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

CBI discussion paper on macroprudential policy for investment funds​

The Central Bank of Ireland (CBI) issued a press release inviting feedback (by 15 November 2023) on its discussion paper (DP11) on an approach to developing a macroprudential policy framework for investment funds. The CBI will publish a feedback statement next year which will help inform the CBI's participation in any international or European regulatory discussions on the topic and inform further analysis and policy work in this area.

This is accompanied by a governor's blog setting out some of the main issues explored in the discussion paper.

Vasileios Madouros, Deputy Governor, Monetary and Financial Stability, said “As the financial system evolves, it is important that the regulatory framework also adapts. Developing and operationalising a macroprudential framework for the funds sector has been a priority for the Central Bank in recent years. This discussion paper intends to facilitate discussion and progress in this area internationally. The Central Bank is actively working with colleagues and institutions globally in this area and our aim is that the Discussion Paper will generate debate and focus attention on how a macroprudential perspective in the regulation of the funds sector could be achieved. We look forward to engaging with stakeholders on their views and encourage them to submit feedback to inform our work.” 

DP11 aims to advance ongoing international and European discussions on how a macroprudential perspective in the regulation of the funds sector could be achieved. DP11 seeks views on a number of issues in the funds sector, including:

  • systemic risks
  • the current regulatory framework
  • the objectives and principles of macroprudential policy
  • the design of macroprudential tools
  • considerations for operationalising this framework​

DP11 covers the following topics:

  • Section 1: the growth of non-bank financial institutions and investment funds, and the heterogeneity of business models
  • Section 2: systemic risks from investment funds
  • Section 3: current regulatory framework for investment funds
  • Section 4: macroprudential policy for investment funds
  • Section 5: potential macroprudential tools for investment funds
  • Section 6: operationalising a macroprudential framework for investment funds - key considerations
  • Section 7: conclusions and list of questions

DP11 is closely aligned with the IOSCO, FSB and ESRB workstreams discussed under EU and International developments.

Deadline: Responses should be sent to CBI by 15 November 2023.

CBI markets updates

The CBI published issue 6 of 2023 of its markets update, including the following topics:

  • ​Dear CEO letter on targeted reviews on control frameworks and risk appetite statements in MiFID investment firms & market operators
  • ESMA publishes translations for guidelines on MiFID II remuneration requirements
  • ESMA publishes translations for guidelines on MiFID II suitability requirements
  • CBI publishes updated guidance on client asset requirements and investor money requirements to coincide with the revised Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firm) Regulations 2023
  • Update to the confirmation required within the CBI QIAIF application and QIAIF post authorisation application forms
  • The CBI is hosting the Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO) stakeholder outreach on open-ended funds
  • "Implementing DORA - achieving enhanced digital operational resilience in European financial services" - remarks by Gerry Cross, Director of Financial Regulation, Policy & Risk
  • “The evolving crypto landscape – towards the implementation of MiCA” - remarks by Gerry Cross, Director of Financial Regulation, Policy & Risk

The CBI published issue 7 of 2023 of its markets update, including the following point of interest:

  • Publication of the discussion paper: An approach to macroprudential policy for investment funds

CBI speech on enhancements to the CBI’s Administrative Sanctions Procedure - remarks by Seána Cunningham, 5 July 2023

Following the launch of the CBI’s consultation on enhancements to the CBI's Administrative Sanctions Procedure (ASP), discussed in our June bulletin, Séana Cunningham, CBI Director of Enforcement & Anti-Money Laundering, spoke about the key enhancements to the ASP and the related proposed ASP guidelines. Key takeaways are detailed below.

The ASP consultation arises out of legislative changes introduced under the Individual Accountability Framework (IAF) and the CB's review of experience in operating the ASP in recent years and international best practice. The IAF Act introduced new procedures and additional safeguards into the ASP, including increased court oversight. The ASP guidelines have been developed with regard to the legislative amendments under the IAF Act.

The CBI's objective is to ensure that the ASP guidelines are practical and clear and that they will support a smooth transition to the operation of the enhanced ASP procedures and processes.

Enhancements to the ASP

​The ASP guidelines being consulted on will cover all of the key elements of the ASP – investigations, inquiries, sanctions, settlement, court confirmation and appeals. In drafting the ASP guidelines the CBI revisited and consolidated its existing published guidance documents – the ASP Outline 2018, the Inquiry Guidelines 2014 and the ASP Sanctions Guidance 2019, into one consolidated guidance document.   

Whilst there are enhancements to the process, much about the ASP will remain the same. The operation of the ASP will continue to include the following:

  • the forensic investigation by the CBI of suspected breaches of financial services obligations by firms and individuals
  • the function of holding inquiries
  • the power to determine and impose sanctions
  • court confirmation of sanctions imposed and appeals
  • the discretion to settle and resolve cases by agreement with the CBI

ASP Investigations

The IAF Act placed the investigation phase of the ASP on an express statutory footing for the first time. However, much of the process will look familiar to legal practitioners in this area as the legislation was modelled on existing investigative procedures with some changes in terminology.

  • Notices of investigation (formerly investigation letters) will set out the breaches of financial services legislation under investigation.
  • Investigations will be run by Responsible Authorised Officers who will gather and analyse relevant information and documents for the purposes of the preparation of an investigation report.
  • A key enhancement is that investigation reports will be shared by the Responsible Authorised Officer with investigation subjects at the completion of an investigation and prior to any decision on whether or not to hold an inquiry. Investigation subjects will be able to make submissions in response to the report and there will be engagement on disclosure.

​ASP Inquiries

There have been a number of procedural changes to the inquiry process.

  • The Regulatory Decisions Panel, from which inquiry members are appointed, has been designated as a panel established by the Minister for Finance to further enhance the independence of inquiry members.
  • The ASP guidelines outline a number of procedural enhancements and provide greater detail and clarity on the inquiry process, which are based on CBI experience of the operation of Inquiries over the last decade.
  • The ASP guidelines set out the roles of the various participants at an inquiry hearing and provide that enforcement or its legal representatives will now present the case at inquiry by leading evidence, examining witnesses and making submissions.

Sanctions

  • The CBI has reviewed, updated and consolidated its sanctioning factors and associated guidance in order to address the new statutory sanctioning factors for individuals introduced by the IAF Act and to reflect its experience of operating the original 2019 ASP Sanctions Guidance.
  • The CBI has taken the opportunity in the ASP guidelines to provide further guidance in relation to both its general approach to the determination of sanctions and to publish, for the first time, some guidance on its approach to the determination of monetary penalties for firms and individuals.

ASP Settlements

The IAF Act provides for three distinct settlement processes:

  • undisputed facts settlement
  • investigation report settlement
  • no admissions settlement.

In practice, this means that there will be different statutory procedures for settlement depending on the stage of the ASP process and whether the settlement involves admissions or not.

  • All sanctions imposed via undisputed facts settlements and investigation report settlements will be subject to High Court confirmation for the first time. CBI will continue to publish public statements immediately following the conclusion of a settlement, noting in the statement that the sanction is subject to confirmation by the High Court.

Statutory instrument designating 29 Dec 2023 for IAF conduct standards and F&P changes​

S.I. No. 349/2023 - Central Bank (Individual Accountability Framework) Act 2023 (Commencement of Certain Provisions) (No. 2) Order 2023 (irishstatutebook.ie) has been published. It provides that 29 December 2023 is appointed as the day on which sections 3, 4 , 5 , 6, and 10 of the Central Bank (Individual Accountability Framework) Act 2023 (No. 5 of 2023) shall come into operation.

From an investment funds perspective, this will see: 

  • 29 December 2023 - conduct standards, including additional conduct standards, apply
  • 29 December 2023 - Fitness & Probity Regime – certification requirements apply

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

Date published: 27 July 2023