Asset Management & Investment Funds: Irish Practice Developments – December 2022
Asset Management & Investment Funds: Irish Practice Developments – December 2022
27 December 2022 - GDPR and standard contractual clauses (SCCs) - Existing agreements involving the transfer of personal data from the EEA to a jurisdiction which does not benefit from an EU adequacy decision (such as US, Australia, Hong Kong) should be reviewed. Contracts incorporating the old SCCs should be updated to include the new SCCs by 27 December 2022.
30 December 2022 - SFDR- Deadline for funds which consider principal adverse impacts (PAIs) of investment decisions on sustainability factors to update prospectuses (pre-contractual disclosures) to include disclosures required under SFDR Level 1. These include whether and how PAIs are assessed at fund level and confirmation that fund annual reports contain reporting on any identified PAIs. In-scope annual reports published after 30 December 2022 must include product-level PAI disclosures for those financial products in respect of which PAIs are considered.
31 December 2022 - 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. Once every three years a formal documented review and a review of the chairperson must take place. Length of service and ongoing independence of directors, as well as gender diversity at board level, should be considered in line with the CBI's CP86 expectations. Compliance with procedures for dealing with conflicts of interest and the terms of reference of any board committees should be reviewed at least on an annual basis.
31 December 2022 -Anti-money laundering/combatting the financing of terrorism - Designated persons (including UCITS ManCos, self-managed UCITS, AIFMs and internally managed AIFs) should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CFT on an annual basis (and at such other times as may be appropriate). The CBI expects boards to have in place a defined process for the annual review of AML/CFT policies, including AML/CFT business risk assessments. Where the board has adopted a board level AML/CFT policy, it should ensure that it receives appropriate confirmations from relevant persons.
31 December 2022 - Business plan/programme of activity- UCITS ManCos, 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. FMCs delegating functions must maintain adequate oversight and perform ongoing due diligence on delegates. Accordingly, FMCs should review and confirm their delegate due diligence plans, including making preparations for any necessary on-site visits. FMCs should also obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity, complete onsite visits with service providers (albeit remotely), ensure adoption of valuation policy and make disclosure in respect of connected party transactions.
31 December 2022 - Fitness & Probity- Where they have not already done so, RFSPs 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 F&P 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.
31 December 2022 - ESMA’s guidelines on outsourcing to cloud service providers- Firms will be working to comply with the CBI's cross industry guidance on outsourcing and will be aware that ESMA's guidelines (discussed here) provide that where the review of cloud outsourcing arrangements of critical or important functions is not finalised by 31 December 2022, firms should inform their competent authority of this fact, including the measures planned to complete the review or the possible exit strategy.
1 January 2023 - SFDR Level 2 effective date - Funds making disclosures under SFDR Article 8 or Article 9 must incorporate and publish an ESG annex into their prospectus/fund supplements per SFDR Level 2.
1 January 2023 - SFDR Level 2 effective date - The annual reports of funds issued after 1 January 2023 and making disclosures under SFDR Article 8 or Article 9 must incorporate an ESG annex per SFDR Level 2.
1 January 2023 – SFDR Level 2 effective date - Website disclosures for funds disclosing under Article 8 and Article 9 must comply with SFDR Level 2.
1 January 2023 - Taxonomy Regulation- Effective date for the disclosure obligations in respect of the four remaining environmental objectives listed in Article 9 of the Taxonomy Regulation.
1 January 2023 - Taxonomy Regulation- Effective date for the disclosure obligations of the Taxonomy Complementary Climate Delegated Act (concerning certain fossil gas and nuclear investments).
30 June 2023 - SFDR - For financial market participants in scope, or for those who have chosen to comply with PAI reporting at entity level, website disclosures are required as per Annex I, by 30 June 2023, covering the reference period of 1 January 2022 to 31 December 2022. The figures to be included on impact should be an average from 31 March, 30 June, 30 September and 31 December for each year, per Article 6(3) of SFDR Level 2.
1 January 2023 -Whistleblowing - Protected Disclosures (Amendment) Act 2022 commences. Funds and ManCos will likely have needed to update policies and procedures by that date.
1 January 2023 - PRIIPs KID - all UCITS made available to "retail investors" in the EEA will be required to provide such investors with a PRIIPs KID prior to their investment. In this context, "retail investor" includes any investor that does not fall within the definition of a "professional client" under MiFID. Every QIAIF or RIAIF which publishes a PRIIPS KID (because it is marketed to EEA retail investors) must update that PRIIPS KID to comply with the new RTS from 1 January 2023. Unlike the UCITS KIID, there is no annual refresh deadline for the PRIIPs KID. The PRIIPs KID must be reviewed regularly and revised when there is a significant change, and at least annually.
1 January 2023 - Performance fees in multi-manager funds - CBI deadline for existing multimanager UCITS' and RIAIFs' to comply with ESMA Q&A (discussed here). ESMA Q&A section XI Q 5 precludes the payment of performance fees in multimanager UCITS and RIAIFs to individual managers who have overperformed where there is a global underperformance of the UCITS or RIAIF.
10 January 2023 - ESAs Call for Evidence on greenwashing - Call for evidence closes 10 January 2023.
31 January 2023/ 28 February 2023 - Fitness & Probity- RFSPs will need to submit their annual PCF confirmation return to the CBI. The submission due date for the annual PCF confirmation return (for the year ending 31/12/22) deadline for each entity will be detailed on the ONR system.
The annual PCF confirmation return is made via the ONR system and involves a mandatory declaration to confirm that the CEO or equivalent, has confirmed in writing that:
the RFSP has brought the standards to the attention of all PCFs
the RFSP is satisfied, on reasonable grounds, that all PCFs comply with the standards
the written agreement of all PCFs to abide by the standards has been obtained
all necessary due diligence has occurred
the RFSP will investigate any fitness and probity concerns, take appropriate action and notify the CBI of any action taken without delay
RFSPs must obtain an annual certification from the holders of PCFs that they are aware of the F&P standards, will notify the board if they no longer comply with the standards and agree to continue to abide by those standards. The CBI noted in its “Dear CEO” letter of 17 November 2020 that it expects the on-going due diligence process for the holders of controlled functions to be updated annually and to extend beyond annual self-declarations, which is a minimum requirement.
31 January 2023-UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AIFMs must file their annual ownership confirmation by 31 January 2023.
20 February 2023 - UCITS KIID - A UCITS which is not made available to "retail investors" in the EEA is not obliged to provide a PRIIPs KID and may continue to produce a UCITS KID. This may be important for marketing in the UK. Such a UCITS must update its KIID on an annual basis for each sub-fund/standalone fund within 35 business days of the end of each calendar year. The annual update of the KIID must be filed with CBI. The submission deadline for each entity will be detailed on the ONR system. Any update to the KIID filed with the CBI must be translated and filed in other host jurisdictions as necessary. It must then be uploaded on the UCITS' website.
20 February 2023 - ESMA consultation on fund names using ESG or sustainability-related terms - Consultation closes 20 February 2023.
23 February 2023 - CP152 - Deadline for responding to CBI's CP152 on own funds requirements for UCITS ManCos and AIFMs authorised for discretionary portfolio management.
28 February 2023 - Fund profile return - The annual CBI fund profile return is required for all Irish authorised sub-funds. It is to be prepared for the period up to 31 December 2022, with a submission deadline (via the ONR) of 28 February 2023. The CBI does not anticipate that the fund profile will change from year-to-year, as changes would most probably reflect changes within the fund's offering documents. Therefore, year-to-year updates to the fund profile are expected to be minimal and reflect significant changes. The CBI updated the fund profile, guidance and template in 2022.
The above list does not cover tax, FATCA or CRS filings, director's compliance statement obligations (which apply to listed UCITS VCCs), diversity reporting obligations (which may apply to listed AIF and UCITS VCCs), ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include annual FDI returns) and semi-annual accounts or other similar returns (which deadlines vary to reflect the particular entity's year-end).
The CBI introduced new rules that will impact Irish regulated funds that invest primarily in Irish real estate. The new rules introduce mandatory leverage limits for all Irish regulated property funds and liquidity requirements for any Irish regulated property fund that is not closed-ended.
The CBI issued a letter that sets out the results of its June 2022 survey of fund management companies (FMCs). The purpose of the survey was to assess how the governance, structure and resources in FMCs had evolved as firms following the CBI's industry letter of 2020, following CP86. The topic was also explored in remarks by Patricia Dunne, CBI Director of Securities and Markets Supervision. Findings included:
The sector has changed materially in terms of scale, structure and complexity over the past three years. In 2019 there were 358 FMCs and this has now decreased to 148 FMCs., with a 90% decrease in the total number of self-managed investment companies (SMICs) currently operating in Ireland.
Significant growth in FMCs providing services to third party funds, with AUM among this group of firms now in the region of €540bn. CBI expects to see corresponding increased resources and expertise as the nature, scale and complexity of third party FMCs grows.
Growth in the level and extent to which FMCs provide MiFID services such as individual portfolio management (IPM) c€19bn in assets under management for IPM services in 2019 to c€432bn. FMCs engaged in MiFID services need to ensure that their regulatory compliance frameworks, systems and controls comply with the additional MiFID conduct of business obligations that apply to such services.
In terms of corporate governance and resourcing, areas for further improvement include:
CEO - 67% of FMCs now have a dedicated CEO; representing a 50% increase since 2019. The CBI expects that all but the smallest fund management companies have a CEO.
Director time commitments - From a sectoral perspective, on average, time committed by directors has almost doubled since 2019. CBI will continue its focus.
Designated Persons & Support Staff - Since 2019, the average FTE increase per firm is three-fold, rising from 3.2 in 2019 to 10 in 2022. The top ten FMCs in terms of AUM have seen an increase of approximately 200% in resourcing of Managerial Functions. The FMCs currently within the medium-high/medium-low impact category, the average headcount per firm is approximately 23 FTE. The level of resources in fund management companies must be continuously monitored and should grow in line with the nature, scale and complexity of the business.
INED Tenure - The number of INEDs with a tenure of greater than ten years has decreased by 7%, from 25% in 2019 to 18% in 2022. Directors should be mindful that tenure is a factor that can impact on their ability to act independently and this should be continually assessed. While this signals a move in the right direction, it still reflects a sizeable number of directors who continue to be classified as independent but have been in situ for ten years or more. The Central Bank of Ireland expects that tenure and independence continue to be considered as part of the organisational effectiveness director’s (‘OED’s’) review of board composition and forms part of related reporting to the board.
Board Diversity - There has been a marginal increase in the number of directorships held by women from 16% in 2019 to approximately 20% in 2022. A significant gender imbalance still exists at board level and CBI expects FMCs to consider diversity as part of ongoing internal governance reviews, including due consideration of factors such as skills, age, gender, culture and ethnicity.
Some FMCs still have some to work do.
Delegation and outsourcing. The proposals contained in the AIFMD review mark the start of a longer-term process that will take a deeper and more comprehensive look into delegation in Europe. Linked to this, focus on supervisory convergence will have a significant part to play in this process, with continued emphasis on delegation and outsourcing. In particular, ESMA is expected to carry out a peer review in this area in 2024.
CBI consults on own funds requirements for UCITS ManCos and AIFMs authorised for discretionary portfolio management
The CBI is proposing to introduce bespoke own funds requirements for UCITS management companies (ManCos) and AIFMs authorised to provide discretionary portfolio management and additional non-core services.
This will ensure consistency with the own funds requirement applicable to MiFID portfolio managers (who are now subject to the own funds requirements set out in the IFR). It will also impact the risks for UCITS ManCos and AIFMs to be undercapitalised when compared to MiFID portfolio managers performing similar services.
The consultation (CP152) is dated 1 December 2022 and will close on 23 February 2023.
In more detail: the CBI is proposing to apply different own funds requirements depending on whether the UCITS ManCo or AIFM is, or is not, small and non-interconnected.
In short, the CBI proposes that:
A UCITS ManCo or AIFM that meets all of the conditions to be a small and non-interconnected firm will be subject to the own funds requirement set out in Regulation 17 of the UCITS Regulations and Regulation 10 of the AIFM Regulations.
A UCITS ManCo or AIFM that is not a small and non-interconnected firm will be required to have own funds of at least the highest of:
The total amount of initial capital and own funds which the UCITS ManCo or AIFM is required to hold pursuant to the UCITS Regulations or the AIFM Regulations, as applicable; or
A new Risk to Client K-Factor requirement amount calculated in accordance with proposed new Regulation 100A of the CBI UCITS Regulations; or, a proposed amendment to Chapter 3 of the CBI AIF Rulebook, which will be imposed as a condition on the authorisation of each AIFM, as relevant.
The new requirements will be set out on a legislative basis through an addition to the CBI UCITS Regulations (included in Annex I to CP152) for UCITS ManCos and as a condition of authorisation of AIFMs reflected in an addition to Chapter 3 of the CBI AIF Rulebook (included in Annex II to CP152).
CBI letter to LDI fund managers
The CBI wrote to liability driven investment (LDI) fund managers. This followed interactions between the CBI, the Commission de Surveillance du Secteur Financier (CSSF – Luxembourg) in response to recent volatility in yields associated with UK gilts which exposed vulnerabilities in liability driven investment (LDI) fund products, giving rise to a concerning cycle of collateral calls and forced sales.
The CBI requests GBP LDI fund managers to maintain the current level of resilience and the reduced risk profile of GBP LDI funds. Managers wanting to reduce GBP LDI fund’s yield buffers below the current levels are to inform NCAs in advance, and provide analysis, risk assessment and plan. The letter notes that CBI/CSSF do not consider that any reduction in the resilience of GBP LDI funds at individual sub-fund level is appropriate at this juncture.
The letter also looks at inadvertent decrease of GBP LDI fund resilience and decrease of LDI fund resilience funds in other currencies.
Irish funds prepared a briefing paper on LDI and recent market events. Please speak with your usual contact on the ALG Asset Management & Investment Funds team for more detail.
The CBI does not currently require the filing of a PRIIPS KID with the CBI when first implemented. Some EU regulators will require the filing of a PRIIPs KID in advance of their use in that jurisdiction for marketing. Please speak with your usual contact on the ALG Asset Management & Investment Funds team for more detail.
Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies – search facility suspended
Following a recent judgement by the European Court of Justice, public access to beneficial ownership registers across the EU was suspended. Read more here. Mechanisms are being put in place for designated persons and competent authorities to access the necessary beneficial ownership information.
Irish Funds publishes two sanctions related papers
The Irish Funds AML working group produced two sanctions related papers:
Irish Funds FAQ on Russian/Belarusian Prohibitions