The Central Bank requires all UCITS funds to consider the accuracy of their prospectus and KIID on an ongoing basis in light of the findings of its thematic review of closet indexing. Where such funds need to amend their prospectus or KIID on foot of this exercise, they must do so by 31 March 2020.
The letter sets out the Central Bank's expectations for:
disclosures to investors
board governance and controls of offering documents
board challenge of distribution and investment strategy
regular assessment of performance and whether fees are reasonable in the context of performance delivered
new governance requirements for annual assessment of investment manager performance
Key findings of the review include:
Investors were not always given sufficient or accurate information about the fund’s investment strategy in the prospectus and KIID and this impacts on their ability to make an informed decision on whether to invest in the fund.
Cases of poor governance and control by Boards of UCITS Fund ManCos were identified
Instances were identified where the fund had a target outperformance against an index that is less than the fee charged to certain share classes in the fund. The result is that even if the UCITS provides a return at the upper end of its projections, investors in these share classes will not realise a positive return against the benchmark, as the fee charged will cancel out any outperformance achieved.
Instances were identified where no comparator was included in the past performance section of the KIID so that investors in these funds were not able to determine whether the fund, irrespective of performance, represented good value relative to its benchmark.
When accessing the annual performance of a UCITS, the Board should assess if they have delivered on the stated objective and remain a viable and suitable investment for investors.
Commenting on the review, Director General Derville Rowland said:
“As well as following up with the funds where we had findings, we are requiring all UCITS funds to consider the accuracy of their Prospectus and KIID on an ongoing basis in light of these findings. Where such funds need to amend their Prospectus or KIID on foot of this exercise, we are giving them until 31 March 2020 to do so.”
The review is the largest data driven thematic review of the funds industry to date. Detailed analysis was carried out on all of the 2,550 Irish authorised UCITS funds classified as actively managed as at March 2018