The Front Page, Asset Management & Investment Funds: Irish Practice Developments
Some Approaching Deadlines
- 9 December 2015, The Regulation on European Long-term Investment Funds (ELTIFs) will apply across the EU from this date.
- 31 December 2015, 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 with a formal documented review and a review of the chairperson taking place at least once every three years. As the Code was adopted by most boards in 2012, the three year review is approaching for many boards.
- 31 December 2015, Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) - 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 and where the board has adopted such a policy, that it receives appropriate confirmations from relevant persons and that it is subject to periodic review.
- 31 December 2015, Business Plan/Programme of Activity - UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs, where they have not already done so, may need to obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity, complete onsite visits with service providers, ensure adoption of valuation policy and make disclosure in respect of connected parties transactions.
- 31 December 2015, Fitness & Probity - management companies, AIFMs, self/ internally managed UCITS/AIFs and other regulated financial service providers (RFSPs), where they have not already done so, will need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. Money Laundering Reporting Officer (MLRO) 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 RFSP 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. The Annual PCF Confirmation Return due dates are highlighted below.
- 1 January 2016, from this date, authorised investment funds with individual directors triggering the directors’ time commitment risk indicator will receive priority consideration for inclusion in CBI thematic reviews where board effectiveness is being assessed.
- 1 January 2016, from this date there will be a new requirement to identify and confirm the tax residence status of investors in a reporting Irish fund under CRS (see below for more detail). This requirement will operate alongside the current requirement to identify and confirm the status of investors under FATCA.
- 31 January 2016, Fitness & Probity – Deadline for filing the Annual PCF Confirmation Return (to 31/12/15) for Fund Service Providers (including AIFMs, and UCITS management companies).
- 19 February 2016, UCITS KIID - Annual update of the key investor information document (KIID) must be filed no later than this date (where required). Any update to the KIID filed with the Central Bank must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS' website.
- 28 February 2016, Fitness & Probity – Deadline for filing the Annual PCF Confirmation Return (to 31/12/15) for funds.
- 18 March 2016, UCITS V implementation deadline. UCITS should have in place UCITS V compliant depositary and sub-depositary agreements, whistleblowing policies and procedures, prospectus updates and remuneration policies and procedures.
- 30 June 2016, UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs are expected to update their business plans/programme of activity to reflect the revised managerial functions, the organisational effectiveness role, ongoing control and operational matters by this date in line with Fund Management Companies – Guidance and CP 86. Moreover, Boards should review their arrangements taking into account the Time Commitments Guidance.
- 1 September 2016; Companies Act 2015. The bulk of the Companies Act 2014’s provisions commenced on 1 June 2015 (Commencement). If a UCITS management company or AIFM is converting to a CLS, the shareholder(s) of the UCITS ManCo or AIFM must pass a special resolution to adopt a new constitution, which must be filed with the Irish Companies Office (CRO) by 1 December 2016. If the UCITS ManCo or AIFM is converting to a DAC, the shareholder(s) of the UCITS ManCo or AIFM must pass an ordinary resolution resolving that the company be registered as a DAC by 1 September 2016. Variable Capital Companies may choose to update their Memorandum and Articles of Association to reflect the provisions of the Companies Act 2014 and other regulatory changes when planning their Annual General Meetings. Please see our In Focus document for more detail.
This list does not cover ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include annual FDI Return) and semi-annual accounts because these dates will vary to reflect the particular year end.
Central Bank Markets Update; updated AIF Rulebook, AIFMD Q&A, Feedback statement on CP86, Guidance for Fund Management Companies, Revised UCITS Guidance
- AIF Rulebook November 2015 - Updated in respect of the organisational requirements set out in Chapter 3- AIFM requirements, which follow the conclusion of CP86.
- Fund Management Company Boards - Feedback statement on consultation on delegate oversight guidance.
- Fund Management Companies – Guidance on Fund Management Companies which follows the conclusion of CP86.
- AIFMD Q&A 17th Edition - 4 November 2015 with revised Q&A 1030 (Non EU AIFM) and a new Q&A 1100 (which points out that the Central Bank is working on guidance concerning the holding of subscription and redemption monies for individual sub-funds, as fund assets, within a single account in the name of the umbrella fund).
- UCITS Q&A 9th Edition - 4 November 2015 with new Q&A 1049 - 1056 which concern the Central Bank UCITS Regulations (including transitional arrangements) and an amended Q&A 1043 (concerning prospectus disclosure of long/short positions).
- Updated Prospectus Handbook - November 2015.
- CP97 - Consultation on Central Bank Investment Firm Regulations. (This Consultation is open until the 27 January 2016).
Also on 4 November 2015, the Central Bank issued revised UCITS Guidance in respect of Permitted Markets (at paragraph 1) and UCITS FDI and EPM at paragraphs 126-128. It is worth noting that UCITS management companies authorised before 1 November 2015 must provide for the revised managerial functions listed in Schedule 10 of the Central Bank UCITS Regulations by 30 June 2016. New UCITS management companies authorised after 1 November 2015 must have these managerial functions in place upon authorisation (UCITS Q&A 1053). Accordingly existing UCITS management companies, AIFMs, self- managed UCITS companies and ICAVs and internally managed AIFs will need to update their business plan or programme of activity by 30 June 2016.
It is also worth noting that the Fund Management Company Boards - Feedback statement on consultation on delegate oversight guidance states, in response to submissions concerning the distinction between the role of designated persons and directors which point out that Irish funds should not need to appoint another Irish delegate (in addition to the administrator and depositary) in order to be able to meet the Central Bank’s requirements on managerial functions, that the Central Bank does not require Irish funds to appoint another Irish delegate to carry out the management roles. It also states that matters concerning designated persons will be dealt with in a future Central Bank consultation.
Common Reporting Standard effective 1 January 2016; Self-Certification Forms/documentation update
The Common Reporting Standard (CRS) impacts Irish funds from 1 January 2016. The CRS framework represents a globally coordinated approach to the disclosure of income earned by individuals and organisations in order to combat tax evasion. It emerged from the Organisation for Economic Co-operation and Development (OECD) in February 2014 following meetings of the G20. To date, more than 90 jurisdictions have publicly committed to implementation, many of which are early adopter countries, including Ireland. Section 891F of the Taxes Consolidation Act 1997 implements CRS on an international basis under Irish law (while section 70 of the Finance Bill 2015 provides for the implementation of CRS in the context of EU member states) and regulations are expected to be enacted before the end of the current year.
From 1 January 2016 there will be a new requirement to identify and confirm the tax residence status of all new (and existing) Investors in a reporting Irish fund under CRS. This requirement will operate alongside the current requirement to identify and confirm the status of investors under FATCA (i.e. broadly, whether such investors are US Specified Persons or not). It will also be necessary to undertake due diligence with respect to pre-existing accounts (i.e. accounts opened prior to 1 January 2016) by 31 December 2017. That date may change once the final Irish regulations issue. For more information read here.
Central Bank Report on Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector
The Central Bank issued its Report on Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector. The report is based on funds sector on-site inspections carried out by the Central Bank over the course of 2014, supplemented by risk evaluation questionnaires completed by funds and fund service providers and submitted to the Central Bank for assessment. While the funds sector in Ireland is the specific focus of the report, many of the issues raised are relevant to the broader financial services sector in Ireland. This is the third in a series of reports issued by the Central Bank on the topic of AML/CFT this year.
Brian McDermott, Head of Asset Management & Investment Funds at A&L Goodbody notes that;
"The Report makes for interesting reading for the funds sector and contains some critical messages around the level of oversight, supervision and engagement required by funds and funds services providers. Many of the issues identified reflect the issues identified by the Central Bank earlier this year in the context of reports in the Retail Banks and Credit Union Sectors. These issues included: concerns around lack of rigour relating to risk assessments and failure to update and review such assessments; lack of board oversight and engagement generally with the risk assessment; weaknesses in customer due diligence (CDD) procedures and particularly CDD remediation and on-boarding of PEPs and inadequate training. Some of the findings are described as being more prevalent in the funds sector than in other sectors. In my view, some of the expectations articulated by the Central Bank relating to appropriate levels of compliance may present particular and unique challenges for investment funds.
Certain parts of the Report are of particular interest from this perspective;
- Customer CDD and the timing of CDD checks in the investment funds context. The practice of availing of the exemption provided by section 33(5) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended by the Criminal Justice Act 2013) (CJA) is found to be more frequently used in the funds sector.
- The prescriptive expectation around Section 40 reliance letters in terms of strict compliance with the paper trail envisaged by the legislation and the need for spot checks and testing.
- The Central Bank identified a lack of procedures and controls for ceasing the provision of services to, or discontinuing business relationships with, investors who have failed to provide the required or updated CDD (Section 33(8) CJA). This provision presents particular challenges for investment funds which deal with shareholders/ unitholders, rather than customers, Do such funds have the power to compulsorily redeem their investors? If so, when and at what price should that be done? Can they pay out the redemption proceeds to investors whose CDD may not be complete? If not, who should hold the proceeds, are they protected as client assets, can whomever holds them charge for the service and who should pay for that?"
For more information read here.
FRS 102 Fair Value Hierarchy - Guidance for Investment Funds
The Irish Funds Financial Reporting Working Group have issued a paper which seeks to provide assistance to the preparers of financial statements when categorising financial instruments within the fair value hierarchy under FRS 102. While the FRC recently issued FRED 62: Draft amendments to FRS 102, fair value hierarchy disclosures, the proposed amendment is expected to be introduced on or around March 2016 for accounting periods beginning on or after 1 January 2017 (with early application being permitted). As such, the attached industry guidance should be of assistance in the intervening period until the FRC finalise their position.
Date published: 30 November 2015