On 30 January 2025, the FCA published Handbook Notice 126, introducing important updates to COLL 5.2.29 – the UCITS concentration rules. These changes stem from Consultation Paper CP24/11 and bring the UK rules in line with interpretations already adopted in Ireland and Luxembourg.
For UK UCITS managers, these updates have practical implications for fund structuring, compliance monitoring, and disclosure. Here’s what you need to know.
Regulatory Context
COLL 5.2.29R sets out concentration limits for UCITS schemes to ensure a prudent spread of risk. These include:
- Max 10% of non-voting shares of any one issuer
- Max 10% of debt securities of any one issuer
- Max 25% in value of any one CIS
- Max 10% of the money market instruments (MMI) in issue of any one issuer
Previously, these limits applied at the umbrella level. The FCA’s update now shifts the application to the sub-fund level, aligning with EU practice.
Summary of Key Changes
1. Sub-Fund Level Application
All COLL 5.2.29 rules now apply at the sub-fund level, not the umbrella level. This change affects all four concentration limits and aligns UK interpretation with Ireland and Luxembourg.
Galaxy Impact: Galaxy will update its UK UCITS rule library to reflect this change, ensuring compliance monitoring is aligned with the new sub-fund level interpretation.
2. Clarification on Target Fund
The FCA clarified that the 25% limit applies to the target sub-fund, not the umbrella. This provides more flexibility for fund-of-funds structures but may require transitional arrangements for managers previously relying on umbrella-level compliance.
Galaxy Impact: No change required – Galaxy already applies this rule at the sub-fund level.
3. Exemption for In-House Managed Portfolios
A new exemption allows UCITS schemes managed by the same Authorised Fund Manager (AFM) to exceed the 25% limit when investing in each other. This reflects the FCA’s confidence in existing safeguards around conflicts of interest and liquidity risk.
Galaxy Impact: Galaxy will introduce a portfolio flag to identify funds benefiting from this exemption and apply the rule conditionally. Implementation will follow client consultation and prospectus updates.
4. Clarification on Denominator
The FCA confirmed that the 25% threshold refers to the value of the sub-fund invested into, not the number of units. This aligns with industry practice and avoids inconsistencies caused by multiple share classes.
Galaxy Impact: Galaxy will offer clients the choice to monitor based on sub-fund value or shareclass units, depending on data availability and quality.
What This Means for You
These changes represent a significant shift in how UK UCITS managers must monitor concentration limits. With Galaxy, you can:
- Automate compliance checks at the sub-fund level
- Apply exemptions based on AFM relationships
- Choose flexible monitoring approaches based on your data
- Stay aligned with FCA, Irish, and Luxembourg interpretations
Take Control of Your UCITS Compliance
Funds-Axis’ Galaxy Investment Compliance Monitoring Software is built to adapt to evolving regulations like COLL 5.2.29. Whether you’re managing UK UCITS, EU UCITS, or multi-jurisdictional portfolios, Galaxy ensures your compliance is automated, audit-ready, and regulator-aligned.
