Asset Management & Investment Funds: Irish Practice Developments - Aug 2018
Some approaching compliance deadlines
- 1 September 2018. Money Market Funds - Money Market Funds which are availing of a transitional period have been advised by the Central Bank to submit all documents requiring review to the Central Bank no later than 1 September 2018. The European Union (money market funds) Regulations 2018 (S.I. No. 269 of 2018) came into operation on 21 July 2018.
- 5 October 2018. UCITS investing in a non-UCITS investment fund - Irish UCITS which currently invest in non-UCITS investment funds must review their holdings (of those non-UCITS investment funds) to ensure compliance with the new requirements detailed in our July update and may need to disinvest where compliance cannot be achieved by 5 October 2018.
- 30 November 2018. Filing annual accounts of variable capital companies in CRO - The Companies (Accounting) Act 2017 obliges UCITS investment companies and AIF investment companies to file annual accounts for financial years commencing on or after 1 January 2017 with the CRO within eleven months of the relevant financial year end. By 30 November 2018 we will see the first such accounts being filed. Form FS1 is the form which will accompany the filing. It is available from the following webpage and will incur a filing fee of €15.
- 1 January 2019. Securitisation Regime - Due diligence and disclosures on securitisations will need to be applied (in the case of UCITS) or updated and refreshed (in the case of AIFMs). Where AIFMs and UCITS are exposed to securitisation positions which do not meet the requirements, they must, acting in the best interest of the investors, take corrective action
- 1 January 2019. Benchmarks Regulation - Prospectuses of UCITS and of funds which are subject to the Prospectus Directive, which reference a benchmark and which have been approved prior to 1 January 2018, will need to be updated at the next update and in any event by no later than 1 January 2019 to include information on the benchmark.
- 21 January 2019. Money Market Funds - The MMF Regulation introduces new requirements for MMFs in particular, portfolio composition, valuation of assets, diversification, liquidity management and credit quality of investment instruments. Existing UCITS and AIF MMFs must comply with the new rules by 21 January 2019. The European Union (money market funds) Regulations 2018 (S.I. No. 269 of 2018) came into operation on 21 July 2018.
The above list does not cover tax, FATCA or CRS filings, ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include any annual FDI Return) and semi-annual accounts or other similar returns which deadlines will vary to reflect the particular entity's year end.
Central Bank proposals to reform individual accountability
Seana Cunningham, Director of Enforcement and Anti-Money Laundering at the Central Bank of Ireland (Central Bank) delivered a speech on the Central Bank's approach to individual accountability. The speech presents an interesting insight into the Central Bank's current approach to enforcement, its concern that a lack of individual accountability is a key cultural driver of misconduct and its proposals for reform.
The Central Bank is proposing an "Individual Accountability Framework". The primary purpose of this proposal is to act as a driver for positive behaviours and the recognition of responsibilities by individuals. The reforms are intended to constrain the ability of senior executives to escape liability for wrongdoing and to iincrease the Central Bank’s ability to hold individuals to account and deter misconduct.
There are four elements to the proposed Individual Accountability Framework:
- Enforceable "Conduct Standards" which will set out the behaviours the Central Bank expects of regulated firms and the individuals working within them. These will include binding obligations on firms and individuals to conduct themselves with honesty and integrity, act with due skill, care and diligence in relation to the conduct of their business and co-operate with regulators. The Central Bank proposes that existing conduct standards, such as the Fitness and Probity (F&P) Regime, be enhanced as "Conduct Standards" with which regulated financial services providers and individuals must comply.
The Central Bank proposes three sets of standards:
- Common Conduct Standards for all staff in regulated financial services providers
- Additional Conduct Standards for senior management
- Standards for Businesses
A Senior Executive Accountability Regime (SEAR) which aims to ensure clearer responsibility and accountability. Firms and holders of senior executive functions (SEFs) within them will map out where responsibility and decision-making lie for their business. SEFs will have a documented statement of responsibility setting out their role and responsibilities. Taking a risk-based approach, the Central Bank proposes that the introduction of a Senior Executive Accountability Regime would initially focus on a sub-set of the financial services industry.
Further enhancements to the current F&P Regime to strengthen the onus on firms to proactively assess individuals in controlled functions on an ongoing basis. The Central Bank also proposes changes to current limitations of the Central Bank’s F&P oversight function (such as the ability to investigate people who performed controlled function roles in the past).
A unified enforcement process, which would apply to all breaches by firms or individuals of financial services legislation. Specifically the Central Bank proposes that the hurdle of participation be removed so that the Central Bank could pursue individuals directly for their misconduct under the Administrative Sanctions Procedure, rather than only where they are proven to have participated in a firm’s wrongdoing.
The speech references:
- The Financial Stability Board's recommendation in April 2018, that national authorities identify and assign key responsibilities, hold individuals accountable and assess the suitability of individuals assigned key responsibilities
- The Central Bank response to the Law Reform Commission’s Issues Paper on Regulatory Enforcement and Corporate Offences
- The Central Bank report to the Minister for Finance on Behaviour and Culture of the Irish Retail Banks (which contain significantly more detail on the proposals for reform).
The speech also gives useful insights and statistics regarding the tools currently used by the Central Bank:
- Gatekeeper function under the F&P regime, where its experience (consistent with international regulators) is that where the prospect of refusal is raised, proposed appointments are in most cases withdrawn.
- Oversight function under the F&P regime whereby the Central Bank may investigate individuals if there are F&P concerns. Such an investigation can give rise to a suspension, or to a prohibition. The Central Bank regularly investigates those subject to the regime and has issued a number of prohibition notices following such investigations.
- Administrative Sanctions Procedure, again giving statistics and examples.
Criminal Justice (Corruption Offences) Act 2018
The Criminal Justice (Corruption Offences) Act 2018 is now in force. One of the most important aspects of the legislation is the introduction of a new corporate corruption offence. The legislation renders a company liable for prosecution where any of its officers, managers, employees, agents or subsidiaries are found to be involved in corruption. The only defence is for the company to show that it took all reasonable steps and exercised all due diligence to prevent such corruption from taking place. The legislation also applies to certain international activities.
Key aspects of the new law include the following:
- New offences of active and passive trading in influence (recommended by GRECO, the Council of Europe anti-corruption body)
- The presumption of corrupt gifts is extended to connected persons (recommended by the Mahon Tribunal)
- The presumption of a corrupt donation is expanded, so that failure to disclose or return a donation will constitute grounds for the presumption to apply (recommended by the Mahon Tribunal)
- New offence of giving a gift, consideration or advantage, knowing that it will be used to commit a corruption offence (recommended by the Mahon Tribunal)
- New offences for creating or using false documents (required by most International Conventions)
- New offence of intimidation where a threat of harm is used instead of a bribe
- New strict liability offence (discussed above), for bodies corporate where any individual connected with the company has been found guilty of corruption. The penalty for the company can be an unlimited fine (recommended by the OECD and by the Mahon Tribunal)
- Provisions for seizure and forfeiture of bribes.
Key steps to prepare for compliance are set out here.
Please speak with your usual contact on the A&L Goodbody Asset Management & Investment Funds team for more information.
Central Bank Regulatory Service Standards Performance Report H1 2018
The Central Bank published the Regulatory Service Standards Performance Report for the first half of 2018. This report sets out the Central Bank's performance against standards and deadlines it has committed to for the authorisation of financial service providers and Fitness and Probity applications.
Deputy Governor Ed Sibley said:
"We are committed to providing a clear, robust and timely authorisation process, while ensuring a rigorous assessment of each application. This gatekeeper role mitigates financial stability risks and protects customers and market integrity in Ireland and across Europe. It is imperative that any new firm authorised here meets the high standards that are expected of financial services firms authorised anywhere in the European Union.
As a result of Brexit, we are dealing with an unprecedented volume of applications, which are being processed over a relatively short period of time. We have increased headcount, recruited heavily and re-allocated senior and experienced staff from other important tasks to ensure that we assess these applications effectively, efficiently, predictably and in a timely fashion."
Central Bank Markets Updates
The Central Bank published issue 12 of its Markets Update on 23 August 2018.
Some key developments are detailed below:
Central Bank of Ireland
- Central Bank statement on Pension Scheme Arrangement clearing and trading obligation
- Prospectus (Directive 2003/71/EC) (Amendment) Regulations 2018 came into operation on 21 July 2018
The European Securities and Markets Authority (ESMA)
- ESMA registers Moody's Investors Service (Nordics) AB as credit rating agency
- ESMA updates validation rules under EMIR
- Errata Double Volume Cap data
- MiFID II: Update ESMA makes new bond liquidity data available
- ESMA issues clarifications on the clearing obligation and trading obligation for pension scheme arrangements
- MIFID II: ESMA issues latest double volume cap data
- ESMA responds to EIOPA questions on AIFMD
- ESMA updates equity derivatives, equity and equity-like instruments' transitional transparency calculations for MiFID II/ MiFIR
- MiFID II: ESMA makes new bond liquidity data available
- MiFID II: ESMA publishes data for the systematic internaliser calculations for equity, equity-like instruments and bonds
- Nordic Credit Rating AS registered as Credit Rating Agency
- ESMA finds shortcomings in national supervision of efficient portfolio management by UCITS
- ESMA updates the Questions and Answers on ESMA's temporary product intervention measures
International Organization of Securities Commissions (IOSCO)
- IOSCO call for comments on governance of OTC derivatives data
- IOSCO study highlights continued central clearing interdependencies
- IOSCO publishes FSB and standard-setting bodies consultation on effects of reforms on incentives to centrally clear over-the-counter derivatives
- IOSCO issues recommendations to help trading venues manage extreme volatility
Minor amendments to the Irish Collective Asset-management Vehicles Act 2015 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended)
The Department of Business, Enterprise and Innovation has stated its intention to commence the Companies (Statutory Audits) Act 2018 on 21 September 2018 (for almost all sections). The final position will only be known once the relevant Commencement Order is published.
The Companies (Statutory Audits) Act 2018 will consolidate existing audit legislation into the Companies Act 2014 so as to bring Ireland in line with the EU Audit Reform Package. This legislative reform package was enacted in the wake of the international financial crisis so as to strengthen auditor independence and audit supervision in Europe.
When the Companies (Statutory Audits) Act 2018 has been commenced, the statutory audits regime in Ireland will comprise of two tiers of legislation: the Companies Act 2014, as amended by Companies (Statutory Audits) Act, 2018, and EU Regulation 537/2014.
Section 74 of the Companies (Statutory Audits) Act 2018 will update the Irish Collective Asset-management Vehicles Act 2015 to align it with the provisions of the Companies (Statutory Audits) Act 2018 in respect of:
- replacement of references to “Audits Regulations”
- eligibility for appointment as an auditor of an ICAV.
Section 75 of the Companies (Statutory Audits) Act 2018 will update the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended):
- by the insertion of a new Regulation 6A in Part 2 which provides that, for the avoidance of doubt, sections 1099 to 1110 of Companies Act 2014 (which implement the Shareholders' Rights Directive) do not apply to UCITS
- by the correction of a reference to the Companies Act 2014 which concerns the obligation on UCITS to submit financial statements to the Companies Registration Office.
New Central Bank Director of Financial Stability
The Central Bank announced the appointment of Vasileios Madouros as the Central Bank’s Director of Financial Stability.
Announcing the appointment, Deputy Governor Sharon Donnery said: “I am delighted to announce Vasileios as the Central Bank’s new Director of Financial Stability. He brings extensive experience in risk assessment, the development and implementation of macroprudential policy, and stress-testing. His technical knowledge in central banking will greatly contribute to the leadership of policy and analytical work on sources of systemic risk in the financial system, as well as the actions we take to mitigate risk including the orderly resolution of institutions.”
The Director of Financial Stability is responsible for the leadership of the Macro-Financial Division, Resolution Division, the Central Credit Register, Markets-Based Finance and International Relations. The Director is a member of the Senior Leadership Team of the Central Bank and leads a team of over 70 staff.
Central Bank comments on the European Supervisory Authorities’ publication of Brexit Opinions
The Central Bank welcomed the publication by the European Supervisory Authorities (ESAs) of Opinions on the impact of the United Kingdom (UK) withdrawing from the European Union (EU).
Derville Rowland, Director General Financial Conduct, said:
“The ESAs’ Opinions are a timely reminder to financial institutions and in particular to banks, insurers, brokers and investment firms, to ensure they have put appropriate plans in place for Brexit. We expect that firms consider the implications of Brexit and ensure they have robust contingency measures to minimise the impact on their customers, investors and markets’’
The statement notes that ESMA reminded regulated entities of the need to make timely submission of requests for authorisation in the context of the UK withdrawing from the EU. ESMA noted that, as there is no assurance that a transition period will be agreed, entities need to consider the worst-case scenario where a hard Brexit would take place on 30 March 2019.
For more information please contact a member of the Asset Management & Investment Funds Team.
Date published: 3 September 2018