On 24 March 2014, the European Securities and Markets Authority ("ESMA") issued a final report containing new guidelines on collateral management by UCITS ("New Guidelines") (ESMA/2014/294).
This follows its consultation published in December 2013 on the collateral rules contained in the Guidelines on ETFs and other UCITS Issues (the "Guidelines").
This consultation was held to review the requirements in paragraph 43(e) of the Guidelines that collateral received by a UCITS should be diversified on a country/issuer basis and subject to a 20% issuer limit.
The key points of the New Guidelines are summarised below:
(a) Paragraph 43(e) of the Guidelines is replaced with the New Guidelines to reflect that any UCITS may be fully collateralised in government bonds of one issuer. (Note: There was a possibility that ESMA would grant this facility only to UCITS money market funds.)
(b) UCITS availing of this facility will be required to diversify government bonds across at least six different issues and a maximum of 30% in any one issue.
(c) UCITS availing of this facility will be required to:
(i) make a prospectus disclosure on this facility to be fully collateralised in the government bonds of one issuer and list the government issuers to which they may be exposed above the standard 20% limit; and
(ii) make a corresponding disclosure in the UCITS' annual report.
The prospectus and accounts disclosure requirements will be subject to a transition period before they will apply to existing UCITS. In the case of the prospectus changes, the transition period will be 12 months from the application date of the New Guidelines (or earlier if the prospectus is being revised for any other reason). In the case of the accounts disclosure, this will apply only to accounting periods that end after the application date of the New Guidelines.
The New Guidelines will apply two months after the publication of its translation into the official EU languages on the ESMA website. During the two month period national competent authorities, such as the Central Bank of Ireland, must notify ESMA whether they comply or intend to comply with the guidelines.
For further information on the topic covered in this update or generally, please contact your usual Maples and Calder contact.