Asset Management & Investment Funds: Irish Practice Developments – November 2022
Asset Management & Investment Funds: Irish Practice Developments – November 2022
1 December 2022 - SFDR L2 filings - The Central Bank of Ireland set a deadline of 1 December 2022 for a fast track process for all UCITS, RIAIFs and QIAIFs filing pre-contractual documentation updates to comply with the requirements of SFDR Level 2.
1 December 2022 -Anti-money laundering / combatting the financing of terrorism - EBA Guidelines on governance and the role and responsibilities of the AML/CFT compliance officer (discussed here) apply from 1 December 2022.
7 Dec 2022 - Central Register of Beneficial Ownership of CFVs - deadline for CFVs to have filed refreshed beneficial ownership information on the CBI's Central Register of Beneficial Ownership of CFVs (using the updated template which includes PPSNs or other verification mechanism).
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 - 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&A5 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.
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.
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 Central Bank of Ireland (CBI) set a deadline of 1 December 2022 for all UCITS, RIAIFs and QIAIFs filing pre-contractual documentation updates to comply with the requirements of SFDR Level 2 (which supplements the Sustainable Finance Disclosure Regulation (SFDR Level 1).
The CBI established a streamlined filing process for pre-contractual document updates based on SFDR L2 requirements, under which both UCITS management companies and AIFMs will be required to certify compliance with the requirements via an attestation.
The attestation will confirm that the amendments made are in accordance with:
The SFDR Level 2 requirements.
Amendments made to the investment policies and strategies to ensure consistency with the SFDR L2 templates. This includes amendment to disclosures made to comply with SFDR Level 1 and/or the Taxonomy Regulation requirements which now require amendment for consistency with SFDR Level 2 disclosures.
Product level PAI disclosures required under Article 7(1)(a) for Article 6 funds.
Amendments which arise from the European Commission Q&As on SFDR, the ESMA supervisory briefing on sustainability risks and disclosures in the area of investment management, amendments to reflect other clarifications published by the ESAs’ or the CBI in relation to the SFDR Level 2 requirements.
The confirmation must verify that the revised documents do not contain any other amendments to the pre-contractual documentation, subject as below.
The CBI process provides that where an SFDR related change of name is required, the submission should be made via the portal. The CBI will apply a version of the streamlined process in such cases, provided the submission includes the attestation referenced above. If the SFDR updates involve reclassification of a fund under Articles 6, 8 and 9 of SFDR, the submission may be made via the streamlined process and must include a rational for the reclassification.
The CBI will undertake a review of a sample of the submissions received and may require revisions to documentation to be made at a later date.
The summary findings of the CBI's gatekeeper review of a sample of submissions:
The extent of compliance with SFDR level 1 and the Taxonomy Regulation disclosures varied significantly.
A significant challenge observed related to the lack of granularity and high-level nature of the disclosure obligations under the SFDR level 1 and Taxonomy Regulation. (This issue will be addressed when the SFDR level 2 disclosure requirements become applicable as these are more prescriptive in nature.)
The gatekeeper review findings and statements of the CBI's expectations are categorised under the following headings:
pre-contractual product disclosures – benchmark indices
naming conventions for funds
The CBI also outlines a non-exhaustive list of areas of interest which may form part of a supervisory roadmap into the future, which are in addition to other planned initiatives, including the ESMA Common Supervisory Action on sustainability risk and disclosures, planned for 2023:
fund managers adaption of sustainability risk management frameworks, as set out in the CBI's letter of 3 November 2021
Article 8 'Guardrails' and the potential for minimum sustainability criteria. CBI supervisory engagement will focus on funds with a low proportion of their portfolio promoting environmental and/or social characteristics. The CBI may also examine funds that have reclassified under the SFDR and consider the rationale provided by the fund manager
consistency of sustainability-related disclosures in fund documentation and marketing material
fees and costs associated with 'green' investment products
securities lending by Article 8 and Article 9 funds
the role of fund service providers, such as depositaries
In addition to other categories of employers, the Act applies to Irish UCITS Management Companies, Irish AIFMs, Irish MiFID firms and Irish corporate funds, regardless of the number of 'workers' they have. Protection in making a protected disclosure extends to non-executive directors, shareholders, contractors and agency workers. In-scope firms should be ensuring that their whistleblowing policies and procedures are reviewed and updated. Detailed briefings from our employment law colleagues are available here and here.
GDPR - New standard contractual clauses - December deadline
As highlighted in our September 2021 bulletin, the European Commission issued modernised standard contractual clauses (SCCs) under the GDPR in 2021. Organisations were given until 27 December 2022 to replace contracts incorporating the old SCCs with the new SCCs.
These SCCs concern transfers of personal data from controllers or processors in the EU/EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EU/EEA (and not subject to the GDPR). For international data transfers, the SCCs are required for jurisdictions not benefitting from a European Commission 'adequacy' decision. The European Commission has so far recognised Andorra, Argentina, Canada, Faroe Islands, Guernsey, Israel, Isle of Man, Japan, Jersey, New Zealand, Republic of Korea, Switzerland, the UK and Uruguay as providing adequate protection.
This may impact a range of contracts including investment management agreements, distribution agreements, administration agreements or other agreements facilitating the international transfer of data. Updated agreements may require filing with CBI.
The European Commission developed questions and answers (Q&As) to provide practical guidance on the use of the SCCs available here
Q&A 1154 confirms that, for the purposes of the investment limit calculation of a QIAIF which invests more than 50% of net assets in another investment fund (Chapter 2, Part II, Section 2 of the AIF Rulebook), the reference to “net assets” can be understood to refer to committed capital, subject as below.
Q&A 1155 confirms that, for the purposes of the leverage calculation of a loan originating QIAIF (paragraph vii of Chapter 2, Part II, Section 4 of the AIF Rulebook), the reference to “net asset value” can be understood to refer to committed capital, subject as below.
Both answers are subject to the proviso that:
the QIAIF does not offer redemption options during the capital commitment period
the start date and the end date of the capital commitment period are disclosed to the investors
this calculation methodology can only be applied for six months following the completion of the capital commitment period
Governor Makhlouf said: “We will discuss many topics over the next two days, ranging from consumer protection to climate risks, from agility and innovation to culture in organisations…
A particular focus for me is regulation of the non-bank sector.
Traditionally, the regulation of investment funds has been largely about developing and enforcing investor protection rules. But we have to learn from history. The lessons of the global financial crisis, the COVID-induced market shock of March 2020, and the UK's recent LDI issue are clear.
The sector is too big to ignore.... The financial stability risks are self-evident, as are the risks to investors, consumers and the community as a whole…
Over recent years we have played a leading role in international efforts to develop solutions to address financial stability risks in the funds sector. Where solutions are developed and available, we should move quickly to implementation.
The Central Bank of Ireland is planning to introduce leverage limits for property funds connected to the domestic economy, but we cannot tackle the wider issue alone. Global and European coordination is needed here, and, I suggest, urgently."
Governor Makhlouf subsequently blogged, about "the macroprudential measures that we have been consulting on to limit leverage and liquidity mismatch around property funds. Irish domiciled funds hold €22.1bn of Irish property and land or approximately 35% of the investable commercial real estate market."
Darragh Rossi, Head of Funds Supervision Division spoke on Funds Supervisory Strategy & Outlook. Highlights include:
The unrelenting level and pace of change in the asset management sector.
CBI will be focusing on fund management companies when approaching underlying fund risk. While a fund – and its board - will be subject to on-going CBI enquiry, the CBI's intention is to direct greater attention towards management companies and through those interactions supervise the underlying funds more effectively.
CBI will progress further enhancements to the authorisation process. Initially this will focus on authorisation process for UCITS and Retail Investor AIF and address Qualified Investor AIFs.
CBI's ESG focus will include
fund and firm disclosures
the integration of sustainability risks within firms risk management frameworks
portfolio level analysis to understand the changes which funds are undertaking as they adapt their investment policies and strategies
CBI will soon issue a publication on ESG which will set out expectations around fund disclosures as they prepare to make the updates required by the SFDR level 2 which comes into effect in January 2023. This will also outline a supervisory roadmap to identify the CBI's planned areas of focus over the next 12 to 18 months.
The recent white paper from Irish Funds on crypto assets is a good example of forthcoming changes – both in terms of the assets in which funds invest and also in terms of how funds and fund service providers use technology in the provision of investment products.
Sharon Donnery, Deputy Governor of the Central Bank, highlighted the urgency around the need for firms to take action on climate risk management. Through its supervisory activities, the CBI will continue to assess progress across all firms and sectors on these issues.
The CBI held a seminar on the SFDR for the asset management sector, Derville Rowland, CBI Deputy Governor spoke of
CBI thematic review of funds’ compliance with [sustainable finance] requirements (sustainable finance with a focus on SFDR)
CBI's information note (discussed above, which includes findings of the gatekeeper review of investment fund disclosures (including good practices) and CBI's expectations around the implementation of the next phase of SFDR
Irish Funds Outsourcing Register Q&A
Irish Funds published a Q&A based on the CBI's responses to member queries around the completion of the CBI's outsourcing register. Firms can also contact CBI with specific queries regarding the completion of the template.
CBI's Beneficial Ownership Register for CFVs - PPSNs deadline of 7 December 2022
The CBI is implementing changes to the beneficial ownership register for certain financial vehicles (comprising ICAVs, CCFs, ILPs, Unit Trusts - together CFV), as previously flagged in our bulletins.
The collection of personal public service numbers (PPSN) for the purpose of verifying the information delivered to the CBI's Beneficial Ownership Register for CFVs commenced 11 November 2022.
CFVs must submit their beneficial ownership details using the updated template by Wednesday, 7 December 2022. The updated reporting template provides for the mandatory inclusion of a PPSN (or other verification) for each beneficial owner. The following applies:
where beneficial owners hold a PPSN – this must be provided
where a beneficial owner has never been issued with a PPSN in Ireland, but has been previously appointed in a pre-approval controlled function (PCF), under Fitness and Probity Standards - the corresponding CBI reference number provided under this process may be used
where a beneficial owner has never been issued with a PPSN in Ireland, nor been previously appointed in a PCF role, a separate verification of identity (VoI) process will apply, as detailed in CBI guidance and summarised in our August bulletin
Irish Funds transaction monitoring
The Irish Funds AML Working Group published an AML guidance paper on transaction monitoring. Please speak with your usual contact on the Asset Management & Investment Funds team if you would like further information.
Process clarifications for UCITS and AIFs pre-contractual documentation updates in relation to the Level 2 measures in relation to the Sustainable Finance Disclosure Regulation (discussed above).
The CBI publishes updates to the Funds Authorisation section of the website. To mitigate concerns around the recent removal of certain funds from the QIAIF pre-submission process, the CBI reintroduced the use of quality assurance checks.
Publication of revised Monthly Client Asset Report template and accompanying guidance note.
CBI publishes the Forty-Fifth Edition of the Central Bank AIFMD Q&A document (discussed above).
The CBI updates its website to include references to the recently published Irish UCITS Statutory Instruments S.I. No. 262/2022 and S.I. No. 442/2022.
The CBI clarifies incorporation by reference in a prospectus of annual financial reports prepared in accordance with the ESEF Regulation.
Industry publication - Sustainable finance and the asset management sector: Disclosures, investment processes & risk management (discussed above).
Fitness & Probity application process update
The CBI submission portal will be enhanced to facilitate the submission of applications to become a holder of a pre-approval controlled function (PCF). Individual questionnaires will no longer be submitted via the online reporting system, but will instead be submitted via the CBI portal.
These changes will go live in Q1 2023 and will provide applicants with an enhanced process for submitting applications. Further details on the new system will be communicated in January 2023. No action is required at this time.
CBI's adverse assessment for market abuse
The High Court recently confirmed the CBI's decision to sanction an individual for insider dealing contrary to the Market Abuse Regulations 2005. The CBI published a notice and commentary on the adverse assessment. Read our ALG commentary here.