Financial Services Regulation and Compliance - Investment Firms April 2023

Domestic

Central Bank of Ireland publishes 47th Edition of the AIFMD Q&A

On 4 April 2023, the Central Bank of Ireland (CBI) published an update to the AIFMD Q&A. Q&A ID1145 sets out the requirements and clarifies investment limits for qualifying investor alternative investment funds (QIAIFs) holding indirect exposure to digital assets, previously referred to as “crypto assets”. The CBI has clarified that for the purposes of its guidance, “digital assets” refers to digital assets which are based on an “intangible or non-traditional underlying” and does not include investments which are tokenised traditional assets whose value is linked to an underlying traditional asset or pool of assets. Digital assets falling within the scope of the CBI rules will therefore for example include investments in crypto currencies or NFTs. The investment limits for QIAIFs seeking indirect exposure to digital assets are as follows:

  • where a QIAIF is open-ended it can gain exposure to digital assets of up to 20% of net asset value (NAV)
  • where a QIAIF is closed-ended or is open-ended with limited liquidity it can gain exposure to digital assets of up to 50% of NAV

The CBI have also updated the 39th Edition of the UCITS Q&A to reflect the revised position for Irish domiciled funds to gain exposure to digital assets.

CBI publishes information note on liability driven investment funds

The CBI has noted the recent statement by the Bank of England’s Financial Policy Committee (FPC) published on 29 March 2023. The CBI expects that the minimum safeguards highlighted in a letter issued in November 2022 by the FPC, in relation to the maintenance of a minimum yield buffer of 300-400 basis point, will continue to be observed.

CBI confirms application of the recent ESMA statement on the derivatives trading obligation (DTO)

The CBI has confirmed that it will apply the recent ESMA statement on the derivatives trading obligation (DTO) in the context of the migration of credit default swap contracts out of ICE Clear Europe. This is aimed to support the migration of positions from ICE Clear Europe to other CCPs, following the announcement of the forthcoming closure of ICE Clear Europe’s credit default swap clearing service on 27 October 2023.

European

ESMA have updated a number of Q&As

On 31 March 2023, ESMA updated the following Q&As:

  • Benchmarks Regulation in relation to external audit report reliance and legal representation
  • EMIR implementation in relation to the reporting of trade repositories
  • DLT Pilot Regulation in relation to transaction reporting and transparency
  • MiFID II and MiFIR transparency topics in relation to general transparency topics and settlement location
  • MiFIR data reporting in relation to LEI of sovereign issuer and identification for stateless natural persons
  • SFTR data reporting in relation to reporting of the jurisdiction of the issuer

Guidelines on certain aspects of the MIFID II remuneration requirements (ESMA35-43-3565) (applicable from 3 October 2023)

ESMA has published guidelines which apply to competent authorities and firms in relation to the remuneration requirements set out in Article 27 of the MiFID II Delegated Regulation as well as, the conflicts of interest requirements set out in Articles 16(3) and 23 of MiFID II and Article 34 of the MiFID II Delegated Regulation in the area of remuneration; and the conduct of business rules set out in Article 24(1) and (10) of MiFID II. The guidelines also clarify the application of the governance requirements in the area of remuneration under Article 9(3) of MIFID II. ESMA expects these guidelines to promote greater convergence in the interpretation of, and supervisory approaches to, the MiFID II remuneration requirements as well as the MiFID II conflicts of interest and conduct of business requirements in the area of remuneration. The guidelines are applicable from 3 October 2023.

Guidelines on certain aspects of the MiFID II suitability requirements (ESMA35-43-3172) (applicable from 3 October 2023)

The guidelines apply to competent authorities and firms in relation to Article 25(2) of MiFID II and Articles 54 and 55 of MiFID II Delegated Regulation. The guidelines apply to the provision of investment advice and portfolio management and principally address situations involving retail clients. ESMA expects the guidelines to promote greater convergence in the interpretation of, and supervisory approaches to, the MiFID II suitability requirements by emphasising a number of important issues and enhancing the value of existing standards. By helping to ensure that firms comply with regulatory standards ESMA anticipates a corresponding strengthening of investor protection.

The guidelines will apply from 3 October 2023 - six months from the date of publication of the guidelines on ESMA's website in all EU official languages.

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.

Date published: 15 May 2023