Introduction
Undertakings for Collective Investment in Transferable Securities, commonly referred to as UCITS, are collective investment schemes established and authorised under a harmonised European Union (EU) legal framework under which a UCITS established and authorised in one EU Member State can be sold cross border into other EU Member States without a requirement for an additional authorisation. This so-called "European passport" is central to the UCITS product and enables fund promoters to create a single product for the entire EU rather than having to establish an investment fund product on a jurisdiction by jurisdiction basis.
Originally introduced over twenty years ago, UCITS have become the gold standard EU investment fund product, recognised not only by the European financial services community but also further afield with many non-EU jurisdictions accepting UCITS as suitable for retail sale into their domestic markets. Whilst sold across the full spectrum of investor types, UCITS have been designed principally for the retail market as open-ended diversified, liquid products with their parameters - permitted asset classes and investment and borrowing restrictions - being enshrined in EU law.
Importantly, UCITS is not a product which has stood still, rather it has and continues to evolve, with a significant broadening of permitted asset classes and more robust governance requirements being introduced in 2002 and clarified in 2007. More recently, a series of additional changes have been implemented under the UCITS IV Directive in order to further simplify the European passport process for UCITS, introduce master/feeder type structures, create a framework for cross-border fund mergers, replace the Simplified Prospectus and introduce further measures in relation to the UCITS Management Company Passport. Underpinning UCITS and the proposed future evolutions of the product has been a common EU approach with involvement from securities regulators and industry participants across the European Union at each stage of the development process. Whilst at times the pace of change may be too fast for some and too slow for others, to date UCITS has generally achieved the right balance.
Ireland has become one of the leading EU "exporting" jurisdictions for UCITS having been pro-active in implementing the UCITS regime into domestic legislation in 1989, introducing a sensible investment funds focused fiscal regime and clear but prudential process for the authorisation and supervision of UCITS and relevant service providers. The result has been that promoters from all across the world have and continue to use Ireland as a domicile of choice for UCITS products seeking to access the European market place and, in many cases, further afield.
Legislative Basis for UCITS in Ireland
The legislative basis for UCITS in Ireland is founded on European law implemented domestically, expanded upon by UCITS related notices issued by the Irish Financial Regulator (the "UCITS Notices") and with further clarification provided for in a series of Financial Regulator 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 (Directive 88/220/EEC) in a limited fashion
to increase maximum permitted investments in certain types of bonds
issued by credit institutions, in 1995 (post-BCCI Directive
95/26/EC) and in 2000 (Directive 2000/64/EC) with regard to
exchange of information with third countries, 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, 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, otherwise known as "UCITS IV" or
the "UCITS IV Directive", which is discussed below in
more detail in Section 12.
(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 (S.I. No.
357/1996), in 1999 (S.I. No. 50/1999) and in 2003 (S.I. No.
51/2003) 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").
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 Eligible
Assets Directive), the present legislative basis for UCITS in
Ireland is encompassed in the 2003 UCITS Regulations (as
amended).
The UCITS IV Directive has not yet been implemented in Ireland but
is required to be transposed into Irish law by 1 July, 2011.
(iii) UCITS Notices
The Irish Financial Regulator has issued a specific set of
UCITS Notices which explain and clarify various aspects of the
UCITS Regulators and which set down conditions not contained within
the UCITS Regulations with which Irish UCITS are required to
conform.
These UCITS Notices deal with:
- Information and document requirements of the Financial Regulator in support of an application for authorisation as a UCITS – UCITS 1.
- Supervisory requirements for UCITS authorised by the Financial Regulator and certain firms providing services to such UCITS – 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.
- Supervisory requirements for UCITS authorised in another Member State intending to market their units in Ireland – UCITS 15.
- Code of conduct in relation to collective portfolio management – UCITS 16.
- Capital Compliance Requirement – Guidance and regulatory report.
We refer to certain of these Notices in particular throughout this document.
(iv) Financial Regulator Guidance Notes and Policy
Documents
The Financial Regulator has additionally issued a series of
Guidance Notes which provide further clarification on the Financial
Regulator'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 Simplified Prospectus,
UCITS investing in Financial Indices and UCITS prospectus
disclosures for Structured Products and Complex Trading
Strategies.
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