The UCITS directive was introduced in 1985 with the objective of creating a uniform regulatory framework for investment funds across Europe. Establishing an Ireland domiciled UCITS fund requires a number of steps and key decisions. Understanding the process can help asset managers avoid unnecessary delays. The most critical step in the launch process is getting the authorization and the Central Bank of Ireland (CBI) is the competent authority responsible for reviewing, authorizing and supervising the funds on an ongoing basis.
Selecting the Legal Structure
There are three legal structures available to UCITS in Ireland:
- Corporate: The Variable Capital Company (VCC) and the Irish Collective Asset-Management Vehicle (ICAV) are the available corporate forms in Ireland. The VCC, typically structured as a public limited company (PLC), is subject to Irish company law requirements. The ICAV has been designed specifically for investment funds. It has its own legislative regime, avoiding compliance with certain requirements in European and Irish company law. The ICAV can elect to “check-the-box” for US tax purposes.
- Trust: The Unit Trust structure operates as an investment fund established under a trust deed. The trust deed is made between the management company and the trustee. The trustee acts as the legal owner of the fund’s assets on behalf of the investors who are each entitled to an undivided beneficial interest in the fund.
- Contractual: The Common Contractual Fund (CCF) is a contractual arrangement established under a deed, which provides that investors participate as co-owners of the assets of the fund. The CCF is an unincorporated body, not a separate legal entity and is transparent for Irish legal and tax purposes. The CCF can only be used for institutional investors.
- Management companies: The management company is required to have initial capital of at least €125,000. Additional own funds will be required if the value of the portfolios managed by a management company exceeds €250 million, subject to a cap of €10 million.
- UCITS Funds: Minimum net assets of €1,250,000 must be attained within six months of authorization. The minimum capital requirement for a self-managed investment company is €300,000. Both a Unit Trust and a CCF require a management company for their creation.
Key Requirements - Service Providers
- The Investment Manager and Promoter are considered the main driver and sponsor behind the launch of the fund and require the approval of the CBI.
- Where a management company is used, the management company is responsible for all day to day management and governance of the fund. Management companies may retain all administration and portfolio management or can delegate these functions and retain the oversight functions.
- If there is no management company, then the fund is considered to be a “self-managed fund.” Under this structure the board of directors takes responsibility for the management and governance of the fund.
- Two Irish resident directors are required on the board of the fund or the management company and CBI approves all of the directors on the board.
- The Custodian/Trustee provide asset safekeeping, income collection, corporate action processing, fiduciary and oversight services relating to the review and supervision of fund and providers.
- The Administrator is responsible for day to day operational support to the fund and provides NAV calculation, distribution calculation, maintenance of books and records and financial reporting services.
- The Transfer Agent provides shareholder services to the fund; such as processing the capital activity, shareholder account opening, shareholder correspondence and queries.
- The fund also appoints other entities such as local legal advisors, auditors, tax advisors, corporate secretary and listing agent.
When setting up a UCITS funds, the following key documents must be filed with the CBI. The fund’s legal advisors manage the document drafting and applications with the CBI. The document review process is managed against the CBI’s Application Forms which set out the required disclosures for each document.
- Prospectus: The fund’s prospectus contains the particulars in relation to the fund’s investment objectives and policies, risks, distribution policy, dealing procedures, expenses, valuation and fund service providers.
- Key Investor Information Document (KIID): A two page document setting out all the pertinent details of the fund using a set template. It is typically provided for each share class but can be produced amalgamating a number of share classes into one.
- The Risk Management Process (RMP): Sets out the fund policies for managing the fund’s main risks with a particular focus on the detailed policies related to derivative risk monitoring and calculation methodologies.
- The Business Plan: Demonstrates how the fund will be managed and governed. It designates the individuals who will take on each of the specified management functions.
- The Memorandum and Articles of Association/Trust Deed/Instrument of Incorporation/Constitutional Document: These are the individual documents creating the legal structure of the fund.
- Custodian, Administration and Investment Management Agreements: Set out the legal relationship and appoint key provides to the fund.
Final Filing and Authorization
The authorization process takes approximately 8 weeks from first document drafting to final fund authorization.
The fund promoter and investment manager require the approval of the CBI.
- If the promoter and investment manager are from OECD countries their applications can be done in tandem with the fund application.
- If the promoter and investment manager are from non-OECD countries, their application should be made prior to the fund application.
As part of the authorization process, Director Individual Questionnaires (Director IQs) need to be completed on-line and should be done early in the process in case there are significant comments from the CBI.
The CBI reviews the Prospectus, Custodian Agreement/Trust Deed, Risk Management Process and Business Plan. The other fund agreements and documents are filed at the end of the process so negotiations on them can continue outside of the CBI reviews.