S.I. No. 420/2015 - Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015

• (a) a UCITS that is authorised in another Member State and which markets its units in the State ceases such marketing to investors in the State, or

• (b) an umbrella UCITS ceases marketing any sub-fund to investors in the State,

the responsible person of the relevant UCITS or umbrella UCITS shall, in writing, inform the Bank promptly of that fact.

PART 11 MANAGEMENT COMPANIES

Chapter 1 General Requirements

Operating conditions

• (2) A management company shall:

• (a) prepare annual audited accounts of the management company in the format prescribed by the Bank from time to time; and

• (b) submit the annual audited accounts of the management company to the Bank within four months of the year-end.

• (3) A management company shall:

• (a) prepare half-yearly accounts of the management company twice in every financial year to cover, respectively:

• (i) the first six months of the financial year of the relevant management company, and

• (ii) the second six months of the relevant financial year; and

• (b) in each case to which subparagraph (a) applies, submit the half-yearly accounts to the Bank within two months of the end of the relevant half-year to which the particular accounts relate; and

• (c) prepare the half-yearly accounts in the format prescribed by the Bank from time to time.

• (4) Every set of financial accounts specified in paragraphs (2) and (3) shall be accompanied by a minimum capital requirement report.

• (5) A minimum capital requirement report of a management company shall be:

• (a) prepared in the format prescribed by the Bank from time to time; and

• (b) completed by the relevant management company.

• (6) A management company shall maintain an up to date business plan.

• (7) Where, by virtue of an investment in the units of another investment fund, a management company or the delegate of a management company (as the case may be) receives a commission (including a rebated commission):

• (a) the commission is the property of the investment fund on behalf of which the investment has been made; and

• (b) the management company treats the commission as such property.

Capital

• (b) For the purpose of subparagraph (a) the expenditure requirement is calculated as one quarter of a management company’s total expenditure taken from the most recent annual accounts.

• (c) For the purpose of subparagraph (b) total expenditure includes all expenditure incurred by a management company less the following items which may be deducted:

• (i) profit shares;

• (ii) bonuses;

• (iii) net losses arising in the translation of foreign currency balances;

• (iv) shared commissions and fees payable which are directly related to commission;

• (v) fees, brokerages and other charges which are paid to clearing houses, exchanges and brokers;

• (vi) fees to tied agents;

• (vii) interest paid on client money; and

• (viii) any other non-recurring expenses from non-ordinary activity.

(2)(a) A management company must be in a position to demonstrate its ongoing compliance with the capital requirements of these Regulations and of the UCITS Regulations.

• (b) Where the financial position of a management company changes materially at any time between reporting dates, which would impact on its compliance with its regulatory capital requirements, that management company must:

• (i) notify the Bank immediately; and

• (ii) take any necessary steps to rectify its position.

Organisational requirements: general

• (a) be responsible for the managerial functions of the management company specified in Schedule 10;

• (b) be responsible for making all material decisions that affect the operation and conduct of the business of the management company;

• (c) have the competence to make all material decisions that affect the operation and conduct of the business of the management company.

• (2) The board of a management company shall put in place, and ensure adherence to, the following:

• (a) procedures that are designed to ensure compliance by the management company with every legal and regulatory requirement to which the management company and every investment fund that is under its management are subject;

• (b) procedures that are designed to ensure that every relevant risk pertaining to the management company and to every investment fund that is under its management can and is being identified, monitored and managed;

• (c) procedures to:

• (i) ensure and verify that the investment policy and strategies of every investment fund that is under the management of the management company are complied with; and

• (ii) ensure the availability to the board of the management company of up-to-date information on portfolio performance;

• (d) procedures to ensure that every relevant accounting record (including the annual and half-yearly financial statements) of the management company and of every investment fund that is under the management of the UCITS management fund is maintained properly and is readily available;

• (e) procedures to ensure compliance with regulatory capital requirements of the management company;

• (f) procedures for the effective internal audit of the management company and of every investment fund that is under its management;

• (g) proper accounting policies and procedures in respect of the management company and every investment fund that is under its management;

• (h) procedures to ensure that clear structures are in place for the ongoing monitoring of any work that is delegated to a third party; and

• (i) procedures to ensure that any complaint from a unit-holder is addressed promptly and effectively.

Organisational requirements: delegation

• (a) be identified in the business plan of the management company;

• (b) on a day-to-day basis, monitor and control each of the individual activities of the management company identified in Regulation 97(2) and Schedule 10.

(2)(a) A management company shall put in place a procedure, which must be set out in its business plan, that specifies how the designated person shall monitor and control the managerial function(s) for which he or she has been designated.

• (b) A procedure for the purposes of paragraph (a) shall include a provision for the receipt of reports from delegates for the purpose of monitoring and controlling the managerial function(s) for which he or she has been designated.

• (3) The board of a management company shall, by resolution, adopt a statement of responsibility in relation to the managerial functions and the procedures that will apply in respect of each managerial function.

• (4) Where a management company delegates activities, the management company shall ensure that its business plan provides for the following requirements in relation to the reports that the designated person is to receive and the required action that the designated person is to take in response:

• (a) a list of the types of report that the designated person is to receive from parties who have an involvement, by delegation or otherwise, in the performance of activities relevant to that managerial function and the identity of those parties;

• (b) details concerning the frequency of the reports. These provisions must include procedures for immediate reporting to the designated person of all material issues that arise;

• (c) a policy regarding the circumstances in which action by a designated person is required; and

• (d) procedures that the designated person is to follow in the event that he or she is required, by the policy that is referred to in subparagraph (c), to take action, including escalation to the board of the management company.

• (5) A management company shall not designate the same person to perform the investment management managerial function and either the fund risk management managerial function or the operational risk management managerial function.

• (6) A responsibility that is set out in paragraph 40 of Schedule 5 to the UCITS Regulations:

• (a) may not be delegated by the relevant management company; and

• (b) shall be carried out by senior management of the management company.

Code of conduct in relation to collective portfolio management

• (a) to prevent late trading;

• (b) to take into account the risks associated with market timing;

• (c) for the effective consideration and proper handling of complaints.

• (2) A management company shall ensure that any complainant is notified of his, her or its right to refer the relevant complaint to the Financial Services Ombudsman.

Directors

• (2) For the purpose of paragraph (1), a management company shall notify the Bank immediately in writing of the resignation, removal or other termination of the service of a director of that management company.

• (3) No person may, simultaneously, be a director of a management company and of the depositary of any investment fund that the relevant management company manages.

• (4) A management company shall have a minimum of two directors that are resident in the State.

• (5) A management company shall obtain from every proposed appointee to the board of directors details of all concurrent directorships that are held by those persons.

• (6) The board of a management company shall appoint a chairperson on a permanent basis.

• (7) A management company shall ensure that:

• (a) an organisation effectiveness role shall be performed by an independent Chairman or an independent board member, and

• (b) shall not be performed by a person with responsibility in relation to any of the managerial functions specified in Schedule 10.

• (8) In the case of investment companies that have designated a management company, paragraphs (1) to (5) of Regulation 100 apply to the investment company and the management company and those paragraphs shall be read accordingly.

Record-keeping

• (a) a complete record of every transaction into which the management company enters (whether on its own behalf or on behalf of any investment fund that is under its management);

• (b) records that are sufficient to demonstrate compliance with the provisions of the UCITS Regulations, including any conditions that the Bank may, from time to time, impose on the management company or on any investment fund that is under its management and these Regulations.

• (2) Where any record of a management company is not retained by the management company in legible form, the management company shall ensure that such record is capable of being reproduced in a legible form.

• (3) If the Bank terminates the authorisation of a management company, that management company shall retain each of the records of the types referred to in paragraph (1) for the outstanding term of the six year period referred to in that paragraph.

(4)(a) A management company shall put in place and ensure adherence to procedures for the maintenance, security, privacy and preservation of records and working papers of the management company and of every investment fund that is under its management.

• (b) A management company shall ensure that all records and working papers to which paragraph (a) applies are, to the greatest extent reasonably possible, safeguarded against loss, unauthorised access, alteration and destruction.

Management resources

Relationship with the Bank

• (a) engaging in any significant new activity;

• (b) establishing any branch, office or subsidiary; or

• (c) introducing material changes to the management company’s operating model.

• (2) A management company shall notify the Bank in writing immediately that the management company becomes aware of:

• (a) any breach of the UCITS Regulations or of the Bank’s requirements that are applicable to the relevant UCITS or to the management company (including these Regulations);

• (b) any breach of other Irish legislation which breach may be of prudential concern to the Bank or which may be likely to impact on the reputation or good standing of the relevant UCITS or of the management company;

• (c) the bringing of any legal proceedings by or against the relevant UCITS or the management company;

• (d) the initiation of any criminal prosecution against the relevant UCITS or the management company or against any officer or employee of the management company;

• (e) any situation or event that impacts, or potentially impacts, to a significant extent on the relevant UCITS or on the management company;

• (f) the imposition of any fine, administrative sanction or other penalty on the relevant UCITS or on the management company by any other entity, in the State or in any other jurisdiction, that performs a prudential or regulatory function in respect of financial services entities;

• (g) a visit to the relevant UCITS or to the management company by any entity other than the Bank, in the State or in any other jurisdiction, that performs a prudential or regulatory function in respect of financial services entities.

• (3) A management company shall obtain the prior approval of the Bank to any proposed change to the name of the relevant management company.

• (4) A management company shall inform the Bank in writing promptly of any change to the registered office, postal address, telephone number or email address of the management company.

(5)(a) A management company shall, on its headed paper, state that it is regulated by the Bank.

• (b) A management company shall not include in any material or documents issued by it or on its behalf or by any delegate, any reference to the role of the Bank in relation to the supervision of the management company’s activities that is misleading or inaccurate.

• (6) Where a management company provides management services to an investment fund that is not authorised by the Bank, the management company shall ensure that the prospectus issued by the relevant investment fund does not, in any way, imply that the investment fund is regulated by the Bank.

• (7) Without prejudice to Regulations 48 and 49, where a management company provides fund administration services to an investment fund that is not authorised by the Bank, the management company shall submit to the Bank a quarterly return containing the following aggregate information for each such investment fund that the management company manages, within each base currency category:

• (a) the domicile of each relevant investment fund;

• (b) the number of investment funds;

• (c) the number of unit-holders in each investment fund; and

• (d) the total net asset value of all investment funds that the management company manages.

Financial control, management and company secretarial information

• (2) A management company shall notify the Bank in advance of any proposed or anticipated change of auditor of the management company and of the reasons for the proposed change.

Internally-managed investment companies

• (a) Regulation 95(6) and (7);

• (b) Regulations 97 and 98;

• (c) Regulation 99;

• (d) Regulation 100 (1) — (6);

• (e) Regulation 101;

• (f) Regulations 103(3) and (4);

• (g) Regulations 104;

• (h) Schedule 4 of the UCITS Regulations; and

• (i) paragraphs 30-32, 34-40 (excluding 40(c)), 41-43, 54-61 and 64 of Schedule 5 to the UCITS Regulations.

Chapter 2 Management Company Passport

Notifications

• (a) establish a branch in another Member State in accordance with Regulation 27 of the UCITS Regulations, or

• (b) under the freedom to provide services, engage in an activity in another Member State in accordance with Regulation 28 of the UCITS Regulations,

the management company shall include, in the programme of operations that is submitted to the Bank, the information that is set out in paragraph (2).

• (2) The information to which paragraph (1) refers is:

• (a) a description of the activities that it is proposed will be undertaken;

• (b) a description of the risk management process which the management company has put in place;

• (c) a description of the procedures and arrangements for the handling of complaints from, and making information available to, investors; and

• (d) in the case of a proposal to establish a branch in accordance with Regulation 27 of the UCITS Regulations, details of the address of the proposed branch and the names of those who will be responsible for the branch.

Assessment: general requirements

• (a) establish a branch in another Member State in accordance with Regulations 27 of the UCITS Regulations, or

• (b) under the freedom to provide services, engage in an activity in another Member State in accordance with Regulations 28 of the UCITS Regulations,

the management company shall review its assessment of:

• (i) the nature, scale and complexity of its business, and

• (ii) the nature and range of services and activities that are undertaken in the course of that business,

in order to determine the impact that establishing a branch or pursuing an activity under the freedom to provide services in accordance with the UCITS Regulations would have on the nature, scale and complexity of its business, and in particular on its organisational structure and resources.

• (2) For the purposes of the assessment required by paragraph (1), a management company shall consider the impact which the establishment of a branch or the provision of activities under the freedom of services in another Member State would have on:

• (a) the corporate governance of the management company;

• (b) the administration function of the management company; and

• (c) the interaction of the management company with the relevant trustee or depositary in the other state or states.

• (3) Where a management company proposes to establish a branch or, under the freedom to provide services, engage in an activity in another Member State, the management company shall specify in the programme of operations that it submits to the Bank:

• (a) how the management company will address any increased strain on its corporate governance due to the increase in the workload and responsibilities of its board of directors; and

• (b) where relevant, the steps that the management company will take to ensure that the delegation of its administration activities to an entity that is not authorised or supervised by the Bank will not interfere with the effective supervision of the management company by the Bank.

Assessment: governance issues

• (2) A management company that is managing a UCITS that is authorised in another Member State shall include in the programme of operations that it submits to the Bank:

• (a) the identity of the employee of the management company, or designated persons, who has expertise concerning the regulatory requirements applicable in the home state of the relevant UCITS;

• (b) a description of how the management company will monitor compliance with regulatory requirements that are applicable in the home state of the relevant UCITS on a day-to-day basis;

• (c) where a UCITS is an investment company, the resources that the management company is putting in place to address the need to have a representative available to travel to the home state of the relevant UCITS to attend and report at board meetings of the relevant UCITS; and

• (d) an analysis of the impact that managing a UCITS that is authorised in another Member State is likely to have on the management company’s minimum capital requirement and how this impact will be addressed.

• (3) A management company shall ensure that it has in place, and utilises, sufficient resources to supervise the services that are provided to every UCITS that is under its management.

Assessment: administrator issues

• (a) ensuring that the Bank has effective access to data related to the delegated functions of the management company;

• (b) ensuring that the Bank has effective access to the business premises of the administrator, where not prohibited by the laws of the jurisdiction in which the administrator is established; and

• (c) requiring that the administrator co-operates with the Bank in respect of the functions that the management company delegates to the administrator from time-to-time.

• (2) Where an administrator is located in another Member State, a management company shall, in the programme of operations that it submits to the Bank specify, and adhere to, any additional record-keeping procedures that the management company establishes to address the fact that the records of the administrator are not located in the State.

• (3) A management company shall ensure that the programme of operations that it submits to the Bank addresses how the management company will ensure that, at all times, a person with the requisite detailed knowledge of the day-to-day operation of the UCITS will be available to the Bank.

• (4) A management company shall undertake an annual due diligence assessment of any administrator that the management company engages and which is located in another Member State to ensure a high standard of oversight by the management company over such administrators.

Assessment: depositary issues

• (2) A management company shall, in the programme of operations that it submits to the Bank, specify the steps that it will take to ensure compliance with this Regulation.

PART 12 UCITS DEPOSITARIES

Organisational requirements

• (a) sound and effective administrative and internal control mechanisms;

• (b) complete and accurate records;

• (c) adequate arrangements for ensuring that the employees of the depositary are trained and supervised suitably, adequately and properly; and

• (d) defined procedures to ensure compliance with all applicable laws.

• (2) A depositary which falls within Regulation 35(2)(c) of the UCITS Regulations shall have and maintain a minimum capital requirement of the higher of:

• (a) initial capital of at least €125,000;

• (b) an amount equal to one quarter of its total expenditure as set out in the most recent annual accounts of the depositary.

• (3) A depositary which falls within Regulation 35(2)(c) of the UCITS Regulations shall:

• (a) calculate its minimum capital requirement in accordance with Schedule 9;

• (b) have financial resources, calculated in accordance with Schedule 9, at least equal to its minimum capital requirement;

• (c) hold its minimum capital requirement in the form of eligible assets pursuant to Schedule 9; and

• (d) be in a position to demonstrate its compliance with the minimum capital requirement throughout the relevant reporting period.

Governance

• (2) A depositary which falls within Regulation 35(2)(c) of the UCITS Regulations shall have at least two directors that are resident in the State.

Operating conditions

• (2) A depositary shall:

• (a) prepare annual audited accounts of the depositary in the format prescribed by the Bank from time to time;

• (b) submit the annual audited accounts of the depositary to the Bank within 4 months of the year-end; and

• (c) ensure that, when submitted to the Bank in accordance with subparagraph (b), the annual accounts of the depositary are accompanied by the annual audited accounts of every corporate shareholder of the depositary.

• (3) A depositary shall:

• (a) prepare half-yearly accounts of the depositary twice in every financial year to cover, respectively:

• (i) the first six months of the financial year of the relevant depositary,

• (ii) the second six months of the relevant financial year; and

• (b) in each case to which subparagraph (a) applies, submit the half-yearly accounts to the Bank within two months of the end of the relevant half-year to which the particular accounts relate; and

• (c) prepare the half-yearly accounts in the format prescribed by the Bank from time to time.

• (4) Every set of financial accounts specified in paragraphs (2) and (3) shall be accompanied by a minimum capital requirement report.

• (5) A minimum capital requirement report of a depositary shall be:

• (a) prepared in accordance with Schedule 9; and

• (b) completed by the relevant depositary;

Depositary obligations and restrictions

• (a) paragraph (2) (c) and paragraph (3);

• (b) Regulation 34 of the UCITS Regulations;

• (c) Regulation 47 of the UCITS Regulations.

• (2) A depositary shall establish and implement written procedures for the purpose of dealing with any breach by the relevant UCITS or by the depositary of any of the following:

• (a) the UCITS Regulations;

• (b) any requirement that the Bank imposes on the relevant UCITS or on the depositary, including these Regulations; or

• (c) any provision of the prospectus of the relevant UCITS.

• (3) A depositary shall notify the Bank promptly of any material breach by the UCITS or by the depositary of any requirement, obligation or document to which paragraph (2) relates.

• (4) A depositary shall notify the Bank promptly of any non-material breach by the UCITS or by the depositary of any requirement, obligation or document to which paragraph (2) relates, if the relevant breach is not resolved within four weeks of the depositary becoming aware of that breach.

(5)(a) A depositary shall maintain a written record of every breach by the UCITS or by the depositary to which paragraph (2) relates and of the steps taken to resolve such breaches.

• (b) A depositary shall retain for at least six years every record that it creates or maintains in accordance with subparagraph (a).

• (6) Where a UCITS proposes to invest in another investment fund, the depositary shall:

• (a) ensure that the UCITS has, and implements, adequate procedures for the purpose of ensuring that every underlying investment fund meets the requirements of the UCITS Regulations and of the Bank, including these Regulations; and

• (b) ensure that it reviews the decisions of the management company regularly for the purpose of ensuring that the procedures to which subparagraph (a) refers to have been adopted by the UCITS and are being adhered to.

(7)(a) A depositary shall:

• (i) subject to subparagraph (c), ensure that there is legal separation of non-cash assets that are held under custody and that such assets are held on a fiduciary basis; and

• (ii) maintain appropriate internal controls to ensure that records identify the nature and amount of every asset in custody, the ownership of each asset and where the documents of title to that asset are located.

• (b) Where a depositary utilises the services of a sub-custodian, the depositary shall ensure that the sub-custodian complies with subparagraph (a).

• (c) For the purposes of applying clause (i) of subparagraph (a) in respect of any non-cash asset that is:

• (i) located, or

• (ii) in the case of a non-cash asset of a type the governing law of which is determined by the place of registration of the asset, registered,

in any jurisdiction that does not recognise fiduciary duties, the depositary shall ensure that, under the law governing the relevant asset, the legal entitlement of the UCITS to the relevant asset is assured.

(8)(a) Where a depositary utilises the services of a global sub-custodian, the depositary shall ensure that:

• (i) non-cash assets are held on a fiduciary basis by the global sub-custodian’s network of custodial agents;

• (ii) the depositary receives from the global sub-custodian’s custodial agents regular confirmation that the assets are held in accordance with this paragraph;

• (iii) the depositary maintains records of the location and amount of every security held by each of the global sub-custodian’s custodial agents; and

• (iv) the relationship between the depositary and the global sub-custodian is set out in a formal contract between the two entities.

• (b) For the purposes of applying clause (i) of subparagraph (a) in respect of any non-cash asset that is:

• (i) located, or

• (ii) in the case of a non-cash asset of a type the governing law of which is determined by the place of registration of the asset, registered,

in any jurisdiction that does not recognise fiduciary duties, the depositary shall ensure that, under the law governing the relevant asset, the legal entitlement of the UCITS to the relevant asset is assured.

Operating conditions

• (a) the relevant management company;

• (b) the relevant administration company; or

• (c) the relevant UCITS investment company.

• (2) A depositary shall not register any security in the name of the relevant UCITS unless:

• (a) this is standard market practice within the market in question;

• (b) any security so registered cannot be assigned, transferred, exchanged or delivered without the prior authority of the depositary or of the depositary’s agent; and

• (c) the depositary agreement between the depositary and the relevant UCITS permits the depositary to register a security in the name of the relevant UCITS.

• (3) The termination of the appointment of a depositary shall only be permitted:

• (a) upon the revocation of the authorisation of a UCITS; or

• (b) upon the appointment of a replacement depositary.

Depositary agreement

• (2) A depositary agreement shall include provisions requiring that:

• (a) where the depositary proposes to appoint a third party as a safekeeping agent, the depositary shall exercise due care and diligence in choosing and appointing that third party;

• (b) a depositary shall only appoint a third party as a safe-keeping agent where that person has and maintains the expertise, competence and standing appropriate to discharge the relevant responsibilities; and

• (c) where a depositary appoints a third party as a safe-keeping agent, the depositary shall maintain an appropriate level of supervision over the safe-keeping agent and make appropriate inquiries from time to time to confirm that the obligations of the safekeeping agent continue to be discharged competently.

• (3) The depositary agreement shall not, directly or indirectly, limit the potential liability of the depositary to only those duties that are described in the depositary agreement.

Permitted markets

• (b) If a depositary cannot provide custody in accordance with paragraph (a), the depositary must consult with the UCITS to ensure that the relevant exchanges or markets are removed from the list in the UCITS prospectus.

• (2) A depositary shall ensure that a UCITS for which the depositary acts as depositary keeps the list of permitted stock exchanges and markets in the prospectus under review to ensure that the markets meet with all applicable regulatory criteria on an ongoing basis.

Valuation of a UCITS

• (2) A depositary shall ensure that the valuation methodologies that are provided for in the constitutional document of the UCITS are adhered to and that the operations of the UCITS are controlled properly.

• (3) A depositary shall carry out and document:

• (a) a detailed initial review, and

• (b) subsequent periodic reviews,

of the overall valuation methodologies of a UCITS for which the depositary acts as depositary.

Dealing in specie

• (2) A responsible person shall only accept redemption for units of a UCITS on an in specie basis where the depositary approves the asset allocation.

Relationship with the Bank

• (2) Where a depositary provides depositary services to an investment fund that is not authorised by the Bank, the depositary shall submit to the Bank, every three months, a return that sets out the following aggregate information for every investment fund that is not authorised by the Bank and to which the depositary provides services, within each base currency category:

• (a) the domicile of each relevant investment fund;

• (b) the number of investment funds;

• (c) the number of unit-holders in each investment fund; and

• (d) the total net asset value of each investment fund / of all investment funds to which the depositary provides services.

• (3) For the purposes of this Regulation, information is not required in respect of any investment fund that is included in the return that is prepared by an authorised firm in accordance with Regulation 103(7).

PART 13 MISCELLANEOUS PROVISIONS

Reporting requirements

Service of notice or other document by the Bank

Records and Compliance

• (2) A responsible person shall, upon being required by the Bank to do so, provide, to the Bank, records evidencing compliance with these Regulations for a period specified by the Bank (up to a maximum period of six years).

Transitional requirements

• (2) A management company and depositary shall comply with the requirements contained in Regulation 95(3)(a)(ii) and Regulation 113(3)(a)(ii) respectively in relation to the financial year of the management company or depositary starting after the commencement of these Regulations.

• (3) A management company shall comply with Regulation 97(1)(c) and Regulation 100(7) by 30 June 2016.

Signed for and on behalf of the CENTRAL BANK OF IRELAND

on this the 1st day of October 2015.

CYRIL ROUX,

Deputy Governor (Financial Regulation).

SCHEDULE 1

Regulation 2(1)

Regulatory Criteria

In respect of a relevant market, the regulatory criteria to which the responsible person shall have regard include:

1 a general overview of the market, having regard to issues which would be relevant to the operation of the market and investments therein;

2 whether the relevant market displays any or each of the following characteristics:

• (a) Regulated

The market must be regulated. Such a market is subject to supervision by an authority or authorities, duly appointed or recognised by the state in which it is located. The authority(ies) should generally have the power to impose capital adequacy rules, to supervise directly members of the market, to impose listing standards, to ensure transparency in dealings and to impose penalties where breaches of rules or standards occur. The clearance and settlement system for transactions should also be regulated and should have acceptable settlement periods.

• (b) Recognised

The market must be recognised or registered by an authority or authorities, duly appointed or recognised by the state in which it is located. Investment in the market by locally based retail investment funds should be permitted by the relevant authorities.

• (c) Operating Regularly

Trading must take place with reasonable frequency and the market should have regular trading hours. The assessment must have regard to liquidity in the market, including the number of members/participants, and the ability of the market to provide fair prices on an on-going basis. Custody arrangements should also be satisfactory, ie a depositary must be satisfied that it can provide for the safe-keeping of the assets of an authorised UCITS in accordance with the conditions set down in the UCITS Regulations.

• (d) Open to the Public

The market must be open to the public. The public should have direct or indirect access to the securities traded on the market. The degree to which overseas investors are permitted to invest and any rules which may impede the repatriation of capital or profits must be taken into account.

SCHEDULE 2

Regulation 17

Netting and Hedging

Netting

1 A responsible person shall only net positions:

• (i) Between FDI, if the FDI refer to the same underlying asset, including where the maturity date of the FDI is different;

• (ii) Between an FDI which has an underlying asset that is a transferable security, money market instrument or a collective investment undertaking and that same corresponding underlying asset.

Hedging

2 The responsible person may only take hedging arrangements into account when calculating global exposure where the hedging arrangements offset the risks linked to some assets and if the hedging arrangments comply with all of the following:

• (i) They do not aim to generate a return;

• (ii) They result in a verifiable reduction of risk at the UCITS level;

• (iii) They offset risk linked to FDI;

• (iv) They relate to the same asset class; and

• (ii) They are efficient in stressed market conditions.

SCHEDULE 3

Regulation 24(1)

Conditions for Collateral Received by a UCITS

The conditions for the receipt of collateral by a UCITS, to which Regulation 24 refers, are:

1 Liquidity

Collateral received, other than cash, should be highly liquid and traded on a regulated market or multilateral trading facility with transparent pricing in order that it can be sold quickly at a price that is close to its pre-sale valuation. Collateral that is received should also comply with the provisions of Regulation 74 of the UCITS Regulations.

2 Valuation

Collateral that is received should be valued on at least a daily basis and assets that exhibit high price volatility should not be accepted as collateral unless suitably conservative haircuts are in place.

3 Issuer Credit Quality

Collateral received should be of high quality. The responsible person shall ensure that:

• (i) where the issuer was subject to a credit rating by an agency registered and supervised by ESMA that rating shall be taken into account by the responsible person in the credit assessment process; and

• (ii) where an issuer is downgraded below the two highest short-term credit ratings by the credit rating agency referred to in (i) this shall result in a new credit assessment being conducted of the issuer by the responsible person without delay.

4 Correlation

Collateral received should be issued by an entity that is independent from the counterparty. There should be a reasonable ground for the responsible person to expect that it would not display a high correlation with the performance of the counterparty.

5 Diversification (Asset Concentration)

• (i) Subject to subparagraph (2iicollateral should be sufficiently diversified in terms of country, markets and issuers with a maximum exposure to a given issuer of 20 per cent of the net asset value of the UCITS. When a UCITS is exposed to different counterparties, the different baskets of collateral should be aggregated to calculate the 20 per cent limit of exposure to a single issuer.

• (ii) A UCITS may be fully collateralised in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. Such a UCITS should receive securities from at least 6 different issues, but securities from any single issue should not account for more than 30 per cent of the UCITS’ net value. UCITS that intend to be fully collateralised in securities issued or guaranteed by a Member State should disclose this fact in the prospectus of the UCITS. UCITS should also identify the Member States, local authorities, or public international bodies or guaranteeing securities which they are able to accept as collateral for more than 20 per cent of their net asset value.

6 Immediately Available

Collateral received should be capable of being fully enforced by the UCITS at any time without reference to or approval from the counterparty.

SCHEDULE 4

Regulation 19

Calculation of Global Exposure using the Value at Risk (VaR) Approach

1 The responsible person shall calculate global exposure under the relative VaR approach, as follows:

• (a) Calculate the VaR of the UCITS current portfolio, including derivatives;

• (b) calculate the VaR of a reference portfolio;

• (c) verify that the VaR of the UCITS portfolio is not greater than twice the VaR of the reference portfolio in order to ensure a limitation of the global leverage ratio of the UCITS to 2. This limit shall be presented as follows:

VaR Reference Portfolio

2 The UCITS responsible person shall ensure that the reference portfolio and the related processes comply with the following criteria:

• (a) The reference portfolio should be unleveraged and should, in particular, not contain any FDI or embedded FDI, except that;

• (i) a UCITS engaging in a long/short strategy may select a reference portfolio which uses FDI to gain the short exposure;

• (ii) a UCITS which intends to have a currency hedged portfolio may select a hedged index as a reference portfolio.

• (b) he risk profile of the reference portfolio should be consistent with the investment objectives, policies and limits of the UCITS portfolio;

• (c) If the risk/return profile of a UCITS changes frequently or if the definition of a reference portfolio is not possible, then the relative VaR approach should not be used;

• (d) The process relating to the determination and the ongoing maintenance of the reference portfolio should be integrated in the risk management process and be supported by adequate procedures. Guidelines governing the composition of the reference portfolio should be developed. In addition, the actual composition of the reference portfolio and any changes should be clearly documented.

Absolute VaR approach

3 The responsible person shall only use the absolute VAR approach subject to the requirements set out in Part 2 of these Regulations.

VaR approach: Quantitative requirements

4 The absolute VaR of a UCITS shall not be greater than 20 per cent of its net asset value.

5 The calculation of the absolute and relative VaR shall be carried out in accordance with the following parameters:

• (a) one-tailed confidence interval of 99 per cent;

• (b) holding period equivalent to 1 month (20 business days);

• (c) effective observation period (history) of risk factors of at least 1 year (250 business days) unless a shorter observation period is justified by a significant increase in price volatility (for instance extreme market conditions);

• (d) quarterly data set updates, or more frequent when market prices are subject to material changes;

• (e) t least daily calculation.

6 A confidence interval and/or a holding period differing from the default parameters above may be used by the responsible person provided the confidence interval is not below 95per cent and the holding period does not exceed 1 month (20 business days).

7 For UCITS referring to an absolute VaR approach, the use of other calculation parameters goes together with a rescaling of the 20 per cent limit to the particular holding period and/or confidence interval. The rescaling can only be done under the assumption of a normal distribution with an identical and independent distribution of the risk factor returns by referring to the quantiles of the normal distribution and the square root of time rule.

VaR approach: Qualitative requirements

8 The UCITS Regulations provide that the risk management function is responsible inter alia for ensuring compliance with the UCITS risk limit system, including statutory limits concerning global exposure. The responsible person shall ensure that its risk management function is responsible for:

• (a) sourcing, testing, maintaining and using the VaR approach on a day-to-day basis;

• (b) supervising the process relating to the determination of the reference portfolio where the UCITS reverts to a relative VaR approach;

• (c) ensuring on a continuous basis that the model is adapted to the UCITS portfolio;

• (d) performing continuous validation of the model;

• (e) validating and implementing a documented system of VaR limits consistent with the risk profile of the UCITS. The risk profile of the UCITS shall be approved by senior management and the board of directors;

• (f) monitoring and controlling the VaR limits;

• (g) monitoring on a regular basis the level of leverage generated by the UCITS;

• (h) producing on a regular basis reports relating to the current level of the VaR measure (including back testing and stress testing) for senior management.

9 The responsible person shall ensure that the VaR approach and the related outputs represent an integral part of the daily risk management work. The responsible person shall ensure that the VaR approach and is related outputs are integrated into the investment process lead by the investment managers as part of the risk management programme of the UCITS to keep the UCITS risk profile under control and consistent with its investment strategy.

10 The responsible person shall ensure that its VaR approach is validated as conceptually sound and adequate in respect of all material risks by an independent person, when developed. An independent person for this purpose is a person who has not been engaged in the development of the VaR approach. Where there is any significant change to the VaR approach, the responsible person shall ensure that this change is independently validated. A significant change for these purposes shall include the use of a new product by the UCITS, the need to improve the model following the back testing results, or a decision taken by the responsible person to change certain aspects of the model in a significant way.

11 In accordance with paragraph 8(d), the risk management function shall perform ongoing validation of the VaR model (this includes, but is not limited to back testing) in order to ensure the accuracy of the model’s calibration. The review shall be documented. Where necessary, the model shall be adjusted.

Documentation and procedures

12 The responsible person shall document its VaR approach and related processes and techniques in accordance with the documentation requirements referred to in paragraph 1(a) of Schedule 9 of the UCITS Regulations and shall include, inter alia, the following:

• (a) the risks covered by the model;

• (b) the model’s methodology;

• (c) the mathematical assumptions and foundations;

• (d) the data used;

• (e) the accuracy and completeness of the risk assessment;

• (f) the methods used to validate the model;

• (g) the back testing process;

• (h) the stress testing process;

• (i) the validity range of the model; and

• (j) the operational implementation.

SCHEDULE 5

Regulation 36(1)

Methods of Valuation

The valuation methodology for the purposes of Regulation 36(1) is:

1 Securities that are listed or traded on a regulated market;

Valuation shall be the closing or last known market price.

Where a security is listed on more than one exchange, the relevant market shall be:

• (a) the exchange that constitutes the main market, or

• (b) the exchange that the responsible person determines provides the fairest criteria in a value for the security.

2 Unlisted Securities and Securities that are listed or traded on a regulated market where the market price is unrepresentative or not available:

The value of the security is its probable realisation value which shall be estimated with care and in good faith.

The security shall be either:

• (a) valued by the responsible person,

• (b) valued by a competent person appointed by the responsible person and approved for the purpose by the depositary, or

• (c) valued by any other means, provided that the value is approved by the depositary.

3 Investment Funds

Valuation shall be based on the latest bid price or latest net asset value, as published by the investment fund.

Valuation based on a mid-price or offer price is acceptable if consistent with the valuation policy. A responsible person may, in accordance with paragraph 1 of this Schedule, undertake a valuation based on market prices where the investment fund in which the investment is made is listed on a regulated market.

4 Cash (in Hand or on Deposit)

Value is the nominal or face value plus accrued interest.

5 Exchange-Traded Futures and Options Contracts (including Index Futures)

Valuation is based on the settlement price as determined by the market where the exchange-traded future or option contract is traded.

If a settlement price is not available the exchange-traded future contract or option contract may be valued in accordance with paragraph 2 of this Schedule.

6 Amortised cost

Where it is not the intention or objective of a responsible person to apply amortised cost valuation to the portfolio of a UCITS as a whole, a money-market instrument within such a portfolio shall only be valued on an amortised basis if the money-market instrument has a residual maturity of less than three months and does not have any specific sensitivity to market parameters, including credit risk.

SCHEDULE 6

Regulation 51(5)

Advertising Standards for Certain UCITS

The advertising standards for the purposes of Regulation 51(5) are:

1 The design and presentation of an advertisement must be:

• (a) clear, fair, accurate and not misleading; and

• (b) such that the advertisement can be understood easily and clearly.

2 Where footnotes are used in an advertisement they should be of sufficient size and prominence to be legible easily; where appropriate they should be linked to the relevant part of the main copy.

3 It must be clear from the design and presentation of an advertisement that it is an advertisement such that any person who looks at it can see immediately that it is an advertisement.

4 No statement made or risk warning given in an advertisement may be obscured or disguised in any way, nor may the effect of any risk warning be diminished, by the content, design or format of the advertisement.

5 An advertisement must not, whether by inaccuracy, ambiguity, exaggeration, omission or otherwise, mislead investors about any matter that is likely to influence an investor’s attitude to the investment.

6 (a) Every advertisement must be prepared with care and with the aim of ensuring that a potential investor understands fully the nature of any commitment into which the investor would enter if the investor were to acquire a unit in the relevant UCITS.

• (b) In preparing an advertisement a UCITS shall take into account the fact that the complexities of finance may be beyond the understanding of some people to whom the opportunity being offered will appeal and therefore no advertisement may take advantage of inexperience or credulity.

7 When an advertisement contains a forecast or projection, such as a specific growth rate or a specific return or rate of return, it must make clear the basis upon which that forecast or projection is made, explaining, where relevant:

• (a) whether reinvestment of income is assumed;

• (b) whether account has been taken of the incidence of any taxes or duties and, if it has, how such account has been taken;

• (c) whether the forecast or projected rate of return will be subject to any deductions other than upon premature realisation or otherwise.

8 Advertisements leading to the employment of money in anything the value of which is not guaranteed must include a warning that the value of the investment can reduce as well as increase and, therefore, that the return on the investment necessarily will be variable.

9 An advertisement must not describe an investment as being guaranteed or partially guaranteed (or by words that convey such a meaning or impression) unless there is in place a legally enforceable agreement with a third party that undertakes:

• (a) in the case of a full guarantee, to meet, in full, an investor’s claim under the guarantee;

• (b) in the case of a partial guarantee, to meet, to whatever extent is stated in the advertisement, the investor’s claim under the partial guarantee.

Where values are guaranteed, sufficient detail must be included in the advertisement to give the reader a fair view of the nature of the guarantee.

10 An advertisement making claims, whether specific or not, as to anticipated growth in value or rate of return must include a prominent statement to the effect, as appropriate, that neither past experience nor the current situation are necessarily accurate guides to the future growth in value or rate of return.

11 An advertisement that contains information on past performance must also contain the following warning, presented in the advertisement no less prominently than the information on past performance:

“Past performance may not be a reliable guide to future performance”

12 An advertisement that quotes past experience in support of a forecast or projected growth in the value or rate of return:

• (a) must not be misleading in relation to present prospects of an investment; and

• (b) must indicate the circumstances in which, and the period over which, such experience has been gained, in a way that is fair and representative.

13 An advertisement relating to offers to facilitate the planned withdrawal from capital as an income equivalent, such as by cashing in units of the UCITS, must contain a statement explaining clearly the effect that any such withdrawal would have on the investment.

14 When claims to investment skill in an advertisement are based upon an asserted increase in the value of particular items purchased or recommended for purchase by the advertiser in the past, that person must be in a position to substantiate that:

• (a) the purchase or recommendation upon which the assertion is based was made at the time claimed; and

• (b) the present value asserted for the investment corresponds to the price actually obtained for identical items when sold in the open market in the period immediately preceding the advertisement.

No claim to an increase in the value of investments or collectibles should be based upon the performance within a given market of selected items only unless that claim can be substantiated in accordance with paragraphs (a) and (b).

15 The terms “tax-free” and “tax-paid”, and words, terms or phrases creating a similar impression, may be used in an advertisement only if:

• (a) it is made clear in the advertisement which particular tax or taxes or duty or duties are involved; and

• (b) the advertiser states clearly what liability may arise and by whom it will be paid if it does arise.

16 When the achievement or maintenance of a return that is claimed or offered in an advertisement for a given investment is in any way dependent upon the assumed effects of tax or duty:

• (a) this fact must be explained clearly; and

• (b) the advertisement must make it clear that no undertaking is or can be given that the fiscal system may not be revised with consequent effects upon the return that is offered.

17 Where an advertisement relates to a high volatility UCITS, it must state that the investment may be subject to sudden and large falls in value, and, if it is the case, that the investor could lose the total value of the initial investment.

18 Where a UCITS is described as being likely to yield income or as being suitable for an investor that is seeking income from the investment, and where the income from the UCITS can fluctuate, the advertisement must contain the following warning:

“Income may fluctuate in accordance with market conditions and taxation arrangements”

19 Where a UCITS is denominated in a currency other than that of the country in which the advertisement is issued, the advertisement must contain the following warning:

“Changes in exchange rates may have an adverse effect on the value price or income of the product”

20 An advertisement shall, where relevant:

• (a) state that the difference at any one time between the sale and repurchase price of a unit in the UCITS means that the investment should be viewed as medium term to long term;

• (b) refer to the impact of a redemption charge.

SCHEDULE 7

Regulation 79(1)

Additional Information to be Included in the Annual Report

The information to which Regulation 79(1) refers is:

1 A statement of the assets and liabilities or the balance sheet of the UCITS showing, separately, the following:

• (a) money-market instruments;

• (b) investment funds;

• (c) deposits with credit institutions;

• (d) FDI.

2 An analysis, in accordance with the criteria set out in Schedule 12 of the UCITS Regulations, of the portfolio of the UCITS which distinguishes between:

• (a) UCITS and AIFs;

• (b) deposits;

• (c) FDI dealt in on a regulated market;

• (d) OTC derivatives.

3 A general description of the use of FDI and of the efficient portfolio management techniques and instruments that have been employed during the reporting period and the resulting amount of commitments, identifying:

• (a) the types of FDI concerned, including:

• (i) OTC derivatives;

• (ii) the underlying exposures; and

• (iii) where relevant, the type and amount of collateral received to reduce counterparty exposure.

• (b) the purposes underlying the use of the various instruments, together with the attendant risks, for the purpose of enabling a unit-holder to assess the nature of those instruments.

4 (a) Open financial derivative positions at the reporting date shall be marked to market and identified specifically in the portfolio statement required by paragraph 4 of Schedule 12 to the UCITS Regulations.

• (b) For the purposes of subparagraph (a), information on open option positions shall include:

• (i) the strike price;

• (ii) the final exercise date; and

• (iii) an indication of whether or not such positions are covered.

• (c) Counterparties to OTC derivatives shall be identified in the annual report, in the same section in which open financial derivative positions are identified.

5 In the case of a UCITS that engages in financial derivative transactions or in efficient portfolio management techniques and instruments (or in both), an explanation of the treatment of realised and unrealised gains or losses arising from financial derivative transactions and from the use of such efficient portfolio management techniques and instruments.

6 In the case of a UCITS that engages in efficient portfolio management techniques and instruments, information on:

• (a) the exposure obtained through efficient portfolio management techniques and instruments;

• (b) the identity of the counterparty to the relevant efficient portfolio management techniques and instruments;

• (c) the type and amount of collateral received by the UCITS to reduce counterparty exposure;

• (d) the revenues arising from efficient portfolio management techniques and instruments for the entire reporting period, together with the direct and indirect operational costs and fees incurred; and

• (e) the method used to calculate global exposure.

7 Where a UCITS uses a relative VaR approach, the following information on the reference portfolio must be included.

• (a) information regarding the level of leverage employed during the relevant period.

• (b) For the purposes of paragraph (a):

• (i) leverage is to be calculated as the sum of the notionals of the derivatives used;

• (ii) the calculation in subparagraph (i) may be supplemented with leverage calculated on the basis of a commitment approach

8 Information regarding the VaR measure, including at least the lowest, the highest and the average utilization of the VaR limit calculated during the financial year.

9 Information on the model and inputs used for calculating the VaR limit to which paragraph (8) refers.

10 In the case of an index-tracking UCITS:

• (a) information on the size of the tracking error at the end of the period under review and an explanation of any divergence between the anticipated and realised tracking error for the relevant period;

• (b) information on the annual tracking difference between the performance of the UCITS and the performance of the index tracked; and

• (c) an explanation for the annual tracking difference.

11 A report from the depositary of the UCITS;

12 A description of soft commission arrangements affecting the UCITS during the period;

13 Details of the amounts paid under any directed brokerage services or similar arrangements;

14 Details of any distributions out of capital;

15 A description of any material changes in the prospectus during the reporting period;

16 A list of exchange rates used in the annual report;

17 A report from the board of directors, in accordance with Regulation 78(4);

18 Details of all sub-investment managers engaged by the investment manager to act in relation to the UCITS; and

19 The identity of the issuer where collateral received from the issuer has exceeded 20 per cent of the net asset value of the UCITS and indicate whether the UCITS has been fully collaterised in securities issued or guaranteed by a Member State.

SCHEDULE 8

Regulation 80(1)

Additional Information to be Included in the Half-Yearly Report

The information to which Regulation 80(1) refers is:

1 A statement of the assets and liabilities or the balance sheet of the UCITS showing, separately, the following:

• (a) money-market instruments;

• (b) investment funds;

• (c) deposits with credit institutions; and

• (d) FDI.

2 An analysis, in accordance with the criteria set out in Schedule 12 of the UCITS Regulations, of the portfolio of the UCITS which distinguishes between:

• (a) UCITS and AIFs;

• (b) deposits;

• (c) FDI dealt in on a regulated market; and

• (d) OTC derivatives.

3 A description of soft commission arrangements affecting the UCITS during the reference period.

4 A general description of the use of FDI and of the efficient portfolio management techniques and instruments that have been employed during the reporting period and the resulting amount of commitments:

• (a) identifying:

• (i) the types of FDI concerned, including OTC derivatives:

• (ii) the underlying exposures; and

• (iii) where relevant, the type and amount of collateral received to reduce counterparty exposure; and

• (b) indicating the purposes underlying the use of the various instruments, together with the attendant risks, for the purpose of enabling a unit-holder to assess the nature of those instruments.

5 (a) Open financial derivative positions at the reporting date of the half-yearly report shall be marked to market and identified specifically in the portfolio statement required by paragraph 4 of Schedule 12 to the UCITS Regulations.

• (b) For the purposes of subparagraph (a), information on open option positions shall include:

• (i) the strike price;

• (ii) the final exercise date; and

• (iii) an indication of whether or not such positions are covered.

• (c) Counterparties to OTC derivatives shall be identified in the half-yearly report, in the same section in which open financial derivative positions are identified.

6 In the case of a UCITS that engages in financial derivative transactions or in efficient portfolio management techniques and instruments (or in both), an explanation of the treatment of realised and unrealised gains or losses arising from such financial derivative transactions and from the use of such efficient portfolio management techniques and instruments.

7 In the case of a UCITS that engages in efficient portfolio management techniques and instruments, information on:

• (a) the exposure obtained through efficient portfolio management techniques and instruments;

• (b) the identity of the counterparty to the relevant efficient portfolio management techniques and instruments;

• (c) the type and amount of collateral received by the UCITS to reduce counterparty exposure; and

• (d) the revenues arising from efficient portfolio management techniques and instruments for the entire reporting period, together with the direct and indirect operational costs and fees incurred.

8 In the case of an index-tracking UCITS, information on the size of the tracking error at the end of the period under review;

9 Details of any distribution out of capital;

10 A description of any material changes in the prospectus during the reporting period;

11 A list of exchange rates used in the half-yearly report;

12 A report from the board of directors in accordance with Regulation 78(4); and

13 Details of all sub-investment managers engaged by the investment manager to act in relation to the UCITS.

SCHEDULE 9

Regulation 111

Minimum Capital Requirement Report

The requirements for the preparation of a minimum capital requirement report are:

1 Interpretation

In this Schedule, unless the context otherwise requires: