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

Deadlines

1 November 2024 - UK Overseas Funds Regime (OFR) - First OFR landing slots open for operators of umbrella EEA UCITS whose name begins with the letter “A” (in the UK’s Temporary Marketing Permissions Regime (TMPR)) between 1 November 2024 and 31 January 2025. The landing slots will open by alphabetical order of the fund operator’s name.

21 November 2024 - ESMA’s guidelines on funds’ names using ESG or sustainability-related terms - Apply from 21 November 2024. Any new funds created on or after 21 November 2024 should apply these guidelines immediately. The transitional period for funds existing before 21 November 2024 will be six months after that date, i.e. 21 May 2025.

Q3/4 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.

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.

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

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.

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 eleven months of their financial year-end.

CBI speech on ETFs

CBI Deputy Governor Derville Rowland delivered a speech on the evolution and potential of exchange traded funds (ETFs). She reflected on a previous speech from 2017 and highlighted the significant growth in the Irish ETF sector since then. Key takeaways include:

• ETF naming: the CBI will update its UCITS Q&As to clarify the position on the UCITS ETF identifier, converging its approach with other fund domiciles. In future, the UCITS ETF identifier can be included at the level of a sub-fund or a share class (providing greater clarity, particularly where fund has both listed and unlisted share classes).
• The CBI is aware of the importance of portfolio transparency, particularly for active ETFs, and is open to engaging with the industry to develop a proportionate and effective approach.
• The CBI has reviewed the oversight that fund management companies perform on key players within the ETF ecosystem, focused on authorised participants (APs) and contracted market makers. The CBI identified good practices and areas for improvement. These include due diligence, ongoing monitoring and stress testing. The CBI also found a lack of board reporting and potential reliance and concentration on a small number of APs and contracted market makers. An industry communication will issue shortly with further detail on the findings. The CBI notes that more engagement with fund management companies would be helpful.
• The European Commission's Retail Investment Package highlighted problems facing retail investors. The CBI notes the importance of simple, cost-efficient products like ETFs to close the gap in fees between institutional and retail investors.
• The Department of Finance's Funds Sector 2030 Report indicates that direct take up ETFs by Irish retail investors is low, with the tax treatment of ETFs identified as the main barrier to investment by Irish investors. The CBI supports the recommendation to align the taxation of ETFs with other savings and investment products to encourage retail investment.
• The CBI will conduct analysis and research on retail market participation in Ireland to understand key drivers and barriers and inform policy development.

CBI updates to submission processes

The CBI notified the following updates to its submission processes.

Process clarifications for UCITS and AIFs following publication of ESMA’s guidelines on funds’ names using ESG or sustainability-related terms. The CBI has established a streamlined filing process for updates to fund names based on the requirements set out in ESMA’s guidelines. The CBI has also clarified its process for updates to fund prospectuses, supplements and SFDR annexes based on the requirements set out within the guidelines.

ESMA’s guidelines on funds’ names using ESG or sustainability-related terms set out recommendations for UCITS mancos and AIFMs on the use of ESG and sustainability-related terms in the name of a UCITS or an AIF, as applicable. These guidelines will apply from 21 November 2024 for new UCITS and AIFs. For UCITS and AIFs existing prior to 21 November 2024, the guidelines will apply from 21 May 2025.

UCITS mancos and AIFMs will be required to certify compliance with the guidelines via an attestation that must be submitted to the CBI with the request seeking a change of name of the UCITS or AIF.

• Filing process for Change to fund name only: Use streamlined filing process with attestation of compliance.
• Filing process for Changes to SFDR-related disclosures in the prospectus, supplement, or SFDR Annex: Use CBI portal in line with standard-post authorisation process.
• Filing process for Reclassification of funds: Use CBI portal in line with standard post-authorisation processes.

The streamlined filing process is limited solely to name changes that are required in order for UCITS and AIFs to comply with the guidelines.

The CBI will carry out a sample review of the submissions noted via the streamlined filing process. Changes may therefore be required to fund documentation at a later date notwithstanding the noting issued.

CBI also includes a Q&A on documentation and timing in respect of these updates.

Closure of CBI’s streamlined filing process for pre-contractual document updates based on the SFDR Level 2 requirements. The streamlined filing process which was established in 2022 for pre-contractual document updates based on the SFDR Level 2 requirements closed effective Friday, 18 October 2024. Any submissions related to SFDR Level 2 implementation which are filed via SFDR@centralbank.ie after this date will not be noted, and must be submitted in line with standard post-authorisation processes.

Change of process for submission of UCITS mergers, AIF amalgamations and applications for clearance of investment managers and Non-EU AIFMs. Effective 1 October 2024, the process for the submission of the following moved to submission via the CBI portal:

• applications for clearance of investment managers and non-EU AIFMs
• applications for UCITS mergers and AIF amalgamations 
• applications for clearance of investment managers and non-EU AIFMs

New Irish participation exemption for foreign dividends and other enhancements to the tax regime for financial services and asset management sectors

The long-awaited dividend participation exemption for foreign dividends will come into effect from 1 January 2025. This change will be very welcome for those companies that are in receipt of foreign dividends and currently have to navigate the existing, highly complex, tax credit system.

You can read more about this and other enhancements to the Irish tax regime for financial services and asset management sectors here.

CBI “Dear CEO” letter on MiFID II marketing communications

The CBI issued a Dear CEO letter addressing compliance issues in marketing communications among Irish authorised MiFID investment firms, credit institutions and fund management companies providing MiFID II services to retail clients. The letter provides feedback to industry on the CBI’s thematic review and follows the European Securities and Markets Authority’s (ESMA) final report on the 2023 common supervisory action and mystery shopping exercise on marketing.

The letter outlines actions in-scope firms must take:

• Firms must review their marketing and advertising practices against the ESMA final report, and the findings and expectations set out in Schedule 1 of the letter. This review must be documented and include details of actions taken to address the findings in ESMA’s final report and the CBI’s letter. The review should be completed, and an action plan discussed and approved by the firm's board by 31 January 2025, with the minutes reflecting board discussions and approval.
• Where the firm was in scope of the CBI’s thematic review and received formal mitigating actions, the CBI's letter and ESMA report should be considered in conjunction with those mitigating actions.

Read more here.

Irish Funds Sector 2030 review

The Department of Finance (DoF) published its Final Report of the Funds Sector 2030 (review). The terms of reference for the review were published in April 2023 under the themes of “open markets, resilient markets and developing markets.” In preparing its review, the DoF engaged extensively with stakeholders, including by public consultation.

Key recommendations relating to fund structures:

• Exchange-traded funds (ETFs): Recognising the growing demand for active ETFs and continued popularity of low-cost passive ETFs, the review includes recommendations to further develop Ireland’s leading position. The DoF recommends that the CBI continues to keep under consideration its requirements regarding portfolio transparency, recognising the possibility of alternative approaches. Regarding ESMA’s UCITS ETF naming convention requirement, the CBI currently requires asset managers to include the term ‘UCITS ETF’ in the fund name if it offers an ETF share class. The review notes that this issue is under review by ESMA, and the CBI is actively engaging in discussions. It is recommended that the CBI continue to engage on UCITS ETF fund naming requirements in EU level discussions, to ensure harmonisation.
• Money market funds (MMFs): The review supports the European Commission’s findings that while the EU MMF Regulation (MMFR) has significantly strengthened the regulatory regime for MMFs, enhancing financial stability, certain vulnerabilities remain. It is recommended that the DoF and the CBI should actively engage in EU discussions to ensure a robust legislative framework.
• Private assets:
  • The review recognises that the increase in investment in private assets presents an opportunity for Ireland. It notes that the revised European Long Term Investment Fund (ELTIF) Regulation and the harmonisation of loan origination rules through the revised Alternative Investment Fund Managers Directive (AIFMD) are supportive developments.
  • Industry suggested the introduction of a new regime designed specifically for private assets, not directly authorised or supervised by the CBI but indirectly subject to regulation through its AIFM. The review does not recommend this due to perceived potential risks (such as liquidity mismatch and valuation) with private asset funds warranting direct regulatory supervision, and the adequacy of the existing regimes for authorised and supervised fund products catering for private asset investment strategies. Instead, measures are recommended to improve the attractiveness of Ireland's existing authorised fund structures. These include recommendations that the CBI should review its AIF Rulebook and associated requirements that impact on the establishment of private asset funds and additional tax measures to further improve the attractiveness of the investment limited partnership (ILP). This should include consideration of how the participation exemption currently being designed could support the use of ILPs and a review of the scope of the dividend withholding tax exemption, and its extension to ILPs.
  • In response to consultation responses on proposals relating to 1907 limited partnerships, which are Irish structures not authorised by the CBI but subject to other regulation, the report notes that legislation for 1907 ILPs is currently under review by the Department of Enterprise, Trade and Employment, leading to the publication of a new bill in July 2024.  

Other recommendations relate to retail investment, the IREF and REIT regimes, structured finance (section 110 regime), promotion and engagement, and enhancements to structures used for cooperation between government and industry.

CBI speech on retail investors  

CBI Deputy Governor Derville Rowland delivered a speech entitled “Unity Creates Strength” in the context of the publication of the CBI’s findings from its most recent customer research. The research looked at the experience of retail investors interacting with investment firms. This was conducted alongside a mystery shopping exercise, both of which informed a thematic review looking at the use of marketing and advertising by investment firms. The speech was delivered during World Investor Week, focusing on retail investor education and protection.

• Global Asset Management: Emphasised the importance of investor protection in a sector with over $69tn in assets.
• Historical Perspective: Investment funds offer diversified, risk-appropriate opportunities, rooted in the principle that "unity creates strength".
• Retail Investment Market: Significant changes due to digitisation, making investments more accessible but also introducing new risks.
• Regulatory Challenges: Need for innovation and quick regulatory responses to support and manage new financial products and services.
• European Context: Highlighted the EU's declining share in global equity market capitalisation and IPOs compared to the US.
• Role of Funds Sector: Supports the Savings and Investment Union in Europe and provides opportunities for retail investors globally.
• Fraud and Scams: Increasing sophistication of scams; CBI’s initiatives to combat financial crime. Theme of CBI's first innovation sandbox programme will be ‘combatting financial crime’. Google introducing verification process for financial services advertisers.
• Consumer Research: Findings show challenges in information clarity and accessibility for retail investors.
• Fee Arrangements: Disparities between retail and institutional investors; firms should assess whether fee arrangement are justifiable and appropriate.
• Building Trust: Importance of high-quality regulation to protect investors and support well-functioning markets.
• International Collaboration: Emphasised the role of IOSCO and industry associations in setting global standards and promoting regulatory consistency.
• Conclusion: Unity and collaboration are essential for better outcomes for investors and the financial sector.

CBI Markets Updates

The CBI published issue 8 of 2024 of its markets update which included:

• The closure of streamlined filing process for pre-contractual document updates based on the SFDR Level 2 requirements (discussed above).
• A change of process for submission of UCITS mergers, AIF amalgamations and applications for clearance of investment managers and Non-EU AIFMs (discussed above).
• A process clarification for UCITS and AIFs following publication of ESMA guidelines on fund names using ESG or sustainability-related terms (discussed above).

The CBI published issue 9 of 2024 of its markets update which included:

• CBI’s notice of intention in relation to the application of the ESMA guidelines on funds’ names using ESG or sustainability-related terms. The notice sets out that the CBI expects full compliance with the guidelines from 21 November 2024. The CBI will, in due course, consult on the incorporation of a provision in the Central Bank UCITS Regulations and AIF Rulebook that all UCITS management companies, UCITS which have not designated a UCITS management company, Alternative Investment Fund Managers, internally managed AIFs, EuVECA managers, EuSEF managers, ELTIF managers and MMF managers adhere to the guidelines.