Asset Management & Investment Funds: Irish Practice Developments – December 2024

Deadlines

Q4 2024 - Fitness and Probity - Central Bank of Ireland (CBI) to implement recommendations of Review of the Fitness and Probity Regime as discussed in our July Bulletin. CBI Governor, Gabriel Makhlouf noted that a centralised CBI F&P unit will be up and running by the end of 2024. So too will new processes and decision making - to ensure they are clear, timely, transparent, consistent and robust - with strong and fair processes supporting supervisory judgement at the gate. In 2025 CBI will also publish consolidated and enhanced guidance on F&P standards.

Q4 2024 - Loan Originating Funds - CBI to consult on loan originating funds as discussed in A tapestry of regulatory change - Remarks by Patricia Dunne, Director of Securities and Markets Supervision.

31 December 2024 - Individual Accountancy Framework (IAF) - Regulated financial service providers (RFSPs) will have adopted policies on how the Common Conduct Standards (and, where appropriate the Additional Conduct Standards) are integrated into the conduct of its affairs, including notification, communication and training. RFSPs should provide appropriate training on an ongoing basis to ensure that individuals are clear on their obligations in respect of the Conduct Standards and specifically what is expected of them in the context of their role. Firms should evidence that individuals have completed the relevant training and maintain up to date records in this regard.

31 December 2024 - 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 2024 - 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 2024 - Business plan/programme of activity - UCITS mancos, self-managed UCITS, AIFMs and internally managed AIFs (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.

31 December 2024 - PRIIPs KID - The derogation granted to UCITS (and where applicable AIFs) from the calculation rules for “actual transaction costs” under Annex VI of the PRIIPs delegated regulation expires.

31 December 2024 - Listing Act: consultation on the Prospectus Regulation and call for evidence on prospectus liability - Consultation on the Prospectus Regulation and call for evidence on prospectus liability (discussed below) close.

1 January 2025 - Fitness & Probity - The PCF annual confirmation submission facility will be available to RFSPs on the portal from 1 January 2025. From 1 January 2025 and annually thereafter, RFSPs are required to submit to the CBI confirmation of compliance with the certification requirements (introduced by the IAF) in respect of each PCF and all other CFs. Submission of confirmation of compliance with the certification requirements in respect of 2024 will be required in 2025. Further details and updated guidance incorporating the PCF Annual Confirmation and CF certification requirements will be published by the CBI closer to the submission time.

17 January 2025 - AIFMD II discretions - Department of Finance consultation on AIFMD II discretions (discussed below) runs until 17 January 2025.

17 January 2025 - Digital Operational Resilience Act (DORA) - DORA will apply from 17 January 2025 as discussed in a recent CBI speech.

28 January 2025 - Listing Act: ESMA consultation on the MiFID II research regime - Consultation (discussed below) will close.

31 January 2025 - UCITS manco, AIFM ownership confirmation - UCITS mancos and AIFMs must file their annual ownership confirmation by 31 January 2025.

31 January 2025 - MiFID II marketing communications - In accordance with the CBI Dear CEO letter, mancos providing MiFID II services to retail clients must complete review of marketing and advertising practices with board approved action plan by 31 January 2025.

20 February 2025 - 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. The CBI website notes that the UCITS KIID return will not be a scheduled return on the Portal and is now set up as an ad hoc return. 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.

Where a UCITS produces both a UCITS KIID and PRIIPs KID, the latest versions of both should be filed with the CBI through the Portal. 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. PRIIPs KIDs (and PRIIPs KID updates) must also be filed with the CBI. Again, the CBI website has been updated to note that the PRIIPs KID return will not be a scheduled return on the Portal and is set up as an ad hoc return.

28 February 2025 (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 2024, with an anticipated submission deadline of 28 February 2025. 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.

31 March 2025 - ICCL Report - For the purposes of the Investor Compensation Company DAC’s compensation scheme, authorised UCITS/AIFM management companies authorised to perform individual portfolio management are required to file the ICCL report, see  UCITS - management companies reporting requirements.

Early 2025 - CBI plans to implement its new supervisory approach. The CBI’s new operating structure will include seven directorates, which will report into the existing Deputy Governors for Financial Regulation and Consumer and Investor Protection. The directorates responsible for sectoral supervision will include a Capital Markets & Funds Directorate which will have integrated teams responsible for all elements of its mandate and supervising risks as they relate to the sector. There will be a Horizontal Supervision Directorate working with the sectoral supervisory teams on a system-wide and thematic basis. It will provide specialist input on key cross-sectoral risks such as conduct, behaviour and culture, AML/CFT, financial resilience, operational resilience and technology risks. There will also be a Supervisory Risk, Analytics and Data Directorate, a Policy and International Directorate and an Enforcement Directorate.

21 May 2025 - ESMA’s guidelines on funds’ names using ESG or sustainability-related terms - End of transitional period - guidelines apply to UCITS and AIFs existing before 21 November 2024 from 21 May 2025.

30 June 2025 - Exchange Traded Funds (ETFs) - Management companies of ETFs should review the actions outlined in the CBI letter on the primary and secondary market trading arrangements of ETFs (discussed below) and, where appropriate, incorporate the necessary changes to their frameworks and practices by the end of Q2 2025.

1 July 2026 - UK OFR - Final OFR’s landing slots open for fund operators of umbrella EEA UCITS whose name begins with the letter “W-Z and firms with digits in the title” (in the TMPR) until 30 September 2026.

Reporting obligations may vary on a firm-by-firm basis. 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 11 months of their financial year-end.

CBI timeframes for applications with a year-end effective date

Read here for CBI 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

CBI letter on primary and secondary market trading arrangements of ETFs in Ireland

Following its review of the primary and secondary market trading arrangements of Irish authorised ETFs (review) in 2023, the CBI issued a Dear Chair letter (the letter) highlighting its key findings, setting out its expectations and actions to be taken by the board of each ETF’s management company (FMC).

Background to the review

The letter outlines the importance of the role of authorised participants (APs) and market makers (MMs) in underpinning market liquidity. The review was undertaken to ensure that the arrangements put in place by FMCs to oversee the roles played by APs/MMs are sufficient to protect ETF investors and promote the integrity of the ETF ecosystem, including the provision of liquidity during normal and stressed market conditions and the effective functioning of arbitrage mechanisms. Through the review, the CBI sought to gain an understanding of the governance structures in place between FMCs and APs/contracted MMs (CMMs) and to mitigate any identified risks. The review focused on due diligence, ongoing monitoring, and board oversight arrangements in place across FMCs. The review involved a quantitative assessment and a qualitative assessment to assess the oversight performed on APs and CMMs.

Key findings

The review found that at a sectoral level, the Irish ETF ecosystem is functioning effectively. Analysis showed that, during the periods in question the AP cohort functioned consistently, including during both ‘normal’ and ‘stressed’ market conditions. However, as outlined below, shortcomings were identified concerning the oversight of APs and CMMs by FMCs and their boards. The CBI’s view of the governance structure that should be in place in relation to the arbitrage mechanism and liquidity provision of ETFs is consistent with Measure 4 of the IOSCO 2023 report on ‘Good Practices’. Additionally, some risks were identified with regards to concentration in the sector.

• Inadequate due diligence of APs/CMMs. Most FMCs did not evidence appropriate levels of due diligence being performed on APs/CMMs and many lacked formal policies and procedures in place to assess the nature and capability of APs/CMMs, with limited reporting to boards and inadequate due diligence.
• Limited ongoing monitoring of APs/CMMs. Most FMCs did not demonstrate a sufficient level of ongoing monitoring of APs/CMMs, and little evidence of risk monitoring and stress testing performed on APs/CMMs.
• Lack of board oversight. Boards of FMCs were receiving minimal specific AP/CMM reporting, raising questions as to how much oversight and awareness boards have of the performance of APs and CMMs.
• AP and MM concentration. Creation and redemption activity in Irish ETFs is concentrated among a limited number of APs, with approximately 81% of total notional activity concentrated amongst the top five APs, with two APs contributing to a significant percentage of this total. Similarly, CMMs used by Irish ETFs were mostly concentrated among five providers, being used by approximately 88% of ETFs in total.

Required action

The CBI expects that FMCs review the actions outlined below and, where appropriate, incorporate changes to their frameworks and practices by the end of Q2 2025. FMCs should:

• assess their current practices against Measure 4 of the IOSCO Good Practices and close identified gaps, in particular as regards due diligence and ongoing monitoring. FMCs should consider applying certain aspects of the outsourcing guidance when assessing the activities of APs and CMMs.
• assess reporting received by FMC boards on AP and CMM activity to ensure they remain fully aware of the AP/CMM activity, ensuring that relevant, risk-focused reporting is provided on a regular basis.
• review current arrangements to ensure ETFs have a sufficient number of APs and CMM relationships in place. FMCs will need to demonstrate that substitutability risk has been considered and appropriate mitigants have been put in place. FMCs should also ensure CMM agreements have been noted by their boards and effective contingency planning is put in place. Measure 58 of the IOSCO Good Practices should be considered in that regard.

Appendix 1 to the Letter lists areas that FMCs may wish to consider in the context of AP/CMM due diligence and ongoing monitoring.

FMCs will need to review the actions and where necessary, incorporate the necessary changes to their frameworks and practices by the by the end of Q2 2025.

Department of Finance consultation on AIFMD II discretions

The Department of Finance (DoF) opened a public consultation on the exercise of the national discretions in AIFMD II.

While the majority of the provisions in AIFMD II will be transposed on a fully harmonised basis, there are a number of national discretions where each Member State has discretion on the application of the particular provision. The DoF invites interested parties to make submissions in relation to the exercise of the following national discretions in AIFMD: 

• extending the list of ancillary activities and services that may be provided by an external AIFM
• prohibiting AIFs that originate loans from granting loans to consumers in Ireland
• permitting the CBI (as national competent authority) to allow the appointment of a depositary established in another Member State, on receipt of a reasoned request from an AIFM and subject to strict conditions
• extending the list of ancillary activities and services that may be provided by a UCITS management company

The DoF also welcomes views in relation to other elements of the transposition. The consultation period will run until 17 January 2025. 

CBI speech on regulatory engagement, ETFs, complex products, ELTIF 2.0 and changes to the CBI’s supervisory approach

Patricia Dunne, CBI Director of Securities and Markets Supervision delivered a speech at the Irish Funds Annual UK Symposium. In particular, Ms Dunne dealt with three elements of the CBI’s current regulatory agenda:

• the evolution of the ETF sector
• the growth of more complex products
• the changes the CBI has made to its supervisory approach for the sector

Evolution of the ETF Sector:

• The CBI remains open to engaging with industry on the issue of mandatory publication of daily portfolio holdings for ETFs, noting that the issue was recently considered in IOSCO’s ETF Good Practices and in the Funds Sector 2030 Report.
• The CBI’s updated UCITS Q&A allows the "UCITS ETF" identifier at the sub-fund or share class level.
• The CBI undertook a thematic review looking at the oversight that FMCs perform on key players within the ETF eco-system. See above update on the CBI’s industry communication.

Growth of more complex products

• The CBI has seen a significant rise in the scale of private markets and investors growing appetite for alternative strategies.
• The CBI has published the new ELTIF chapter in its AIF Rulebook covering supervisory, disclosure and general operational requirements. The CBI has recently authorised seven ELTIFs, all of which to date have been closed ended and targeted to professional investors. With the entry into force of Level 2 measures in October, the CBI has had engagement with a number of prospective applicants on open-ended ELTIFs, as well as retail Investor ELTIFs.
• The revised AIFMD includes the harmonised regime for loan origination and implementation of the ESRB recommendations on liquidity management. In an Irish context, the revised AIFMD impacts domestic requirements, such as the AIF Rulebook and the Central Bank UCITS Regulations. The CBI is working with the Department of Finance on implementation in order to update the regulatory framework to support transposition of the revised AIFMD and UCITS directives.

Changes to supervisory approach

• The CBI has brought the funds supervision eco-system together into one division, placing increased emphasis, through engagement with management companies, on the underlying products. Underpinning this structural change was the introduction of the data led funds risk model which has enabled the CBI to look at relevant funds at an individual, cohort or sectoral level (Property, MMF, ETF etc.) and their associated management companies. We can expect more frequent targeted supervisory engagement, both at the firm and product level.
• CBI is making greater use of sectoral and thematic supervision. These twin approaches allow the CBI to follow the risk, both from the management company perspective, and across the sector as a whole and to observe industry practices.
• CBI is deploying a data-led, risk based supervisory approach. CBI has developed a new daily investment fund return, to give CBI sight of all investor subscription and redemption activity and AUM changes on a trade date basis. CBI are also using various datasets and analytical tools to assess compliance with various legislative requirements and industry may see engagement from the CBI in the weeks.
• In relation to ESMA guidelines on funds’ names using ESG or sustainability-related terms, the CBI has established a streamlined filing process for funds seeking to amend their name or to make minor changes to disclosures in fund documents.
• The next phase of CBI’s data building strategy will cover liquidity management tools. Communications have issued to industry on this new return.
• The transformation in CBI’s fund supervisory mandate means that data will guide its resource allocation covering not only prudential supervision and investor protection but also conduct and money laundering risks.
• This focus on data and technology also extends to CBI’s gatekeeping role. The CBI is working to enhance its authorisation process through introducing more automation and improved workflow processes. The CBI will continue to explore further enhancements to its gatekeeper process, which will also aid with streamlining external stakeholder engagements in relation to gatekeeping matters.

CBI letter supporting the EBA survey for UCITS and AIFs falling within the scope of initial margin model authorisation under EMIR 3

The CBI issued an industry letter supporting the EBA survey for UCITS and AIFs falling within the scope of initial margin model authorisation under EMIR 3. On 29 October, the EBA, ESMA and EIOPA, launched a survey aimed at collecting, ahead of EMIR 3 publication, information on UCITS and AIFs in scope of initial margin model authorisation in the EU. The deadline for submitting responses is 29 November 2024.

Entities currently subject to the requirement to exchange initial margin in accordance with Article 36 of Commission Delegated Regulation (EU) 2016/2251 (the joint ESAs RTS on uncleared OTC derivatives) are expected to complete this survey. This refers to entities meeting both of the following criteria:

• their aggregate average notional amount (AANA) (computed at the level of the consolidated group) exceeds €8bn
• they use at least one initial margin model to comply with the requirement to exchange initial margin

All entities of a group that are subject to this requirement are expected to complete the survey separately, at entity level.

 The information gathered will be used to:

• guide the EBA in the setup of its central validation function and inform the EBA’s response to the EU Commission’s Call for advice on a possible Delegated Act on fees
• develop proportionate requirements for entities within the scope 2 of IM model authorisation, in particular for smaller entities (so called 'Phase 5' and 'Phase 6' entities) - as part of upcoming mandates under EMIR 3

The press release is available here.

Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024

The Companies (Corporate Governance, Enforcement and Regulatory Provisions) Act 2024 was signed into law on 12 November 2024. Certain provisions will commence on 3 December 2024 by virtue of a Commencement Order signed on 20 November 2024. Read more here.

CBI markets updates

The CBI published Issue 11 2024 of its markets update which included:

• The EBA asks for input from UCITS and AIFs falling within the scope of initial margin model authorisation under the revised European Market Infrastructure Regulation (discussed above).

The CBI published Issue 12 2024 of its markets update which included:

• The CBI publishes an industry letter in relation to a thematic review examining the primary and secondary market trading arrangements of exchange traded funds (ETFs) in Ireland.
• EC Consultation for Commission guidelines on the application of the definition of an AI system and the prohibited AI practices established in the AI act
• ESMA publishes consultation paper on active account requirements

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.