Counterparty credit rating downwgrades
The Central Bank of Ireland (Central Bank) has written to industry following the downgrading of credit ratings on a number of financial institutions in June.
Where Irish regulated investment funds enter into OTC transactions, efficient portfolio management techniques and prime brokerage arrangements, their counterparties must satisfy specified rating requirements. In some instances the downgrades have resulted in inadvertent breaches by the Irish regulated investment funds. In such cases of inadvertent breach, the directors of the investment company and / or management company and the trustee must consider the issues arising, including their obligation to act in the best interests of investors, and adopt as a priority objective the remedying of the situation within a reasonable timeframe, taking due account of those interests. The directors/ management company or trustee must continue to actively monitor the credit worthiness of the counterparty by conducting internal ratings assessments on behalf of the fund. A decision to remain contracted to a counterparty inadvertently in breach of the rating requirements should be supported by an internal rating assessment undertaken on behalf of the fund. The Central Bank should be informed of any breach and the remediation plan made necessary by a counterparty downgrade and the rationale for the proposed approach.
As regard prime broker arrangements (and without any intention to pre-empt the decision of the directors/ management company or trustee), the Central Bank would, in principle (and bearing in mind the provisions of Section 3 of Guidance Note 2/11), be prepared to permit that, in the event of a downgrade of the credit rating to not below A-2, or equivalent, the relationship between the prime broker and the fund remain in place where net exposure of the fund to the prime broker is maintained at less than 40% of net asset value (or 20% /30% for a professional investor fund).
Irish regulated investment funds entering into new OTC transactions, efficient portfolio management techniques and prime brokerage arrangements must comply with the rating requirements.
Companies (Amendment) Act 2012
The Companies (Amendment) Act 2012 has been signed into law by the President. The Act provides for the extension of the exemption for the use of US GAAP by US entities migrating to Ireland.
Criminal Justice (Corruption) Bill
The Minister for Justice has unveiled a draft Scheme of Criminal Justice (Corruption) Bill, which includes proposals in relation to corporate criminal liability for bribery and corrupt acts by company directors, managers, officers, employees, subsidiaries or agents.
Central Bank update to Q&A on Fitness & Probity
The Central Bank has released an updated version of its Q&A on Fitness & Probity. The update picks up typos, abbreviations , layout and adds new sections 3.7, 3.12, 3.15, 4.10, 4.17, 6.4, 6.6, 6.17 and 7.12-7.20. In a funds context, question 6.17 is of particular value (it addresses when the regulated financial service provider should advise the Central Bank that an individual may not be fit and proper) and 7.12-7.20 which gives detail on the practical operation of the ONR system.
Changes to Prospectus and Transparency regimes following amending Regulations
Changes have been made to the Prospectus and Transparency regimes in Ireland by the implementation into law of Directive 2010/73/EU which amends both the Prospectus Directive (Directive 2003/71/EC) and the Transparency Directive (Directive 2004/109/EC). In an investment funds context, changes to the Prospectus regime impact on closed ended funds only while changes to the Transparency regime impact on listed closed ended funds.