Irish UCITS reform streamlines repo and sec lending
07 October 2015 Dublin
Image: Shutterstock
The Central Bank of Ireland has simplified its requirements for UCITS funds.
The central bank published its updated requirements, which aim to consolidate all of the conditions imposed on UCITS, their management companies and depositories into a single document, on 5 October. They will come into effect on 1 November.
UCITS funds are ultimately governed by the EU but member states are allowed a degree of autonomy in their interpretation of the guidelines.
The reformed framework for Ireland has implications UCITS funds that engage in the securities lending and repo markets, with minimum liquidity requirements in stress scenarios and counterparty ratings.
It dictates that any counterparty involved in securities lending, repo or reverse repo transactions “must have a minimum credit rating of A-2 or equivalent, or must be deemed by the UCITS to have an implied rating of A-2 or equivalent”.
“Alternatively, an unrated counterparty will be acceptable where the UCITS is indemnified or guaranteed against losses suffered as a result of a failure by the counterparty, by an entity which has and maintains a rating of A-2 or equivalent.”
The central bank also highlighted the importance of ensuring the recall of securities is available to UCITS funds “at any time” to ensure liquidity is guaranteed.
Exposures created through the reinvestment of collateral must also be taken into account in the issuer concentration calculations.
In addition, the reformed framework removes the requirement for promoters of UCITS funds to be approved by the central bank and brings the approach for UCITS funds in line with that for alternative investment funds.
The reforms were welcomed by Irish Funds, the representative body for the cross-border investment funds industry in Ireland.
Pat Lardner, CEO at Irish Funds, said: “This is a positive development for the Irish funds industry, and the removal of the promoter approval will ensure the regulatory framework is accessible to the broadest range of managers/promoters.”
The central bank published its updated requirements, which aim to consolidate all of the conditions imposed on UCITS, their management companies and depositories into a single document, on 5 October. They will come into effect on 1 November.
UCITS funds are ultimately governed by the EU but member states are allowed a degree of autonomy in their interpretation of the guidelines.
The reformed framework for Ireland has implications UCITS funds that engage in the securities lending and repo markets, with minimum liquidity requirements in stress scenarios and counterparty ratings.
It dictates that any counterparty involved in securities lending, repo or reverse repo transactions “must have a minimum credit rating of A-2 or equivalent, or must be deemed by the UCITS to have an implied rating of A-2 or equivalent”.
“Alternatively, an unrated counterparty will be acceptable where the UCITS is indemnified or guaranteed against losses suffered as a result of a failure by the counterparty, by an entity which has and maintains a rating of A-2 or equivalent.”
The central bank also highlighted the importance of ensuring the recall of securities is available to UCITS funds “at any time” to ensure liquidity is guaranteed.
Exposures created through the reinvestment of collateral must also be taken into account in the issuer concentration calculations.
In addition, the reformed framework removes the requirement for promoters of UCITS funds to be approved by the central bank and brings the approach for UCITS funds in line with that for alternative investment funds.
The reforms were welcomed by Irish Funds, the representative body for the cross-border investment funds industry in Ireland.
Pat Lardner, CEO at Irish Funds, said: “This is a positive development for the Irish funds industry, and the removal of the promoter approval will ensure the regulatory framework is accessible to the broadest range of managers/promoters.”
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