The Central Bank of Ireland (Central Bank) has published the long awaited draft AIF Rulebook (AIF Rulebook) together with draft application forms and a Questions and Answers (Q&A) document.

This documentation sets out the regime which will apply to non-UCITS funds and alternative investment fund managers in Ireland, following the implementation of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU, AIFMD) on or before 22 July 2013. AIFMD provides for the regulation of EU domiciled Alternative Investment Fund Managers (AIFMs) who manage one or more alternative investment funds (AIFs) and AIFMs established outside the EU which manage one or more EU AIFs or which market one or more (EU or non EU) AIFs in the EU. The publication of these materials by the Central Bank follows on from its AIFMD consultation (CP60) and the earlier publication of the first and second drafts of its AIF handbook, which has now evolved into the AIF Rulebook.

Commission Delegated Regulation (EU) No 231/2013 (which will have direct effect) supplements the AIFMD. The AIFMD will also be supplemented by detailed implementing measures on many areas. These will be adopted by the EU Commission on the basis of advice provided by the European Securities and Markets Authority (ESMA). ESMA will also issue Guidelines. To date ESMA has issued its final report on Guidelines on sound remuneration policies under the AIFMD, its final report on draft regulatory standards on types of AIFM and the EU Commission has issued a Q&A on AIFMD.

The most significant differences between the second draft of the AIF handbook, as issued on 1 Feb (draft handbook), and the AIF Rulebook are the removal of any paraphrasing of legislation and any detail considered to be in the nature of guidance. In general, no policy changes are reflected in the AIF Rulebook as compared with the draft handbook other than that the Central Bank are reverting to their broader definition of who can be a Qualifying Investor (which is welcome).

For reference, question numbers are shown as (Q).

Practice points to note on the new regime (from 22 July 2013) (Q 1014, 1015), include:

  • An AIFMD compliant AIF will be obliged to comply with the relevant fund legislation and the Rulebook.
  • For an existing Irish AIFM, with an existing AIF, the Central Bank intends that the NU Series of Notices which have been imposed prior to 22 July, 2013 will continue apply to the AIF until the AIFM is authorised, at which point the AIF Rulebook will become applicable to both the AIFM and its AIFs. This is the case for both external AIFM and self-managed AIF.
  • The Central Bank will not issue guidance material before July 2013. Practitioners should have regard to the draft Handbook of 1 February 2013 insofar as it sets out guidance which is not included in the final Rulebook. Some of the finer detail on this is yet to be finalised.
  • Future guidance material will issue by way of the Central Bank's "Markets Update" newsletter on the Central Bank website. Insofar as there are matters that are not covered by the legislation, the Rulebook or the guidance, then these should be raised in advance with the Central Bank (for example, the rules around property funds are not included in the draft handbook or the Rulebook).

The Central Bank has issued a Q&A in respect of AIFMD which is to be regularly updated. In this regard, the Central Bank invites questions for its consideration. Some points of particular interest in the Q&A are set out below.

Existing AIFMs -Timing of obligation to comply with the AIFMD requirements (Q 1022, 1033, 1034)

  • Existing AIFMs (whether internally managed AIFs or externally managed AIFMs) do not need to notify the Central Bank by 22 July 2013 that they are relying on the transitional provisions (or that they are the AIFMs for particular AIFs).
  • Existing AIFMs must seek authorisation under AIFMD by 22 July 2014.
  • During the transitional period of 22 July 2013- 22 July 2014, AIFMs are expected to comply, on a best efforts basis, with the requirements of the national law transposing the AIFMD. The EU Commission's Q&A has stated that, in respect of other requirements contained in the AIFMD (such as the general principles, operating conditions, organisational requirements, conflicts of interests, remuneration, risk management, liquidity management rules, securitisation rules, valuation, delegation, depositary rules and reporting requirements), an AIFM that exists at 22 July 2013, must, during the transitional period, take all necessary measures (i.e., expend its best efforts) to comply with the AIFMD in respect of all relevant activities undertaken subsequent to 22 July 2013. For an existing Irish AIFM, with an existing AIF, the Central Bank intends that the NU Series of Notices which have been imposed prior to 22 July, 2013 will continue to apply to the AIF until the AIFM is authorised, at which point the AIF Rulebook will become applicable to both the AIFM and its AIFs. This is the case for both external AIFM and self-managed AIF.
  • AIFMs which are subject to transitional arrangements are not obliged to ensure that co-operation agreements between the Central Bank and a supervisory authority in a third country are in place in the event that the AIFM has delegated portfolio or risk management to a third country entity.

Existing Irish AIFM with an existing umbrella setting up new sub-funds (Q 1023)

  • An existing Irish AIFM with an existing umbrella AIF (at 22 July 2013) will be able to set up new sub-funds post 22 July 2013 and before the AIFM in question has submitted its application for authorisation. It will, pending the AIFM's authorisation, be subject to the NU Series of Notices. When the AIFM has been authorised under the AIFMD as its AIFM, the AIF Rulebook will apply to it. This is the case for both external AIFM and self-managed AIF.

Existing Irish AIFMs setting up new AIFs (Q 1024)

  • An existing Irish AIFM will be able to set up new AIFs post 22 July 2013 and before it submits its application for authorisation. In this case, the AIF Rulebook will apply to the AIF. The AIFM must comply on a best efforts basis. The depositary will, pending authorisation of the AIFM, be permitted to comply with the depositary regime applicable to start-up AIFMs as set out in the AIF Rulebook. AIFMs in this situation are advised to pay particular attention to ensuring that their planning towards compliance with the AIFMD takes fully into account the complex compliance challenges they particularly face in achieving best efforts.

Last Date for QIF authorisations (Q 1011)

  • The latest date for submitting completed applications for QIFs is 3pm on 20 July 2013.

Existing EU AIFM with an existing Irish AIF (Q 1025, 1026)

  • A non-Irish EU AIFM with an existing Irish AIF may continue to act for that AIF, establish new sub-funds if it is an umbrella fund and establish new Irish AIF under the same conditions as are applied to Irish AIFM. Once authorised in its home Member State the Central Bank will expect to receive a passporting notification in accordance with Article 33 of the AIFMD.
  • A non Irish EU investment manager which has been performing investment management functions for Irish AIFs can be the designated AIFM for Irish AIF from 22 July 2013, provided they are availing of a transition period in their home Member State. At the end of the transition period in their home Member State (or at the time of their authorisation if that is earlier), a passport notification in accordance with Article 33 of AIFMD should be issued.

AIFMD applications for authorisation (Q 1007, 1008, 1009, 1010)

  • The Central Bank has put in place an informal process to receive and process AIFMD applications. Once the Central Bank has been appointed as the competent authority for issuing authorisations under the AIFMD, it will be in a position to formally consider applications which have been lodged and informally processed. This appointment will happen before 22 July 2013. Applications may be submitted where all details are not finalised provided that the substance of AIFMD requirements are ready. AIFMs which urgently need to be authorised by 22 July 2013 should submit their application as early as possible, explaining the urgency.

Passporting as an AIFM (Q 1040)

  • An authorised AIFM can operate under the passporting arrangements set out in Articles 32 and 33 notwithstanding that the AIFMD has not been implemented in a host Member State.

Passporting notifications for Marketing purposes (Q 1013)

  • The Central Bank will endeavour to process marketing passporting notifications more quickly than the maximum timeframe of 20 days where it is important for AIF to be marketed from 22 July 2013 pursuant to the AIFM passporting provisions. In these circumstances, applicants should submit applications for authorisation early and explain their concern regarding an interruption to marketing.

Non-EU AIFMs appointed to AIFs prior to mid-2015 (Q 1028, 1029, 1030, 1031)

  • An Irish AIF can have a non-EU AIFM notwithstanding that this non-EU AIFM is not authorised (and cannot be authorised) under the AIFMD as things currently stand (certainly pre-mid 2015). This will only apply to AIFs for Qualifying Investors (QIAIFs).
  • An AIF for retail investors (RIAIF) will be required to have an EU AIFM.
  • Any QIAIF authorised prior to 22 July 2013 with a non-EU AIFM must ensure that it has an AIFM capable of carrying out all the tasks of an authorised AIFM by 22 July 2015. The QIAIF will need to be able, at all times, to show that its management company and AIFM arrangements when considered in their entirety at least meet the standard which would have applied under the non-UCITS regime which applied in Ireland immediately prior to 22 July 2013.
  • Any QIAIF authorised on or after 22 July 2013 with a non-EU AIFM must ensure that the non-EU AIFM is capable of carrying out all the tasks of an authorised AIFM within two years from the QIAIF’s date of launch, i.e. the date when the initial offer period closes or, where there are multiple closings, the date of first closing. The QIAIF and its non-EU AIFM will need to comply with the provisions of the AIF Rulebook that apply in the case of QIAIFs with registered AIFMs.
  • The Central Bank is likely to extend this transition period to align it with the coming into effect of Article 37 of the AIFMD, unless there are strong reasons not to do so. The Central Bank intends to conform to any common EU position on this topic, if one emerges before July 2013.

Whether entities now come within the scope of AIFMD (Q 1016, 1017, 1018)

  • The Central Bank are open to discussing whether particular structures that traditionally were not considered funds may need to comply and how they may comply with the AIF Rulebook requirements.

The additional services provided for under Article 6 (4) of the AIFMD cannot be passported (Q 1019)

  • The additional services provided for under Article 6 (4) of the AIFMD cannot be passported under AIFMD (these relate to management of portfolios and investments on a discretionary client by client basis and certain non-core services such as investment advice, safekeeping and administration in relation to shares or units of collective investment schemes and receipt and transmission of orders). The one exception to this will be that where AIFMs also manage UCITS and are in a position to obtain an authorisation under the UCITS Directive they will be free to offer Article 6(4) services cross-borders under the UCITS passport.

AIFMs that need to be registered (but not authorised) (Q 1020)

  • AIFMs that need to be registered (but not authorised), are not obliged to register immediately on 22 July 2013. This issue depends on whether assets under management are under the threshold and will be so at 22 July 2014. Such AIFMs are advised to carefully consider whether they may require authorisation as an AIFM, or wish to opt-in to that regime so as to avail of the AIFMD passport. Such AIFMs are advised to seek registration as soon as they are clear that registration will be the appropriate option as at 22 July 2014.

Depositary provisions (Q 1021, 1024, 1035, 1036)

  • An Irish authorised entity proposing to provide the safe-keeping and oversight duties (set out in Article 21(7)-(9) of the AIFMD) in respect of non-EU AIF (as set out in Article 36 (1)(a)) must ascertain whether these will fit within its existing authorisation and, if not, whether authorisation under the Investment Intermediaries Act 1995 might be necessary.
  • Q 1036 looks at the objective conditions which justify delegation or discharge of liability by depositaries This is seen as a matter for depositaries to judge and to keep under review. The analysis and ongoing review should be documented and approved at least at a senior managerial level within the depositary and possibly at board level.
  • The depositary provisions will apply to an AIF at the point of authorisation of its AIFM. As a consequence, a depositary will not have to move all its clients on one date to compliance with the AIFMD provisions. For example, if AIFM1 was authorised on 1 December 2013 and AIFM2 was authorised on 1 February 2014, then the AIFM depositary provisions would apply to the depositary of AIFs managed by AIFM1 from 1 December 2013 and to the depositary of AIFs managed by AIFM2 from 1 February 2014.
  • As detailed above (Q 1024) where an existing Irish AIFM establishes a new AIF pending submission of its application for authorisation under the AIFMD Regulations, the AIF Rulebook will apply to the AIF and the AIFM must comply on a best efforts basis. The depositary will, pending authorisation of the AIFM, be permitted to comply with the lighter depositary regime applicable to start-up AIFMs as set out in the Rulebook.

Delegation of portfolio or risk management functions (Q 1037)

  • The Central Bank will permit delegation of portfolio or risk management functions in part but this cannot include either of the functions in its entirety. Specifically, it can never include the tasks, as set out in the AIF Rulebook, which must be exercised directly by the board or its designated persons. Instead, certain portfolio and risk management tasks may be delegated. The proposed extent of delegation must be set out clearly for the Central Bank which will review each such proposed arrangement.

Broader definition of Qualifying Investor (Q 1038)

Irish investors who fall within any one of the categories below (set out in the AIF Rulebook) are eligible to be sold units in a QIAIF notwithstanding that the investor does not fall within the definition of professional investor in AIFMD. The investor must

  • be a professional client in accordance with MiFID; or
  • receive an appraisal from an EU credit institution, MiFID firm or UCITS management company that he/she has appropriate expertise, experience and knowledge; or
  • self-certify that he/she has sufficient knowledge and experience to enable him/her to properly evaluate the investment or his/her business involves the management, acquisition or disposal of property of the same kind as the property of the QIAIF.

In addition, the AIF Rulebook provides that within the EU, QIAIFs may only be marketed to professional investors as defined in the AIFMD unless the Member State in question permits, under the laws of that Member State, AIF to be sold to other categories of investors and this permission encompasses investors set out in the categories above.

AIFs in liquidation during the transitional period

  • Subject to the AIFMD Regulations, the Central Bank considers that AIFMs acting solely for AIF which are in liquidation or will be in liquidation during the transitional period will not require authorisation provided the AIF have entered into a liquidation process before the expiry of the transitional period.

Background information
The international funds industry in Ireland currently services some €2.2 trillion in assets. Ireland is the number one centre for hedge funds globally servicing almost half the globe’s assets. Ireland was the first centre to provide for regulated hedge funds. The Irish Qualifying Investor Fund (QIF) is considered the most AIFMD-ready product on the market. Managers are increasingly turning to the QIF in preparation for AIFMD with total assets having doubled since April, 2009 when the first draft of AIFMD was published.