The third quarter of 2015 continues to be busy for the funds industry. There have been some further welcome developments which include:
- Confirmation that the Shanghai-Hong Kong Stock Connect Programme is now accessible to Irish funds;
- ESMA’s opinion on the availability of the AIFMD passport; and
- The issuance of a consultation paper on UCITS V and its remuneration policies.
The third quarter of 2015 has seen further key developments in the Irish funds industry and in the wider European fund industry. Most notably, the Central Bank of Ireland (the “Central Bank”) has given the green light for Irish funds to access the Shanghai-Hong Kong Stock Connect Programme (“Stock Connect”). The European Securities and Markets Authority (“ESMA”) has also been active and issued its advice on the expansion of the AIFMD to non-EU Alternative Investment Funds (“AIFs”) and to non-EU Alternative Investment Fund Managers (“AIFMs”) from 2015. In addition, ESMA has published a consultation paper on UCITS V remuneration.
1. Central Bank Gives the Go Ahead to Irish Funds to Access Stock Connect
On 15 July 2015, the Central Bank released updated versions of its UCITS and AIFMD Q&A documents and will now permit Irish funds to access Stock Connect. The Q&As include guidance on the regulatory requirements that Irish funds must comply with when seeking access to Stock Connect.
This is a very positive development for the Irish funds industry and it is expected that Irish funds will begin to avail of this facility in the coming months, provided custodians can ensure that the custody arrangements under Stock Connect meet the Central Bank’s requirements.
2. ESMA Issues Advice and Opinion on Application of Passport to non-EU AIFMs and AIFs
On 30 July 2015, ESMA published its advice on the issuance of passports to non-EU AIFMs and AIFs under the AIFMD. It also issued its opinion on the functioning of the passport for EU AIFMs and the national private placement regimes.
ESMA conducted its assessment on a country-by-country basis. It was concluded that no barriers exist to the extension of the passport to Jersey and Guernsey and the passport will be extended to Switzerland when it removes certain obstacles with the enactment of pending legislation. ESMA was unable to reach a final decision on Hong Kong, Singapore or the USA due to concerns around regulatory issues, competition and a lack of sufficient information. ESMA’s assessments of these three jurisdictions will conclude “as soon as practicable”.
ESMA will continue to assess non-EU jurisdictions until it has given advice on all non-EU jurisdictions that it considers eligible for the AIFMD passport.
3. ESMA Issues a Consultation Paper on UCITS V Remuneration
On 23 July 2015, ESMA released a consultation paper on its proposed guidelines on sound remuneration policies under the UCITS V Directive (“UCITSV”) (“the Consultation Paper”).
UCITS V requires self-managed investment companies and UCITS management companies to ensure a consistent application of remuneration policies and practices that are in line with, and promote, effective risk management while discouraging disproportionate risk taking.
The Consultation Paper sets out proposals for guidelines on the remuneration policies required by UCITS V. The proposed guidelines deal with issues such as governance of remuneration, requirements on risk alignment, disclosure and proportionality.
The guidelines and a final report will be issued by ESMA by Q1 2016, ahead of the transposition deadline issued for UCITS V, which is 18 March 2016. The revision of the AIFMD remuneration guidelines, as proposed in the Consultation Paper, is also expected to be included in the final report.
The Central Bank’s confirmation that Stock Connect is available to Irish funds will further strengthen the attractiveness of Ireland for Chinese managers and will enhance Ireland’s profile as the domicile of choice for investment funds.
The issuance of the passports to non-EU AIFMs and AIFs also represents a positive step towards harmonising an internal market for AIFMs across the EU.
While the UCITS V Consultation Paper points to greater flexibility in respect of the remuneration proportionality principle, the timeframe for release of the guidelines and their application is tight.