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Dechert LLP
January 2014

A Legal Update from Dechert's Financial Services Group

Moody’s Upgrade Points to Reopening of the Chilean Pension Market to Irish UCITS

It’s been a rocky road for Dublin over the past few years, but last month’s exit from the European Union-International Monetary Fund bailout and last Friday’s welcome news that Moody’s would follow Fitch and S&P by upgrading Irish sovereign debt to investment grade status will help smooth the path for Irish UCITS to get back on the “general investment” list for Chilean pension funds.

In late August 2011, the Chilean Pensions Regulator, the Comisión Clasificadora de Riesgo (the “CCR”), moved Irish UCITS to its Restricted Investments List following the downgrade of Irish sovereign debt to below investment grade status.  The CCR rules (Article 15 of CCR Decision No. 32) requires a credit rating for the fund domicile of A by at least two of the three major rating agencies (see Dechert Newsflash, Irish Domiciled UCITS Moved to Restricted Investments Status by Chilean Regulator). 

The Chilean pension fund industry is an important market for UCITS and the restriction on investment in Irish UCITS by Chilean pension fund investors was a competitive disadvantage for Irish UCITS.

However, it now looks as if this market will reopen following the upgrade, coupled with a recent modification to the CCR rules which now permit the CCR, in exceptional circumstances, to approve the sovereign rating of a country not meeting the requirements by considering the characteristics that have led to non-compliance.

Dechert understands that members of the CCR had informally stated the CCR was prepared to consider Ireland as a fund jurisdiction meeting the credit requirements once Ireland was rated BBB or greater by all three major credit rating agencies.  In these informal statements, the CCR also indicated that the especially robust supervisory capability of the Central Bank of Ireland has been a factor in their willingness to provide Ireland with special consideration.

The Moody’s upgrade means that this condition has now been met and we expect managers of Irish UCITS will now restart their applications to register their UCITS in Chile.

Dechert monitors regulatory and market developments in Chile and more than 80 jurisdictions globally as part of our comprehensive service for supporting the cross-border distribution of investment funds.

This update was authored by:

Declan O'Sullivan
Dublin
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T: +353 1 436 8510

Karen Anderberg
London
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T: +44 20 7184 7313

Lindsay Trapp
Dublin
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T: +353 1 436 8523

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