ESMA UCITS guidelines

New requirements to increase transparency and mitigate risk

ESMA’s new 'guidelines on ETFs and other UCITS issues' will impact not just UCITS ETFs and index tracking UCITS. They will also affect UCITS investing in financial indices, UCITS using financial derivatives and UCITS using efficient portfolio management (EPM) techniques.

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ESMA’s guidelines have brought significant changes to UCITS by tightening the rules in a number of areas and increasing disclosures. The guidelines include new criteria for collateralised transactions, stricter investment rules  and a requirement to return of profits from net revenue sharing arrangements.

Key areas covered by this briefing:

  • ETFs and index tracking UCITS
  • Efficient portfolio management techniques
  • Collateral requirements
  • Total return swaps
  • Financial indices
  • New financial reporting disclosures
  • Timeframes for compliance

The guidelines took effect on 18 February 2013 with a 12 month transition period for existing UCITS in relation to certain provisions, including collateral management and financial indices.

ESMA has issued a Q&A in to address various aspects of the guidelines.

ESMA UCITS guidelines

Key actions

UCITS management companies should consider a range of actions, depending on their activities, to ensure they are in compliance with ESMA’s new guidelines:

  • Review of EPM techniques and arrange for return of EPM profits to the fund
  • Review of collateral practices
  • Review of derivatives arrangements
  • Review of financial indices investments
  • Update policies, procedures and the RMP to meet the new requirements
  • Build out a website where the exact underlying components of the index tracking UCITS are published and kept up to date
  • Arrange for ETF redemptions direct from the fund in cases where the NAV varies significantly from the stock exchange value
  • Update the prospectus, KIID and marketing communications as required
  • Make arrangements to include the new disclosures in the annual and semi-annual report

How can we help?

We can conduct a review of your EPM, collateral and derivatives arrangements, update your risk management documentation and provide guidance on meeting the new ESMA guidelines. We can also provide best practice guidance on collateral arrangements and help put in place procedures to mitigate against risk.


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