Asset Management & Investment Funds: Irish Practice Developments: Nov 2019

Some Approaching Compliance Deadlines

• 9 December 2019. CBI consultation paper CP130 on the treatment, correction and redress of errors in investment funds - consultation closes on 9 December 2019.
• 31 December 2019. 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 with a formal documented review and a review of the chairperson taking place at least once every three years.
• 31 December 2019. Anti-Money Laundering/Counter Terrorist Financing - collective investment schemes and management companies should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CTF on an annual basis (and at such other times as may be appropriate). Boards should also ensure that they have considered whether to adopt a board level AML/CTF policy. Where the board has adopted such a policy, it should ensure that it receives appropriate confirmations from relevant persons and that it is subject to periodic review.
• 31 December 2019. Business Plan/Programme of Activity - UCITS ManCos, self-managed UCITS, AlFMs and internally managed AIFs, where they have not already done so, may need to complete their annual performance review on service providers. They 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 2019. Fitness & Probity - RFSPs, where they have not already done so, will 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 and Probity Standards, agree to continue to abide by those Standards and will notify the board 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.
• 13 January 2020, ESMA Consultation on changes to the KID for PRIIPs. -  The European Supervisory Authorities (ESAs) issued a consultation paper on amendments to existing rules underpinning the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). Consultation closes on 13 January 2020.
• 31 January/ 28 February 2020. Fitness & Probity - RFSPs will need to submit their annual PCF Confirmation Return to CBI. The submission due date for the annual PCF Confirmation Return (for the year ending 31/12/19) for UCITS ManCos and for AlFMs is 31 January 2020. The submission due date for investment funds will likely be 28 February 2020. The current annual PCF Confirmation Return and associated reporting date and submission deadline for each entity will be detailed on the ONR system.

The Annual PCF Confirmation Return is made via the ONR system and involves a mandatory declaration to confirm that the CEO or equivalent, has confirmed in writing that:

• the RFSP has brought the Standards to the attention of all PCFs
• the RFSP is satisfied on reasonable grounds that all PCFs comply with the Standards
• the written agreement of all PCFs to abide by the Standards has been obtained
• all necessary due diligence has occurred
• the RFSP will investigate any fitness and probity concerns, take appropriate action and notify the CBI of any action taken without delay.
• 31 January 2020. UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AlFMs need to file the annual ownership confirmations by 31 January 2020.
• 19 February 2020. UCITS KIID - A UCITS 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 KIID must be filed no later than 19 February 2020 (where required). Any update to the KIID filed with the CBI must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS website. AIFs which have issued a PRIIRs KID must review KIDs regularly, when there is a significant change, and at least annually. The KID must be revised as necessary. Unlike the UCITS KIID, there is no annual refresh deadline. UCITS are currently exempt from the obligation to produce a PRIIPs KID until 31 December 2021.
• 28 February 2020. Fund Profile Return - The annual Central Bank Fund Profile Return is required for all Irish authorised sub-funds. It is to be prepared for the period up to 31 December 2019, with a submission deadline (via the ONR) of 28 February 2020. 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 issued guidance and a template of the Fund Profile.
• 31 March 2020. Thematic review of closet indexing - CBI requires documentation updates triggered by its thematic review of closet indexing to be completed by 31 March 2020.
• 31 March 2020. MMFR quarterly reporting - MMF managers must send their first quarterly reports to national regulators by the end of Q1 2020 (as clarified by ESMA).

The above list does not cover tax, FATCA or CRS filings, ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include an annual FDI Return) 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. 

CBI Christmas and year-end deadlines for:

• fund and sub-fund applications that have pre-Christmas or pre year-end approval deadlines including self-managed/internally managed investment company/ICAV applications
• approval of post-authorisation amendments that have pre-Christmas or pre year-end approval or noting deadlines

Go to publication for more detail.

CBI Review of CP86 implementation- phase 3

The CBI has commenced phase 3 of its assessment of the implementation by fund management companies of CP86 Fund Management Company Guidance. As anticipated, phase 3 involves on-site inspection which, like phase 2 (which was discussed here), is generally focused on the fund risk management, investment management oversight and OE roles.

CBI speeches

CBI Director of Financial Regulation - Policy and Risk, Gerry Cross, spoke on Investment funds and the financing of a sustainable economy: a regulatory perspective.

Key points included the following:

• We are seeing a material evolution in financial regulation in terms of sustainability
• EU Taxonomy for sustainable activities. This proposal will identify economic activities that substantially contribute to one or more environmental objectives. It will be standardised and trusted. It will be accompanied by the expansion of the Ecolabel concept to financial products
• Low carbon benchmarks. This will involve the creation of two new categories of voluntary benchmark designed to help orient the choice of investors who wish to adopt a climate-positive investment strategy
• Sustainability Disclosure Regulation (incorporating behavioural requirements). This will impact financial market participants (FMPs) which include UCITS management companies, AIFMs and firms that provide portfolio management
• Due diligence. FMPs will be required to disclose on their website their policies on due diligence on the principal adverse impacts of investment decisions in respect of sustainability factors. This will be on a comply or explain basis except for firms or groups with more than 500 employees. There is a proportionality component
• Disclosure- sustainability risk. Firms will be required to disclose how sustainability risks are integrated into their investment decisions and the impact of those risks on the returns of the financial product in question. Where sustainability risks are considered not relevant, this must be clearly explained. Firms' remuneration policies must include information as to how they are consistent with integration of sustainability risks. Those policies must also be published on their website
• Disclosure - sustainability products. Where a product is sold as promoting environmental or social characteristics the Firm will be required to disclose how those characteristics are met and how any benchmark referenced is consistent with those characteristics. It is likely that Firms which offer a fund targeting sustainability objectives will be required to disclose, using the Taxonomy, what these objectives are and the methodologies used to assess, measure and monitor progress against these objectives, as well as an assessment of the overall sustainability-related impact of the financial product
• UCITS and AIFMD proposals. ESMA produced advice to integrate sustainability risks within UCITS and AIFMD funds regulatory frameworks. The advice recommended a high-level principles-based approach, requiring fund management companies to take into account and integrate sustainability risks when complying with their existing organisational requirements and resource and staff function management. Both UCITS management companies and AIFMs will have to take into account sustainability risks and, where applicable, the principal adverse impact of investment decisions on sustainability factors, when carrying out their due diligence requirements. They would be required to develop engagement strategies for the exercise of voting rights and reducing principal adverse impact of investee companies on sustainability factors. These proposals are currently under consideration by the European Commission.

CBI Director of Financial Regulation - Policy and Risk, Gerry Cross, spoke on Focusing on investor outcomes: some regulatory themes for the funds sector

Key points included the following:

• Fund Governance. Mr Cross referenced the ongoing P 86 review. He noted that CBI hopes to conclude the review during 2020 and determine whether CP86 is being implemented in a way that delivers the improvements intended. If not, CBI will be taking the steps needed to ensure that it does.
• Investor outcomes are critical
• Performance fees. The ESMA consultation on Guidelines on performance fees in UCITS has closed and ESMA is considering the responses. The proposed guidelines are closely aligned to the CBI approach
• Closet tracking. CBI held a thematic review of Irish UCITS and published a letter to industry. Supervisory activity will continue into 2020 and enforcement action in the future is not being ruled out. CBI will consider if any changes or supplementary domestic rules or guidance will be necessary in this area. CBI will also continue to work with ESMA to ensure clarity and consistency of the various regulatory obligations
• Errors in investment funds. The first CBI consultation on a proposed approach will close on 9 December. The second stage will involve a further consultation.
• Costs and performance. CBI is carrying out domestic work on investor outcome issues and contributing to a number of ESMA work streams. ESMA work is likely to focus on the importance of fee and performance transparency
• Liquidity risk and leverage. Recent cases, including the Woodford funds and others, have raised questions as to whether existing rules in respect of liquidity risk are sufficient; whether these cases are simply examples of the rules not being well followed or whether the framework itself needs enhancing. Mr Cross stressed that there should not be a mismatch between investors’ expectations and what a fund is able to deliver in terms of daily redemption, in particular during times of stress. This is an area where CBI and other supervisors will focus in the coming period (see also our commentary on recent ESMA speech on liquidity below)
• Systemic Risk. Regulators must fully consider the full range of both ex ante and ex post measures that might be required and available to deal with systemic risk arising from the funds sector, including whether further enhanced liquidity rules may be indicated from a financial stability perspective
• Leverage. Mr Cross identified a need to consider the potential refinement of leverage measures under AIFMD He also noted that there are other issues which must be addressed in terms of the macro prudential toolkit under AIFMD. Mr Cross referenced the ESRB 2018 recommendations in terms of asset management which identified the need for ESMA to give guidance on the design, calibration and implementation of macroprudential leverage limits under Article 25 of AIFMD.

Administrative Sanctions Procedure Guidance

On 14 November 2019, the Enforcement Directorate of the CBI published a new guide to sanctions imposed under the Administrative Sanctions Procedure (ASP).

The new guidance supplements previous guidelines relating to the ASP and the associated Inquiry process and outlines the factors taken into account in assessing appropriate sanctions.

See here for more details.

Brexit - UK TPR

Following the recent extension to Brexit until 31 January 2020 (discussed here), the FCA has extended the deadline for notifications under the temporary permissions regime (TPR) to the end of 30 January 2020.

This means that Funds that have already availed of the TPR to continue marketing in the UK after its departure from the EU do not need to do anything more unless they wish to amend their TPR submission before the window closes on 30 January, (for example to include extra subfunds)

Funds wishing to amend their TPR submission will need to notify the FCA by 15 January 2020 of that intention.

Funds that have not already availed of the TPR to continue marketing in the UK now have until 30 January 2020 to do so. Please see our previous update on TPR.

Irish Funds issued an updated paper on Brexit Day: Planning and Practical advice. Please speak with your usual contact on the A&L Goodbody Asset Management & Investment Funds team for a copy of the paper.

European Union (Money Laundering and Terrorist Financing) Regulations 2019

The European Union (Money Laundering and Terrorist Financing) Regulations 2019 (the Regulations) were published on 25 November. The Regulations amend the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (CJA). They are effective from 18 November 2019.

Procedures to facilitate internal reporting within designated persons     

A key change introduced by the Regulations concerns the requirement that designated persons have in place "appropriate procedures" for their employees, or persons in a comparable position, to report a contravention of the CJA internally through a specific, independent and anonymous channel. The Regulations recognise that a bespoke approach is needed here. The nature of the reporting channel to be created will be informed by the size and profile of the particular designated person.  

Designated persons will need to decide which persons in their organisation will require access to and training on the relevant reporting procedures. They will also need to be mindful of any outsourcing arrangements which may be in place. Training programmes will need to be updated to reflect the new requirements. 

Risk-Based Supervision 

The Regulations confirm that competent authorities should apply a risk-based approach to supervision and ensure that their employees and officers have access to "relevant information" on ML/TF risks. The Regulations also provide some colour on how competent authorities should conduct their supervision activities. 

Co-operation with AML supervisors in other Member States 

Additional requirements are set out in respect of competent authorities who supervise designated persons. Such authorities have a duty to cooperate with competent authorities in other Member States to ensure the effective supervision of designated persons. 

Criminal offence for failure to disclose conviction under the CJA 

The Regulations create a criminal offence of failing to inform a competent authority where certain persons are convicted of offences under the CJA, or of other offences relating to banking, investment of funds and other financial activities. A designated person must report any such offence to their competent authority, which will be the Central Bank in the case of a financial services provider, or the Law Society in the case of a solicitor.

FATF

The FATF issued its Follow-up Report & Technical Compliance Re-Rating on its 2017 Mutual Evaluation of Ireland. This follow report analyses Ireland's progress in addressing the technical compliance deficiencies identified in its 2017 Mutual Evaluation. Ireland is now compliant on 17 Recommendations of the 40 Recommendations and largely compliant on 16 of them. It remains partially compliant on 7 of the 40 Recommendations. Ireland will move from enhanced to regular follow-up and will continue to report back to the FATF on progress to strengthen its implementation of AML/CFT measures.

For more information in relation to this topic please contact your usual contact on the A&L Goodbody Asset Management & Investment Funds team.

Date published: 29 November 2019