FUNDS QUARTERLY LEGAL AND REGULATORY UPDATE
UCITS, Non-UCITS & Hedge Funds
(i) SMICS UCITS- Outstanding Requirements - 1 July 2013 deadline
In 2011 UCITS self-managed investment companies ("SMICs") went through the exercise of updating SMIC Business Plans in order to ensure compliance by SMICs with the relevant requirements of the Directive by 1 July, 2011. By way of reminder, aside from certain organisational requirements, only certain Chapters of the Commission Directive 2010/43/EU (the "Directive") were required to be implemented by the 1 July, 2011 deadline, as set out below:
Chapter II of the Directive: Article 6 (Complaints Handling) and Article 12 (Permanent Risk Management Function) only; Chapter III of the Directive (Conflicts of Interest); Chapter IV of the Directive (Rules of Conduct); and Chapter VI of the Directive (Risk Management). While SMIC Business Plans and Risk Management Documents were required to be updated in 2011 to reflect the above requirements it was not necessary at the time to file the SMIC Business Plans with the Central Bank for prior review.
SMICs are required to comply with the relevant outstanding provisions of the Directive by the transitional date of 1 July, 2013. Accordingly, all Business Plans will need to be revised by that date.
The Central Bank clarified in its letter of 10 August 2012 that UCITS SMICs will be subject to the same basic regime as UCITS management companies. Accordingly, the outstanding sections of Chapter II of the Directive (which were not adopted in 2011) will apply to all SMICs from 1 July, 2013 with the exception of the following provisions:
Article 10 of Chapter II of the Directive (Permanent Compliance Function); and Article 11 of Chapter II of the Directive (Permanent Internal Audit Function). Chapter II of the Directive is headed "Administrative Resources and Control Mechanism". It covers a range of matters relating to the administration and control of UCITS to include requirements in relation to organisation, resourcing, accounting/recording procedures and record keeping.
In summary, the following sections of Chapter II of the Directive (as mirrored in the relevant paragraphs of UCITS 2 set out below) will apply to SMICs from 1 July, 2013:
Chapter II of Directive
Paragraphs 8, 14- 20 (i) and 21
General requirements on procedures and organization
Paragraphs 23 (ii), 24 and 25
Paragraphs 39 and 40
Electronic data processing
Paragraphs 34 to 36
Article 9 (other than Article 9 (2) (c))
Paragraph 4 to 7 excluding paragraph 4 (iii)
Control by senior management and supervisory function
Paragraphs 55 to 58
Recording of portfolio transactions
Recording of subscription and redemption orders
Article 16 (other than the second paragraph of Article 16 (2))
Paragraphs 41, 42, 44 and 45
The UCITS Notices were amended by the Central Bank on 15 February 2013. See section (ii) below for more detail.
Guidance Note 4/07: UCITS - Organisation of Management Companies
The Central Bank previously clarified that the relevant provisions of the following paragraphs of Section B of Guidance Note 4/07 will also be applicable to SMICs from 1 July, 2013:
Paragraph 10: Organisational Requirements Paragraph 11: Resources Paragraph 12: Accounting Procedures The above mentioned paragraphs flesh out the requirements in relation to the relevant provisions of UCITS 2 set out above.
Nature Scale and Complexity
While UCITS SMICs will be subject to the same basic regime as management companies, the Central Bank has stated that "....the requirements in relation to SMICs can be considered in light of the less complex nature of a SMIC. This...