UCITS Thursday, 12 November 2015

Transcription

1 UCITS Thursday, 12 November

2 Speakers and topics Conor Durkin Partner Topic Changes to the UCITS regulatory landscape Ian Headon Senior Vice President, Northern Trust Topic Preparing for UCITS V 2

3 Welcome Fionan Breathnach Partner, Head of Investment Funds 3

4 Changes to the UCITS regulatory landscape Conor Durkin Partner Mason Hayes & Curran 4

5 UCITS Update Will be looking at: Feedback Statement on CP 77 Feedback Statement on CP 84 The new CBI UCITS Regulations UCITS Q&A Document 5

6 UCITS Update Will be looking at: Feedback Statement on CP 77 Feedback Statement on CP 84 The new CBI UCITS Regulations UCITS Q&A Document 6

7 Feedback Statement on CP 77 Promoter Regime Promoters were required to hold 635,000 in net shareholders funds Central Bank has dispensed with the promoter requirement for UCITS Example: FCA authorised manager subject to a capital requirement of 125,000 could release up to 510,000 previously tied up in regulatory capital Implications: removes a barrier to the establishment of UCITS by smaller managers Level playing field with other UCITS domiciles allows greater flexibility regarding the naming of the UCITS and its sub-funds 7

8 Feedback Statement on CP 77 Withdrawal of Guidance Note 1/96 The Central Bank has withdrawn Guidance Note 1/96 The Central Bank will no longer publish a list of permitted markets and will not review submissions on permitted markets It is the responsibility of the UCITS to ensure compliance with Regulation 68(1) of the UCITS Regulations and Schedule 1 of the CBI UCITS Regulations The withdrawal of Guidance Note 1/96 provides UCITS with additional flexibility to invest in US OTC markets 8

9 Feedback Statement on CP 77 additional set of half-yearly accounts Central Bank requires UCITS management companies and depositaries to prepare half-yearly accounts twice in every financial year Applies to financial year that starts after the commencement of the Regulations => typically for the six month period commencing 1 July 2016 Requirement does not apply to UCITS schemes Costs for preparing an additional set of half-yearly accounts would not be material 9

10 Feedback Statement on CP 84 collateral diversification ESMA Guidelines on ETFs and other UCITS issues establishes rules regarding collateral ref. para. 43 (a) to (J) December 2012 ESMA consultation ESMA noted that limiting collateral from a single issuer to 20% of net assets was adversely impacting UCITS particularly Money Market Funds that enter into reverse repos December 2013 ESMA Revised Guidelines on Collateral diversification Collateral may not exceed 20% UCITS NAV For government guaranteed securities collateral may exceed 20% limit provided collateral is diversified (at least 6 different issues) March 2014 Time Line July 2014 October 2015 CP84 is issued by the Central Bank Proposal to introduce detailed rules on the evaluation credit quality for collateral CP84 feedback statement The Central Bank will permit asset concentration of greater than 20% for government guaranteed securities UCITS are also required to evaluate the credit quality of collateral

11 CBI UCITS Regulations - rationale The publication of the Central Bank UCITS Regulations marks a significant milestone for the Central Bank. It is the first time that we have issued investment fund rules in the form of Central Bank regulations. This will assist investment fund providers by bringing additional clarity and certainty to the rules applied by the Central Bank. We will shortly commence a review of the Central Bank s AIF Rulebook to see whether it should also be issued as Central Bank regulations. Director of Policy and Risk Gerry Cross 11

12 CBI UCITS Regulations new legal basis European Communities Act 1972 Minister for State may make regulations required to implement EU laws Central Bank (Supervision and Enforcement) Act 2013 European Communities (UCITS) Regulations SI 352 of 2011 CBI issued UCITS Notices under Reg 123(3) of the UCITS Regulations CBI UCITS Regulations SI No. 420 of 2015 UCITS Notices Legislation should be confined to the scope of the Directive Supplementary provisions are limited to those as are necessary Greater incidence of Courts striking down statutory instruments 12

13 CBI UCITS Regulations changes Legislative basis the CBI UCITS Regulations is legally binding legislation Responsible Person to define with precision the person to whom the regulations apply Waivers requirement to renew pervious derogations New managerial functions 6 managerial functions and new organisation effectiveness role 13

14 CBI UCITS Regulations - Overview Replace the UCITS Notices and apply with effect from 1 November 2015 Consolidate into one location all of the requirements that the Central Bank imposes on UCITS Supplement existing legislative requirements, in particular the European Communities (UCITS) Regulations 2011 Introduce a small number of policy changes 14

15 CBI UCITS Regulations Interpretative issues CBI Regulations need to be read in conjunction with the UCITS regulations CBI Regulations do not address issues by subject matter for example in specie redemptions or share classes are found in different locations Clarity requirement to disclose short exposure is not precise Conflicting CBI UCITS Regulations are supplemented by guidance for example Reg 28 requires the constitutive document to include a list of stock exchanges whereas Guidance on UCITS Permitted Markets clarifies that stock exchanges may be listed in the prospectus 15

16 CBI UCITS Regulations policy issues CBI UCITS Regulations Disclose the percentage of assets expected to be invested in long and short positions Ref S53(2)(b) Redemption Gates all investors to be treated equally New requirement for depositaries to report non material breaches to the CBI Collateral rules requirement to carry out own documented assessment of credit quality taking into account credit ratings with an action pan to remedy in the case of a downgrade Establish procedures for the valuation of OTC derivatives Ref S37(2)(g) UCITS NOTICES No requirement to disclose expected levels of long and short exposure First to redeem, first out policy Depositaries were not required to report non-material breaches to the CBI No prescriptive rules on credit assessment Prescriptive rules on valuation of OTC derivatives 16

17 CBI UCITS Regulations transitional arrangements The CBI UCITS Regulations commenced on 1 November 2015 Redemption gates - the requirement for a UCITS to redeem pro rata all investors will commence on 1 November 2016 Short position disclosure - requirement to disclose the expected percentage long and short positions applies the next time amendments are made to the prospectus Central Bank has not provided a transitional period 17

18 CBI UCITS Regulations key points CBI UCITS Regulations major theme is enforcement sets out rules that must be complied with additional work for legal counsel Domestic rules on collateral additional burden on UCITS Removal of the promoter requirement and withdrawal of guidance note on permitted markets is very welcomed 18

19 Preparing for UCITS V Ian Headon Senior Vice President, Northern Trust 19

20 UCITS V - DEPOSITARY UCITS V is due to be effective March 18, We are awaiting final Level 2 implementing measures. UCITS V broadly makes the depositary regime consistent with that under AIFMD, with some technical differences. How did we get here? Post 2008, industry & market events, policy making imperative AIFMD clarifications Implementation Where are we now? What does a depositary actually do? How is UCITS V different to AIFMD? To UCITS IV? Where are we going? Depositary location, Passport Depositary Lite implicaitons Do investors value it? UCITS VI

21 Q&A 21

22 Contact Details Conor Durkin Partner Mason Hayes & Curran t: m: e: 22

23 Contact Details Fionan Breathnach Partner Head of Investment Funds Mason Hayes & Curran t: m: e: fbreathnach@mhc.ie 23

24 Thank you For any queries on upcoming events, please 24