A few days ago, ESMA, the European Securities and Markets Authority has produced a formal opinion on the remit of Article 50(2)(a) of the UCITS Directive. In virtue of this article, UCITS are allowed to invest up to 10% in transferable securities and money market instruments that were not otherwise eligible assets.
In practice, this 10% threshold was being used by UCITS to invest in unregulated funds. In its opinion, ESMA states that the relevant article must be interpreted that UCITS may only invest in transferable securities and money market instruments, and not in units of funds.
This opinion is set to change the regulatory outlook on UCITS, given that to date, a number of national regulatory authorities have interpreted this article in a manner which permits investment into unregulated funds. Moreover, ESMA has opined that those UCITS which have invested in unregulated funds will have to redeem or dispose of those holdings by 31 December 2013. Additionally, any UCITS whose investment policies envisage investments in unregulated funds will have to amend their investment policies.
