Landmark threat to UCITS status for fund share classes as ESMA moves goalposts

Part of wider EU transparency standard

A number of funds could face losing UCITS status on certain share classes as a consequence of legislative change for the first time, following the release of proposals by ESMA aimed at creating a pan-European transparency standard.

In guidelines released last week, the European Securities and Markets Authority (ESMA) said all hedging arrangements at share class level - with the exception of currency risk hedging - should be set up as separate funds or sub-funds. The body said it shares concerns with industry participants that such share classes - which could include interest rate hedging or duration hedging - are not compatible with the current UCITS requirement for all fund share classes to have a "common investment objective" and must therefore be separated. It said: "The use of derivative overlays within a sh...