Non-UCITS collective investment schemes, money market schemes, schemes that label or markets itself as a money market must comply with the following requirement. It must classify itself as a “Short-Term Money Market Fund” or a “Money Market Fund”.
The scheme must indicate in its prospectus whether it is a Short-Term Money Market Fund or a Money Market Fund. It must also include risk warnings drawing the attention between the differences between the nature of a deposit and the nature of an investment in the scheme.
The scheme must provide appropriate information to investors on the risk and reward profile of the fund so as to enable investors identify any specific risks linked to the investment strategy. In the case of Money Market Funds, this must take account of the longer weighted average life and weighted average maturity of the fund. In the case of all money market funds, it must take account where relevant, of investment in new classes of asset, financial instruments and remove [ph] investment strategies with unusual risk or reward profiles.
A Short-Term Money Market Fund must have a primary investment objective of maintaining the principal of the fund and aim to provide a return in line with money market rates. Investments are limited to high quality money market investments as determined by the scheme and deposits with credit institutions.
In order to determine high quality, factors must include
- the credit quality of the instrument which must be awarded one of the two highest available short-term credit ratings by recognised credit rating agencies or equivalent.
- The nature of a class asset represented by the instrument.
- The operational and counterparty risks in the case of structured financial instruments, liquidity profile.
Investments are limited to securities and instruments with a residual maturity of less than 397 days.
A Short-Term Money Market Fund must provide daily asset value and price calculations or have daily subscriptions and redemption of units. A weighted average maturity must not exceed 60 days. The weighted average life must not exceed 120 days. The impact of financial derivative instruments, deposits and efficient portfolio management techniques must be taken into account.
Direct or indirect exposure to equities or commodities through financial derivative instruments is not permitted.
Financial derivative instruments may only be used where they are in-line with the money market investment strategy of the scheme. Financial derivatives, which give exposure to foreign exchange may only be used for hedging purposes. Investment in non-base currencies is not permitted unless the exposure is fully hedged.
Exposure in other collective investment schemes is not permitted, unless the schemes are also Short-Term Money Market Funds. A Short-Term Money Market Fund may have either a constant or fluctuating net asset value.
Money Market Funds
Money Market Funds must have a primary investment objective of maintaining the principal of the fund and aim to provide a return in line with Money Market Funds. Investments are limited to high quality money market instruments as determined by the scheme and deposits with credit institution. The criteria for high quality are similar to those above.
Investments are limited to securities or investments with a residual maturity on the legal redemption date of less than two years provided that the time remaining until the next interest reset date is less than 397 days. Floating rate securities must reset to a money market rate or index.
A Money Market Fund must provide daily net asset value and price calculations and have daily subscriptions or redemption of units. The weighted average maturity must not exceed six months.
The weighted average life of the portfolio must not exceed 12 months when calculating the life for securities including structured financial instruments. The maturity calculation must be based on the residual maturity on the legal redemption of the instruments.
Direct or indirect exposures to equities including through financial derivatives is not permitted. Financial derivative instruments which give an exposure to foreign-exchange may only be used for hedging purposes. Investment in non-base currencies is not allowed unless the exposure is fully hedged.
Investment in other collective schemes is not permitted unless those schemes are Short-Term Money Market Funds or Money Market Funds. A Money Market Fund may have a fluctuating and NAV.
Money market schemes may follow an amortised cost valuation methodology. This is subject to conditions #[05:10] conditions. Scheme must be satisfied that the persons responsible for operation of the fund including delegation arrangements have the necessary expertise. The scheme must undertake a weekly review of discrepancies between market value and the amortised cost value of the money market instruments. Procedures must be operated to ensure that material discrepancies between the market value and an amortised cost value are reviewed. Discrepancies above a certain level must be notified to the Bank and action must be taken to remedy the dilution.
In this context, problem refers to real property comprising freehold or leasehold property with a minimum unexpired term of 70 years. Property-related assets refer to securities issued by a body corporate whose main activity is investing in, dealing in or developing or redeveloping property.
Before authorising the scheme, the Central Bank must be satisfied that the management company, investment advisory company etc. have specific experience in the area of investing in real property. Scheme may provide for issue of partly paid units. The prospectus must fully disclose the nature of the commitment which investors enter into. When the scheme provides for partly paid units, investment restrictions apply in relation to the uncalled capital and net asset value combined.
A management company of the scheme must appoint quantified independent valuer, selected on a basis approved by the Central Bank. The appointment particulars must be included in the prospectus and in periodic reports issued by the scheme. The Central Bank must be notified in advance of the appointment and resignation.
The scheme must be valued on an open market value of at least twice yearly with provision being made for more frequent valuations to be undertaken if market conditions warranted. Issue and redemption prices must be made available after evaluation of the portfolio has taken place.
Before a property is acquired by the scheme, it must be valued. That valuation report must confirm that if the property was acquired, it could be disposed of without valuation within a reasonable period. Property must be acquired within six months of the date of report and within 5% of the valuation price.
Property related assets must be traded in or dealt with in a market which is provided for in the constitutional documents. Up to 15% of the scheme’s assets may consist of property related assets which are not traded in or dealt with in such a market provided they are acquired under the same conditions as were properties above.
Not more than 20% of the schemes net assets may be invested in any single property. This applies on the date of restriction. If a property whose economic viability is linked to another property is not considered a separate asset of property for this purpose. The scheme may derogate from restrictions within two years from launch.
There is no restriction on the amount of cash or short-term securities which must be held by the scheme. When the purpose of the holding is to meet redemption requirements or where this is otherwise reasonably necessary.
Not more than 25% of the scheme’s net assets may be invested in properties which are vacant in the process of development or requiring development.
Not more than 25% of the schemes net assets may be invested in properties which are subject to mortgage. This is separate to the obligation, ability of the scheme to secure its borrowing generally on the properties of the scheme. The amount of the outstanding mortgage in any property must not represent more than 50% of the value of that property.
The scheme may not grant any person an option to acquire any property included in the scheme.
The scheme may borrow up to an amount equal to 25% of the value of its net assets which borrowing may be generally secured on the properties of the scheme.
The redemption procedure is as set out in the constitutional documents and must be fully disclosed in a prominent position in the prospectus.
The prospectus must contain the description of the risks involved in the type of scheme and a prominent risk warning, which will make reference to circumstances in which property markets can cause difficulties in meeting redemption.
The scheme must have reached a minimum viable size within a specified period after launch. The minimum viable size must be as defined in the prospectus. No property may be purchased or contracted until the minimum amount has been received.
In the event that the minimum viable amount is not reached within the specified period, the scheme must return any subscriptions received to the unit holders and apply to the Central Bank for revocation of its authorisation.
Collective investment schemes other than UCITS
Collective investment schemes, which propose to market their units in Ireland which are not UCITS may be authorised by a supervisory authority set up to ensure protection of unitholders which in the opinion of the Central Bank provides a similar level of investor protection to that provided under Irish laws regulations and conditions in relation to collective investment schemes.
Alternatively, the Central Bank must be satisfied that the arrangement and trustee custodian arrangements constitution and investment objectives which it is proposed to market in Ireland provide a similar level of investor protection to that provided under Irish law.
A scheme in another jurisdiction, which proposes to market units in Ireland must make an application to the Central Bank comprising a range of prescribed information. It must set out the name of the establishment in Ireland where facilities will be maintained, where unitholders can be advised how dividend payments will be made, how redemption requests can be made the scheme and how redemption proceeds will be passed to investors. Where instruments constituting the schemes can be examined or where complaints can be made for forwarding to the head office. This is a facilities agent.
It must provide a range of documentation including a statement from the supervisory authority and the home State that it has authorised, a certified copy of the constituent instrument’s prospectus, latest annual reports, other documents affecting the rights of unitholders, confirmation that the facilities agent has agreed to act.
Documentation must be in English or Irish or must be accompanied by a translation.
Certain classes of schemes set out in a NU notes will receive approval to market units in Ireland on completion of information and documentation requirements.
Marketing of units in Ireland must not take place until the scheme has been approved. A statement must be included in the prominent position on each of the schemes prospectus and on any marketing material distributed in Ireland to promote the scheme to the effect that it is not supervised or authorised in Ireland. It must state where it is established and where it is supervised.
The prospectus provide the following information to Irish investors:
- Details of the facility’s agents.
- Provisions of Irish tax law applicable, details of places where the issue and repurchase price can be obtained or are published.
- Minimum subscription requirement in the case of schemes which markets solely to professional investors.
An umbrella scheme must seek approval before marketing units of additional sub-funds in Ireland.
Schemes undertaking marketing their units in Ireland must comply with the provisions of the code of advertising, promotional and direct marketing in Ireland. This is the code published by the Advertising Standards Authority for Ireland.
The annual and half yearly reports by schemes marketing their units in Ireland must be submitted to the Central Bank. Where a scheme has received approval from the Central Bank to market units in Ireland, the name of the scheme and the name and address of the facility’s agent are to be placed on a register available for inspection to the public.
Futures and options schemes capital protected. A collective investment schemes which invest in futures options or their derivative instrument on which provides for the protection of capital invested in the scheme over a period of time (up to seven years) is subject to the following rules, in addition to general collective investment scheme rules.
The assets of the scheme may consist of futures and options or other derivative instruments, deposits or short-term securities which may include securities with a maturity up to seven years.
Measures undertaken for the protection of capital, particularly in relation to segregation of assets must be approved by the Central Bank. The Central Bank may relax investment restrictions in the notice to provide for protection of capital.
Not more than 5% of the net assets may be invested in debt securities of companies other than banks with a credit rating of less than A-1.
Futures and options must be traded on an organised exchange.
Options and swap contracts contracted over the counter are permitted subject to provisions above relating to the same.
The scheme must not hold open positions in any one future or options contract for which the margin represents 5% or more of its net assets. It must not hold an open position in contracts consisting of a single commodity or single financial instrument for which the margin represents 10% or more of its assets.
The Central Bank may permit a derogation from these limits to enable the objectives of a scheme tracking the performance of a securities index. Foreign exchange transactions with credit institutions are permitted subject to the below.
The scheme may borrow for temporary purposes up to 10% of the net assets of the scheme. The intention to borrow must not form part of the investment objectives of the scheme.
Before authorising a future and option scheme, the Central Bank must be satisfied that the Directors of the Management Company and other controllers and advisors have specific experience in this area of investment. The prospectus must contain a full description of the risks involved in the type of scheme. It shall disclose what steps the scheme has taken to ensure that the liabilities of the scheme are limited to the net assets of the scheme or in the case of an umbrella fund to the net assets of the fund.