The guidelines have arisen from a review of the current regulatory regime by ESMA which it found to be “insufficient to address the specific features and risks associated with these types of funds and techniques”, the regulatory body stated.
Steven Maijoor, ESMA chair, said: “These comprehensive guidelines are aimed at strengthening investor protection and harmonising regulatory practices across this important EU fund sector. They increase the level and the quality of information provided by Ucits to their investors, clarify the criteria for the management of collateralised transactions such as securities lending, repo and reverse repos and over the counter derivatives, and set out the types of financial index in which Ucits may invest.”
ESMA has set out the information that should be given to investors about index-tracking Ucits and Ucits ETFs, together with specific rules for Ucits when entering into over-the-counter financial derivative transactions and efficient portfolio management techniques. The guidelines also set out the criteria for financial indices in which Ucits may invest.
One key provision is that Ucits investing in financial indices will have to ensure that investors are provided with the full calculation methodology of financial indices. Also, Ucits should only invest in financial indices which respect strict criteria regarding, inter alia, the rebalancing frequency and their diversification.
ESMA has also launched a specific consultation on repo and reverse repo arrangements when used by Ucits.to “ensure that Ucits can continue meeting investors’ redemption requests.”
