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

Deadlines

  • 2 October 2023 - Anti-money laundering/combatting the financing of terrorism - EBA Guidelines on Remote Customer Onboarding Solutions apply from 2 October 2023. The guidelines set out the steps financial sector operators should take to ensure safe and effective remote customer onboarding practices.
  • 3 October 2023 - MiFID II - ESMA’s Guidelines on certain aspects of the MiFID II suitability requirements and ESMA’s Guidelines on MiFID II product governance requirements apply. See ourAugust AMIF bulletin for more detail.
  • 3 November 2023 - Anti-money laundering/combatting the financing of terrorism - EBA ML/TF Risk Factors Guidelines. The guidelines were revised to include (among other things) new guidance on ML/TF risk assessments, customer due diligence for beneficial owners and compliance with the provisions on enhanced customer due diligence related to high-risk third countries. The revised version applies from 3 November 2023.
  • 1 December 2023 - Operational Resilience Guidelines - Deadline by which firms are expected to be able to evidence actions/plans to apply the CBI’s Cross-Industry Operational Resilience Guidelines (published 1 December 2021).
  • 29 December 2023 - Individual Accountancy Framework (IAF) - The individual conduct standards under the CBI’s IAF are scheduled to apply. Regulated Financial Service Providers (RFSPs) will need to establish, maintain, and give effect to 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. A person who performs a CF/PCF role in relation to a RFSP will need to take any reasonable steps to ensure that the Common Conduct Standards and Additional Conduct Standards, as applicable, are met.
  • 31 December 2023 - 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 2023 - 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 2023 - 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 (albeit remotely), ensure adoption of valuation policy and make disclosure in respect of connected party transactions. 
  • 31 December 2023 - Fitness & Probity - RFSPs, as part of their annual Fitness & Probity audit due diligence and depending on their compliance calendar, may 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 & Probity standards, agree to continue to abide by those standards and will notify the board without delay 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.
  • 31 January 2024 - UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AIFMs must file their annual ownership confirmation by 31 January 2023.
  • 20 February 2024 - 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 submission deadline for each entity will be detailed on the CBI portal. 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. 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. Only UCITS and UCITS sub-funds authorised after 1 January 2023 are required to file the PRIIPs KID (and PRIIPs KID updates) with the CBI. The CBI intends to issue further guidance confirming the filing requirements for PRIIPs KIDs in due course.
  • 29 February 2024 (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 2023, with an anticipated submission deadline of 29 February 2024. 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.
  • 29 February 2024 - Fitness & Probity - RFSPs will need to submit their annual PCF confirmation return to the CBI. The CBI is currently updating the return. For 2024, the annual PCF confirmation return will incorporate confirmation of the completion of the new certification process introduced by the IAF for each PCF role holder and all other CF role holders. The new certification process has been the subject of consultation and has not yet issued in final form. As part of the certification process, RFSPs will be required to identify and document various points (such as identifying the aspect of the RFSP’s business in which the individual will be involved in performing the CF role(s) and details of the steps taken by the RFSP in forming the view that the individual meets any standards of Fitness & Probity applicable to the CF role(s).

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. The CBI issued:

CBI speech on Sustainable Finance in Practice for Fund Managers

On 27 September 2023, Patricia Dunne, Director of Securities and Markets Supervision in the CBI (Director), delivered a speech on sustainable finance.

Below we highlight key comments from the Director’s speech relating to the CBI’s significant findings from its review of the implementation of existing SFDR disclosure requirements.

In addition to the items highlighted in this update, the speech includes an outline of sector data for Irish funds disclosing under Articles 6, 8 and 9 of the SFDR, an overview on the status of the European and international sustainable finance regulatory agenda and an indication of the CBI’s ‘future focused’ approach to supervision in this area.

Implementation of existing requirements

While the CBI acknowledges that there are challenges with SFDR implementation and more clarity around the legislation is needed, the CBI has observed interpretations of the SFDR, which while arguably they may comply with ‘the letter’ of the requirements, do not meet the spirit of the rules. 

In due course, the CBI anticipates publishing additional clarifications on how funds should meet their disclosure obligations and intends to hold a workshop with key stakeholders in the funds industry to discuss its findings and to seek ways to address the issues identified in its review.

Finding 1: ‘What environmental and/or social characteristics are promoted by this financial product?’

The SFDR Level 2 template requires certain disclosures under the banner of “What environmental and/or social characteristics are promoted by this financial product?”. The CBI has found that in the context of index tracking funds, the disclosure will often outline what the relevant index will exclude, for example tobacco, nuclear weapons but not what this means in the context of the fund. The CBI expects that this section of the SFDR template be completed from the perspective of the fund and should clearly indicate what environmental and/or social characteristics are promoted by the fund by applying these exclusions. While the European Commission Q&A suggests that exclusion strategies are permissible for Article 8 products, the CBI does not believe the intention was to water down the Article 8 designation to such an extent that funds with a list of limited investment exclusions should be deemed to be promoting an environmental or social characteristic. As such, the CBI believes that funds must address the disclosure requirement by positively indicating what characteristics the fund promotes.

This also applies to Article 9 funds regarding the requirement in Annex III “What is the sustainable objective of this financial product?”.

Finding 2: Disclosure related to the minimum proportion in sustainable investments with an environmental / social objective or the minimum proportion of investments used to attain the environmental or social characteristics promoted by the fund

In a number of instances for Article 9 products, the CBI has identified issues with disclosures of the minimum proportion of the portfolio to be allocated to sustainable investments with an environmental or social objective. This includes where:

  • The disclosure provides that the minimum proportion provided may be subject to change and such updates can be found on a website. The CBI expects that the minimum proportions disclosed in the pre-contractual documentation be accurate and not subject to change (unless by way of amendment to the prospectus or supplement); and
  • The disclosure of a range for both the minimum proportion of sustainable investment with an environmental objective and a minimum proportion of sustainable investments with a social objective. In some instances, the ranges included were between 0%-100%, which is not meaningful information for an investor assessing what the allocation to minimum investments with an environmental or social objective will be.  
  • The CBI found some Article 8 funds where the minimum proportion aligned with environmental or social characteristics is low or even zero. This raised questions for the CBI as to the appropriateness of the fund being subject to Article 8 of the SFDR given the low impact on the strategy and the composition of the fund’s portfolio.

Finding 3: Disclosure related to index tracking funds which employ an exclusionary screening methodology

These funds operate by tracking indices which apply ‘screens’ which are used to assess each index constituent against a pre-determined list of criteria. If a relevant investment is determined to be inconsistent with the criteria, the index will exclude that asset on its next rebalance. While this may significantly improve the environmental and social characteristics of the index, there are nevertheless issues when it comes to the fund’s disclosure. During the CBI’s review, it found different approaches to these disclosures and worryingly to the CBI, the majority of funds have adopted an approach whereby they disclose that the assets of the funds are close to 100% aligned with the environmental or social characteristics promoted. These disclosures appear to be based on the fact that the relevant index provider has determined that the constituents of the index are not inconsistent with the screening criteria employed. In other words, there does not appear to the CBI to be any additional assessment undertaken of the fund’s assets to assess their environmental or social characteristics.

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

Date published: 2 October 2023