Financial Service Regulation and Compliance - Funds March 2019

DOMESTIC

CBI permits investment in Chinese bonds via Bond Connect

From 21 March 2019, the CBI permits investment in Chinese bonds via Bond Connect Bond by Irish UCITS and AIFs.  This is timely given the proposed inclusion of bonds traded on China Interbank Bond Market (CIBM) in a number of internationally recognised indices. The CBI updated its AIFMD Q&A and UCITS Q&A with new Q&As on China Bond Connect.

CBI updates AIFMD Q&As

The CBI published the 32nd edition of the Central Bank AIFMD Q&A which includes updated Q&As in relation to Irish QIAIFs with UK AIFMs. The updated Q&A clarifies that the QIAIFs with UK AIFMs (which become non-EU AIFMs) are subject to the full AIFMD depositary regime including the AIFMD depositary liability provisions.

CBI publishes Brexit FAQ

The CBI updated its Brexit FAQ to clarify that the Multilateral Memoranda of Understanding which were agreed between European securities regulators and the FCA on 1 February 2019 facilitate delegation or outsourcing arrangements between Irish UCITS Management Companies/AIFMs/MiFID Firms and UK entities.

CBI notice in relation to investments by UCITS and Retail Investor AIFs in UK funds.

The CBI published a notice of intention in relation to investment by UCITS and Retail Investor AIFs (RIAIFs) in UK investment funds. Effectively, if the UK becomes a third country (without a withdrawal agreement), the CBI will consider whether UK UCITS, which at that point will become UK AIFs, should be identified in CBI guidance as a category of investment fund in which UCITS and RIAIFs may invest. For the period while this is under consideration, the CBI does not propose adopting a default position which would treat the UK AIFs as ineligible. Nevertheless in the case of UCITS, any investment in UK AIFs must fall within with the aggregate limit of 30% for investments in all AIFs. Such determination may be changed, including if circumstances change.

CBI notice in relation to eligibility of UK MiFID firms as financial derivative counterparties for UCITS and RIAIFs.

The CBI's notice of intention in relation to investment by UCITS and RIAIFs in UK investment funds also noted that it will consider whether UK investment firms, currently authorised under the European Union Markets in Financial Instruments Directive (MiFID), should be a category of eligible financial derivative counterparty for UCITS and RIAIFs. While this is under consideration, the CBI does not propose adopting a default position which would treat UK investment firms as ineligible. Such determination may be changed, including if circumstances change.

EUROPEAN

PRIIPs KIDs

ESMA proposed amendments to PRIIPs KID requirements in respect of multi-option products (MOPs) (which are UCITS and certain non-UCITS funds offered as underlying investment options to a PRIIPs). MOPs are currently exempt from preparing a PRIIPs KID and the proposal will allow the derogation for MOPs to be extended to
31 December 2021. An amendment to the PRIIPs Regulation has already been proposed to extend the exemption for UCITS and certain non-UCITS funds to prepare a PRIIPs KID from 31 December 2019 to 31 December 2021.

ESMA updated its Questions and Answers on the application of the UCITS Directive.

Q&As on past performance have been changed to clarify that where funds name a target in their investment objectives and policies, the performance should be disclosed against the target, even if the comparator is not named a "benchmark". The performance disclosed in a KIID regarding a benchmark index should be consistent with performance disclosure in other investor communications.

Q&As on the disclosure of the benchmark index clarify:

  • UCITS should clearly indicate, in a KIID, whether their strategy is active (or actively managed) or passive (or passively managed).
  • A UCITS managed in reference to a benchmark is one where the benchmark plays a role in the management of the UCITS, for example, in the explicit or implicit definition of its portfolio composition or performance objectives and measures.
  • Investors should be provided with an indication of how actively managed the UCITS is, compared to its reference benchmark index.

ESMA updated its Questions and Answers on the application of the AIFMD.

​ESMA added two new Q&As on calculation of leverage under AIFMD. The Q&As provides clarification on:

  • the treatment of short-term interest rate futures for the purposes of AIFMD leverage exposure calculations according to the gross and commitment methods
  • the required frequency of the calculation of leverage by an AIFM managing an EU AIF which employs leverage

For more information on this topic please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 16 April 2019