The Front Page, Asset Management & Investment Funds: Irish Practice Developments

Some Approaching Deadlines

  • 30 June 2016. Sub-Fund Profiles. Deadline for filing the Investment Funds Annual Sub-Fund Profile Return on the Central Bank's ONR.
     
  • 1 July 2016. Investor Money Regulations. The Investor Money Regulations (IMR) come into effect on 1 July 2016. This is discussed below.
     
  • 30 June 2016. Sub-Fund Profiles. Deadline for filing the Investment Funds Annual Sub-Fund Profile Return on the Central Bank's ONR.
     
  • 1 September 2016. Companies Act 2014. The majority of the Companies Act 2014’s provisions commenced on 1 June 2015 (Commencement). If a UCITS management company or AIFM (or s.110 subsidiary) is converting to a CLS, the shareholder(s) of the UCITS ManCo or AIFM (or s. 110 subsidiary) must pass a special resolution to adopt a new constitution, which must be filed with the Irish Companies Office (CRO) by 30 November 2016. If the UCITS ManCo or AIFM (or s. 110 subsidiary) is converting to a DAC, the shareholder(s) of the UCITS ManCo or AIFM (or s. 110 subsidiary) must pass an ordinary resolution resolving that the company be registered as a DAC by 1 September 2016. Variable Capital Companies may choose to update their Memorandum and Articles of Association to reflect the provisions of the Companies Act 2014 and other regulatory changes when planning their Annual General Meetings. Please see our In Focus document for more detail.

This list does not cover ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include annual FDI Return) and semi-annual accounts because these dates will vary to reflect the particular year end.

UCITS V

UCITS V is now live. Ireland transposed UCITS V into national law by virtue of The European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2016.

The Delegated Level 2 Regulation supplementing UCITS V on the obligations of depositaries was adopted on 17 December 2015 and is expected to apply from October 2016.

The European Securities and Markets Authority (ESMA) Guidelines on sound remuneration policies under the UCITS Directive and AIFMD have not yet issued and so we look to the ESMA consultation paper on the ESMA Guidelines for insight. See our detailed analysis of the UCITS Remuneration Provisions here. 

The implementing technical standards (ITS) included in ESMA's final report setting out the procedures and forms which National Competent Authorities (NCAs) must use when submitting information to ESMA on penalties and measures under Article 99e(3) of the UCITS Directive await endorsement by the Commission and are of less immediate interest to practitioners as they concern reporting by NCAs to ESMA of penalties and measures imposed for UCITS infringements.

On 1 February 2016, ESMA published a new Q&A document on the application of the UCITS Directive, as most recently revised by UCITS V. This gives some insight on the timing of documentation updates for the remuneration and depositary requirements of UCITS V. See our newsalert here. 

By 18 March 2016, UCITS were to have in place UCITS V compliant depositary agreements, remuneration policies and procedures, whistleblowing policies and procedures, as well as prospectus and KIID updates. The ESMA UCITS Q&A has been of assistance in terms of the transition and the deadlines for updating fund documentation to reflect the new requirements (particularly because of the different dates for the application of the UCITS V Directive and the Level 2 measures). Notwithstanding that Q&A, many UCITS and UCITS depositaries were anxious to ensure that depositary agreements correctly reflect the legal position as of 18 March and any necessary disclosures are correctly reflected in prospectus and other documentation (particularly any additional depositary fees). Some updated depositary agreements were not in place by 18 March, particularly where Central Bank of Ireland review is required. While whistleblowing policies can be adopted, the correct approach to the adoption and implementation of remuneration policies and procedures is not yet clear. In the absence of final Guidelines, our view is that UCITS should have adopted remuneration policies and procedures (if practicable) by 18 March even though these may need to be updated. In our view, it would be unlikely that enforcement action would be taken if a policy had not been adopted, given the absence of the Guidelines.
 

Investor money regulations / Umbrella cash accounts

The Investor Money Regulations concern fund service providers holding investor money in collection accounts and by virtue of Amending Regulations, the Investor Money Regulations will be effective from 1 July 2016 (See amending regulation).

The Central Bank has also published Guidance for Fund Service Providers to assist Industry in interpreting the regulations. 

On 5 October 2015, the Central Bank published the first edition of the Investor Money Q&A. 

The Investor Money Regulations Q&A sets out answers to queries likely to arise in relation to the implementation of the Investor Money Regulations.

Many (but not all) investment funds will be changing their processes to ensure that their subscription / redemption / dividend accounts operate at an umbrella level as fund assets and so are not subject to the IMR as detailed in Central Bank Guidance on umbrella funds - cash accounts holding subscription, redemption and dividend monies.

  • The General Principles.
  • When it is not appropriate to operate an umbrella cash account.
  • Policies and procedures (these should be agreed with the depositary to govern the operation of an umbrella cash account and should be reviewed by both parties, at least annually).
  • Disclosure to investors.
  • Treatment of subscription, redemption and dividend monies in umbrella cash accounts.
  • Insolvency of one sub-fund within an umbrella fund the general. 


Central Bank Markets Update

The Central Bank issued Issue 2 of 2016 of it's Markets Update which covered;

Central Bank

  • AIFMD Q&A - Eighteenth Edition; Question 1100 has been amended to make reference to the publication of guidance entitled “Umbrella funds – cash accounts holding subscription, redemption and dividend monies” and new questions 1101 and 1102 have been added dealing with that guidance. A new question 1103 has been added dealing with the Securities Financing Transactions Regulation, recommending that any new sub-fund include in its prospectus documentation the SFTR required disclosure on the use of SFTs and total return swaps and noting that SFTs and total return swaps are used at sub-fund level rather than umbrella level and so the SFTR disclosures are required at sub-fund level. 
  • UCITS Q&A - Twelfth Edition Published; Question 1057 has been amended to make reference to the publication of the guidance entitled “Umbrella funds – cash accounts holding subscription, redemption and dividend monies” and new questions 1060 and 1061 have been added dealing with that guidance. A  new question ID 1062 has been added dealing with the Securities Financing Transactions Regulation and this mirrors the UCITS Q&A.
  • Regulatory Technical Standards for approval and publication of the prospectus and dissemination of advertisements effective 24 March 2016  
  • Investor Money Regulations (see above)
  • Address by Gareth Murphy, Director of Markets Supervision, Central Bank of Ireland at the launch of Duff and Phelps Global Regulatory Outlook 
  • Address by Gareth Murphy, Director of Markets Supervision, Central Bank of Ireland to the 5th Annual Funds Congress 

ESMA 

  • ESMA consults on Securities Financing Transaction Regulation (see below).
  • ESAs publish final draft technical standards on margin requirements for non-centrally cleared derivatives 
  • ESMA issues report on risks and costs of CCP interoperability 

EBA (European Banking Authority)

  • EBA issues amended standards on supervisory reporting for institutions 
  • Consultation on Guidelines on corrections to modified duration for debt instruments 
  • ESAs publish final draft technical standards on margin requirements for non-centrally cleared OTC derivatives  
  • EBA Consultation on COREP
     

Conflicts of interest 


The Central Bank has completed a themed inspection on the identification and management processes for conflicts of interest in investment firms. Investment firms include MiFID investment firms and their branches and UCITS managers authorised to provide individual portfolio management.  Issues identified are also relevant to firms authorised under the AIFMD as well as UCITS and UCITS managers who are not authorised to provide individual portfolio management as they give useful insight into Central Bank thinking and expectations. Under the MiFID, UCITS and AIFMD requirements, firms must establish, implement and maintain a conflicts of interest policy. 

The issues identified during the themed inspection have been followed up with the relevant institutions directly to ensure that specific remedial actions are taken. The Central Bank has also sent a Dear CEO letter to all investment firms providing feedback on the findings and highlighting good and poor practices. This letter outlines that, in order to identify and manage conflicts of interest, a strong culture of compliance is essential to ensure that the best interest of the client is not negatively impacted.  Appendix 1 of the letter highlights the key findings, Appendix 2 outlines good practices observed as well as poor practices.

The Central Bank expects the letter to be discussed , considered and minuted by the boards of the relevant investment firms by 30 June 2016. These firms will be expected to review their conflicts of interest policies and procedures, consider the good and poor practices in Appendix 2 against their own, review their current list of conflicts of interest  and keep these up to date.

The themed inspection found that firms with a strong culture of client-focus and regulatory compliance managed the risks around conflicts of interest best. These best-in-class firms were aware of the potential for conflicts of interest to occur and ensured that they were mitigated accordingly.   

Director of Markets Supervision, Gareth Murphy said: “An awareness and understanding of potential conflicts of interest goes hand in hand with a culture of looking out for clients’ best interests. This culture of awareness must be driven from the top and embraced by all employees of investment firms.”

Gareth Murphy, added: “The identification of conflicts of interest is a key step to ensuring that client detriment does not occur. If a firm cannot identify potential conflicts of interest then it will not be able to prevent an actual conflict from harming clients.”

For more information please contact Nollaig Greene or a member of the Asset Management & Investment Funds Team.

Date published: 24 March 2016