The Central Bank said a review of UCITS funds on the subject of closet indexing has found cases of poor governance and controls by the funds' boards. 

UCITS (Undertakings for Collective Investments in Transferable Securities) are essentially investment funds regulated by the European Union. 

Closet indexing is where asset managers claim - according to their fund rules and investor information documentation - to manage their funds in an active manner while the funds are, in fact, staying very close to a benchmark.

The funds therefore implement an investment strategy which requires less input from the investment manager, while the asset managers charge management fees in line with those of funds that are considered to be actively managed.

The Central Bank review found that investors were not always given sufficient or accurate information about the fund's investment strategy in the prospectus which that affected their ability to make an informed decision on whether to invest in the fund.

The review also highlighted instances of poor governance and controls by boards. 

It also noted instances where the fund had a target outperformance against an index that is less than the fee charged to certain share classes in the fund. 

"The result is that even if the UCITS provides a return at the upper end of its projections, investors in these share classes will not realise a positive return against the benchmark, as the fee charged will cancel out any outperformance achieved," the Central Bank said. 

The Central Bank's Director General Derville Rowland said that investors in UCITS have a right to rely on the information in the prospectus and the funds have an ongoing duty to ensure that this information is accurate and that the fund is managed in investors' best interests.

"As well as following up with the funds where we had findings, we are requiring all UCITS funds to consider the accuracy of their prospectus on an ongoing basis in light of these findings," Ms Rowland said. 

She said that where such funds need to amend their prospectus, the Central Bank is giving them until the end of March 2020 to do so.