Earlier this month, the Central Bank of Ireland issued a “UCITS Question and Answers” document (Q&A). The Q&A answers queries relating to the eligibility of non-UCITS investment funds as suitable investment by a UCITS and adds some colour to the Central Bank’s Guidance Note 2/03 (“Acceptable investment in other Collective Investment Schemes” (CIS)). In the Q&A, the Central Bank confirms a number of items, including the fact that US 1940 Act funds are eligible non-UCITS funds for UCITS investment purposes.
The Q&A also confirms that if a UCITS holds units in an open-ended investment fund, such a holding must always be treated as an open-ended fund, and subject to the CIS investment limits, and not as a transferable security, even if the holdings satisfied the transferable security criteria. This is in response to submissions made by industry last year for clarification, particularly in relation to investment by a UCITS in non-UCITS ETFs, as to how shares or units in a listed ETF could be classified. Industry was suggesting that holdings in non-UCITS ETFs could either be classified as holdings in non-UCITS open-ended funds (where they met the CIS criteria) or as holdings in transferable securities where they met the requirements for a transferable security, or both, if that were the case. The Central Bank has now confirmed that any investment in an open-ended fund should always be classified as an investment in an open-ended fund and cannot also be classified as a transferable security. This is of particular relevance to UCITS that may hold ETFs which are non-UCITS open-ended mutual funds.