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Revised Central Bank of Ireland UCITS Regulations 2019

The Central Bank of Ireland (“CBI”) has published its revised CBI UCITS Regulations 2019

The CBI UCITS Regulations set out the CBI’s rules governing Irish domiciled UCITS and UCITS management companies and also includes the CBI’s obligations on Irish domiciled depositaries. The revised CBI UCITS Regulations 2019 are the result of a consultation process with the CBI which began last year and they place on a statutory footing provisions previously contained in CBI guidance. The revised regulations enable the CBI to now be able to bring enforcement actions for breaches of non-compliance including breaches of performance fee requirements.

Accompanying the revised CBI UCITS Regulations is a feedback statement on the consultation process and an updated edition of the CBI UCITS Q&A which help to clarify some of the provisions of the revised CBI UCITS Regulations 2019.
The CBI UCITS Regulations 2019 apply from the 27th of May 2019 (subject to certain exemptions).

Below are some of the key requirements to be aware of under the CBI UCITS Regulations 2019.

UCITS Performance Fees

  • In calculating performance fees payable, the performance fees may only crystallise once a year and only be paid once a year. This approach aligns the CBI with the 2016 International Organisation of Securities Commission’s (“IOSCO”) Good Practices on Fees and Expenses. 
  • Performance fees payable may only by paid on the outperformance of a benchmark or if a new high NAV is achieved over the life of the UCITS. 
  • Existing UCITS that charge performance fees more frequently than once per annum can avail of an 18 month transitional period to ensure that they are in compliance.
  • The calculation of the performance fee must be verified by the depositary.
  • If the UCITS has multiple managers or advisers the performance fee is payable only on the performance of that part of the portfolio for which the investment manager or adviser is responsible.
  • In the CBI Q&A the CBI helpfully clarifies that performance fees may crystallise upon an investor redemption.
  • The CBI Q&A also clarifies that performance fees can be charged at an individual investor level or at share class /sub-fund level adjusting for subscriptions and redemptions.

UCITS Share Classes

  • Annual and half-yearly reports much include an up to date list of all share classes of the UCITS which issued during the reporting period and identify whether the relevant share class is hedged.
  • As per the EMSA opinion on UCITS share classes, under-hedged positions should not fall below 95% of the portion of the net asset value of the share class which is sought to be hedged. The CBI has ensured that there is flexibility as to the type of stress testing which can be conducted by a management company to quantify the impact of share class hedging on other classes in the same fund.

Also to note the revised CBI UCITS Regulations 2019 now place on a statutory footing the following requirements:

Reporting Requirements

UCITS Management companies and depositaries are required to file a second set of accounts with the CBI which covers the full 12 months of the financial year. Under the CBI UCITS Regulations 2019 the CBI now requires that these accounts are filed with the CBI within 1 month of the year end. The CBI’s rationale is that this enables them to review information in a “timely manner” so that they can take action if needed once they have reviewed the accounts.

Cash held as ancillary liquidity

When a UCITS is applying the limits on exposure to any one credit institution, the UCITS must now aggregate deposits and cash held as ancillary liquidity.

Designated Email Address (CP86 requirement)

All UCITS funds must have an email address for correspondence with the CBI which is monitored daily.

Management Fee for structured UCITS

A structured UCITS can be subject to a management fee which is calculated based on the initial offer price per share of the UCITS rather than being based on the NAV of the relevant class. The fee charged must be a percentage of the initial offer price per share of the UCITS and the UCITS must be a structured UCITS which provides a pre-defined return to investors.

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