The Central Bank has made a further revision to its guidance on the use of financial indices by UCITS for investment or efficient portfolio management purposes.
The previous update to the guidance in October 2018 introduced a self-certification obligation in respect of financial indices used by a UCITS, with a pre-approval submission to the Central Bank required for certain types of indices.
Under this regime, the UCITS was required to assess each financial index that it intended to use to ensure that it complied with all relevant regulatory requirements. Once this determination had been made, a responsible person (a director of the UCITS Management Company/SMIC) was required to certify to the Central Bank that the relevant regulatory requirements were met when the UCITS sought authorisation from the Central Bank. Where a previously authorised UCITS /sub-fund proposed to use a financial index, the certification was required to be provided by way of a post-authorisation submission.
On 23 July, the Central Bank issued updated guidance ("Guidance") amending this certification process and clarifying when an index certification is not required to be submitted. The Guidance provides that an index certification is not required where:
the index is used for tracking or replication, investment or efficient portfolio management purposes and on a look-through basis the UCITS could invest directly in the constituents of the index/indices as permitted under the UCITS Regulations (for example, the "5/10/40" rule); market movements or other events may cause the weightings of a financial index to change so that it no longer complies with the "5/10/40" rule. Where this happens and on the basis that the UCITS confirms as part of its authorisation/post-authorisation process that the index meets the regulatory requirements (i.e. it is comprised of eligible assets and complies with the "5/10/40" rule), the financial index will be deemed to meet index criteria set out in the Guidance; or an index is used solely as a performance...