Some Approaching Compliance Deadlines
- 31 January/28 February 2020. Fitness & Probity - RFSPs will need to submit their annual PCF Confirmation Return to Central Bank of Ireland (CBI). The submission due date for the annual PCF Confirmation Return (for the year ending 31 December 2019) for UCITS ManCos and for AIFMs is 31 January 2020. The submission due date for investment funds will likely be 28 February 2020. The current annual PCF Confirmation Return and associated reporting date and submission deadline for each entity will be detailed on the ONR system.
The Annual PCF Confirmation Return is made via the ONR system and involves a mandatory declaration to confirm that the CEO or equivalent, has confirmed in writing that:
- the RFSP has brought the standards to the attention of all PCFs
- the RFSP is satisfied on reasonable grounds that all PCFs comply with the standards
- the written agreement of all PCFs to abide by the Standards has been obtained
- all necessary due diligence has occurred
- the RFSP will investigate any fitness and probity concerns, take appropriate action and notify the CBI of any action taken without delay
- 31 January 2020. UCITS ManCo and AIFM ownership confirmation - UCITS ManCos and AIFMs need to file the annual ownership confirmation by 31 January 2020.
- 19 February 2020. UCITS KIID/ PRIIPs KID - A UCITS must update its KIID on an annual basis for each sub-fund / standalone fund within 35 business days of the end of each calendar year. The annual update of the KIID must be filed no later than 19 February 2020 (where required). This deadline is the latest possible date for any necessary changes to UCITS KIIDs to comply with the ESMA UCITS Q&A update of March 2019 on UCITS KIID benchmark disclosure discussed in detail here. Any update to the KIID filed with the CBI must be translated (as necessary), filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS' website. AIFs which have issued a PRIIPs KID must review KIDs regularly, when there is a significant change, and at least annually. The KID must be revised as necessary. Unlike the UCITS KIID, there is no annual refresh deadline. UCITS are currently exempt from the obligation to produce a PRIIPs KID until 31 December 2021.
- 28 February 2020. Fund Profile Return - The annual CBI Fund Profile Return is required for each sub-fund of an Irish authorised fund and each standalone fund. It is to be prepared for the period up to 31 December 2019, with a submission deadline (via the ONR) of 28 February 2020. The CBI does not anticipate that the fund profile will change from year to year, as changes would most probably reflect changes within the fund's offering documents. Therefore, year-to-year updates to the fund profile are expected to be minimal and reflect significant changes. The CBI issued guidance and a template.
- 31 March 2020. Thematic review of closet indexing - CBI requires documentation updates triggered by its thematic review of closet indexing to be completed by 31 March 2020.
- 31 March 2020. MMFR quarterly reporting- MMF managers must send their first quarterly reports to national regulators by the end of Q1 2020 (as clarified by ESMA).
- 1 April 2020. Depositary Safe-Keeping for UCITS and AIFs – the Depositary Safe-Keeping Regulation (AIFMD) and the Depositary Safe-Keeping Regulation (UCITS) apply from 1 April 2020 (having entered into force on 19 November 2018). The regulations set out detailed UCITS and AIFMD requirements where custody is delegated to a third party (a sub-custodian). They amend existing requirements in respect of:
- asset segregation
- record keeping
- reconciliations (including frequency of reconciliations)
- contractual requirements (including mandatory provisions)
- requirements (concerning insolvency), where custody is delegated to a third party in a third country.
The above list does not cover tax, FATCA or CRS filings, ad hoc filings (such as regulatory reports) or filings of annual accounts (and related documents which include any annual FDI Return) and semi-annual accounts or other similar returns which deadlines vary to reflect the particular entity's year end. By way of example, the Companies (Accounting) Act 2017 obliges UCITS investment companies and AIF investment companies to file annual accounts with the CRO within eleven months of their financial year end.
Central Bank of Ireland clarifies UCITS financial indices certification
The CBI issued clarification on the pre- and post-authorisation certification process for UCITS index certification or confirmation. The CBI's revised UCITS Financial Indices guidance issued in July 2019.
On 9 January 2020 Irish Funds issued a regulatory update with the following information from the CBI:
At the fund authorisation stage the CBI require a confirmation where an index is required to be referenced specifically within the fund’s Prospectus (and certification of the index is not required). The Responsible Person must determine whether a confirmation or a certification is relevant to the index in question.
In addition, a post-authorisation confirmation will only be required where an index that required confirmation as part of the initial authorisation process (i.e. an index referenced directly in the fund’s Prospectus) is changed.
For the avoidance of doubt, where an index requires certification, the UCITS, at all times, may only gain exposure to that index after the relevant certification has been submitted to the CBI.
A&L Goodbody understands this to mean the following.
- If a UCITS is using an index for investment purposes, for example using FDIs which give return on that index, and details are to be disclosed in the prospectus, the UCITS must provide to the CBI either:
- written confirmation in application for authorisation of UCITS or sub-fund approval but NO certification required if UCITS could invest directly in the underlyings of the index in the same proportion as in the index and, in so doing, comply with the UCITS diversification requirements (for example the 5/10/40 rule); or
- a certification if UCITS could NOT invest directly in the underlyings of the index or comply with diversification rules, either because of ineligible assets in the index or insufficient diversification.
- An updated confirmation is only required, post authorisation, where the UCITS intends to seek exposure to a new index for investment purposes that must be disclosed in the prospectus.
- If the index is being used for EPM only then there is NO need to disclose the names of indices in prospectus other than general reference to gaining exposure to UCITS compliant indices. However the UCITS should provide a certification if UCITS could NOT invest directly in the underlyings or comply with diversification rules.
"Certification" is always required (in advance of a particular investment) if the UCITS could NOT invest directly in the underlyings of the index or, in so doing, comply with diversification rules. This is the case whether the indices are used for investment purposes or EPM and whether envisaged at outset of fund or to be used later. Please see our In Focus paper here for more information.
CBI Q&A on investment by UCITS in CFDs, CLOs, CoCos and binary options
The CBI has not ruled out investment by Irish UCITS funds in Contracts for Difference (CFDs), Collateralised Loan Obligations (CLOs), Contingent Convertible Securities (CoCos) and binary options but has noted that CBI may require more detail at authorisation stage.
The CBI updated its CBI UCITS Q&A document to include a new Q&A (1094), in relation to investment by UCITS in CFDs, CLOs, CoCos and binary options. The Q&A outlines the Central Bank's approach (referencing statutory provisions) where a UCITS proposes to invest in CFDs, CLOs, CoCos or binary options. The CBI notes that UCITS may be subject to enhanced scrutiny at the authorisation phase with a view to ensuring that the proposal is appropriate taking into account the overall portfolio of assets that is proposed for the UCITS.
Such enhanced scrutiny may include review of:
- model portfolio information
- the due diligence carried out in respect of the proposed underlying portfolio
- evidence to support the view that the proposed investment portfolio is suitable taking into account the specified requirements
The Q&A notes that such information should be sufficiently detailed to enable the CBI to make an informed judgement with respect to the particular application involved.
This does not apply to Qualifying Investor Alternative Investment Funds (QIAIFs) at all.
CBI Supervisory Priorities for 2020
Derville Rowland, CBI Director General, Financial Conduct, delivered a speech on The Role of Financial Conduct Regulation and 2020 Priorities on 15 January 2020. Below is a summary of the points mentioned which are relevant to investment funds.
- The CBI will target a number of particular topics as regards funds. These include:
- concluding the review of how the sector is implementing CBI rules and guidance related to fund management company effectiveness
- working together with fellow regulators and colleagues in ESMA to complete a common supervisory action on liquidity management in UCITS
- commencing a review of UCITS’ use of securities lending.
Liquidity - The recent experience of investors in UK asset manager Woodford raised questions as to whether existing rules in respect of liquidity risk are sufficient. Liquidity risk in the funds sector more broadly is an important issue and one that the CBI has been closely engaged in at EU and international fora.
Property Funds - From a financial stability perspective, the CBI will conduct a deep dive on property funds to assess the resilience of this growing form of market-based finance.
AML - Preventing money laundering and terrorist financing will be an area of continued focus, not specifically in the funds sector. The areas of particular focus for 2020 will be transaction monitoring and risk assessments. In particular, the CBI will focus on the IT systems utilised for transaction monitoring by higher risk firms operating across different sectors.
Fitness & Probity - Enforcement in the area of F&P was mentioned as a 2020 priority although not specifically for fund service providers. Derville Rowland commented; "Our gatekeeper role is a critical lever for us. To date, we have refused a number of applications, while 86 applications for senior positions have been withdrawn where the Central Bank has challenged the applicant."
SEAR - In 2018, the CBI set out detailed proposals for an enhanced individual accountability framework to drive effective and sustained cultural change within the Irish financial services sector. The shape of these reforms is ultimately a matter for the Oireachtas. The CBI will continue to work with the Department of Finance on the development of the proposed legislation to provide a robust framework.
Climate change and sustainable finance - The EU Taxonomy regulation will be vital to the development of more conduct-focused regulation such as the Sustainability Disclosure Regulation, which will introduce very significant new obligations for industry.
Broadly speaking, fund managers, MiFID and insurance firms will be required to disclose the due diligence process they carried out in relation to the “principal adverse impacts” of investment decisions they make on sustainability factors. If they have fewer than 500 employees, they can set out that they do not consider the adverse impacts of investment decisions on sustainability but they must also publish clear reasons why they do not do so. Financial advisers will be required to disclose whether they consider the sustainability factor impact in relation to the products they advise on, and if not, why not.
These disclosure obligations will start to take effect in 2021, but much detail is still to be worked out. The Joint Committee of the European Supervisory Authorities (ESAs) will hold a consultation on these disclosure obligations in the coming months.
Migration of Participating Securities Act 2019
The Migration of Participating Securities Act 2019 has been published and will need to be commenced by the Minister of Finance.
Euroclear UK & Ireland, operator of the CREST settlement system will cease to be authorised in the EU as a Central Securities Depositary when Brexit eventually takes effect. Based on the current transitional measures which extend the CREST authorisation, Irish equity securities currently settled through CREST will no longer be able to do so after 31 March 2021.
In the Irish investment fund space, this is of particular interest to Irish exchange-traded fund (ETF) managers.
The Migration of Participating Securities Act 2019 is intended to facilitate migration of settlement of uncertificated equity trades to an alternative CSD based in the EU in a co-ordinated manner on a single day. The legal and administrative burden on issuers to effect migration individually will be reduced.
The implications for Irish companies/ ICAVs of settlement through alternative CSDs based in the EU systems will need to be analysed and understood. Please speak with your usual contact on our Asset Management & Investment Funds team if this topic is of particular interest to you.
CBI's 2019 Enforcement Actions
ALG's Financial Regulation team looked back on enforcement actions from 2019 and assessed what is to come in 2020 having regard to the CBI's recently published priorities for 2020. See here for more detail.
CBI Markets Updates - 18 December 2019
The CBI issued its first markets update of 2020 on 29 January 2020.
CBI developments include:
- Central Bank publishes the Twenty-Eighth Edition of the Central Bank UCITS Q&A Document. This includes a new Q&A (1094), in relation to investment by UCITS in Contracts for Difference (CFDs), Collateralised Loan Obligations (CLOs), Contingent Convertible Securities (CoCos) and binary options. The Q&A outlines the CBI's approach whereby a UCITS proposes to invest in CFDs, CLOs, CoCos or binary options and how that UCITS may be subject to enhanced scrutiny at the authorisation phase with a view to ensuring that the proposal is appropriate taking into account the overall portfolio of assets that is proposed for the UCITS.
- Central Bank publishes the First Edition of the Central Bank European Market Infrastructure Regulation Questions and Answers Document
- Securities Markets Conduct Risk. Industry Communication, January 2020 which provides an overview of the key findings from the CBI's 2019 market conduct supervisory work. It also sets out areas where regulated entities should improve their organisational arrangements for managing market conduct risk and includes further expectations for regulated entities and issuers (building on the March 2019 industry communication).
The markets update also lists and links to recent ESMA publications and IOSCO updates.
The CBI issued its 9th markets update of 2019 on 18 December 2019. The markets update lists and links to recent
- CBI speeches
- ESMA publications
- IOSCO updates
- the regulation and directive on prudential supervision of investment firms which came into force on 25 December 2019. The bulk of the directive must be transposed by Member States by 26 June 2021.