Asset Management & Investment Funds: Irish Practice Developments – October 2023
Asset Management & Investment Funds: Irish Practice Developments – October 2023
3 November 2023 - Anti-money laundering/combatting the financing of terrorism -EBA ML/TF Risk Factors Guidelines. The guidelines were revised to include (among other things) new guidance on ML/TF risk assessments, customer due diligence for beneficial owners and compliance with the provisions on enhanced customer due diligence related to high-risk third countries. The revised version applies from 3 November 2023.
29 December 2023-Individual Accountability Framework (IAF) - The individual conduct standards under the CBI’s IAF are scheduled to apply. Regulated financial service providers (RFSPs) will need to establish, maintain, and give effect to policies on how the Common Conduct Standards (and, where appropriate the Additional Conduct Standards) are integrated into the conduct of its affairs, including notification, communication and training. A person who performs a CF/PCF role in relation to a RFSP will need to take any reasonable steps to ensure that the Common Conduct Standards and Additional Conduct Standards, as applicable, are met.
31 December 2023 - 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 2023 - Business plan/programme of activity- UCITS ManCos, self-managed UCITS, AIFMs and internally managed AIFs (FMCs), 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 January 2024-UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AIFMs must file their annual ownership confirmation by 31 January 2023.
20 February 2024 - UCITS KIID/PRIIPs KID - All UCITS made available to "retail investors" in the EEA are 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. 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. A UCITS producing a UCITS KIID 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 UCITS KIID must be filed with the CBI. The submission deadline for each entity will be detailed on the CBI portal. 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. 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. Only UCITS and UCITS sub-funds authorised after 1 January 2023 are required to file the PRIIPs KID (and PRIIPs KID updates) with the CBI. The CBI intends to issue further guidance confirming the filing requirements for these UCITS in due course.
29 February 2024 (expected deadline) - 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 2023, with an anticipated submission deadline of 29 February 2024. 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 its fund profile guidance and template in 2022.
29 February 2024 - Fitness & Probity- RFSPs, as part of their annual fitness and probity audit due diligence and depending on their compliance calendar, may 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 & Probity Standards, agree to continue to abide by those standards and will notify the board without delay 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. RFSPs will need to submit their annual PCF confirmation return to the CBI by 29 February 2024. The CBI is currently updating the return. For 2024, the annual PCF confirmation return will incorporate confirmation of the completion of the new certification process introduced by the IAF for each PCF role holder and all other CF role holders. The new certification process has been the subject of consultation and has not yet issued in final form. As part of the certification process, RFSPs will be required to identify and document various points (such as identifying the aspect of the RFSP’s business in which the individual will be involved in performing the CF role(s) and details of the steps taken by the RFSP in forming the view that the individual meets any standards of fitness and probity applicable to the CF role(s).
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). 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.
James O’Sullivan, Central Bank of Ireland (CBI) Head of Function – Fund & Firm Authorisations, Funds Supervision Division, gave an update on CBI’s programme of thematic supervisory work and discussed the international regulatory agenda, the current macro-economic landscape and alterative investment funds in Ireland.
CBI’s programme of thematic supervisory work
On European CSAs - there are currently two active CSAs:
Asset valuation – largely completed. Firms that were subject to inspection have received risk mitigation programmes (RMP) where required. ESMA published its pan-EU findings in May 2023. CBI expects to issue an industry letter by the end of the year.
Sustainability and disclosure risk. This is just getting underway and will take place over two phases. The first phase is due to conclude by January 2024 and is focusing on greenwashing risks. The second phase will conclude by September 2024 and is focused on sustainability and disclosure issues generally. The first questionnaire was issued to in scope firms on 15 August 2023 with a due date of 12 September 2023. All firms have now responded and supervisors are currently in the process of reviewing the responses.
On local supervisory initiatives:
A thematic review which commenced earlier this year and focused on exchange traded funds (ETFs). The primary objective of this thematic review is to gain a better understanding of the roles played by authorised participants and market makers in the ETF ecosystem, in order to assess the functioning of the Irish ETF sector. The review comprised of a quantitative questionnaire issued to all ETF providers and a qualitative questionnaire issued to a select number of ETF management companies. The questionnaire responses are currently being analysed. CBI anticipate concluding this review later this year.
CBI is carrying out a number of mini thematic reviews in a number of areas:
looking at the role of non-discretionary investment advisors
examining conflicts of interest for third party management companies
investigating the use of the fixed operating expense model in some investment funds
The use of such mini-thematic reviews will likely be a feature of the regulatory toolkit going forward. As a result, industry can expect to see more frequent targeted questionnaires focussed on specific areas of risk. Not every piece of thematic work warrants an industry letter, depending on the nature and purpose of individual reviews. CBI is currently considering how best to communicate the outcome from those reviews, perhaps in the form of an annual bulletin capturing a range of reviews at once.
Outline of the international regulatory agenda
Mr. O’Sullivan discussed the Capital Markets Union. He also noted the steps taken to encourage more private funds to establish in Ireland. That includes funds focused on private equity, private credit, real-estate and infrastructure investments. Those steps include the updating of the Irish Investment Limited Partnership legislation. Mr. O’Sullivan also noted the drive towards giving retail investors greater access to these alternate investment strategies and assets, particularly in terms of long term, less liquid, investments.
CBI’s Markets Policy Division are in the process of developing a standalone ELTIF chapter for inclusion in the AIF Rulebook.
Work is ongoing with ELTIFs at an EU level with the development of the draft regulatory technical standards under the revised ELTIF Regulation. Broadly, the main issue to be finalised is the level of standardisation which should be required in the key characteristics of ELTIFs, such as the minimum holding periods, redemption frequency and so on.
Broader international agenda
Mr. O’Sullivan noted that regulators remain concerned about the risk of sharp market price corrections. Those risks are heightened amid even tighter financing conditions with elevated volatility and fragile liquidity, particularly in debt markets. The risk of disorderly corrections in the real estate sector have accelerated with rising mortgage rates affecting debt serviceability. All of which points to regulators remaining concerned around what these macroeconomic conditions will mean for global financial markets. In particular, the ‘known risks’ around high leverage and challenging liquidity conditions remain a core focus of regulators.
Liquidity. The emphasis over the last 12 months has been on liquidity, with both the FSB and IOSCO consulting on updates to the international regulatory framework. The FSB consultation seeks to introduce a broad framework for a bucketing approach to liquidity. The IOSCO consultation sets out an expectation that “responsible entities should consider and use at least one appropriate anti-dilution LMT for each open-ended fund (OEF) under management to mitigate investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs”.
Leverage. As the FSB has signalled in their recent G20 letter, a major focus of their policy work next year will be to address financial stability risks associated with non-bank leverage.
Unsurprisingly, issues of liquidity and leverage remain a focus in Europe and at CBI. In particular, work continues on liability driven investment (LDI) funds with a view to preventing a repeat of the issues seen last year, one of the first times that leverage played such a significant role in a market event.