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News & Publications - News Article
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| Funds Regulatory Update, March 2010 |
1. Update on UCITS IV
The UCITS IV Directive entered into force on 7 December 2009. Member States are expected to enact national laws implementing the Directive by 30 June 2011 and such measures are to apply from 1 July 2011.
Following a consultation period which concluded in November, the Committee of European Securities Regulators (“CESR”) issued its technical advice to the European Commission on the level 2 measures relating to mergers of UCITS, master-feeder UCITS structures and cross-border notification of UCITS in December 2009.
In addition, the European Commission held a pre-Level 2 discussion of UCITS IV on 5th February. Working drafts of the possible content of the draft Regulation on "key investor information", the possible content of the draft Directive on measures related to the Management Company Passport, and the possible content of the draft Regulation covering issues related to the supervisory co-operation and notifications procedures were circulated in advance of the meeting to relevant participants including the Irish Government’s Department of Finance. The Department of Finance in turn circulated these documents to industry participants, on a confidential basis, to review and provide comments in advance of the meeting of the European Commission.
McCann FitzGerald has had a substantial amount of input into the Irish Funds industry responses to both the CESR consultation process and the draft documents circulated by the Commission. Accordingly, should you require further detail on the UCITS IV proposals and the steps being taken to implement it, we would be happy to discuss with you.
2. Financial Regulator’s Policy Update regarding multiple share classes within a single collective investment scheme
At the beginning of February 2010, the Financial Regulator issued a Policy Note in relation to share classes within funds/ sub-funds. The Policy Note indicates a broadening of the circumstances in which it is possible to differentiate between investors at share class level, notwithstanding that each fund/sub-fund must consist of a single pool of assets.
As you may be aware, to date it has always been possible to provide for currency hedging at share class level, provided the requirements of the Financial Regulator’s Guidance Note 3/99 are met. This has now been extended to permit interest rate hedging at class level, subject to the same requirements set out in Guidance Note 3/99.
A more interesting development is now the possibility of permitting different levels of returns to investors within different classes, through a Financial Derivative Instrument entered into with respect to that particular class only. The Policy Note confirms that this distinction of returns could operate in the context of guaranteed funds/capital return products which offer different levels of guaranteed return to investors between different classes. It also extends this principle to permit a different level of participation in the performance of the underlying portfolio of assets - again, through a financial derivative instrument - provided certain requirements are met. One of the requirements is that a legal opinion will be required to confirm that the over-the-counter counterparty's recourse to the fund is limited to the relevant share class's participation in the fund's assets. Another requirement is a confirmation from the board of the fund that the arrangements will not result in any prejudice for investors in one class over another and that there will be no cross-liability between share classes.
3. Migration of Offshore Funds to Ireland
The Companies (Miscellaneous Provisions) Act 2009 (the “Act”), which became law in Ireland in late December 2009, introduces a straightforward procedure to facilitate the migration of offshore funds to Ireland. Pursuant to the Act, a non-Irish corporate fund is permitted to re-register as an Irish company and continue its existence as a UCITS or non-UCITS, authorised by the Irish Financial Regulator.
Re-registration as an Irish company pursuant to this new procedure is by way of continuation and therefore it will not create a new legal entity nor should it prejudice or affect the identity of the corporate entity. Accordingly, the fund’s existing performance track record can be retained while avoiding potential adverse tax consequences and costs that are often encountered when merging an offshore fund with a new onshore fund.
Only bodies corporate that are collective investment undertakings established and registered under the laws of certain prescribed jurisdictions may apply for re-registration pursuant to the Act. For these purposes, jurisdictions may only be prescribed if their laws make provision for a ‘migrating company’ to continue its existence in Ireland in the manner contemplated by the Act. A list of prescribed jurisdictions will be published by way of statutory instrument shortly and it is expected that certain prominent offshore jurisdictions will be so prescribed.
4. Finance Bill 2010
The Finance Bill 2010 was published on the 4 February last, and contains a number of important provisions relating to Irish investment funds. The Finance Bill is expected to become law in late March/early April (it is required by law to be enacted by 9 April).
As part of Ireland’s commitment to become the European hub for the international funds industry as outlined by the Minister for Finance in his Budget announcement, the proposed measures ensure that no adverse tax consequences will arise in relation to non-Irish domiciled funds being managed in Ireland under UCITS IV. The provisions provide certainty that the trading activities of the Irish UCITS management company will not result in the non-Irish domiciled fund coming within the charge to Irish tax.
The Finance Bill also includes proposals to exempt Irish funds from the obligation to obtain non-resident declarations from investors, in circumstances where all of the investors of the investment undertaking are resident outside Ireland.
In addition, the Finance Bill proposes extending the exemption from stamp duty for investment undertakings in cases of reconstruction or amalgamation to cover situations where the units issued by the Irish investment undertaking in exchange for assets transferred, are issued directly to the foreign fund rather than to its unit holders. It also proposes an exemption from stamp duty for transfers of assets between certain unit trusts.
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