Central Bank - Approval Process for UCITS Side Pockets in the context of the Russian invasion of Ukraine

On 16 May 2022, the Central Bank of Ireland (the “CBI”) issued a notice of intention in respect of the approval process for UCITS side pocket arrangements in relation to Russian, Belarusian and Ukrainian assets that are impacted by the Russian invasion into Ukraine and/or impacted by sanctions that have been imposed as a result of Russia’s invasion of Ukraine (the “Notice”) (here).


The Notice follows an ESMA public statement also issued on 16 May 2022 (here) which stated that, for investment funds with exposures to assets facing liquidity issues, side pockets may in some cases be preferable from an investor protection perspective compared to a temporary suspension of dealing rights that would not allow existing investors to access liquidity. ESMA states that side pockets in UCITS may be permissible where the liquid and illiquid assets are segregated by way of transferring the liquid assets to a new UCITS or to a new compartment of the initial UCITS. ESMA notes that the use of side pockets should be in the best interest of investors and cannot result in a transformation of the UCITS into a non-UCITS.

The Notice

In the Notice, the CBI states that it will permit, subject to certain conditions, a UCITS to implement a side pocket arrangement only for Russian, Belarusian and Ukrainian assets that are directly and/or indirectly impacted by the Russian invasion into Ukraine and/or impacted by sanctions that have been imposed as a result of Russia’s invasion of Ukraine (the “Affected Securities”).

The CBI states that a side pocket arrangement may be implemented by way of establishment of a clone fund into which liquid assets may be transferred. The clone fund is established as a new fund/sub fund. The Affected Securities which have become illiquid or difficult to value remain in the original UCITS. Shareholders in the newly established clone UCITS hold shares in that fund pro-rata to their holdings in the original UCITS. Investors in the original UCITS continue to have a pro-rata holding in the original UCITS.

Conditions to be satisfied

The Notice states that an original UCITS may establish a side pocket by way of a newly established clone UCITS provided that:

  • the proposal is in the best interests of unitholders;
  • investors have approved transfer into the newly established clone UCITS side pocket;
  • the UCITS has obtained prior written approval of the CBI for the proposal;
  • the UCITS provides a clear description to unitholders of the costs and fees associated with establishing the side pocket;
  • the UCITS must provide details of the ongoing costs and fees payable in its prospectus;
  • the original UCITS is placed in wind-down mode at the same time as the creation of the new clone UCITS;
  • the original UCITS has established written policies in relation to management of the Affected Securities (including polices relating to the costs and fees associated with maintenance of the original UCITS); and
  • the original UCITS reports to the CBI on an annual basis confirming whether or not the parameters and policies continue to be respected and outlines the prospects and/or plans for the side pocketed assets and liquidation of the original UCITS.

Approval Process

The Notice details a streamlined authorisation/approval process for the side pocket arrangement. The CBI confirms that side pockets may be facilitated only by the establishment of a new fund/sub fund. On this basis, the CBI states that an application for authorisation/approval of a new fund/sub fund should be made in the normal manner, accompanied by:

  • a confirmation from the directors of the fund that the new fund/sub-fund is identical to the original UCITS (the “Confirmation”);
  • a copy of the resolution approving the establishment of the new fund/sub-fund; and
  • a mark-up of the investment objective and policy against that of the original UCITS.

The CBI states that complete applications will be processed within five working days of receipt of same. Applications which are not accompanied by the Confirmation will be processed within normal time-frames. The CBI states that advance notice of applications should be made to fundsauthorisation@centralbank.ie and onlineauthorisation@centralbank.ie.


Fund managers should take note that the CBI confirms that side pocketing of UCITS assets is only available in the context of Affected Securities and should not be interpreted as creating a precedent by the CBI for any other current or future situations.

The CBI also reminds fund managers to take all necessary steps to ensure that the valuation of fund assets are fair and proper and in accordance with the relevant fund valuation policies and rules. Our earlier briefing here provides further detail on CBI expectations in the context of the Russian invasion of Ukraine.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.