Financial Service Regulation and Compliance - Funds January 2019

DOMESTIC

Central Bank of Ireland (CBI) intentions for the location requirement for directors and designated persons of Irish Fund Management Companies (ManCos) in the event of a no deal Brexit

The CBI issued a notice of intention in relation to the location requirement for directors and designated persons of Irish Fund Management Companies. The CBI notes that, on 30 March 2019, the UK will become a third country and there may be considerable disruption in the event of a no-deal Brexit. The CBI has clarified that, in the event of a no-deal Brexit, it will consider whether the UK is a country to be determined as meeting the effective supervision requirement.

For the period while this is under consideration, the CBI does not propose adopting a default position which would treat the UK as not satisfying the effective supervision requirement. After consideration of the above, the CBI will determine whether the UK continues to satisfy the requirement. The CBI will confirm its determination by publishing a notice on its website. Such determination may be changed, including if circumstances change.

CBI clarifies that a Qualifying Investor Alternative Investment Fund (QIAIF) will be permitted to designate a UK Alternative Investment Fund Manager (AIFM) as its AIFM

The CBI published the Thirty-First Edition of its Central Bank AIFMD Q&A which includes a new Q&A ID 1129, in relation to Irish QIAIFs with UK AIFMs. The Q&A clarifies that a QIAIF will be permitted to designate a UK AIFM as its AIFM. QIAIFs migrating to such an arrangement need to assess the impacts arising from the loss of the marketing passport under AIFMD including notification to investors, amendments to documentation, filings with the Central Bank or other supervisory authorities and any other operational issues.

Money Market Funds (MMF) and RDM

In January 2019, the CBI issued a joint statement with the Lux Commission de Surveillance du Secteur Financier (CSSF) on the treatment of share cancellation under the EU MMF Regulation. The statement follows recent EU clarification that the practice of cancelling shares under a reverse distribution mechanism (RDM) was to be prohibited under the MMF Regulation. The CBI and the CSSF will require MMFs using RDM to confirm in writing by no later than 21 March 2019 that they have ceased using RDM.

Automatic Exchange of Information (AEOI) Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) Reporting

The Irish Funds FATCA and CRS Working Group updated Irish Funds members with feedback from the Irish Revenue Commissioners and the IRS on the 2018 AEOI (FATCA and CRS) reporting cycle and plans for 2019 AEOI reporting and compliance programs.

EUROPEAN

European Securities and Markets Authority (ESMA) and EU Securities Regulators (including the Central Bank) agree no-deal Brexit MoUs

On 1 February 2019 ESMA confirmed the agreement of no-deal Brexit MoUs with the FCA. One memorandum of understanding (MoU) is between ESMA and the Financial Conduct Authority (FCA) of the United Kingdom (UK) covering the exchange of information in relation to credit rating agencies and trade repositories. The other MoU is a multilateral MoU between national EU/EEA regulators and the FCA covering exchange of information and the delegation of portfolio management to UK authorised managers.

These MoUs will only be required and come into force in the scenario of a no-deal Brexit. The multilateral MoU will allow arrangements for fund manager delegation of portfolio/investment management to the UK to continue in the event of a no-deal Brexit.

EU Commission “no-deal” Contingency Action Plan in Financial Services (and other sectors)

On 19 December 2018, the Commission adopted a number of proposed measures under its 18 November 2018 Contingency Action Plan in the event of a no-deal Brexit (with remaining measures to be ready by 15 February 2019). The European Parliament and the Council are now expected to adopt the Commission's proposals. The EU Commission identified contingency measures which are necessary to safeguard financial stability in the EU27 and adopted various acts.

EU Commission report on the operation of the AIFMD

On 10 January 2019, the EU Commission published a report dated 10 December 2018 on the operation of the AIFMD. The report was prepared by KPMG, which the EU Commission contracted in 2017 to carry out research on how the AIFMD has worked in practice and to what extent its objectives have been met. The report provides and assesses evidence for the Commission's mandatory review of the AIFMD under Article 69 of the AIFMD. The report identifies certain areas that require further analysis. The Commission will continue its work on the AIFMD review and will report to the co-legislators in 2019.

ESMA annual statistical report on retail investment products

On 10 January 2019, ESMA published its first annual statistical report on the performance and costs of retail investment products in the EU. The report covers Undertakings for Collective Investments in Transferable Securities (UCITS), AIFs sold to retail investors (retail AIFs) and structured retail products (SRPs). It highlights in particular the significant impact of costs on the final returns that retail investors make on their investments.

UK temporary Permissions Regime Notification window opens

The UK Government has issued draft statutory instruments which create regimes allowing fund managers to continue to market funds in the UK for a limited period after exit day in the event of a no-deal Brexit. This is called the Temporary Permissions Regime (TPR). The TPR will allow EEA-domiciled investment funds that currently market in the UK under a passport to continue temporarily marketing in the UK in the event of a no-deal Brexit.

The TPR will only come into force if the UK leaves the EU in a no-deal Brexit scenario. UCITS and AIFs who wish to avail of the TPR must opt in to the TPR by notifying the FCA.  Notifications must be made by submitting the TPR Form using the FSA's Connect system. The form must contain the required information and be made before the notification window closes at the end of 28 March 2019.

For further information please contact a member of the Financial Regulation team.

Date published: 12 February 2019