Asset Management & Investment Funds: Irish Practice Developments: March 2019
New Beneficial Ownership Regulations affecting corporate entities are now in force.
The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 came into force on 22 March 2019, save for Part 3. Part 3 concerns the new Central Register of Beneficial Ownership. It will become operative on 22 June 2019.
The existing regulations in this area, the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 (the 2016 Regulations), are revoked as of 22 March 2019. See here for more information.
Central Bank permits investment in Chinese bonds via Bond Connect
From 21 March 2019, the Central Bank permits investment in Chinese bonds via Bond Connect Bond by Irish UCITS and AIFs. This is timely given the proposed inclusion of bonds traded on China Interbank Bond Market (CIBM) in a number of internationally recognised indices. See more detail in our news alert.
Central Bank Markets Updates
The Central Bank published issue 3 of its Markets Update on 7 March 2019. Developments included:
- Thirty-Second Edition of the Central Bank AIFMD Q&A . The Central Bank issued the 32nd edition of the Central Bank AIFMD Q&A which includes an updated Q&A, in relation to Irish QIAIFs with UK AIFMs. The updated Q&A clarifies that the QIAIFs with UK AIFMs (which become non-EU AIFMs) are subject to the full AIFMD depositary regime including the AIFMD depositary liability provisions
- Brexit FAQ in relation to the Multilateral Memoranda of Understanding agreed between European securities regulators and the FCA. On 6 March 2019, the Central Bank updated its FAQ to clarify that the Multilateral Memoranda of Understanding which were agreed between European securities regulators and the FCA on 1 February 2019 facilitate delegation or outsourcing arrangements between Irish UCITS Management Companies/AIFMs/MiFID Firms and UK entities
- Notice of intention in relation to investments by UCITS and Retail Investor AIFs in UK funds and UK counterparties. The Central Bank published a notice of intention in relation to Investment by UCITS and Retail Investor AIFs (RIAIFs) in UK investment funds and related to the eligibility of counterparties to OTC derivative instruments entered into by UCITS and RIAIFs. Effectively, if the UK becomes a third country (without a withdrawal agreement):
- the Central Bank will consider whether UK UCITS, which at that point will become UK AIFs, should be identified in Central Bank guidance as a category of investment fund in which UCITS and RIAIFs may invest. For the period while this is under consideration, the Central Bank does not propose adopting a default position which would treat the UK AIFs as ineligible. Nevertheless in the case of UCITS, any investment in UK AIFs must fall within with the aggregate limit of 30% for investments in all AIFs. Such determination may be changed, including if circumstances change, and
- the Central Bank will also consider whether UK investment firms, currently authorised under the European Union Markets in Financial Instruments Directive (MiFID), should be a category of eligible financial derivative counterparty for UCITS and RIAIFs. While this is under consideration, the Central Bank does not propose adopting a default position which would treat UK investment firms as ineligible. Such determination may be changed, including if circumstances change
- EMIR Reporting - On 20 February 2019, Central Bank of Ireland issued a letter to counterparties to provide feedback on the main issues identified from the EMIR data quality work undertaken by the Central Bank of Ireland in 2018. Counterparties are reminded that failure to report details of a derivative contract to a trade repository by the end of the working day following the conclusion, modification or termination of the contract constitutes a prescribed contravention under the Regulations.
- Seventh edition of the Central Bank Investment Firms Q&A. The Central Bank issued the seventh edition of the Central Bank Investment Firms Q&A which includes new Q&As in relation to tied agents under the MiFID II Regulations. These Q&As clarify that only EEA MiFID firms can appoint tied agents and that tied agents must be persons established in the EEA.
European Securities and Markets Authority (ESMA)
- ESMA sets out its approach to several MiFID II/MiFIR and BMR provisions under a no-deal Brexit
- ESMA to recognise the UK Central Securities Depository in the event of a no-deal Brexit
- ESMA Chair Maijoor's keynote on crypto-assets
- ESMA publishes responses to its Consultation on reporting guidelines under the MMF Regulation
- ESMA publishes responses to its Consultations on Sustainable Finance
- ESMA supervision to focus on data, Brexit and cybersecurity in 2019
- ESMA to recognise three UK CCPs in the event of a no-deal Brexit
- EU and global securities regulators welcome agreement on data transfer
- Steven Maijoor on "Brexit – the regulatory challenges" at the European Financial Forum, Dublin
- ESAs publish recommendations on changes to the PRIIPs Key Information Document
- ESMA publishes list of thresholds below which an EU prospectus is not required
- ESMA publishes its 2019 Risk Assessment Work Programme
- ESMA publishes supervisory briefing on the supervision of non-EU branches of EU firms
- ESMA sets out 2019 priorities for supervisory convergence
- ESMA sets out use of UK data in ESMA databases under a no-deal Brexit
- ESMA publishes guidelines on supervisory reporting for credit rating agencies
- ESMA consults on liquidity stress test guidance for investment funds
- ESMA agrees no-deal Brexit MOUs with the Bank of England for recognition of UK CCPs and the UK CSD
- ESMA updates Q&A on EMIR data reporting
- ESMA updates Q&A on MiFIR data reporting
- ESMA and EU securities regulators agree no-deal Brexit MoUs with FCA
European Banking Authority (EBA)
EBA publishes revised Guidelines on outsourcing arrangements
The Central Bank published issue 4 of its Markets Update which included information on
- FCA announces its intention to extend the notification window for its temporary permissions regime
- Central Bank publishes the Thirty-Third Edition of the Central Bank AIFMD Q&A Document (new Q&A on China Bond Connect)
- Central Bank publishes the Twenty-Fifth Edition of the Central Bank UCITS Q&A Document (new Q&A on China Bond Connect)
Central Bank speeches
Central Bank Deputy Governor Sharon Donnery delivered a speech on Risks and Resilience in Uncertain Times
The speech considers the economic outlook both for Ireland and the international environment some of the risks that Ireland faces and some thoughts on what policy can do (including CBI tools) when facing these very different risks.
"The Irish macrofinancial environment could change significantly over the short and medium term. The UK leaving the EU is not the only risk. The international economic environment has deteriorated, yet the domestic economy is currently robust."
So, CBI find ourselves in the interesting position of assessing a potential slowdown in the external international environment, the UK departing the EU, while also worrying about potential overheating from a domestic perspective."
Central Bank Director General, Financial Conduct, Derville Rowland, delivered a speech setting out the Central Bank's views on diversity, including gender diversity, and articulating Central Bank vision for a trustworthy financial system that provides a better balance between firms and their customers
Central Bank Deputy Governor Sharon Donnery delivered an address on the departure of the UK from the EU and its implications for the Irish economy and financial system. The speech noted the importance of the Central Bank's international engagement and cooperation by way of the ECB, Single Supervisory Mechanism, Single Resolution Mechanism and the European Supervisory Authorities (the ESAs).
Central Bank report on 2018 applications under the Fitness and Probity regime. The Central Bank issued a report on over 5,000 PCF applications under the Fitness and Probity regime in 2018. The analysis shows applications for regulatory approval of the most senior roles in financial services firms by age, gender and nationality. It shows small improvements but there is continued evidence of a lack of gender diversity at senior levels in regulated firms. This is a cause for concern in the culture, risk management and decision-making of firms. Central Bank Deputy Governor, Prudential Regulation, Ed Sibley said:
"Diversity matters. Similar people looking at similar information and facing similar circumstances are likely to rely on similar assumptions and make similar decisions. This type of groupthink contributed to the depth of the financial crisis internationally and in Ireland and contributed to many of the conduct scandals that have subsequently emerged.
While it is positive to see some progress, this is from a low base. More needs to be done to meaningfully address the acute lack of diversity at senior levels; this requires:
- more ambition, including in targets and measures
- more than lip service being paid to diversity programmes
- better building of pipelines of talent
- considering the overall construct and functioning of the executive management teams when making appointments
- identifying and reducing barriers to change
Michael Hodson, Director of Asset Management and Investment Banking delivered a speech on Brexit, gatekeeping and the changing landscape. Mr Hodson went into some detail on the Central Bank's approach to outsourcing. On Brexit, Mr Hodson referenced:
- the agreement of the MOUs which facilitates the continued cooperation between the UK and the European authorities and the UK temporary permissions regime
- continued access to Central Security Depository (CSD) services, including the EU Commission's decision to grant temporary equivalence to the UK's legal and supervisory arrangements for CSDs for a period of two years, until 29th March 2021 and ESMA approving Euroclear UK and Ireland Limited as a third country CSD to provide services into the EU in the event of a no-deal Brexit
- while temporary equivalence is welcome and would alleviate the short-term cliff edge risk, it also means that an alternative long-term arrangement must be in place by the end of this period. To this end, Euronext Dublin has selected Euroclear Bank Belgium as their preferred long-term CSD provider
- ESMA's announcement that, in the event of a no-deal Brexit, three UK Central Counterparties (CCPs) will be recognised to provide their services into the EU27. This will ensure that, under a no-deal Brexit scenario, there will be limited disruption in central clearing
Gerry Cross, Central Bank Director, Financial Regulation – Policy & Risk delivered a speech on Opportunities, risks and challenges: considering financial regulation and technological innovation covering the role of the Central Bank, the risks, opportunities and challenges presented by technology, the approach of the Central Bank (as well as fellow financial regulators and the ESAs), work on cryptoassets (including the extent to which individual cryptoassets fall within the meaning of financial instruments and/or transferable securities) and outsourcing (including the cloud).
For more information in relation to this topic please contact a member of the Asset Management & Investment Funds team.
Date published: 29 March 2019