7. Public Consultation Questions - Discretion 4

Discretion 4 - Article 2(2) of Directive (EU) 2024/927

Article 2(2) of Directive (EU) 2024/927 amends Article 6(3) of Directive 2009/65/EC as follows:

Article 6 is part of Chapter III of Directive 2009/65/EC dealing with the obligations regarding UCITS management companies. Article 6 sets out the conditions for taking up activities as a UCITS management company. It states that management companies shall not engage in activities other than the management of UCITS, as per the functions set out in Annex II of the Directive, with the exception of the additional management of other collective investment undertakings which are not covered by the Directive and for which the management company is subject to prudential supervision but the units of which cannot be marketed in other Member States under the Directive.

Article 6(3) contains a derogation from Article 6(2) allowing Member States to authorise management companies to provide, in addition to the management of UCITS, the following services:

1. management of portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC; and
2. as non-core services comprising:

1. investment advice  concerning one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC;

2. safe-keeping and administration in relation to units of collective investment undertakings.

This discretion was exercised in full by Ireland in domestic legislation. Under Regulation 16(2) of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, the Central Bank is permitted to assess and approve on a case-by-case basis any applications for authorisation it receives from management companies seeking to provide these additional “top-up” services.[1] Regulation 16(2)(b) provides that management companies cannot be authorised (i) to carry out “top-up” services only; or (ii) to carry out “non-core services” without also providing investment management services, as set out in Regulation 16(2)(a)(i). UCITS management companies can apply for authorisation to carry out these services either at the time they are seeking authorisation or separately post-authorisation.

The amendment proposed in Directive (EU) 2024/927 extends the “non-core services” provided by UCITS management companies under the derogation to include:

• the reception and transmission of orders in relation to financial instruments; 
• the same functions and activities already provided by a management company in relation to a UCITS that it manages may be performed for the benefit of third parties, provided that any potential conflict of interest created by the provision of that function or activity to other parties is appropriately managed.

The amendment also provides that Member States may authorise management companies to offer the administration of benchmarks as an ancillary service.

This national discretion has materially widened in scope as a result of the amendments in Directive (EU) 2024/927 and it is being addressed in this public consultation in line with the Department’s transposition policy.

The possibility for a UCITS management company to undertake these activities could maintain or increase, to some degree, the competitiveness of the jurisdiction vis-à-vis other investment funds centres of excellence.

Ultimately, it would fall to the Central Bank to assess and decide whether to permit a UCITS management company to engage in these additional ancillary activities, should it receive any applications in this regard.