Asset Management & Investment Funds: Irish Practice Developments - Oct 2020
Asset Management & Investment Funds: Irish Practice Developments - Oct 2020
Some approaching compliance deadlines
30 September 2020. Liquidity stress testing in UCITS and AIFs- The CBI expects full compliance with the ESMA Guidelines on liquidity stress testing in UCITS and AIFs from 30 September 2020.
11 October 2020. SFTR reporting for investment funds - The Securities Financing Transactions Regulation imposes reporting obligations on counterparties on a phased basis. The reporting of relevant SFT transactions by UCITS ManCos/ AIFMs commenced 11 October 2020.
16 November 2020.PCF filing deadline - RFSPs are required to submit a list of the individuals performing each of the PCF-39A, PCF-39B, PCF-39C, PCF-39D, PCF-39E and PCF-39F roles and complete a determination of the applicability of new Chief Information Officer role by 16 November 2020.
27 November 2020. UCITS Performance Fees - UCITS ManCos must ensure that performance fees charged to UCITS do not crystallise more than once a year and are only paid once a year.
09 December 2020 -UK TPR - Fund Managers must email the Financial Conduct Authority by the end of 9 December 2020 to notify it of the intention to update their existing applications (e.g. to add further sub-funds) previously submitted by UCITS and AIFs for the TPR in the UK. The window for updating existing applications will open on 14 December 2020.
25 December 2020. Central Register of Beneficial Ownership of ICAVs and Unit Trusts- The deadline for filing beneficial ownership information on the central register for ICAVs and unit trusts in existence before 25 June 2020 is 25 December 2020.
31 December 2020. Brexit - The UK left the EU on 31 January 2020 and is now in an 11 month transition period. From 1 January 2021, the UK will be a third country as regards the implementation and application of EU law. The clock continues to count down the time to agree complex arrangements to govern EU-UK relations.
31 December 2020. 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.
31 December 2020. Anti-Money Laundering/Counter Terrorist Financing - 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. Where the board has adopted such a policy, it should ensure that it receives appropriate confirmations from relevant persons and that it is subject to periodic review.
31 December 2020. 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. They 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 2020. 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 Fitness and Probity 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.
29 January 2021. AIFMD consultation - Deadline for responses to the EU Commissions consultation on AIFMD (which will likely also affect UCITS).
31 January 2021/ 28 February 2021. Fitness & Probity- RFSPs will need to submit their annual PCF Confirmation Return to CBI. The submission due date for the annual PCF Confirmation Return (for the year ending 31/12/20) for UCITS manCos and for AIFMs is likely 31 January 2021. The submission due date for investment funds will likely be 28 February 2021. The current annual PCF Confirmation Return and associated reporting date and submission 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
31 January 2021. UCITS ManCo and AIFM ownership confirmation- UCITS manCos and AIFMs need to file the annual ownership confirmation by 31 January 2021.
19 February 2021. UCITS KIID - 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 no later than 19 February 2021 (where required). Any update to the KIID filed with the CBI must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and must then be uploaded on the UCITS' website. AIFs which have issued a PRIIPs KID must review KIDs regularly, when there is a significant change, and at least annually. The KID must be revised as necessary. Unlike the UCITS KIID, there is no annual refresh deadline. UCITS are currently exempt from the obligation to produce a PRIIPs KID until 31 December 2021.
28 February 2021. Fund Profile Return- The annual Central Bank Fund Profile Return is required for all Irish authorised sub-funds. It is to be prepared for the period up to 31 December 2020, with a submission deadline (via the ONR) of 28 February 2021. 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 issued guidance and a template.
10 March 2021. Sustainable Finance Disclosures- Obligations under the Sustainable Finance Disclosures Regulation come into effect.
31 March 2021. MMFR quarterly reporting - MMF managers must continue to send their quarterly reports to national regulators by quarter end.
31 March 2021. CP86 analysis and action plan - Fund management companies (which include UCITS management companies, authorised AIFMs, self-managed UCITS investment companies/ICAVs and internally managed AIFs which are authorised AIFMs) must complete their assessment of their operations against the requirements of CP86 and agree an action plan by end Q1 2021.
The above list does not cover tax, FATCA or CRS filings, ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include any annual FDI Return) and semi-annual accounts or other similar returns which deadlines vary to reflect the particular entity's year end. By way of example, the Companies (Accounting) Act 2017 obliges UCITS investment companies and AIF investment companies to file annual accounts with the CRO within eleven months of their financial year-end. The CBI set out the reporting requirements for UCITS management companies and the reporting requirements for AIF management companies.
CBI deadlines for pre-christmas/ year-end applications 2020
The Central Bank of Ireland (CBI) issued details of its deadlines for receipt of applications:
for approval of fund and sub-fund applications that have pre-Christmas or pre year-end approval deadlines (this includes self-managed/internally managed investment company/ICAV applications)
for approval of post-authorisation amendments that have pre-Christmas or pre year-end approval or noting deadlines
for revocations, Individual Questionnaire filings, investment manager registrations and conversion/migration applications that have pre-Christmas or pre year-end deadlines
The CBI published the outcome of a thematic review of the implementation of its framework for governance, management and oversight in fund management companies (which include UCITS management companies, authorised AIFMs, self-managed UCITS investment companies/ ICAVs and internally managed AIFs which are authorised AIFMs).
The review found that when applied correctly by firms, the rules and guidance provide a framework of robust governance and oversight arrangements.
The CBI requires urgent remediation by those fund management companies where CBI found shortcomings.
All other fund management companies are required to critically assess their daily operations against the requirements, while taking into account the findings of the review, and implement the necessary changes to ensure full and effective embedding of all aspects of the framework. The analysis should be completed and an action plan discussed and approved by the board by end Q1 2021
Firms should also note that this is not a one-off review. "Assessing the implementation of this framework will form part of our ongoing regulatory and supervisory engagement.We will continue to challenge firms where we see weaknesses.”
Splitting the Pre-Approval Controlled Function (PCF)-39 Designated Person role into six PCF roles aligned to the specific managerial functions set out in the CBI's UCITS Regulations, AIF Rulebook and the Fund Management Companies Guidance.
Introducing three new PCF roles, which include Chief Information Officer under the 'General' category.
By 16 November 2020, regulated financial service providers are required to:
submit a list of the individuals performing each of the PCF-39A, PCF-39B, PCF-39C, PCF-39D, PCF-39E and PCF-39F roles (see news alert below for details of these roles)
complete a determination of the applicability of the new Chief Information Officer role, bearing in mind the principle of proportionality
Initial notification: The CBI must be informed immediately, via an ONR IF Regulatory Report, if a stress test performed reveals a material risk.
Subsequent notification: In addition to this initial notification, where a stress test reveals a material risk, the manager should draw up an extensive report with the results of the stress testing and a proposed action plan. Where necessary, the manager should take action to strengthen the robustness of the UCITS or AIF including actions that reinforce the liquidity or the quality of the assets of the UCITS or AIF. The manager must again immediately inform the CBI via an ONR IF Regulatory report of the measures taken, to include the extensive report and the action plan.
CBI speech at the A&L Goodbody Corporate Crime and Regulation Summit – CBI Director of Financial Regulation Policy & Risk and Investment Banking Supervision (Interim), Gerry Cross
CBI Director of Financial Regulation Policy & Risk and Investment Banking Supervision (Interim), Gerry Cross delivered a speech at the A&L Goodbody Corporate Crime and Regulation Summit. The speech highlighted the role of supervisory inspections in driving improvements. Mr Cross noted:
The role of the supervisor as one that is designed to "challenge the firm and its managers as to what they are doing and how they are doing it. And where necessary to require that it is done differently, done better, or, at times, not done at all."
Supervisory inspections examine a firm’s risks and probe its culture and mind-set.
Mr Cross expanded on three key aspects of the CBI's approach to supervision:
outcomes focused supervision
ever more effective supervision
Irish Funds Annual Global Funds conference
CBI Director General Derville Rowland spoke at the Irish Funds Annual Global Funds conference. She noted that: “This [funds] sector plays a vital role in the functioning of the financial system and the financing of the real economy. But we need to assess the vulnerabilities exposed by the COVID-19 crisis, identify the lessons to be learned, and further enhance the resilience of the system."
DG Rowland discussed the lessons learned from Covid, the outcome of the CP86 review and noted on Brexit that "it is essential that firms remain proactive and vigilant in their planning and mindful of the risks that remain".
ESMA chair, Steven Maijoor delivered the keynote speech at Irish Funds Annual Global Funds conference
Key points of interest:
CMU is a key focus.
On Covid, there was an increased use of exceptional liquidity management tools by investment funds but still modest in absolute value. For instance, only 0.2% of asset under management within the EU were temporarily suspended by the end of the last week of March 2020. Moreover, we understand that the great majority of suspensions were activated to protect investors best interests in a context of valuation uncertainty.
Market turmoil in response to the pandemic brought in some cases large numbers of first-time retail investors to the stock markets.
EU is keen to encourage household's to invest in the markets - in recent years bank deposits have offered near-zero returns on household savings. In contrast, net performance of equity UCITS was around 9% for retail clients, on an annualised basis, in the ten years up to the end of 2019.
Extraordinary circumstances can be the catalyst for decisive changes.
ESMA hopes the European Commission can progress the technical proposals to improve the PRIIPS KID (per ESA recommendations) such as simpler future performance scenarios, the introduction of past performance information, and the alignment of costs and charges information between PRIIPS and MIFID. The ESA recommendations were discussed here.
CBI markets updates and research
The CBI published two markets updates and research papers, set out below.
CBI published its latest AML bulletin, which focuses on the application of transaction monitoring. Read this, and previous bulletins, here. The bulletin (among other things) sets out the CBI's expectations with regard to the application of transaction monitoring controls.
Transaction monitoring controls should be tailored to the Designated Person (DP)'s own business risk assessment and customer risk assessment.
CBI expects connectivity between CDD, transaction monitoring, and STR processes.
DP needs adequate CDD docs to determine whether transactional activity is suspicious.
The adequacy of transaction monitoring controls should be subject to continued and regular review.
There should be a mechanism for updating/ recalibrating controls for altering risks and new risk indicators (examples given).
Sets out requirements around use of a manual process.
Sets out requirements around use of automated solutions.
Notes DPs should not place absolute reliance on automated transaction monitoring solutions
References Section 5.8 of the CBI Guidelines (transaction monitoring) and the ESA Opinion on the risks of ML/ TF
The Central Bank Act 1942 (Section 32D) Regulations 2020 (S.I. 345 0f 2020) came into operation on 4 September 2020. As noted in our AMIF bulletin of June 2019, the CBI is moving towards financial services firms paying 100 per cent of the costs of financial services regulation and supervision.
CBI announced in June 2019 that, in the future, levies would be based on incurred costs and the 2019 levies would issue in Q3 of 2020. Fees for funds and funds service providers would increase to 100% recovery rates by levy year 2021 (which will be levied in 2022).
The CBI's Funding and Strategy Guide to the 2020 Industry Funding Regulations were published on 22 September 2020. Section 3 sets out recovery rates. Section 4 sets out the calculation of the Industry Funding Levy for each industry category. For levy year 2019, which is levied in Q4 2020, the recovery rate for funds is increasing from 65% to 80% and for investment firms and fund service providers, it is increasing from 80% to 90%. The CBI also updated its website.