Asset Management & Investment Funds: Irish Practice Developments - December 2017
Asset Management & Investment Funds: Irish Practice Developments - December 2017
Some approaching compliance deadlines
31 December 2017. Corporate Governance – completion of reviews of board and individual director performance. Under the Irish Funds Corporate Governance Code, the overall Board's performance and that of individual members must be reviewed annually with a formal documented review and a review of the chairperson taking place at least once every three years.
31 December 2017. Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) - collective investment schemes and management companies should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CTF on an annual basis (and at such other times as may be appropriate). Boards should also ensure that they have considered whether to adopt a board level AML/CTF policy and where the board has adopted such a policy, that it receives appropriate confirmations from relevant persons and that it is subject to periodic review.
31 December 2017. Business Plan/Programme of Activity - UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs, where they have not already done so, may need to:
complete their annual performance review on service providers
obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity
complete onsite visits with service providers
ensure adoption of valuation policy
make disclosure in respect of connected party transactions
31 December 2017. Fitness & Probity - management companies, AIFMs, self-managed/internally-managed UCITS/AIFs and other regulated financial service providers (RFSPs), where they have not already done so, will need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. money laundering reporting officer and Company Secretary) that they are aware of the Fitness and Probity Standards, (Standards) agree to continue to abide by those Standards and will notify the Board if they no longer comply. This forms part of ongoing performance monitoring set out in Section 22 of the Guidance on Fitness and Probity Standards.
The Annual PCF Confirmation Return due date (for the year ending 31/12/17) for Investment Funds and Fund Service Providers (including AIFMs and UCITS management companies) has not yet been published on the Central Bank webpage (The 2016 return had a filing deadline of 28 February 2017). The Annual PCF Confirmation Return (which is made via the ONR system) involves a mandatory declaration to confirm the following:
That the CEO, or equivalent, has confirmed in writing that the RFSP has brought the Standards to the attention of all PCFs.
That the RFSP is satisfied on reasonable grounds that all PCFs comply with the Standards.
That the written agreement of all PCFs to abide by the Standards has been obtained.
That all necessary due diligence has occurred and that the RFSP will investigate any fitness and probity concerns, take appropriate action and notify the Central Bank of any action taken without delay.
1 January 2018. PRIIPs KID. Investment funds made available to retail investors within the European Union fall within the scope of the PRIIPs Regulation, whether those investment funds are established prior to, or after, 1 January 2018. See our November question of the month and our December question of the month for more detail.
1 January 2018. Benchmarks Regulation - takes effect (subject to transitional provisions). See our July Question of the Month for more details.
3 Jan 2018. MiFID II - comes into effect and may trigger changes to fund documentation such as prospectus disclosures and investment management and distribution agreement updates to ensure that MiFID authorised service providers comply with the new requirements.
3 Jan 2018. EMIR margin RTS – the requirement to exchange mandatory variation margin (VM) for physically-settled FX forwards applies from 3 January 2018. The ESAs are aware that this poses difficulties for some end-users and are reviewing the Regulatory Technical Standards on risk mitigation techniques for OTC derivatives not cleared by a central counterparty (RTS). They intend to develop draft amendments to these RTS that align the treatment of variation margin for physically-settled FX forwards with the supervisory guidance applicable in other key jurisdictions.
The ESAs intend to submit these draft amendments to the European Commission by 24 December 2017. Accordingly, as regards difficulties that in particular certain end-users are facing, the ESAs expect competent authorities to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in a proportionate manner.
19 February 2018. UCITS KIID - A UCITS must update its key investor information document (KIID) on an annual basis for each sub-fund / standalone fund within 35 business days of the end of each calendar year. This year this annual update of the KIID must be filed no later than 19 February 2018 (where required). Any update to the KIID filed with the Central Bank must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS' website.
25 May 2018. GDPR - the General Data Protection Regulation will come into force on 25 May 2018 and will introduce a sweeping new data protection regime. See our In Focus Paper for details of steps funds may take to prepare for the new regime. A&L Goodbody has launched a new GDPR Ireland App. The App is an essential resource for businesses who will have to comply with increased data protection obligations under the GDPR. The easy to navigate App provides guidance on the substantial changes introduced by the GDPR, and links to regulatory guidance. The A&L Goodbody GDPR Ireland app is part of a suite of GDPR resources which have been developed by the Firm over the past year. We will be keeping the App up-to-date with developments at Irish and European level. The App is free to download to iPhone and iPad from the apple store . To view our GDPR resources, visit our dedicated GDPR site.
21 July 2018. MMF Regulation. The MMF Regulation must be implemented by EU member states by 21 July 2018. The MMF Regulation introduces new requirements for MMFs in particular, portfolio composition, valuation of assets, diversification, liquidity management and credit quality of investment instruments. The rules will apply to all MMFs, whether they are UCITS or AIFs.
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.
The above 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 or other similar returns which deadlines will vary to reflect the particular entity's year end.
Central Bank Statement on the Variation Margin requirements under EMIR for physically settled FX forwards
The Central Bank of Ireland (Central Bank) issued a statement setting out their intended response to the requirement for financial counterparties (which include UCITS and their managers and AIFs managed by authorised or registered alternative investment fund managers) to exchange mandatory variation margin for physically-settled FX forwards from 3 January 2018 pending the amendment of the Regulatory Technical Standards on risk mitigation techniques for OTC derivatives not cleared by a central counterparty coming into effect. The Central Bank has confirmed that it will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation in a proportionate manner. Click here for more information.
Central Bank Markets Update
The Central Bank published Issue 10 of its Markets Update which covered its Statement on the Variation Margin requirements under EMIR for physically settled FX forwards (discussed above).
Central Bank Additional Supervisory Levy
The Central Bank has introduced an additional supervisory levy which will be a once off levy for newly authorised fund structures and new sub-funds in addition to the annual levy. The Central Bank Act 1942 (Section 32D) (Investment Funds – Additional Supervisory Levy) Regulations 2017 (S.I. 441) provide that:
all investment funds authorised and/or approved by the Central Bank on or after 1 December 2017 are liable to pay an Additional Supervisory Levy in the year of authorisation/approval
It should be noted that where the number of sub-funds received in a single application for authorisation of an umbrella fund exceeds 10, the amount to be charged will not exceed €23,000.
For the avoidance of doubt, the Central Bank notes that all further sub-funds approved are liable to pay the Additional Supervisory Levy upon approval.
Irish Funds Information Note on a Common Approach for Non-UCITS Not Selling to EEA Retail Investors under PRIIPs
Irish Funds published an Information Note on a Common Approach for Non-UCITS Not Selling to EEA Retail Investors under PRIIPs. This is discussed further in our question of the month. Please speak with your usual contact o the A&L Goodbody Asset Management & Investment Funds team if you would like a copy of the paper.
Central Bank AML/CTF Bulletin
The Central Bank issued an AML Bulletin giving Guidance on CDD and discontinuance of the business relationship.
Industry have been engaging with the Central Bank with respect to Section 33(8) (a) and (b) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, in particular the requirement to discontinue a business relationship where customer due diligence is incomplete. The bulletin sets out Central Bank expectations in this regard, for both new and existing customers. Helpfully, the Central Bank acknowledges that compliance with the requirement to discontinue business relationships presents problems in practice, particularly in circumstances where monies are payable to a customer. The bulletin is primarily aimed at such instances and points out that different approaches may need to be considered depending on the circumstances.
Where a firm is acquiring a book of business, the AML within a firm acquiring/transferring such a book of business should be involved in the due diligence process in order to assess the magnitude of any compliance deficiencies. This involvement will allow firms to commence a remediation exercise should the acquisition/transfer proceed.
Firms will need to assess and, where necessary, update ML/TF risk assessments, policies and procedures as appropriate to reflect the following:
Firms should seek to carry out CDD prior to the establishment of the business relationship
Where a firm believes there is no real risk of ML/TF and so completes CDD during the establishment of a business relationship, its policies and procedures should ensure that it can demonstrate the risk assessment to the Central Bank. Where CDD is completed during the establishment of the business relationship, the policies and procedures should also specify the defined timeframe in which CDD must be completed.
Firms should review and update contractual arrangements/ onboarding for new customers to ensure full disclosure and to obtain customer consent to the possible effect of the discontinuance of the business relationship.
Firms should implement processes that allow firms to return funds directly to the source from which they came in accordance with the Guidance and update procedures accordingly.
Where CDD deficiencies are identified in respect of existing Customers
Firms must take action where they are unable to identify and verify its customers or where sufficient documentation or information is not on file to verify its customers. Firms must have remediation plans in place. Firms should review policies and procedures and update as necessary to reflect the following steps to be taken in such circumstances:
Review all customer records to ascertain the extent of any deficiencies in CDD
Create a comprehensive plan to address any failure of customers to provide the required CDD documentation and/or address circumstances in which there is insufficient information in respect of the customer for the firm to demonstrate that the CDD requirements are met. In circumstances where it will take a longer period of time to fully implement remediation plans, Firms should consider prioritising remediating customers that would represent a higher risk of ML/TF before remediating other areas
Explore all options to source CDD, to include other types of identification documents and information which may be acceptable given the ML/TF risk profile of the customer. In cases where customers appear to be non-contactable, Firms should employ all available methods that could be utilised in order to locate such customers, for example engaging with the customer's intermediary. It is important that at all times, Firms act in the best interest of the customer (or prospective customer), and exhaust all possible avenues before taking any actions
Where CDD is not forthcoming from customers with whom the Firm has been able to successfully correspond, Firms must ensure that there are documented policies and procedures in place that outline the action required to discontinue the business relationship
In circumstances where there remains a cohort of customers for whom it has not been possible to obtain CDD despite all efforts to contact those customers, firms should design and document policies and procedures to be applied in order to ensure that the associated ML/TF risks are appropriately managed. This may include for example applying measures whereby these accounts are clearly identified as 'discontinued', ring fenced from normal accounts and flagged accordingly, subject to additional and more robust measures to be applied should the customer re-present
Consider whether there is any cause for suspicion in circumstances where CDD is not forthcoming and ensure suspicious transaction reporting obligations are fulfilled as required.