Asset Management & Investment Funds: Irish Practice Developments - Jun 2021

Irish and Domestic

CBI updates its Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector

A revised version of the Central Bank of Ireland (CBI)'s Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector (the Guidelines) was published on 23 June 2021. The revisions take account of recent legislative changes brought about by the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021, which transposed most of the Fifth Anti-Money Laundering Directive into Irish law, and new statutory instruments on beneficial ownership.

The Guidelines also incorporate expectations set out in recent CBI publications and in guidelines from the European Supervisory Authorities, most notably the CBI's Anti-Money Laundering Bulletin on transaction monitoring from October 2020 and the EBA's Risk Factor Guidelines.

In addition to the revisions that were anticipated (such as the inclusion of virtual asset service providers within the scope of the Guidelines and some refinement relating to customer due diligence procedures and beneficial ownership), the Guidelines contain some new messages and points of emphasis on topics such as governance and consumer protection. This is discussed in more detail here.

31 August 2021 deadline for ILPs and CCFs to file on the CBI's central register of beneficial ownership

By 31 August 2021, Investment Limited Partnerships (ILPs) and Common Contractual Funds (CCFs), which were in existence on 1 March 2021, must file information on their beneficial ownership on the CBI's central register of beneficial ownership.

‘Beneficial owner’, in relation to an ILP/ CCF (as the case may be), means any individual who:

  • ultimately is entitled to or controls, whether the entitlement or control is direct or indirect, more than a 25 per cent share of the capital or profits of the ILP/ CCF or more than 25 per cent of the voting rights in the ILP/ CCF
  • otherwise controls the ILP/ CCF

For both CCFs and ILPs, where no individual is identified as a beneficial owner, senior managing officials are entered as the beneficial owners.

CBI AIFMD Q&A

The CBI published the 39th edition of its AIFMD Q&A . It updates Q&As on the extent to which an Irish entity can perform duties for non-EU AIFs under Article 36(1)(a) AIFMD and the types of AIF for which a Depositary of Assets other than Financial Instruments (DAoFI) can act. It includes new Q&As on the circumstances in which a DAoFI can accept an appointment from a non-EU AIFs and requirements for AIFs having a share class that makes distributions to charity.

  • Q&A 1021 has been updated generally and to clarify the extent to which an Irish entity can perform duties for non-EU AIFs pursuant to Article 36(1)(a) of the AIFMD.
  • Q&A 1136 updates the types of AIF for which a DAoFI can act.
  • New Q&A, 1143, outlines the circumstances in which a DAoFI can accept an appointment from a non-EU AIF pursuant to Article 36(1)(a) of the AIFMD to perform the duties set out in Article 21(7)-(9) of the AIFMD.
  • Q&A 1144 confirms the CBI's position in relation to AIFs having a share class that makes distributions to charity. The Q&A confirms that this is permissible, subject to a number of conditions being met by the AIF.

CBI UCITS Q&A

The CBI published the 31st edition of its UCITS Q&A  including a new Q&A, 1099, which confirms the CBI's position in relation to a UCITS having a share class that makes distributions to charity. The Q&A confirms that this is permissible, subject to a number of requirements being met by the UCITS.

CBI Markets Update

The CBI published issue 9 of 2021 of its markets updates. It contains updates from the CBI and ESMA which include: 

  • CBI publishes feedback statement on consultation on NCA discretions under the Investment Firms Directive (IFD) and the Investment Firms Regulation (IFR) and updates website to reflect application of IFD/IFR from 26 June 2021
  • Common Supervisory Action on UCITS Liquidity Risk Management (discussed in our May bulletin)
  • Central Bank publishes the 31st Edition of the Central Bank UCITS Q&A Document (discussed above)
  • Central Bank publishes the 39th Edition of the Central Bank AIFMD Q&A Document (discussed above)
  • EBA launches second consultation on its technical standards on the calculation of the €30bn threshold above which investment firms are required to seek authorisation as a credit institution
  • "COVID-19, funds sector, and sustainably serving the economy" - Director General, Financial Conduct, Derville Rowland
  • The importance of fitness, probity and ensuring responsibility - Director General, Financial Conduct, Derville Rowland

New CBI Fitness & Probity Interview Guide

The CBI published a Fitness and Probity Interview Guide which is essential reading for regulated financial services providers and any of the individuals they propose for pre-approval controlled functions. The Guide outlines information in relation to both the standard-form assessment interview and the more intrusive interviews, described as 'specific interviews'. You can read more detail on the Guide here

Derville Rowland, CBI Director General, Financial Conduct spoke at the Institute of Directors webinar  where she launched the guide and provided an overview of the importance of effective culture in firms and the relationship of the fitness and probity regime to good culture.

The Director General said that there is a strong link between diversity and inclusion and culture. She said that "Firms should rethink their governance structures, processes, policies and procedures including talent management through a D&I lens".   Ms Rowland also noted that the Individual Accountability Framework, is viewed as "very much complementary ... to the existing F&P regime".  Ms Rowland added that it will "result in improved governance across the financial sector".

CBI Annual Performance Statement 2020 – 2021

CBI published its Annual Report 2020 and Annual Performance Statement 2020 - 2021. In terms of Asset Management and Investments Supervision, the CBI's supervisory strategy adjusted for COVID-19 and significant market volatility in Q2 2020. Supervision outcomes, included: 

  • Core risk assessments across key risks such as IT, governance and operational risk 
  • Proactive engagement with supervised entities on their preparedness for Brexit and risks presented to their business models
  • The completion of the algorithmic trading thematic review to assess the governance and risk management frameworks in place for algorithmic trading firms
  • Enforcement actions to promote compliance with regulatory requirements
  • A skilled person review on risk management, compliance and control functions
  • The conclusion of the thematic review on Fund Management Company Effectiveness Guidance, undertaken in three phases (questionnaire, desk based review and onsite inspections) and concluded in 2020 with the publication of a Dear Chair letter. Review found a significant number of FMCs have not fully implemented the framework. CBI has required prompt remediation by firms where shortcomings were identified.  All other FMCs have been required to assess and implement necessary changes

The CBI continues to work with the Department of Finance on the Individual Accountability Framework discussed here.

Money market fund systemic risk concerns – there were concerns about the systemic resilience of aspects of the MMF sector at the height of the COVID-19 market stress in March and April 2020. A number of regulatory initiatives followed. EU institutions have begun organising their own work on MMFs to follow international developments, but tailored to the EU MMF sector and regulatory framework specifically.  The CBI is an active participant in these discussions. The outcome of this regulatory work will be relevant ahead of the scheduled European Commission review of the MMF Regulation in the EU in 2022.

CBI launched:

  • CP132 on share class features of closed ended QIAIFs
  • CP134 on performance fee guidance for UCITS and certain types of retail funds
  • draft cross-industry outsourcing guidance for public consultation in 2021 (this is now CP138 discussed here) 

Sustainable finance is a growing priority for the CBI. The CBI:

  • responded to the European consultation on Renewed Sustainable Finance Strategy
  • contributed to the development of EU regulation and guidance on sustainable finance at the ESAs
  • contributed to the development of ECB guidance on climate-related and environmental risk 

AML/ CTF: CBI's Annual Performance Statement 2020 – 2021

CBI Annual Performance Statement 2020 – 2021 reported on AML/ CFT as follows:

  • In 2020 the CBI continued its robust risk-based supervision of regulated entities, including 57 inspections, 100 review meetings and the issuance of 400 Risk Evaluation Questionnaires to firms. 
  • The ESAs issued guidelines to support supervisory cooperation and information exchange, and to create a common framework to ensure the effective oversight of cross-border groups for AML/CFT. This included the establishment of AML/CFT supervisory colleges which CBI attended in 2020. 
  • A Dear CEO letter issued to Schedule 2 firms.
  • CBI assisted DoF and DoJ on the transposition into Irish law of 5AMLD including an AML/CFT registration and supervisory regime for virtual asset service providers. 
  • EU: CBI participated in the EBA's newly formed Standing Committee on AML/CFT and responded to the European Commission's public consultation on its AML Action Plan.
  • International – CBI - contributing to international AML/CFT policy via the Financial Action Task Force, particularly on regulation of virtual asset service providers.
  • Domestic: CBI continued its participation in the national AML/CFT committee, including contributing to the update of the risk assessment of legal persons and legal arrangements section of the National Risk Assessment.

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

Date published: 30 June 2021