A Guide to UCITS in Ireland - Financial Services Law ...

1 A Guide to UCITS . in Ireland Contents A Guide to UCITS in Ireland 1. Introduction Page 3. 2. Legislative Basis for UCITS in Ireland Page 5. 3. Overview of UCITS Permitted Asset Classes Page 9. and Investment and Borrowing Restrictions 4. Transferable Securities and Money Market instruments Page 13. 5. UCITS Money Market Funds Page 19. 6. Index Tracking UCITS Page 23. 7. UCITS investing in other Collective Investment Schemes Page 25. 8. UCITS investing in Financial Derivative instruments Page 31. 9. UCITS investing in Derivatives on Financial Indices Page 41.

2 10. Available Legal Structures Page 45. 11. UCITS Management Companies/SMICs Page 51. 12. UCITS IV Page 57. 13. Taxation of UCITS in Ireland Page 61. 14. UCITS Authorisation Process Page 65. 15. Ongoing Supervision and General Regulatory Requirements Page 69. 16. Appendices - A. Definitions: Transferable Securities of Money Market instruments Page 73. - B. UCITS Investment and Borrowing Restrictions Page 80. - C. UCITS Management Company Authorisation Options Page 89. 17. Contact Us Page 91. 1. Introduction A Guide TO UCITS governance requirements being introduced in 2002 and clarified in 2007 and with a series IN Ireland .

3 Of additional changes now envisaged under the UCITS IV proposal having as their aim a 1. Introduction further simplification of the European passport process for UCITS , the use of master/feeder Undertakings for Collective Investment in type structures, the creation of a framework for Transferable Securities, commonly referred to cross-border fund mergers and the replacement as UCITS , are collective investment schemes of the Simplified Prospectus. Underpinning established and authorised under a harmonised UCITS and the proposed future evolutions of European Union (EU) legal framework under the product has been a common EU approach which a UCITS established and authorised with involvement from securities regulators and in one EU Member State can be sold cross industry participants across the European Union border into other EU Member States without a at each stage of the development process.

4 Requirement for an additional authorisation. This Whilst at times the pace of change may be too so-called European passport is central to the fast for some and too slow for others, to date UCITS product and enables fund promoters to UCITS has generally achieved the right balance. create a single product for the entire EU rather than having to establish an investment fund Ireland has become one of the leading EU. product on a jurisdiction by jurisdiction basis. exporting jurisdictions for UCITS having been pro-active in implementing the UCITS regime Originally introduced over twenty years ago, into domestic legislation in 1989, introducing UCITS have become the gold standard EU a sensible investment funds focused fiscal investment fund product, recognised not only regime and clear but prudential process for by the European Financial Services community the authorisation and supervision of UCITS .

5 But also further afield with many non-EU and relevant service providers. The result jurisdictions accepting UCITS as suitable for has been that promoters from all across retail sale into their domestic markets. Whilst the world have and continue to use Ireland sold across the full spectrum of investor types, as a domicile of choice for UCITS products UCITS have been designed principally for the seeking to access the European market retail market as open-ended diversified, liquid place and, in many cases, further afield.

6 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, most recently with a significant broadening of permitted asset classes and more robust PAGE 3. 2. Legislative Basis for UCITS in Ireland 2. Legislative Basis for countries, no substantive change to the UCITS in Ireland UCITS product was made until 2002 with the introduction of the UCITS Management The legislative basis for UCITS in Ireland is Company Directive (Directive 2001/107/EC).

7 Founded on European law implemented and the UCITS Product Directive (Directive domestically, expanded upon by UCITS related 2001/108/EC), the Management Company notices issued by the Irish Financial Regulator and Product Directives referred to generally (the UCITS Notices ) and with further as UCITS III . clarification provided for in a series of Financial Regulator guidance notes ( Guidance Notes ) UCITS III represented a major overhaul of each of which European and domestic UCITS in terms of what they could invest in, legislation and the UCITS Notices and how they could be offered and sold and how Guidance Notes have evolved and been they were to be managed.

8 Amended over time. Given the experience of the original UCITS . (i) European Legislation regime and an often inconsistent, as between EU Member States, application of The original UCITS Directive (Directive its terms, the introduction of UCITS III was 85/611/EC) of 1985 established the followed by the creation of CESR, the UCITS product as a pan-European Committee of European Securities collective investment scheme which Regulators, which was requested to advise benefited from an EU-wide passport based on the interpretation of terms used within on the concept of mutual recognition of UCITS III with the aim of achieving a Home State authorisation, setting down the common agreed position on its interpretation legal forms which UCITS could take.

9 Their and application. Following a series of permitted investment and borrowing rules, consultations, CESR issued its final advices liquidity requirements, prospectus disclosure in January, 2006, followed in March, 2007. rules and rules relating to annual and by a European Commission implementing semi-annual reporting as well as rules Directive (Directive 2007/16/EC), referred to relating to the role and duties of UCITS as the Eligible Assets Directive, which was custodians/depositaries and their in turn accompanied by CESR guidelines management companies.

10 Concerning UCITS eligible assets. Whilst amended in 1988 (Directive (ii) Irish Legislation 88/220/EEC) in a limited fashion to increase maximum permitted investments in certain The original 1985 UCITS Directive (as types of bonds issued by credit institutions, amended) was implemented into domestic in 1995 (post-BCCI Directive 95/26/EC) and Irish law by the European Communities in 2000 (Directive 2000/64/EC) with regard (Undertakings for Collective Investment in to exchange of information with third Transferable Securities)