The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2019, S.I. No. 230 of 2019 (CBI UCITS Regulations 2019) is effective from 27 May 2019.
The CBI UCITS Regulations 2019 consolidate amendments made by two previous amending regulations to the CBI UCITS Regulations. The CBI has also published a feedback statement on CP 119 in relation to the consultation on amendments (and consolidation) to the CBI UCITS Regulations, as well as a UCITS Q&A dated 6 June 2019.
2. Performance fees
Following on the thematic review by the CBI of UCITS performance fees, the CBI’s guidance on UCITS performance fees has been codified in the CBI UCITS Regulations 2019.
One amendment is a new performance fee crystallisation frequency requirement, that is, performance fee to only crystallise and be paid once a year. This requirement is subject to an 18-month transitional period from the commencement of CBI UCITS Regulations 2019. This is in line with the 2016 report of the International Organisation of Securities Commissions (IOSCO) entitled “Good Practice for Fees and Expenses of Collective Investment Schemes”.
The crystallisation and payment of a performance fee by a UCITS upon the redemption of shares/units by an investor is not considered to be an annual calculation for such purposes. Performance fees are only payable by the UCITS on achieving a new high net asset value over the life of the UCITS, or the out-performance of an index. It is acceptable to charge performance fees at an individual investor level, or at a share class or fund level as adjusted for subscriptions and redemptions.
For further details on the thematic review of UCITS performance fees, see our previous elexica article: “Irish regulator sets deadline of 30 November 2018 for review of UCITS performance fees”.
3. UCITS share class provisions
Amendments have been made to UCITS share class provisions to reflect the European Securities and Markets Authority opinion on share classes of UCITS (ESMA Opinion), including in the area of stress-testing for share class hedging. In accordance with the ESMA Opinion, where a UCITS engages in currency hedging at the level of a share class, under-hedged positions may not fall below 95% of the portion of the net asset value of the share class where it is to be hedged against currency risk.
4. Money market funds
The CBI UCITS Regulations 2019 incorporate amendments arising from the implementation of the 2017 EU regulation (2017/1131) on money market funds.
5. Reporting requirements applicable to UCITS management companies and depositaries
The CBI UCITS Regulations 2019 require UCITS management companies and depositaries to file a second set of accounts with the CBI which covers the full 12 months of the financial year. While this obligation has been imposed on UCITS management companies since December 2016, the requirement previously provided for a two-month filing period. The CBI UCITS Regulations 2019 reduce this filing period from two months to one month after the year end. The CBI’s rationale for the shortened filing period is to enable supervisors to obtain information in a “timely manner” so that they can take any necessary supervisory action arising from their review of the accounts filed.
The CBI UCITS Regulations 2019 provide the CBI with stronger statutory basis on which to take enforcement action for non-compliance in the future, including breaches of performance fees requirements. Irish domiciled UCITS, UCITS management companies and depositaries should comply with such requirements.
If you require any assistance in connection with any issue arising from the CBI UCITS Regulations 2019, please contact your usual contact at Simmons & Simmons.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.