The European Securities and Markets Authority (“ESMA”) has issued an opinion clarifying the scope of the investment derogation provided for in Article 50(2)(a) of Directive 2009/65/EC (the “UCITS Directive”). The opinion has been issued as a result of questions being raised as to the correct interpretation of Article 50(2)(a).

Article 50(2)(a) provides that a UCITS may not invest more than 10% of its assets in transferable securities and money market instruments other than those provided for in Article 50(1) of the UCITS Directive (the “10% Allocation”).

The ESMA opinion states that the 10% Allocation refers only to investments in transferable securities and money market instruments and does not extend to units or shares of collective investment schemes (“CIS”). Accordingly, a UCITS may not invest in the units or shares of another CIS unless that CIS meets the eligibility criteria set out in Article 50(1)(e) of the UCITS Directive.

EMSA expects that any portfolio adjustments made to ensure compliance with its opinion will take into account the best interests of investors, and will be undertaken by 31 December 2013 at the latest.


Until now, the Central Bank, in common with many other EU regulators, has permitted UCITS to hold units or shares in unregulated CIS, such as hedge funds, as part of their 10% Allocation.

The ESMA opinion will have an impact on UCITS which hold units or shares in such unregulated CIS or in any other CIS which do not provide a level of investor protection equivalent to a UCITS.

We will advise you of the position taken by the Central Bank in response to the ESMA opinion once this is known.

Next steps

We recommend that each UCITS considers its portfolio to determine whether any assets within its 10% Allocation fall within the scope of the ESMA opinion. If so, these assets will need to be divested by 31 December 2013.

Further Information

A link to the full ESMA opinion, and the relevant excerpts of the UCITS Directive, is set out below: