989 UCITS Regulations").

The 1989 UCITS Regulations were amended in 1996, 1999 and in 2003 and were then revoked and replaced, in the context of domestic implementation of UCITS III, by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations (S.I. No. 212/2003) (as amended by S.I. No. 213 of 2003) (the "2003 UCITS Regulations").

The 2003 Regulations were subsequently amended by S.I. No. 497/2003, by the Central Bank and Financial Services Authority Act, 2004 (introduction of a single regulator for financial services in Ireland), by the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 (introduction of segregated liability for umbrella investment companies) and by S.I. No. 832/2007 (implementation of the Eligible Assets Directive).

On June 29, 2011, the Irish Minister for Finance signed into law the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (the "UCITS Regulations"), which transpose the UCITS IV Directive into Irish law and consolidate all prior UCITS legislation.

(iii) UCITS Notices

The Central Bank of Ireland has issued a specific set of UCITS Notices which explain and clarify various aspects of the UCITS Regulations and which set down conditions not contained within the UCITS Regulations with which Irish UCITS are required to conform. In conjunction with the signing of the UCITS Regulations, the Central Bank issued revised UCITS Notices and Guidance Notes to reflect UCITS IV, completing the regulatory regime for UCITS IV in Ireland.

The UCITS Notices deal with:

• Information and document requirements of the Central Bank in support of an application for authorisation as a UCITS – UCITS 1.
• Supervisory and reporting requirements and conditions for UCITS management companies, UCITS self-managed investment companies and administration companies authorised by the Central Bank – UCITS 2.
• Trustees – eligibility criteria – UCITS 3.
• Trustees – duties and conditions – UCITS 4.
• General conditions – UCITS 5.
• Prospectus – UCITS 6. Information to be included in the monthly returns – UCITS 7.
• Publication of annual and half-yearly reports – UCITS 8.
• Eligible Assets and Investment restrictions – UCITS 9.
• Financial derivative instruments – UCITS 10.
• Borrowing powers – UCITS 11.
• Techniques and Instruments including Repurchase/Reverse Repurchase and Stocklending for the purposes of efficient portfolio management – UCITS 12.
• Umbrella UCITS – UCITS 13.
• Dealings by promoter, manager, trustee, investment adviser and group companies – UCITS 14.
• Cross – border notification of UCITS – UCITS 15.
• Code of conduct in relation to collective portfolio management – UCITS 16.
• Money Market Funds – UCITS 17
• Master Feed Funds – UCITS 18
• Key Investor Information Document – UCITS 19
• Capital Compliance Requirement - Guidance and regulatory report – Annex I
• Requirements on outsourcing of administration activities in relation to CIS – Annex II.

(iv) Central Bank Guidance Notes and Policy Documents

The Central Bank has additionally issued a series of Guidance Notes which provide further clarification on the Central Bank's approach on particular issues and has also issued a number of specific policy documents.

Certain Guidance Notes have application to all regulated fund types (both UCITS and Non-UCITS) such as those dealing with fund promoters, permitted markets for retail schemes, multi-adviser schemes, Money Market Funds, valuation rules, etc., while others have specific UCITS application such as those dealing with UCITS investing in other collective investment schemes, UCITS investing in Financial Derivative Instruments, the Key Investor Information Document, UCITS investing in Financial Indices and UCITS prospectus disclosures for Structured Products and Complex Trading Strategies.

To read "A Guide to UCITS in Ireland" in full, please click here.

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.