In this our first investment funds law newsletter for 2016, the partners in Matheson’s Asset Management and Investment Funds Group would like to wish all of our clients and friends a Happy New Year and to brief you on a number of recent developments which have occurred since our last update.
Update on Central Bank Management Company Guidance and Deadline Dates
During 2015, the Central Bank of Ireland (“Central Bank”) published fund management company guidance in the areas of directors’ time commitments, organisational effectiveness and delegate oversight. It had been indicated that the Central Bank would issue further guidance for fund management companies in the areas of managerial functions, operational matters and procedural requirements by the end of 2015. By way of update, the Central Bank has advised that work on preparing the additional draft guidance for fund management companies is still ongoing, and that it now anticipates publishing this for public consultation by the end of Quarter 1 2016.
To reflect this extended timeframe and to facilitate orderly transition, the Central Bank has confirmed that the deadline for compliance by existing fund management companies (ie, fund management companies authorised before 1 November 2015) with the revised managerial functions and new organisational effectiveness requirements will be at least six months after the completion of the consultation process. This therefore impacts on the previously indicated deadline date of 30 June 2016 for updating existing business plans and programmes of activity (“POA”) to reflect the revised managerial functions and the organisational effectiveness guidance requirements.
In view of this, for fund management companies authorised before 1 November 2015, the deadline date for updating business plans / POA to reflect revised managerial functions and the organisational effectiveness role is expected to fall at the end of Quarter 3 2016 at the earliest.
It should be noted that the term “fund management company” includes UCITS management companies, alternative investment fund managers ("AIFMs"), self-managed UCITS investment companies and internally managed alternative investment funds.
Central Bank Issues Guidance on Umbrella Fund Cash Collection Accounts
The Central Bank has published guidance on “Umbrella funds – cash accounts” which applies to the holding of cash assets of UCITS or AIF umbrella funds in a single account at the level of an umbrella fund (an “umbrella cash collection account”) in the name of the investment fund, the fund management company on behalf of the investment fund or the depositary (the “Guidance”).
The publication of the Guidance follows the introduction of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 (the “Investor Money Regulations”) in March 2015. The Investor Money Regulations apply to investor money collection accounts held by fund service providers from 1 April 2016. The Guidance applies where the fund, its management company or depositary holds subscription and redemption monies and dividends due to investors in an umbrella cash account to which the Investor Money Regulations will not apply.
The Central Bank has issued a letter setting out the arrangements for registering with the Central Bank the intention or otherwise to hold investor money once the Investor Money Regulations come into effect. The necessary form, together with applications for approval of the appointment of individuals to the pre-approved controlled function of Head of Investor Money Oversight (where relevant), must be returned to the Central Bank by close of business on 5 February 2016.
Central Bank Launches Consultation on Risk Assessment and Capital Planning for Fund Administrators
The Central Bank has published its Consultation on Risk Assessment and Capital Planning for Fund Administrators (CP100). The consultation paper outlines the Central Bank’s proposal to introduce a risk assessment and capital planning requirement for fund administrators authorised under the Investment Intermediaries Act 1995.
The new requirements are proposed to be introduced by way of regulations (to form part of the Investment Firm Regulations proposed by the Central Bank in its Consultation on Central Bank Investment Firm Regulations 2015 - CP97), combined with guidance, to facilitate the practice of capital planning in a manner that is proportionate to the business. The proposed guidance set out in CP100 would therefore apply on a comply or explain basis. According to the Central Bank, the new requirements would broadly align the capital planning requirements applicable to fund administrators to those already applying to MiFID investment firms under the Capital Requirements Directive and Capital Requirements Regulation.
The consultation closes on 15 March 2016. The consultation paper may be accessed here.
EU Securities Financing Transactions Regulation Published in the Official Journal of the European Union: Key Dates
The agreed text of the EU regulation on transparency of securities financing transactions and of reuse (“SFTR”) has been published in the Official Journal of the European Union and, with the exception of certain transitional provisions, the SFTR entered into force on 12 January 2016.
The SFTR introduces measures addressing: reporting of securities financing transactions (“SFTs”) to trade repositories by each counterparty; reporting and disclosure requirements for funds using SFTs and total retyrn swaps; and requirements applicable to all counterparties to collateral arrangements engaged in rehypothecation.
SFTs are defined in the SFTR to include repurchase transactions, securities or commodities lending or borrowing, buy-sell back transactions or sell-buy back transactions and margin lending transactions.
While the SFTR entered into force across the EU on 12 January 2016, there are a number of transitional provisions in the legislation which we have summarised through the link below.
European VAT Decision on Real Estate Investment Funds
The Court of Justice of the European Union (the “CJEU”) delivered its decision in the Fiscale Eenheid X (C-595/13) case on 9 December 2015. The case relates to the VAT exemption applied to investment management services supplied to special investment funds. The decision in this case is of particular interest and relevance to Irish special investment funds that invest in real estate.