Does the recent ESMA Opinion on Share Classes have direct application to Irish authorised UCITS?
No. The recent ESMA Opinion on Share Classes was issued by ESMA under the provisions of Article 29 of Regulation 1095/2010 (the Regulation). Article 29 opinions are issued to national regulators and their purpose is to "build a common Union supervisory culture and consistent supervisory practices, as well as in ensuring uniform procedures and consistent approaches throughout the EU". Unlike guidelines or recommendations that may be issued by ESMA (for example, under Article 16 of the Regulation), Article 29 of the Regulation contains no provision for such opinions to be directly applicable to industry (financial markets participants).
For the terms of an Article 29 opinion to have any direct application for Irish authorised UCITS, it would therefore appear to be necessary that the Central Bank of Ireland (Central Bank) should take a proactive step and communicate to industry its intention to adapt the principles and requirements contained in the opinion and apply them as regulatory requirements to Irish authorised UCITS (assuming that this is the Central Bank's intention in any given case).
In terms of precedent, ESMA issued an opinion (pursuant to Article 29 of the Regulation) on 20 November 2012 in relation to Article 50(2)(a) of Directive 2009/65/EC (which relates to the UCITS 10% trash bucket). On 23 January, 2013 the Central Bank wrote to the Irish funds industry in relation to this ESMA opinion. This letter confirmed support of the ESMA opinion and indicated an expectation that UCITS with non-compliant investments would be required to make any necessary modifications to their portfolios within a prescribed timeframe.
However, this approach preceded the issuance of the Central Bank's UCITS Q&A.
Accordingly, we believe that we can expect the Central Bank to issue a communication to industry (whether by way of an update to the UCITS Q&A or otherwise) to clarify its approach on this issue.