Asset Management & Investment Funds: Irish Practice Developments – January 2025

Deadlines

1 January 2025 - CSRD - The Corporate Sustainability Reporting Directive (CSRD) applies to in-scope entities on a phased basis with the first entities in scope applying the new rules for the 2024 financial year, for reports published in 2025. The next entities in scope will apply the new rules for the 2025 financial year, for reports published in 2026. The final entities in scope will apply the new rules for the 2026 financial year, for reports published in 2027. These in-scope entities are required to provide information on sustainability matters, according to the European Sustainability Reporting Standards in the directors’ report. You can read the draft European Commission notice here.

1 January 2025 - Fitness & Probity - The PCF annual confirmation submission facility is 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 Individual Accountability Framework) in respect of each PCF and all other CFs.

17 January 2025 - Digital Operational Resilience Act (DORA) - DORA applies from 17 January 2025.

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

5 February 2025 - EU Taxonomy - The EU Platform on Sustainable Finance has requested feedback on its draft report on activities and technical screening criteria to be updated or included in the EU Taxonomy by 5 February 2025 (discussed below).

6 February 2025 - T+1 - The first meeting of the coordination committee on the transition to the T+1 settlement cycle in the European Union will take place on 6 February. Industry representatives interested in contributing to any of the technical workstreams are invited to contact the T+1 industry secretariat (discussed below).

11 February 2025 - IOSCO consultations on liquidity risk management - IOSCO’s consultation on its revised recommendations for liquidity risk management for collective investment schemes, with a focus on open-ended funds and on complementary guidance for the effective implementation of the recommendations run until 11 February 2025 (discussed below).

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.

12 March 2025 - ESMA consultation on loan-originating AIFs - ESMA’s consultation on RTS for loan-originating AIFs (discussed below) closes.

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.

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 (discussed here).

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 here) 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’s investment funds supervision bulletin

The Central Bank of Ireland (CBI) published its first edition of its investment funds supervision bulletin, intended to complement its engagement with the sector and to highlight current and future areas of supervisory and authorisation focus. The bulletin should be read in conjunction with the regulatory and supervisory outlook report and all relevant CBI publications and correspondence. Key topics are set out below.

Exchange traded unds (ETFs) - In 2024 the CBI carried out a review of how FMCs oversee the activities of authorized participants (APs) and contracted market makers (CMMs) appointed to their ETFs. While the review highlighted some good practices, the CBI also identified a number of areas where improvements are required in relation to oversight of the activities of APs and CMMs. This includes areas such as due diligence, risk monitoring and stress testing, and the quality of board reporting. The review found that, while the Irish ETF ecosystem is functioning effectively, there may be potential reliance and concentration on a small number of APs and CMMs.

The findings from the review are set out in more detail in the CBI’s industry communication issued on 28 November 2024 and discussed here. As noted in the deadlines above, management companies of ETFs should review the actions outlined in the CBI letter and, where appropriate, incorporate the necessary changes to their frameworks and practices by 30 June 2025.

Recently completed thematic reviews.

Fixed operating expense (FOE) models - As a follow on from March 2023 industry letter issued in response to the CSA on costs and fees, supervisors conducted a targeted review of FOE models. Supervisors observed varying levels of fee retention by fund management companies (FMCs) utilising FOE models. It also identified shortcomings relating to the transparency of fee disclosures and sees scope to enhance the depth of the periodic review process to ensure the fee structure remains appropriate and in the best interests of investors. CBI's expectations for FMCs:

• Investors should be fully aware of all expenses and the model should be calibrated so that any differential is minimised and that undue costs are not charged to investors.
• All new and existing costs should be reviewed annually, taking into account the investment objective and strategy of the fund, the target and actual level of performance achieved, and the role and responsibilities of service providers. Throughout the life of the fund, FMCs should ensure that costs and fees are calculated fairly and equitably, serving the best interests of investors and this should be evidenced as part of the annual review.
• Periodic independent reviews of costs and fees structures should be performed to ensure that they continue to offer investors a return commensurate with the fund's risk profile.

The CBI notes that its review informs how it incorporates fee analysis into the fund authorisation process.

Investment advisors - Review commenced in 2023 following the CSA on costs and fees and aimed at reviewing instances where there is both an investment advisor and a discretionary investment manager appointed to a fund, and the relative fees being charged by both. The CBI also sought to determine the quality of disclosures on the role of investment advisors. Supervisors observed instances where fees paid to investment advisor were higher than to investment manager, with the reasons provided by FMC not always clear. The review further highlighted concerns relating to the standard of fee disclosures and the frequency of periodic fee reviews. The CBI expects:

• FMCs to ensure fee arrangements are appropriate for the services provided and are reviewed through the lifecycle of the fund. As part of its fund authorisation process, the CBI is enhancing its assessment of the role of investment advisor and the fee model of the fund.
• FMCs to ensure that the role performed by the investment advisor is non-discretionary and adjunct to investment manager role.
• Fees should be appropriate for the services provided.

Other significant updates

Data led supervision - A key supervisory priority for the CBI is greater data utilisation and building out its data and analytic capabilities. CBI stresses that FMCs should ensure data submitted is accurate and reliable. The daily investment fund return (DIFR) is provided as an example whereby, from 16 December 2024, the CBI will collect daily subscription and redemption data from all non- money market funds. This is the first phase of the CBI's daily fund return work with the next phase focusing on the collection of data in relation to the use of liquidity management tools (LMTs). The DIFR replaces the currently daily and weekly trigger-based liquidity reporting and will streamline current queries to industry.

Irish property funds - There were two main findings from the CBI's questionnaire issued in Q1 2024 to a sample of FMCs managing Irish property funds:

• Risk management practices where fund level liquidity stress testing (LST) was absent, with a reliance on the LST policy of the FMC, which is not sufficiently robust given it's not tailored to the fund, its investment strategy and portfolio composition.
• LST carried out a fund level was not frequent enough. The frequency should be based on the fund's characteristics, and the reasons for the justification should be set out in the LST policy.

In terms of best practice, the CBI, in line with ESMA guidelines, recommend FMCs employ quarterly or more frequent LST, thus ensuring robust risk management frameworks are in place. FMCs are reminded that LST policies should be kept under continual review and amended accordingly in respect of changes in the operating environment. Information gathered from this exercise will further influence the CBI's Irish property fund supervisory focus into 2025.

Other reviews with communications to follow:

Liquidity management tools - The CBI is carrying out a deep dive review of LMTs to understand how FMCs use LMTs during “normal” market conditions and during more volatile market conditions and also considering governance around how and when LMTs are used. The findings of the CBI's quantitative survey issued to FMCs indicate a lack of alignment between current availability of LMTs and the level of availability being considered as part of international discussions on LMT guidelines.

The findings also indicate that usage levels of price-based LMTs were lower than would be expected. Swing pricing was observed to be the most used price-based LMT, followed by a smaller proportion of funds using an anti-dilution levy. Size of fund and FMC preference appear to be largest determinants of which price-based LMT is used. Initial analysis also indicated more mature governance arrangements resulted in higher levels of price-based usage, for example where a fund had ex-ante thresholds that were regularly reviewed. The CBI will commence the next phase of its review in early 2025 with a more targeted questionnaire to FMCs. CBI intends to conclude its review in 2025 and to communicate findings.

The future:

• In early 2024 the CBI reviewed practices on the use and management of risk registers by depositaries and fund administrators and will engage with firms to address any specific findings in due course.
• Review of compliance of UCITS and AIF with securities lending arrangements commenced in Q1 2024. The review assessed if fee arrangements are calculated in a fair and equitable manner, are clearly disclosed and regularly reviewed. The CBI anticipates concluding this thematic in 2025 and plans to communicate its findings and actions to industry.
• CSA on sustainability risks and disclosure - ESMA is expected to issue its CSA report in Q2 2025 on FMCs compliance with the SFDR. The CBI will also share an industry communication following ESMA's publication.

Areas of focus for 2025 will include a new ESMA CSA topic, continuation of the LMT review, a review focusing on hedge funds and the recently issued ESMA costs and fees survey. There may also be further thematic reviews launched during 2025. The CBI will continue to engage with the funds industry to manage the timelines and expectations relating to this work. From an authorisations perspective, CBI will continue to perform comprehensive authorisation assessments and post authorisation amendments of retail investment funds. An area of focus will be the SFDR, including the ESMA guidelines on funds names using ESG or sustainability-related terms, which applied from 21 November 2024 for new funds and will apply from 21 May 2025 for existing funds. Quality assurance reviews will also continue to be carried out post authorisation on a sample of qualifying investor AIFs and all qualifying investor and professional investor ELTIFs.

Fitness and Probity

The CBI established a dedicated fitness and probity unit. CBI Governor, Gabriel Makhlouf said: “The Enria report, published in July 2024, identified several key areas for improvement in our operation of the fitness and probity regime. We accepted the findings of the report and have used them as a basis for implementing reforms to enhance the regime’s overall effectiveness.”

The CBI has published its PCF Annual Confirmation and CF Certification Guidance December 2024. The PCF annual confirmation guidance has been updated by the addition of CF certification guidance. Enhancements to the current fitness and probity regime under the Individual Accountability Framework require regulated financial service providers to proactively certify that individuals carrying out CF and PCF roles meet the CBI’s standards of fitness and probity. This is reflected in the new guidance. Both the PCF annual confirmation and CF annual certification facility is open on the CBI portal from 1 January 2025.

CBI markets update

The CBI published issue 13 2024 of its markets update which included:

• Response to the European Commission’s targeted consultation assessing the adequacy of macroprudential policies for NBFI

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