Asset Management & Investment Funds: Irish Practice Developments: Aug 2019

30 September 2019 deadline for submission to the Central Bank of Brexit related updates to UCITS and RIAIF documentation

The Central Bank of Ireland (Central Bank) issued a Brexit reminder to the boards of funds and fund management companies (which including self-managed investment funds) on 6 August 2019.

The Central Bank reminded all boards of their responsibility to ensure that entities are appropriately prepared for the impact of Brexit. Board should determine whether any amendments to documentation are required. Such updates may include amendments to a Fund's list of regulated markets to reflect that the UK will cease to be a European market in the event of Brexit or policy updates to clarify the geographical focus of a UCITS or retail AIF. Document updates for UCITS and RIAIFs must be submitted to the Central Bank by 30 September 2019 in order to be in place for 31 October 2019. 

The Central Bank referenced its letter to industry of 17 November 2017 which highlighted the need for the fund and fund manager boards to ensure that funds under their remit were adequately prepared for the impact of Brexit including the extent to which updates would be required to fund documentation. Readers may recall our March Q&A on this topic and our June update on the UK FCA's Temporary Permissions Regime and our November 2017 bulletin.

Central Bank expectations for liquidity management

The Central Bank issued a letter on 7 August 2019 to fund management companies about the importance of ongoing, effective liquidity management and ensuring compliance with relevant legislative and regulatory obligations for UCITS and AIFs. The Central Bank requested that the letter is brought to the attention of all members of the board of the fund management company. The Central Bank letter follows international regulator and media focus on liquidity problems which have affected some investment funds. IOSCO issued a statement on Liquidity Risk Management Recommendations for Investment Funds on 18 July 2019. The UK's Financial Conduct Authority also issued a letter on 6 August 2019 considering the merits of tightening liquidity standards for UCITS schemes authorised in the UK.

The Central Bank letter places responsibility for liquidity risk management with the board of the fund management company, individual directors and designated persons. It points out that liquidity risk management can involve daily and intra-day monitoring and liquidity stress testing is a key part of the process. Liquidity management tools such as duties and charges, gates and suspensions should be applied in a transparent and proportionate manner taking into account the best interests of investors. Fund documentation should be clear, accurate and in line with legislative and regulatory requirements. The Central Bank has already stepped up monitoring of investment fund liquidity and redemption activity for Brexit related reasons and it will continue to collect relevant data and monitor investment fund liquidity.

Boards and designated persons of UCITS Management Companies, AIFMs, SMICs and internally managed AIFs should familiarise themselves with the content of the Central Bank's letter.  Liquidity risk management policies and processes should be analysed by reference to the letter.  Liquidity management for funds crosses over the management functions of fund and operational risk management, investment management and, to a lesser extent, regulatory compliance. All stakeholders in the liquidity and risk management process for the fund management company should be involved in the analysis.  In formulating and reviewing liquidity risk management processes, boards and designated persons should also be aware of the IOSCO statement of 18 July 2019 and its Liquidity Risk Management Recommendations of February 2018. It would also be worth reviewing fund documentation provisions and disclosure in relation to liquidity, liquidity risk management and liquidity management tools to ensure clarity and alignment with regulatory requirements and documented liquidity management policies and processes.

ESMA issued guidelines on liquidity stress testing in UCITS and AIFs which will apply from 30 September 2020, discussed below.

Central Bank Review of CP86 implementation

The Central Bank has commenced phase 2 of its assessment of the implementation by fund management companies of CP86 Fund Management Company Guidance.  For phase 3, the Central Bank will select some fund management companies and some funds for an on-site review meeting.

Phase 2 focuses on the inspection of three elements:

  • the delegation of investment management and the performance of this managerial function
  • the organisational effectiveness role

The Central Bank emailed selected funds and fund management companies requesting submission of various documentation by 6 September.

The requested documentation included:

  • board documentation (including organisational effectiveness) such as minutes, reports, supporting materials, presentations,  questionnaires, details of due diligence, discussion of underperformance of funds
  • processes for new fund launches, policies and procedures, organisational chart, incidents reports, details of delegated persons, organisational effectiveness reports
  • investment management function documentation, including appointment documentation, due diligence details, reports, key performance indicators which trigger escalation to the board, terms of reference of investment management committees (if applicable), due diligence processes for investments
  • fund risk management function documentation  including letters of appointment for designated person responsible for fund risk management, their role profile, primary responsibilities and bio, the risk management framework/ risk management policy, the risk appetite framework/ risk appetite statement,  the risk register, details of breaches and errors, the key performance indicators which trigger escalation to the board, reports, terms of reference of the risk committee and reports assessing risk levels relative to risk appetite

The requests give useful insights into Central Bank expectations on CP86 implementation.

The European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2019 (SI 430 of 2019)

The European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2019. came into force on 13 August 2019. They:

  • amend the European Union (Undertakings for Collective Investment in Transferable Securities) Regulations (S.I. No. 352 of 2011)
  • update references (and requirements) to reflect:
    • the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) in place of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007)
    • the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 (S.I. No. 604 of 2017)                                       
  • update client asset and investor money requirements to align with current legislation
  • provide for segregation/remoteness of UCITS assets generally and from the assets of a depositary or its agent
  • provide for segregation/remoteness of UCITS assets on the insolvency of a depositary or any third party located in the EU

The European Union (Alternative Investment Fund Managers) (Amendment) Regulations 2019 (S.I. No. 428 of 2019)

The European Union (Alternative Investment Fund Managers) (Amendment) Regulations 2019 (S.I. No. 428 of 2019).  came into force on 13 August 2019. They:

  • amend the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. No. 257 of 2013)
  • ​update references (and requirements) to reflect:
    • the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) in place of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007)
    • the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 (S.I. No. 604 of 2017) 
  • update client asset and investor money requirements to align with current legislation
  • update depositary requirements as regards branches including branches of depositaries and AIFMs operating cross border                                              
  • provide for segregation/ remoteness of AIF assets generally and from the assets of a depositary or its agent.
  • provide for segregation/remoteness of AIF assets on the insolvency of a depositary or sub-custodian located in the EU
  • oblige auditors of AIFMs to report matters to the Central Bank 
  • update requirements for branches of AIFMs operating cross border
  • empower the Central Bank to require the suspension by the AIFM of the repurchase, or redemption, of units in the interest of the unit-holders or the public

Register of Beneficial Ownership of Companies and Industrial and Provident Societies

  • The Registrar of Companies has been appointed as the Registrar of Beneficial Ownership of Companies and Industrial & Provident Societies with effect from 29 July 2019
  • The Register of Beneficial Ownership of Companies and Industrial & Provident Societies (RBO) is now live and accepting filings
  • Filing of beneficial ownership data can only be made on-line through a portal on the RBO website. There are no filing fees involved
  • The deadline for filing beneficial ownership information with the RBO for entities incorporated before 22 June 2019 is 22 November 2019. For any entity incorporated on or after 22 June 2019, the filing deadline is five months after the date of that entity's incorporation
  • The RBO is writing to each company and Industrial & Provident Society about their filing obligations
  • The Irish Personal Public Service Number (PPSN) is to be submitted to facilitate verification of identity of beneficial owners. Details of the process to be followed for RBO filings in respect of beneficial owners who do not have an Irish Personal Public Service Number are set out in section 12 of the FAQ section of the RBO

Data Protection Commissioner Guide to GDPR breach notifications

The Data Protection Commissioner (DPC) issued a guide to GDPR breach notifications to help controllers better understand their obligations regarding notification and communication requirements. It covers both notification to the DPC, but also communication to data subjects, where applicable.

2019 National AML/ CTF Risk Assessment

The Government has issued the 2019 National AML/ CTF Risk Assessment together with a New Technologies Risk Assessment 2019. As flagged in the Central Bank's AML/CTF bulletin of November 2017 (on suspicious transaction reporting), and in the Central Bank draft AML/ CFT Guidelines for the

Financial Sector (issued in conjunction with Consultation Paper CP 128), firms are expected to consider the results of the National Risk Assessment and review and update group and firm level ML/TF risk assessments as appropriate.

Market abuse rules and guidance

Irish funds whose shares are listed on Euronext Dublin, or other EU regulated market, are subject to the market abuse regime.

On 21 July 2019, the Central Bank (Investment Market Conduct) Rules (S.I. No. 366 of 2019) (the Rules) came into force. The Rules (among other things) repeal and codify the market abuse rules previously issued by the Central Bank. The rules do not materially diverge from the market abuse rules they replace. As we have seen with other Central Bank regulations, this codification allows the Central Bank use its enforcement powers to address breaches. 

The Central Bank also published Guidance on Market Abuse Regulatory Framework which sets out some regulatory guidance on matters contained in the rules. This should be read with the source materials detailed in the guidance. Readers will recall the ESMA Market Abuse Regulation (MAR) Q&As which were updated with non-exhaustive examples where inside information might arise for listed collective investment undertakings (CIUs), discussed in our April bulletin.

The European Union (Prospectus) Regulations 2019

The new EU Prospectus Regulation applies across the EU since 21 July 2019. In Ireland, the European Union (Prospectus) Regulations 2019 (S.I. No. 380/2019) came into force on 21 July 2019 (the 2019 Regulations). The 2019 Regulations revoke the Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324/2005) (the 2005 Regulations) in their entirety.

The Central Bank (Investment Market Conduct) Rules detailed above also repeal and replace the Prospectus Rules previously issued by the Central Bank. The Central Bank published updated guidance on the Prospectus Regulatory Framework. Read here for more information on this topic.                   

In a funds context, the EU Prospectus Regulation and the 2019 Regulations only affect listed, closed-ended funds.

For more information in relation to this topic please contact a member of the Asset Management & Investment Funds team.

Date published: 3 September 2019