The Central Bank has, in the context of the Investor Money Regulations which will apply from 1 April 2016, issued Guidance in the context of the operation of cash accounts at umbrella fund level. Cash refers to subscription and redemption monies and dividend monies due to investors. The Guidance supports the approach to be adopted where such cash is to be treated technically as fund assets and not investor monies falling within the ambit of the Investor Money Regulations. The Guidance sets out the principles, policies and procedures applying to the holding of cash assets of umbrella funds in a single account at the level of the umbrella fund in the name of the fund or, the management company on behalf of the fund or the depository. The constitutional documents of the fund must obviously support the segregation of assets and liabilities of each individual sub-fund and the fund management company and depository must be satisfied that at all times the amounts within the umbrella cash account can be attributed to the individual sub-funds and that the holding of assets in an umbrella cash account will not compromise the ability of the depository to carry out its safe keeping and oversight duties and responsibilities in accordance with the UCITS or AIFM Regulations. A fund may elect to establish an umbrella cash account where the umbrella operates under contractual settlement arrangements. Circumstances in which it will not be appropriate to operate an umbrella cash account include where the sub-funds are highly leveraged, where there is an increased possibility that investors subscribing to the sub-funds are likely to make late payments and where the constitutional document does not set out any consequences for investors who do not provide subscription proceeds by the stated settlement date.
The fund management company must, in conjunction with the depository, establish a detailed policy to govern the operation of the umbrella cash account and this should be reviewed at least annually and amended as necessary. The policy should include certain minimum procedures to be agreed between the fund management company and the depository including a reconciliation process, the treatment of money in the cash account when calculating the NAV, procedures to apply where money would be transferred from the cash account to an Investor Money Regulation account, erroneous recording, late/non-payments, resolution of shortfalls and reporting.
The Prospectus of the fund must explain the way in which an umbrella cash account is established and operated and the risks involved for investors when investing in a fund with an umbrella cash account. The Guidance also sets out circumstances in which an umbrella fund may elect to transfer money to an investor money account held by a fund service provider, e.g. where redemption or dividend money cannot be transmitted to the relevant investor because the relevant investor has not provided the fund with relevant AML/CTF documentation.
At a practical level, fund promoters will need to review constitutional documents to ensure that the conditions for the use of an umbrella cash account are met. Promoters should also engage with their administrators and depositories to agree appropriate processes and procedures regarding the operation of umbrella cash accounts and also consider appropriate disclosures to be made in prospectus documentation in advance of the 1 April 2016 deadline.