In October of 2018, the Central Bank published new guidance in which it confirmed that it would no longer require certain financial indices to be submitted for review prior to a UCITS fund investing in such financial indices. In place of this, a UCITS management company (including a self-managed UCITS fund) was required to provide a written certification to the Central Bank confirming that the financial index to be invested in by the relevant UCITS fund complied with applicable rules set down in the UCITS Regulations, the Central Bank UCITS Regulations and applicable Central Bank web-based guidance. The Central Bank required that this certification be provided in support of the application for approval of the UCITS fund by the Central Bank in respect of all financial indices "identified" for investment on behalf of the UCITS fund at that time. However, this certification was also required to be provided to the Central Bank on an ongoing basis each time it was proposed that a UCITS fund invest in a new financial index.
In July 2019, the Central Bank published updated Guidance on the use of financial indices by UCITS funds and revised its requirements in relation to the certification regime.
Revised certification regime
In what circumstances is a certification letter now required?
The Central Bank has now helpfully revised its guidance to provide that a certification from a UCITS management company is only required in the following circumstances:
(i) where the financial index is comprised of ineligible assets (i.e. any assets which a UCITS fund cannot invest in directly under the UCITS rules); or
(ii) where on a "look through" basis, it would not be possible for a UCITS fund to directly invest in the constituents of the financial index without transgressing the risk-spreading limits of the UCITS Regulations (e.g. where the weightings of the constituents of the relevant financial index comprised of transferable securities do not meet the 5/10/40 rule).
Are there any other requirements to be met where a financial index does not fall within the certification regime?