UCITS Q&A

The Central Bank of Ireland (CBI) published the 39th Edition of the UCITS Q&A, updating Q&A ID 1100 (page 17) on whether a UCITS can invest directly or indirectly in digital assets.
The update reflects a change in terminology usage and reaffirms the Central Bank’s position, emphasizing that it is highly unlikely to approve a UCITS proposing any exposure to digital assets due to various risks. The CBI’s approach may change as European regulatory discussions progress and new information emerges, which read as follows – as quoted:
Q. (ID 1100) – Can a UCITS invest either directly or indirectly in Digital Assets?
A. Digital Assets are generally considered to be private assets that depend primarily on cryptography and distributed ledger or similar technology. However, the nature and characteristics of digital assets vary considerably. For example, digital assets that are tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities) may have a different risk profile when compared to other digital assets that are based on an intangible or non-traditional underlying. For the purposes of this Q&A “digital asset” is used to refer to the latter type of asset.
The Central Bank must be satisfied that assets in which a UCITS invests are capable of meeting the eligible asset criteria for UCITS and that indirect exposure to the assets is capable of being appropriately risk managed. As of the date of publication of this Q&A, the Central Bank has not seen information which would satisfy it that digital assets are capable of meeting the eligible asset criteria for UCITS or that indirect exposure to digital assets is capable of being appropriately risk managed. Though digital assets do not all have uniform characteristics, the Central Bank has noted that they can present significant risks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputation risks.
Taking into account the specific risks attached to digital assets and the potential that retail investors will not be able to appropriately assess the risks of making an investment in a fund which gives such exposures, the Central Bank is highly unlikely to approve a UCITS proposing any exposure (either direct or indirect) to digital assets.
The Central Bank’s approach in relation to digital assets will be kept under review, continue to be informed by European regulatory discussions on the topic and may change should new information or developments emerge in the future.