The Front Page, Asset Management & Investment Funds: Irish Practice Developments
As detailed in our Front Page newsalert, the Irish Collective Asset-management Vehicles Act 2015 (the ICAV Act) was signed into law on 4 March 2015. The ICAV Act allows for the establishment of a new Irish corporate investment fund structure (the Irish Collective Asset- management Vehicle or ICAV) that is tailored to the needs of the global funds industry. The ICAV sits alongside the other available fund structures in Ireland, namely the variable capital company (VCC), the unit trust, the common contractual fund (CCF) and the investment limited partnership (ILP). As with Irish VCCs, ICAVs may be set-up as a stand-alone structure or an umbrella structure.
The Central Bank of Ireland (Central Bank) acts as the incorporating, authorising and supervisory body for the ICAV. It has a page on its website with links to application forms for applications for registration and post-registration filings and an ICAV Q&A. Of particular interest are the following Q&A;
- Q&A 4; the Central Bank will issue a Registration Order for a new ICAV within two weeks from the date of receipt by the Central Bank of a complete application for registration.
- Q&A 5; for fitness & probity purposes, Individual Questionnaires (IQs) need not be submitted for PCF holders as part of an application to register an ICAV. IQs are only required to be submitted as part of, or, in the case of a proposed QIAIF in advance of, the submission of an ICAV’s application for authorisation.
- Q&A 8; for fitness & probity purposes, the timeframes that currently apply for processing IQs for PCF holders for investment companies apply to PCF holders of ICAVs.
The Central Bank also updated its funds authorisation application forms and its AIF Rulebook to reflect the introduction of the ICAV. Further information, including the advantages and opportunities presented by the ICAV and practical considerations associated with conversion to an ICAV can be found here or contact a member of our Asset Management & Investment Funds team.
FATCA – annual return filing deadline looming
The first annual return is due to be filed by each reporting Irish financial institution (including a reporting fund) by no later than 30 June 2015. This return will be in respect of 2014. Revenue guidance indicates the mandatory format of the return is available on the IRS website and returns in other formats will not be accepted. Returns are to be filed with the Revenue Commissioners through its online system (ROS).
Broadly, the information required on all US reportable accounts are:
- the name, address and US tax identification number (TIN) of each US person that is an account holder and, in the case of a non-US entity account holder that has one or more controlling persons that is a US person the name, address and US TIN (if any) of such entity and each such US person,
- the account number (or its functional equivalent in the absence of an account number),
- the name and identifying number of the reporting fund, and
- the account balance or value as of the end of the reporting period.
To the extent that a reporting fund has no US reportable accounts it is still required to file a nil return. This is notwithstanding the fact that a recent change in approach in the US means the US requirement for the tax authorities of an IGA country (which would include the Revenue Commissioners in Ireland) to submit nil returns has been dropped.
Central Bank Markets update
The Central Bank published Issue 2 of 2015 of its Market Update which covered;
Central Bank of Ireland
- Central Bank of Ireland publishes ICAV Information Note
- Central Bank of Ireland publishes revised AIF Rulebook
European Securities and Markets Authority (ESMA)
- ESMA advises European Commission on implementation of new market abuse regime.
- ESMA publishes technical advice on the implementing measures for European Regulations on Social Entrepreneurship Funds (EuSEFs) and European Venture Capital Funds (EuVECAs).
- ESMA issues feedback statement on the central clearing of non-deliverable forwards.
- ESMA Open Hearing on MiFID II / MiFIR - 19 February 2015 – Recording.
European Banking Authority (EBA)
- EBA consults on prudential requirements for central securities depositories (CSDs)
- Consultation on building a Capital Markets Union (see below).
- Consultation on the review of the Prospectus Directive.
- Consultation on an EU framework for simple, transparent and standardised securitisation.
International Organisation of Securities Commissions (IOSCO)
- IOSCO publishes final report on risk mitigation standards for non-centrally cleared OTC derivatives
Address by Central Bank Director of Markets Supervision, Gareth Murphy, at the 4th Annual Funds Congress
Gareth Murphy, Director of Markets Supervision at the Central Bank, spoke at the 4th Annual Funds Congress. Significant points of interest included;
- Programme of themed inspections. The Central Bank programme of themed inspections includes;
- fund managers' and administrators' approach to dealing with NAV Pricing Errors;
- operational risks arising from cyber-security and IT failures;
- the quality and integrity of regulatory reporting;
- the quality of oversight exercised by depositories over managers and their delegates; and
- risk management processes employed by UCITS.
- CP86. The Central Bank will be clarifying its expectations for strengthening the organisational arrangements of some of the larger fund management companies following its examination of the operation of fund management companies and, in particular, their oversight of delegates. The Central Bank is considering responses to CP86 and the results of interviews with fund management companies with particular focus on the 4Cs: control, capability, capacity and conflict management while having regard for nature, scale and complexity as measured in terms of (i) AUM, (ii) number of umbrellas structures and sub-funds and (iii) the number of servicing relationships.
- AIFM passport. ESMA is looking at the working of the AIFM passport; the functioning of national private placement regimes; and interaction with third country funds regimes so as to meet the legislative deadline which has been set for ESMA to provide an opinion on the working of the internal AIFM passport and advice on the extension of that passport to third countries. The advice will cover:
- non-EU AIFM compliance with Articles 22, 23 and 24;
- cooperation arrangements for the monitoring of systemic risk;
- investor protection issues;
- impediments to effective EU supervision; and
- issues related to market disruption and distortion of competition
Mr Murphy notes that the third countries which are party to the MOUs which were co-ordinated by ESMA in 2013 differ from one another and ESMA's advice is likely to reflect on these differences.
- UCITS V guidelines on remuneration. ESMA will be issuing guidelines on remuneration as required under the UCITS V Directive and work is already well advanced.
- Securities Financing Transactions Regulation (SFTR) is likely to go live sometime in 2017. SFTR is similar to EMIR insofar as it creates reporting requirements - in this case for counter-parties to securities financing transactions. UCITS and AIFs are in scope.
- Money Market Funds Mr Murphy makes three points:
- The only way to disabuse investors of the idea that sponsors will support VNAV or CNAV MMFs is to ban sponsor support outright - in this regard current proposals do not go far enough.
- There are lessons to be drawn from the US Securities and Exchange Commission in the way that the operational issues of tax and accounting were tackled before producing their final rule; from meetings with industry, it appears that much of the resistance from corporate treasurers to a move away from CNAV to an alternative model, whatever that may be, is based on the need for an operationally workable alternative solution.
- It is undesirable and inconsistent with global financial stability that there would be a patchwork of different regulatory regimes for MMFs; the Financial Stability Board will, in due course, make observations on the implementation of the regulatory reform agenda …and I would not be surprised if the consistency, or otherwise, of the various regulatory approaches is subjected to some critical observations.
- Capital Markets Union – (discussed below). Mr Murphy urges industry to support policy-makers (by providing opinion, evidence and market intelligence) in creating the environment for a more effective flow of finance to the European real economy. He highlights the section headed Company law, corporate governance, insolvency and taxation and instances variations in insolvency law and tax treatments (by way of example, companies are likely to run excessive leverage since most jurisdictions allow debt interest to be tax deductible in contrast to dividend distributions which are not).
- The funds landscape in coming years is likely to be influenced to a greater extent by (i) the liberalisation of the Chinese capital account which goes hand-in-hand with the increasing circulation of the Renminbi and (ii) the greater use of technology in financial services.
In conclusion, Mr Murphy flagged UCITS V, AIFMD, MMFs, CMU, China and developments in technology as important challenges.
Central Bank Reporting Requirements
Helpfully the Central Bank published updated documents setting out ONR Reporting Requirements;
- MMIF Reporting Form
- Reporting Requirements for UCITS Management Companies
- Reporting Requirements for MiFID Firms
- Reporting Requirements for AIFMs
- Reporting Requirements for Fund Administrators
- Reporting Requirements for AIF Management Companies
- Reporting Requirements for IIA Non Retail Firms
- Reporting Requirements for Depositaries
- Notes on Compilation of Resident Investment Funds Return (IF)
Irish Government Strategy for Irish Financial Services
The Irish Government published IFS2020: A Strategy for Ireland’s International Financial Services sector 2015-2020. IFS2020 sets out five strategic priorities with 30 actions to be implemented. A key part of the strategy is a focus on the promotion of Ireland’s international financial services industry. This is the first phase of an iterative planning and implementation process which will evolve to implement existing actions and to identify new actions, reflecting emerging sectoral trends, challenges and opportunities. The strategic priorities are:
- Promote Ireland as a Location for International Financial Services & world class innovative products & services.
- Drive continuous improvement in the operating environment & competitiveness of Ireland's IFS sector.
- Drive Research, Innovation & Entrepreneurship in the IFS sector, with a particular focus on financial technology & governance, risk & compliance.
- Develop job-creation opportunities from emerging IFS sub-sectors & new markets.
- A new implementation framework for IFS2020.
Client Asset Regulations and Investor Money Regulations
The Central Bank consulted on Client Asset Regulations and Guidance (CP 71) in 2013 with a view to strengthening the safeguards around client assets and investor money.
The following Regulations have now issued;
- Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Client Asset Regulations 2015 for Investment Firms (SI 104 of 2015) which come into operation on 1 October 2015,
- Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 for Fund Service Providers (SI 105 of 2015) which come into operation on 1 April 2016.
The regulations are intended to ensure that both investment firms and fund service providers will have stronger systems and controls in place to protect the ownership rights of clients and investors respectively. In addition investment firms and fund service providers will have a process in place which, in the event of insolvency, will facilitate the expeditious return of client assets or investor money.
Director of Markets Supervision, Gareth Murphy, said "The publication of these regulations marks a significant development with regard to the safeguarding of client assets and investor money in Ireland. The development of these regulations is the outcome of a lengthy period of industry consultation with investment firms and funds service providers. The Central Bank will closely monitor the implementation of these regulations so as to ensure that our aim of enhancing investor protection and safeguarding client assets is achieved."
Feedback to the Consultation is available here.
Please contact a member of A&L Goodbody's Asset Management & Investment Funds team for more detailed advice on the implications of the changes.
Companies Act 2014
The Companies Act 2014 (as detailed in our January Front Page) is expected to come into effect on 1 June 2015. For more information on the impact of the Companies Act 2014 on Irish investment funds and fund management companies please see our Q&A document which sets out questions relevant to Irish investment funds and fund management companies or speak with your usual contact in A&L Goodbody's Asset Management & Investment Funds team.
Date published: 31 March 2015