CB Notices General

Table of Contents

Notices

The Central Bank publishes notes applicable to the regulation of mutual funds. There are distinct notices in respect of the UCITS funds and non-UCITS funds. In broad terms, non-UCITS funds are domestic-facing funds. UCITS funds are those which may be marketed to the European Union and are established under EU wide regulations.

The NU notices (Non-UCITS notices) applied to collective investment schemes irrespective of their format. They may be established as unit trusts under the Unit Trust Act, investment companies under part III of the Companies Act, 1990 investment limited partnerships under the Investment Limited Partnership Act or common contractual funds under the Investment Funds Companies and Miscellaneous Provisions Act, 2005.

The notices apply to authorise collective investment schemes. In addition, mutual funds, which are quoted on the Irish stock exchange, are subject to the stock exchange rules applicable to mutual funds. The Irish stock exchange has a market for collective investment schemes.

The NU notices apply to foreign schemes marketing in Ireland.

Collective Investment Schemes

Collective investment schemes whose principal purpose is the investment in other collective investment schemes are subject to certain additional rule. They must invest in funds authorised in Ireland or in other jurisdictions providing an equivalent level of investor protection.

The scheme may not invest any more than 20 percent of its assets in one scheme. This may be increased to 30 percent; The scheme may not invest in another fund of funds or a feeder scheme.

The prospectus must quantify, as far as possible, the charges and costs relating to the underlying scheme. Where it has invested in another entity managed by the same management company or a related entity, the preliminary initial and redemption charge that would normally apply must be waived. Where a commission is received by the manager prior to investment in other schemes, it must be paid to the scheme.

Transactions & Borrowing

Where transactions are permissible, there must be a valuation by an independent and competent person, and the transaction must be assured to be in the best interests of the unit holder. Such transactions must be disclosed in full in the scheme’s prospectus.

Borrowing is constrained by the terms of the scheme’s documents and the regulations. Borrowing may be permitted under the security of the scheme’s asset. Borrowings may not exceed 25 per cent of the net assets of the scheme. Cash may not be set off against borrowings for the purpose of this calculation.

Back-to-back loan agreements for schemes may invest in a range of currencies borrowings to the extent of an offsetting deposit exceeding the value of the currency loan outstanding may be permissible, Any proposed borrowing must be disclosed in the scheme’s prospectus.

Authorisation

Application for authorisation of the scheme must be made to the Central Bank. Full details are required, including

name of the scheme,
nature of investment objectives,
prospectus,
details of the promoter to enable the Bank to be assesedin relation to its expertise, integrity and adequacy of financial resources.
Lists of shareholders’
accounts and
overseas regulatoty status must be provided.

The relevant constitution document is dependent on the structure of the scheme e.g.

trust document,
investment partnership document,
memorandum and article
must be furnished.

Details of all directors, partners, controllers, et cetera as appropriate must be furnished to enable the Central Bank to be satisfied in relation to their integrity. Changes in the composition and key individuals behind the collective investment scheme requires the consent of the Central Bank.

Management Company and Advisers

Where the scheme proposes to employ a management company, full details must be given sufficiently to enable the Central Bank to establish that it has a good reputation and has the appropriate expertise and financial resources. The curriculum vitae of the directors and accounts and overseas regulatory status must be disclosed.

The management companies of collective investment schemes must have the resources and ability to carry out their business effectively and meet their liabilities. If the investment company temporarily suspends the redemption of units, the Central Bank must be immediately notified.

The management company must not be replaced without the Central Bank’s consent.

Details of the investment adviser and any persons carrying out services for the scheme sufficient to satisfy the Central Bank in relation to its expertise, integrity and financial adequacy must also be furnished. Details of the trustee and other information as may be specified must be furnished.

Service Provider Requirements

Firms such as management and investment firms which provide services to schemes must comply with certain requirements. They must maintain a minimum capital equivalent of €125,000 or one-quarter of the preceding years’ overhead, whichever is higher. The capital must be in the way of eligible assets free from charge.

Key appointments in respect of the firms providing such services require the consent of the Central Bank. There should not be an overlap of directors between the scheme and the service provider. The consent of the Central Bank is required for any significant change in shareholding.

Accounts and half-yearly accounts must be furnished to the Central Bank. Appropriate internal controls must be in place. It must separately identify client funds and assets. It must be in a position to satisfy the Central Bank on a continuous basis that it has sufficient management resources to conduct its business and that its controllers are persons of integrity, knowledge and experience.

It must maintain its affairs in a reasonable manner with proper records and adequate arrangements to ensure employees are suitable, adequately trained and properly supervised. There must be procedures in relation to compliance with Central Banks in an open and cooperative fashion. Breaches must be notified to the Central Bank immediately.

The firm must hold review meetings with the Central Bank and supply information as required.

The firm must not manage non-Irish schemes. It must consult with the Central Bank before engaging in new activity.

Firms providing administration services not authorised by the Central Bank must submit

copies of the agreements in relation to such schemes.
copy of prospectus and similar documents.
audited report issued to unit holders.
monthly return containing details of the relevant scheme.

Management Issues

The managers of collective investment schemes must comply with the terms of the prospectus issued by the scheme. Appointments to key positions in relation to the scheme must be approved by the Central Bank.

If a scheme does not employ a management company or administration company it must have sufficient share capital of €125,000 and needs to be in a position to satisfy the Central Bank on a continuous basis that it will conduct its business and comply with its obligation.

The management company must submit monthly, half-yearly and annual returns to the Central Bank as such other returns as may be required. The management company must notify the Central Bank of approval to market units in any other jurisdiction.

Any changes to the proposed prospectus constitutional documents or key agreements with third parties must be notified to and approved by the Central Bank.

The Central Bank must be notified of any proposals to replace a key service provider. The Central Bank may object and prohibit the replacement of the service provider.

Activities in State

Certain minimal activities of collective investment schemes authorised by the Central Bank must take place within the state. This includes

calculation of the scheme’s assets and the prices must be undertaken in the state.
calculation of income expenses and accounting records.
Reconciliation of stock and cost of the register issue of dividend.
maintenance and servicing of unit holders register.
correspondence with unit holders,
maintenance of backup documentation.

The assets of the scheme must be entrusted for safekeeping with a trustee or equivalent. The trustee is not to be replaced without the approval of the Central Bank.

Trustees

Entities may only act as trustees if they have a certain minimal capital, generally with a minimum paid-up share capital of £5 million equivalent. They may be owned by an institution having capital of this magnitude.

Trustees must satisfy the Central Bank; they have the appropriate expertise, management resources, knowledge, experience, organisation and control to carry out their activities. Individuals and employees must be adequately trained and supervised. There must be designed procedures to ensure compliance with regulations.

The trustee must not also act as a manager or investment company. There must not be an overlap between the management of the trustee, the management company administrator or the investment entity itself. Each must act independently, exclusively in the interests of the unit holders.

Trustee Duties

The trustee has duties to ensure that the purchase, sale and issue of units are carried out in accordance with legislation and the terms of the scheme. It must ensure that the units are valued in accordance with the scheme.

It must carry out the instructions of the management and investment company unless it breaches legal requirements, the terms of the schemes, or the terms of the agreement between the trustee and management company.

The trustee must ensure that the price for a transaction in the scheme’s assets is paid within a time acceptable under market practice. It must ensure the income is applied only in accordance with the terms of the scheme.

The trustee must enquire into the conduct of the management company and investment company managers in each period and report to the unit holders. It must be included in the annual report.

It must state whether, in the trustee’s opinion, the scheme has been managed in accordance with the limitations imposed on investment and borrowing under the scheme and under legislation. If the scheme managers have not complied, this must be specified, and steps must be outlined to rectify the position.

Due Care & Skill

The scheme constitutional document must specify that the trustee acts with due care and skill and is liable to the management company or general partner and unit holders for loss arising from negligence, fraud, bad faith, lawful default and recklessness. Unitholders may enforce this liability either directly or indirectly through the management company.

The trustee must exercise due care and skill in appointing any third party as a safekeeping agent so as to ensure that it has and maintains expertise, competence and standing appropriate to discharge its duties. There must be an appropriate level of supervision over the safekeeping agent. Appropriate enquiries must be made from time to time to ensure the safekeeping duties continue to be competently discharged.

Segregation of Assets

The trustee must ensure a separation of non-cash assets and ensure they are held on a fiduciary basis. It must maintain internal control systems to ensure records clearly identify the nature and the amount of assets under custody, their ownership and the title documents proving ownership.

Where a sub-custodian is maintained, it must be ensured that these standards are maintained by it. Where the global sub-custodian is maintained, the trustee must ensure that the non-cash assets are held on a fiduciary basis by the global sub-custodian’s network of custodian agents.

Organsiation

The trustees must maintain records of the location and amounts of all securities held by custodial agents. The relationship between the trustee and global sub-custodian should be set out in a contract.

A trustee company which is not a credit institution must comply with certain minimal capital requirements of at least €125,000 or one quarter of the preceding year’s overheads.

There are requirements regarding the constitution of the trustee company. Appointments to directorships require the consent of the Central Bank. At least two directors must be Irish residents. The consent of the Central Bank is required for changes in ownership or significant shareholding. (10 percent)

There must be adequate arrangements to ensure employees are suitable, adequately trained and properly supervised. There should be well-defined compliance procedures.

Central Bank

Half-yearly and financial audited accounts must be submitted to the Central Bank. The Central Bank must be satisfied on an ongoing basis that the trustee has the resources and ability to conduct its business. It must have the appropriate level if knowledge and experience. It must organise its affairs internally in a reasonable manner with proper records.

The trustee must hold review meetings with the Central Bank and supply such materials as may be specified, including auditors’ reports, operating procedures, and management letters. The scheme must be audited if the trustee is replaced.

Trustees providing services, including custodial services, to schemes not authorised by the Central Bank must submit certain information about such schemes, including in particular, their domicile, account key agreements, prospectus, details of unit holders and net asset value.

The Central Bank may request information on non-Irish schemes in order to perform its role of supervisor of Irish service providers. It may make requirements in relation to the employment or providers of any registry or supervisory function in respect of non-Irish schemes.