Asset Management & Investment Funds: Irish Practice Developments – December 2023

Deadlines

  • 29 December 2023 - Individual Accountability Framework (IAF) - The individual conduct standards under the CBI’s IAF are scheduled to apply. Regulated financial service providers (RFSPs) will need to:
    • notify CFs of the application of the Common Conduct Standards to their role
    • notify PCFs/CF1s of the application of the Additional Conduct Standards to their role
    • provide training to all CFs (including PCFs) on the Common Conduct Standards and Additional Conduct Standards, respectively, and how they apply to their function
    • establish, maintain and give effect to policies on how the Common Conduct Standards are integrated into the conduct of the affairs of the RFSP
  • 29 December 2023 - Enhanced Fitness and Probity Regime - Effective 29 December 2023. RFSPs need to have an additional certification process as regards compliance with standards of F&P, for each of their PCFs and CFs. The first annual CBI submission of confirmation of the completion of the certification process for each PCF role holder and of confirmation of the completion of the overall certification process for all CFs, will relate to the 2024 calendar year and will be required in 2025.
  • 31 December 2023 - Corporate governance - Completion of reviews of board and individual director performance. Under the Irish Funds Corporate Governance Code, the overall board's performance and that of individual members must be reviewed annually. Once every three years a formal documented review and a review of the chairperson must take place. Length of service and ongoing independence of directors, as well as gender diversity at board level, should be considered in line with the CBI's CP86 expectations. Compliance with procedures for dealing with conflicts of interest and the terms of reference of any board committees should be reviewed at least on an annual basis.
  • 31 December 2023 - Anti-money laundering/combatting the financing of terrorism - Designated persons (including UCITS ManCos, UCITS, AIFMs and AIFs) should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CFT on an annual basis (and at such other times as may be appropriate). The CBI expects boards to have in place a defined process for the annual review of AML/CFT policies, including AML/CFT business risk assessments. The board should also consider an AML/CFT report, on at least an annual basis, in accordance with EBA guidelines on policies and procedures in relation to compliance management and the role and responsibilities of the AML/CFT compliance officer. 
  • 31 December 2023 - Business plan/programme of activity - Fund management companies (FMCs), where they have not already done so, may need to complete their annual performance review on service providers. FMCs delegating functions must maintain adequate oversight and perform ongoing due diligence on delegates. Accordingly, FMCs should review and confirm their delegate due diligence plans, including making preparations for any necessary on-site visits. FMCs should also obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity, complete onsite visits with service providers, ensure adoption of valuation policy and make disclosure in respect of connected party transactions. 
  • 1 January 2024 - UCITS KIID/PRIIPs KID - UCITS authorised prior to 1 January 2023 that are required to produce a PRIIPs KID and AIFs that are required to produce a PRIIPs KID can make their initial submission of the PRIIPs KID through the CBI portal with the written declaration (detailed on the CBI PRIIPs guidance) from 1 January 2024. See more detail below.
  • 31 January 2024 - UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AIFMs must file their annual ownership confirmation by 31 January 2024.
  • 20 February 2024 - UCITS KIID/PRIIPs KID - All UCITS made available to "retail investors" in the EEA are required to provide such investors with a PRIIPs KID prior to their investment. In this context, "retail investor" includes any investor that does not fall within the definition of a "professional client" under MiFID. A UCITS which is not made available to "retail investors" in the EEA is not obliged to provide a PRIIPs KID and may continue to produce a UCITS KID. This may be important for marketing in the UK. A UCITS producing a UCITS KIID must update its KIID on an annual basis for each sub-fund/standalone fund within 35 business days of the end of each calendar year. The annual update of the UCITS KIID must be filed with the CBI. Any update to the KIID filed with the CBI must be translated and filed in other host jurisdictions as necessary. It must then be uploaded on the UCITS' website. See our November bulletin for more detail on filing UCITS KIIDs and PRIIPs KIDs with the CBI. Unlike the UCITS KIID, there is no annual refresh deadline for the PRIIPs KID. The PRIIPs KID must be reviewed regularly and revised when there is a significant change, and at least annually.
  • 29 February 2024 (expected deadline) - Fund profile return - The annual CBI fund profile return is required for all Irish authorised sub-funds. It is to be prepared for the period up to 31 December 2023, with an anticipated submission deadline of 29 February 2024. The CBI does not anticipate that the fund profile will change from year to year, as changes would most probably reflect changes within the fund's offering documents. Therefore, year-to-year updates to the fund profile are expected to be minimal and reflect significant changes. The CBI updated its fund profile guidance and template in 2022.
  • 29 February 2024 - Fitness & Probity - RFSPs, as part of their annual fitness and probity audit due diligence and depending on their compliance calendar, may need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. money laundering reporting officer and company secretary) that they are aware of the Fitness & Probity Standards, agree to continue to abide by those standards and will notify the board without delay if they no longer comply. This forms part of ongoing performance monitoring set out in Section 22 of the Guidance on Fitness and Probity Standards. RFSPs will need to submit their annual PCF confirmation return to the CBI by 29 February 2024. The CBI is currently updating the return. The first annual submission of confirmation of the completion of the new F&P certification process for each PCF role holder and of confirmation of the completion of the overall certification process for all CFs will relate to the 2024 calendar year and will be required in 2025.

The above list does not cover:

  • tax, FATCA or CRS filings, director's compliance statement obligations, which apply to listed UCITS VCCs
  • diversity reporting obligations, which may apply to listed AIF and UCITS VCCs
  • ad hoc filings, such as regulatory reports, or filings of annual accounts (and related documents which include annual FDI returns) and semi-annual accounts or other similar returns (which deadlines vary to reflect the particular entity's year-end)

By way of example, the Companies (Accounting) Act 2017 obliges UCITS investment companies and AIF investment companies to file annual accounts with the CRO within eleven months of their financial year-end. The CBI issued:

CBI timeframes for applications with a year-end effective date

The CBI issued timeframes for receipt of applications that are seeking a Christmas or year-end effective date for:

  • QIAIF authorisations, approvals and notings
  • ICAV registrations
  • revocation applications
  • UCITS and RIAIF authorisations, approvals and notings
  • fund service provider authorisations

You can read more here.

CBI CP157 - Macroprudential measures for GBP liability driven investment funds

The Central Bank of Ireland (CBI) is consulting on a proposal to codify and, in certain cases, augment the existing yield buffer measure introduced via an industry letter in November 2022. The proposal to codify the yield buffer would be imposed through Article 25 of the Alternative Investment Fund Managers’ Directive (AIFMD).

This consultation paper (CP157) outlines a policy proposal to strengthen the steady-state resilience of GBP LDI funds. The consultation process is being undertaken in alignment with the Commission de Surveillance du Secteur Financier (CSSF), building on initial coordination between the CBI and the CSSF described the November 2022 industry letter. The consultation closes on 18 January 2024.

Summary of proposed macroprudential policy measures for GBP LDI funds is detailed below.

  • Buffer level: Irish authorised GBP denominated LDI funds must maintain resilience to a minimum of 300 bps increase in yields.
  • Scope of buffer: The yield buffer applies to Irish authorised GBP denominated LDI funds only, and to all such funds equally.
  • Definition of GBP LDI funds: The population of GBP LDI funds that the codification would apply to will be identified from their investment strategy. The definition proposed is: “Any fund whose investment strategy seeks to match the interest rate or inflation sensitivity of their assets to that of their investors’ liabilities.”
  • Buffer composition: Only assets on the funds balance sheet are included in the calculation of the buffer, and not assets which fund investors own (but the fund is authorised to use). All fund’s exposures will be considered in calculating buffer.
  • Reporting: Monthly averages of daily yield buffer are reported at month-end. The yield buffer in each reporting observation should be greater than or equal to 300 bps.
  • Buffer usability: In order to provide limited flexibility to facilitate buffer usability, looking back over the last four reporting observations, one of the reporting observations can be below 300 bps in exceptional circumstances.
  • Buffer dis-application: The CBI may temporarily dis-apply the yield buffer requirement should there be a significant, market wide shock to financial stability. This would ultimately be a judgement, based on market intelligence, firm engagement and external indicators.
  • Liquidity guidance: It is proposed that targeted guidance on liquidity also accompanies the yield buffer. The proposed high-level guidance is as follows: “Funds should ensure that they maintain sufficient holdings of assets which are eligible to meet margin or collateral calls that result from adverse market circumstances, or assets which can be transformed into such eligible assets with requisite speed.”
  • Notification to the CBI: If funds in scope of the measure anticipate substantive and/or prolonged deviations below 300 bps, they must notify the CBI.

CBI speech

CBI Deputy Governor, Derville Rowland delivered a speech on Private Assets: A changing European landscape - at the Irish Funds, 10th annual UK symposium. With a theme of change, the Deputy Governor outlined the opportunities that remain for the complementary goals of enhancing the resilience of financial markets and further developing European capital markets and remarked on the rapid growth of private finance and the need for more to be done to stimulate European capital markets. In this regard, the Deputy Governor remarked on:

  • The provisional agreement on AIFMD 2 being a positive development, and that in due course, given the proposed EU level framework incorporates many features of the CBI’s rules, the CBI will move to align the provisions of its domestic framework with AIFMD 2. The Deputy Governor referred to the changes to the largely successful AIFMD, being targeted, including new harmonised rules for funds which undertake lending activity. The Deputy Governor noted that Ireland strongly supports a pan-European framework for loan origination by funds, having had a longstanding domestic framework in Ireland for this activity.
  • The amended ELTIF regime, which will apply from 10 January 2024 as providing fund managers with an additional product development option which supports capital flows into long-term investments in the European real economy. The Deputy Governor noted that the CBI is taking steps to provide, for the first time, for an ELTIF which will be authorised under domestic fund legislation with all the benefits otherwise applicable to an authorised AIF in Ireland. The Deputy Governor noted that if designed correctly, and sold appropriately, there are many benefits for retail investors having access to ELTIFs through diversified, pooled collective investment funds.

In tandem with the Capital Markets Union agenda to increase retail participation and address market fragmentation, the Deputy Governor identified two areas that regulators and policy makers must continue to strengthen resilience and address emerging vulnerabilities as:

  • Investment fund liquidity – noting that the work of the FSB and IOSCO on investment fund liquidity, with both consulting on updates to the international regulatory framework, is reaching conclusion. The Deputy Governor remarked that national policy makers will need to consider the output of that work and that liquidity and leverage will remain a focus in European and at the CBI. The Deputy Governor highlighted the CBI’s continued work on liability driven investment (LDI) funds and referred to the CBI’s consultation paper on measures to enhance the steady state resilience of Irish authorised sterling denominated LDI funds (see above).
  • The risk and opportunities for the financial sector of climate change challenges – including ESMA’s steps to address the potential vulnerability of the disconnect between a fund’s name and the disclosures required in the EU Sustainable Finance Disclosures Regulation. The Deputy Governor’s remarks also include that the European Commission is looking likely to further consider the introduction of a labelling regime for investment products, which the CBI is supportive of. Finally, the Deputy Governor referred to the steps that the CBI has taken to clarify its disclosure expectations, including hosting a workshop with industry representatives, and that further clarifications will be provided in due course.   

CBI letter - MiFID II costs and charges requirements

The CBI issued a letter providing feedback to industry on the findings of its thematic review on MiFID II costs and charges requirements and outlining the CBI expectations. The letter highlights ESMAs key findings (see ESMA July statement here) which identified a number of key investor protection weaknesses including:

  • Aggregated Disclosure Statement. The review found:
    • limited adoption by firms of the ESMA format, leading to inconsistent and divergent approaches to disclosure
    • inconsistencies regarding the disclosure of implicit costs and the requirement to disclose aggregated costs and charges both numerically and as a percentage
  • Itemised Breakdown. The review found:
    • a general lack of detail and granularity in itemised breakdowns
    • limited uptake of the format and headings set out in Annex II of the Delegated Regulation
    • inconsistent use of MiFID II terminology, where firms instead applied more bespoke or commercial terminology
    • notifications to advise clients of their right to request the itemised breakdown were not prominently highlighted
  • Third Parties and Third Party Payments. In certain cases, the review found that the responsibility for issuing costs and charges disclosures was outsourced to third party providers, with no oversight or monitoring of these disclosures by firms. It was also noted that some firms were overly-reliant on the ex-ante disclosure and did not separately itemise the third party payment received.

Schedule 1 to the letter provides further detail on the CBI’s key findings and expectations in respect of the CSA on costs and charges, together with good practices observed.

For more information please contact a member of the Asset Management & Investment Funds team.

Date published: 12 December 2023