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The UCITS III Product Regulations and the UCITS Notices
On 12th December 2003, after a period of consultation with the funds industry, IFSRA, the Irish regulatory authority, published their final UCITS Notices (the "Notices") under the UCITS III Product Directive, which was transposed into Irish law in May 2003 by S.I No. 212 of 2003 ("the Product Regulations").
The purpose of the UCITS Notices is to explain and clarify various aspects of the Product Regulations and to set down the detailed conditions with which UCITS funds must comply.
The Product Regulations substantially extend the instruments in which a UCITS fund can invest in addition to transferable securities.
Formerly, UCITS funds were restricted to investing primarily in listed securities. The investments as permitted under the Product Regulations include the following:
- Other collective investment schemes.
- Bank deposits and cash instruments.
- Money market instruments.
- Financial derivative instruments.
- Index tracker funds.
Previously, a UCITS fund was restricted to investing only 5% of its assets in other specified categories of funds. Under the Notices, it is now permissible for a UCITS fund to invest up to 100% of its assets in other funds subject to various restrictions and diversification requirements.
Up to 20% of the net assets of a UCITS fund may be invested in any one scheme (or sub-fund where the underlying scheme is an umbrella fund). Fund of fund investments are limited to other UCITS funds and certain categories of funds approved by IFSRA. These additional categories are set out in a Guidance Note issued by IFSRA.
The Notices also permit UCITS funds to be established as index tracking funds and they can now invest up to 20% of their assets in any one issuer (and 35% in certain circumstances) where according to the fund's rules, the objective is to replicate the index and provided the index is appropriately recognised and published.
Bank deposits are also now acceptable investments for UCITS funds subject to various criteria and risk spreading rules.
Perhaps the most debated element of the Product Regulations has been the provision to permit a UCITS fund to invest in derivative instruments as an outright investment objective and policy rather than solely for the purpose of efficient portfolio management or for hedging against exchange rate risks.
The Notices now set parameters for investment in derivatives and provide that a UCITS must establish a detailed risk management programme. IFSRA has issued a Guidance Note, which is designed to provide guidance to the industry on this issue. In particular, guidance is provided on how global exposure is to be calculated and requirements are set down for UCITS to file risk management reports and details of their derivative activities on an annual basis.
Another significant change is that a UCITS can no longer set up a subsidiary in a non-EU Member State. This effectively means that subsidiary vehicles established in such jurisdictions as Mauritius and Cyprus will no longer be available to UCITS funds.
There are a number of important transitional features and grandfathering provisions associated with the introduction of the UCITS III Product Directive into Irish law and product specific advice should be sought. Most importantly, the deadline for post 2002 UCITS funds to convert to the new UCITS III regime by 13th February 2004 is fast approaching.
As many UCITS funds authorised in Ireland may be marketing their funds in other member states through the passporting provisions of the UCITS III Product Directive, it is strongly recommended that regulators in the host state where a fund is sold be contacted in order to clarify the obligations and local effect of the transition rules.
Another significant development in UCITS III occurred on 21st October 2003 when the UCITS III Management Company Directive ("Management Directive") was transposed into Irish law by S.I. No. 497 of 2003. The Management Directive addresses the role of management companies to UCITS funds and introduces a simplified prospectus regime. It is anticipated that IFSRA will issue its detailed notices on the Management Directive to the funds industry early this year.
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The Competition law implications of a recent decision of the Competition Authority for price support agreements
On 4th December last the Competition Authority issued its decision in relation to a Price Support Agreement, which Statoil Ireland Limited had operated.
The Authority was investigating an allegation that Statoil motor fuel retailers were involved in a cartel in Letterkenny County Donegal, to fix fuel prices charged to the motorist. This investigation was closed because insufficient evidence was found to support the allegation.
However, during the investigation the Authority discovered that Statoil operated a Price Support Agreement with independently owned and operated motor fuel retailers. This provided financial support to them in order to match the prices of selected competitors known as "marker stations".
As part of the agreement the Statoil branded station was not allowed to charge more than the recommended retail price and also would not receive price support from Statoil for any price cuts below the marker stations or if it acted independently to reduce prices.
This was the first time that the Authority had given its opinion on price matching schemes. It pointed out that "meet the competition policies" are widely viewed by economists as anti-competitive.
The Authority believed that the agreement could dampen a rival retailer's incentive to compete, as it was aware that the new price would be immediately matched and none of the competitor's customers would switch their loyalties. The Authority said this was borne out by regular parallel prices between Statoil and the marker stations.
No proceedings were taken against Statoil as it abolished the scheme and undertakings were given not to introduce a similar support structure with the elements that the Authority found objectionable.
The Authority did not come to an unequivocal view on whether the agreement necessarily breached the Competition Act, but from the decision it is clear that care should be taken if operating a vertical agreement with resellers that could indirectly fix prices particularly if a large share of the market is held.
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further information contact: Anthony Layng at Email : alayng@kilroys.ie © Kilroys Solicitors 2004 |
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Employers - Smoking in the workplace
The much-publicised smoking ban was due to come into operation on 26th January 2004. However, according to the Department of Health this date will be extended until the end of February, as the response of the European Commission to the Regulations must be obtained.
What will be prohibited?
Smoking will no longer be permitted in: -
- A place of work.
- An aircraft, train, ship or other vessel, public service vehicle or other vehicle used for carrying the public for reward, in so far as it is a place of work.
- A licensed premises or registered club, in so far as it is a place of work.
The Regulations will not apply to: -
- Open workplaces.
- Prisons.
- The parts of Garda stations used for detentions.
- Bedrooms in hotels and guesthouses.
- A room that, in furtherance of charitable objects, is used solely for the provision of accommodation.
- Accommodation in an education establishment (excluding primary and secondary education establishments).
- Nursing homes, hospices, psychiatric hospitals and the Central Mental Hospitals.
Employers should be able to show that they have taken steps to ensure compliance with the legislation and that staff have been fully informed of the new smoking rules.
It would be a defence to proceedings instituted against an employer for breach of the Regulations if it can be shown that the employer made reasonable efforts to ensure staff compliance.
Company policies should be checked and updated if necessary to take account of the change in the law.
Any breaches should be dealt with under the disciplinary procedure, but employers should remember that the penalty must be proportionate to the offence and all employees must be treated the same. If one employee is dismissed and others have been treated less severely then the dismissal could be deemed unfair.
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further information contact: Anthony Layng Email: alayng@kilroys.ie Laurena Hughes at lhughes@kilroys.ie © Kilroys Solicitors 2003 |
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Involuntary liquidations - applications to restrict Directors and the issue of costs.
In a recent decision of the High Court delivered on the 30th July 2003 in the case of Re GMT Engineering Services Limited it was held that that where a liquidator's application for a restriction order against a director was unsuccessful, the Court had no jurisdiction to make an order for the liquidator's costs against the director.
This decision means that creditors of insolvent companies will now have to bear the legal costs of an unsuccessful application by a liquidator for an order to restrict the directors of an insolvent company.
The applications in the GMT case to restrict two of the directors of the company were refused by the High Court on the grounds that the respondent directors had acted honestly and responsibly in relation to the conduct of the affairs of the company.
The liquidator had argued that he was nevertheless entitled for his costs of the proceedings against these directors on the basis that the company was insolvent and if the respondent directors did not bear some or all of the liquidator's costs of bringing the application, the costs would have to be funded by the creditors.
The directors resisted this application on the grounds that the Court had no discretion to make such an order where the Court had refused the application for the restriction orders. Interestingly, the directors did not apply for an order for their costs against the liquidator and the Court reserved its position on this issue.
Section 150 of the 1990 Act provides that where a restriction order is made, the directors against whom it is made shall bear the costs of the application and any costs incurred by the applicant in investigating the matter.
Prior to the GMT decision in many applications where the Court was satisfied that a restriction order should not be made it nevertheless ordered that the respondent directors should make a contribution to the official liquidator's costs.
The implications of the decision are as follows: -
- Liquidators may now be even more reluctant to wind-up small companies because of the potential costs exposure and it is likely that creditors of an insolvent company will have to bear the costs of restriction proceedings.
- Liquidators should be encouraged to ensure that all relevant facts are brought to the attention of the Director of Corporate Enforcement before the Director makes his decision as to whether or not he will waive the necessity for a Section 150 application by the liquidator. It may even be prudent for the liquidator to seek the observation and submissions of the directors of the company before reporting to the ODCE.
- Consideration should be given to alternative options such as legislation which would provide for voluntary acceptance of restriction by directors and/or providing for certain applications to be heard in the Circuit Court.
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further information contact: Joanne Griffin at Email : jgriffin@kilroys.ie © Kilroys Solicitors 2004 |
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Data Protection Commissioner's website make registration details of all entities registered with his office available online
In the last issue we outlined the need to register as and from 1st July 2003 with the Office of the Data Protection Commissioner under the provisions of the amending Data Protection legislation.
On the 23rd December 2003 the Data Protection Commissioner launched an online database accessible from his website, giving the registration details of those entities registered with his Office.
Access to such an online database will afford a very useful tool to anyone wishing to establish whether or not an individual company or business entity is appropriately registered with his Office as is required by law.
Undoubtedly this facility will, over time, prove invaluable to anyone (be they employee, customer or client) considering make an access request to a company or business entity or to anyone who is experiencing difficulties in having their query properly addressed.
Under the legislation the Data Protection Commissioner has extensive powers of investigation and enforcement. The consequences for businesses of non-compliance could be very serious. Access to this online database will make it very easy to establish whether a Data Controller or Data Processor is registered and if so in respect of what activities.
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further information contact: Patrick Ryan at Email : pryan@kilroys.ie © Kilroys Solicitors 2004 |
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Forthcoming Seminars If you would like more information on
forthcoming seminars or would like to register click on the appropriate seminar below:
- Employment