Some approaching compliance deadlines
- 30 November 2018. Filing annual accounts of variable capital companies in CRO - The Companies (Accounting) Act 2017 obliges UCITS investment companies and AIF investment companies to file annual accounts for financial years commencing on or after 1 January 2017 with the CRO within eleven months of the relevant financial year end. By 30 November 2018 we will see the first such accounts being filed. Form FS1 is the form which will accompany the filing. It is available from the following webpage and will incur a filing fee of €15.00.
- 30 November 2018. UCITS Performance Fees - The Chairman of UCITS ManCos which manage UCITS that charge performance fees must give confirmations to the Central Bank by 30 November 2018 as detailed in the Central Bank's outcome of an inspection into UCITS performance fees.
1 December 2018. MMFR. ESMA is holding a consultation on draft guidelines on stress test scenarios under the MMF Regulation. The consultation closes on 1 December 2018.
7 December 2018. UK Temporary Permissions Regime. The UK FCA is holding a consultation on the temporary permissions regime (discussed below). The deadline for responses to the consultation is 7 December 2018.
31 December 2018. Corporate Governance – completion of reviews of board and individual director performance. Under the Irish Funds Corporate Governance Code, the overall Board's performance and that of individual members must be reviewed annually with a formal documented review and a review of the chairperson taking place at least once every three years.
31 December 2018. Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) – collective investment schemes and management companies should be aware of the regulatory expectation to offer training to their boards on the law relating to AML/CTF on an annual basis (and at such other times as may be appropriate). Boards should also ensure that they have considered whether to adopt a board level AML/CTF policy. Where the board has adopted such a policy, it should ensure that it receives appropriate confirmations from relevant persons and that it is subject to periodic review.
31 December 2018. Business Plan/Programme of Activity - UCITS management companies, self-managed UCITS, AIFMs and internally managed AIFs, where they have not already done so, may need to complete their annual performance review on service providers. They should also obtain annual confirmations from service providers and relevant persons in accordance with their business plan/programme of activity, complete onsite visits with service providers, ensure adoption of valuation policy and make disclosure in respect of connected party transactions.
31 December 2018. Fitness & Probity - management companies, AIFMs, self-managed/internally-managed UCITS/AIFs and other regulated financial service providers (RFSPs), where they have not already done so, will need to obtain their annual certification from persons performing PCFs (e.g. directors) and CFs (e.g. money laundering reporting officer and company secretary) that they are aware of the Fitness and Probity Standards, agree to continue to abide by those Standards and will notify the board if they no longer comply. This forms part of ongoing performance monitoring set out in Section 22 of the Guidance on Fitness and Probity Standards.
The submission due date for the Annual PCF Confirmation Return for the year ending 31/12/18 for Investment Funds and Fund Service Providers (including AIFMs and UCITS management companies) will be detailed on the ONR system.
The Annual PCF Confirmation Return (which is made via the ONR system) involves a mandatory declaration to confirm that the CEO or equivalent, has confirmed in writing that:
o the RFSP has brought the Standards to the attention of all PCFs,
o the RFSP is satisfied on reasonable grounds that all PCFs comply with the Standards,
o the written agreement of all PCFs to abide by the Standards has been obtained,
o all necessary due diligence has occurred
o the RFSP will investigate any fitness and probity concerns, take appropriate action and notify the Central Bank of any action taken without delay.
31 December 2018. PRIIPs KID. Investment funds made available to retail investors within the European Union fall within the scope of the PRIIPs Regulation. Providers 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 exempt from the obligation to produce a PRIIPs KID until 31 December 2019. See below for more information on this topic.
1 January 2019. Securitisation Regime - Due diligence and disclosures on securitisations will need to be applied (in the case of UCITS) or updated and refreshed (in the case of AIFMs). Where AIFMs and UCITS are exposed to securitisation positions which do not meet the requirements, they must, acting in the best interest of the investors, take corrective action. See our October Q&A on this topic.
1 January 2019. Benchmarks Regulation - Prospectuses of UCITS and of funds which are subject to the Prospectus Directive, which reference a benchmark and which have been approved prior to 1 January 2018, will need to be updated at the next update and in any event by no later than 1 January 2019 to include information on the benchmark. See our In Focus on this topic.
21 January 2019. Money Market Funds (MMFs) - The MMF Regulation introduces new requirements for MMFs, in particular portfolio composition, valuation of assets, diversification, liquidity management and credit quality of investment instruments. Existing UCITS and AIF MMFs must comply with the new rules by 21 January 2019. The European Union (money market funds) Regulations 2018 (S.I. No. 269 of 2018) came into operation on 21 July 2018. See below for more information on this topic.
19 February 2019. UCITS KIID - A UCITS must update its key investor information document (KIID) on an annual basis for each sub-fund / standalone fund within 35 business days of the end of each calendar year. This year the annual update of the KIID must be filed no later than 19 February 2019 (where required). Any update to the KIID filed with the Central Bank must be translated (as necessary) and filed in any other host jurisdictions where the UCITS is registered to market its shares and uploaded on the UCITS' website.
Central Bank's Christmas and year-end deadlines for:
- Fund and sub-fund applications that have Christmas or year-end approval deadlines including self-managed/internally managed investment company/ICAV applications
- Approval of post-authorisation amendments that have Christmas or year-end approval or noting deadlines
The deadlines are outlined here.
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 will vary to reflect the particular entity's year end.
Colm Kincaid, Central Bank Director of Securities and Markets Supervision spoke at the A&L Goodbody Annual Asset Management and Investment Funds Seminar
Colm Kincaid, Director of Securities and Markets Supervision at the Central Bank of Ireland (Central Bank) delivered a speech on The Supervision of Conduct in the Funds Market to the A&L Goodbody Annual Asset Management and Investment Funds Seminar on 24 October 2018. Mr Kincaid's speech considered the topics listed below.
- Market developments (encompassing the significant growth and increasing scale and complexity of the industry, the more assertive and intrusive model of Central Bank supervision and EU convergence work)
- Financial Conduct Regulation (including the more cohesive, consistent, risk-based approach to supervision)
- Wholesale Market Conduct Supervision (focusing on investor and market participant protection, transparency, governance, trust and resilience)
- Corporate Governance (focusing on incentives, substance, diversity, CP86 and Brexit and noting that the Central Bank expects that firms have dedicated the necessary time and planning to Brexit issues such as those listed below).
o What have you done to plan for the possibility that come 29th March you can no longer receive certain services from the UK?
o If you envisage migrating those services to a new provider, have you a plan in place with that provider for this to take place?
o Have you taken steps to execute that plan, or if not when will you take those steps?
- As regards diversity, the Central Bank expects firms to take steps to ensure they are sufficiently diverse and inclusive and to improve on their current position
- Innovation noting the Central Bank's innovation hub, and work being done on algorithmic trading.
Martina Kelly, Central Bank Head of Markets Policy Division - Implementing CP86
Martina Kelly, Central Bank Head of Markets Policy Division spoke about Implementing CP86
Key takeaways include:
o DP letters of appointment. Fund ManCos are expected to specify, in the letters of appointment, that a DP must put the best interests of investors ahead of any other interest. DPs should have experience and expertise and be sufficiently senior in their role. DPs should document their reasoning where they exercise judgement.
o Contracts with delegates. A fund ManCo's contracts with delegates should be sufficiently prescriptive to ensure that the delegate knows exactly what is being delegated to them.
o Policies and procedures. A fund ManCo cannot rely on a delegate's written policies and procedures to satisfy the obligations in AIFMD and UCITS to have its own written policies and procedures. Where it is intended to rely on the substance of its delegates' policies and procedures the CBI expects that the fund ManCo's own policies and procedures should document that this is the case, the basis for that reliance, (which will require a mapping exercise), how it will test and review the delegates policies and procedures and the role of the relevant DP.
o Policies and procedures. DPs should be involved in the design, implementation and review of all the policies and procedures required of the fund ManCo.
o Identification of all obligations. Each fund ManCo should review its obligations and identify precisely under which managerial function each obligation will fall (as the Central Bank sets out for AIFMD/ UCITS obligations). A similar approach could be taken to obligations from the Central Bank's legislative reqyuirements for UCITS and its Rulebook for AIFs or obligations from the cross sectoral legislation such as EMIR, MAR, MMFR etc.
o Monitoring and oversight. The frequency of the monitoring and oversight over each regulatory obligation should be determined by the fund ManCo.
o Engagement between DPs and delegates. Engagement between DPs and delegates should be regular and include on-site visits and constructive challenge by DPs.
o Timing. Every ManCo should by now have critically assessed their operations against the new requirements and made necessary changes, including time commitments.
o Central Bank supervisory approach. Central Bank will focus its supervisory approach towards existing firms, in order to assess how they have implemented CP86.
o Brexit applications. Brexit applications are supplying the Central Bank with significant information on the organisation of fund ManCos and on the time required of DPs. Ms Kelly noted that "To be clear, this is material".
o Supervisory Coordination. Ms Kelly also referenced information obtained through the ESMA Supervisory Coordination Network designed to foster supervisory convergence in the context of Brexit. She notes that it would wise for fund ManCos to be taking into consideration what is required of new entrants as they make their assessments and prepare for expected visits from the Central Bank in the future.
o Organisational effectiveness. The organisational effectiveness role holder should also be carrying out a detailed review of the arrangements and satisfying themselves that all obligations are being met by the DPs on a day to day basis.
o Organisational effectiveness. The organisational effectiveness role is a continuous one to keep the effectiveness of the organisational arrangements under ongoing review and to report on this to the board for discussion and decision. The frequency of reporting is not specified. Matters arising from the monitoring process should be escalated without delay and as necessary. The Central Bank expects that the role holder will monitor the adequacy of the fund ManCo's resources and so this is clearly linked to the roles of the DPs. The role holder will consider if the organisational structure remains fit for purpose and this may change as the fund ManCo increases its activities or for example takes on new types of funds. An important element of the role is that related to consideration of potential conflicts of interest and to ensuring that these are appropriately addressed, most likely through escalation to the board. With regard to the board itself, the role holder will continuously evaluate its composition and so this is very much linked to ensuring there is a robust structure which is fit for purpose in the context of delegated activities.
o Central Bank Guidance. Central Bank intends to develop the Central Bank's guidance in this area particularly by taking into account the experiences of those who carry out this role and by engaging with industry experts.
Central Bank moves to self-certification for many aspects of the authorisation and post-authorisation process for UCITS and Retail AIFs
The Central Bank improved certain aspects of the authorisation and post-authorisation process for UCITS and Retail AIFs. The Central Bank will no longer carry out a prior review in relation to:
- the establishment of new share classes
- depositary agreements
- trust deeds (for unit trusts)
- deeds of constitution (for CCFs)
- (most) UCITS financial indices.
This is subject to receipt of relevant Central Bank application forms and written confirmations.
The Central Bank has also issued an application form for UCITS merger applications which reflects the requirements under the UCITS Regulations 2011 and does not introduce any new requirements.
UCITS using financial indices
The Central Bank introduced:
- a self-certification regime in respect of (most) financial indices used by UCITS for investment or efficient portfolio management purposes
- a pre-approval submission to the Central Bank will be required in limited circumstances.
No certification is required where an index is used solely as a performance benchmark.
The changes are reflected in updated guidance on the use of financial indices by UCITS.
Read our In Focus summary on self-certification for (most) UCITS using financial indices.
Central Bank speeches on culture, risk, outsourcing
- Derville Rowland, Central Bank Director General: Bad Apples or Bad Barrels? How Effective Culture Mitigates Conduct Risk - 25 October 2018 spoke at the Conference on Culture, Diversity and the Way Forward for Corporate Governance, Trinity College Dublin.
The speech covered:
o Behaviour and Culture Reviews – a snapshot of current behaviour
o rebuilding trust – creating an effective culture
o Wells Fargo
o preventing senior people washing their hands of wrongdoing. Central Bank recommends individual accountability measures which include proposed Conduct Standards for all staff in regulated firms, such as acting honestly, ethically and with integrity; additional conduct standards for senior management; and standards for businesses. Central Bank also recommends a Senior Executive Accountability Regime be implemented through legislation. This would place obligations on firms and senior individuals to set out clearly where responsibility and decision-making lies for their business.
- Gerry Cross, Central Bank Director of Policy and Risk, spoke at the Central Bank's first Innovation Hub event and further remarks
o on innovation- 'We want to be talking to innovators, hearing their perspective and seeing where new ideas and technologies are taking us' o the Central Bank's report on outsourcing to issue in the coming weeks and it will identify significant weaknesses in financial firms' approach as well as discussing current important developments – such as increased cloud outsourcing – and their implications.
Gerry Cross, Central Bank Director of Policy and Risk: Fit for the future: some current issues in the regulation of Irish investment funds discussed: o scanning the future horizon o fund management - substance, quality and effectiveness o delegation o European Supervisory Authority Review o fees, transparency, and fairness
Grainne McEvoy, Central Bank Director of Consumer Protection, Building a Consumer Focused Culture – What the Central Bank Expects of Leaders
- Central Bank behaviour and culture report on the five retail banks
- Central Bank moving to a more intrusive firm-specific supervision to complement existing sectoral thematic engagements
- Central Bank developing a new consumer impact model
- Central Bank increasing supervisory intensity in conduct and consumer protection risk
- Central Bank will undertake more frequent, targeted use of Consumer Protection Risk Assessment tool. o proposed conduct standards for all staff in regulated firms, such as acting honestly, ethically and with integrity; o additional conduct standards for senior management o standards for businesses. o a Senior Executive Accountability Regime which would place obligations on firms and senior individuals to set out clearly where responsibility and decision-making lies for their business.
- Central Bank wants to see concrete evidence that boards understand the risks that their culture, operating environment, strategy, business model, internal structures and behaviours pose to consumer protection and what mitigations and actions firms put in place to address these.
Individual Accountability. Central Bank is recommending individual accountability measures to drive better behaviour. These would assist in assigning responsibility to individuals in a regulatory context and decrease the ability of individuals to claim that the blame for wrongdoing lay elsewhere. They include:
o proposed conduct standards for all staff in regulated firms, such as acting honestly, ethically and with integrity;
o additional conduct standards for senior management
o standards for businesses.
o a Senior Executive Accountability Regime which would place obligations on firms and senior individuals to set out clearly where responsibility and decision-making lies for their business.
Central Bank Markets Updates
The Central Bank published issue 14 of its Central Bank Markets Update on 8 October 2018. Some key developments are detailed below.
Central Bank of Ireland
European Securities and Markets Authority (ESMA)
International Organization of Securities Commissions (IOSCO)
UK FCA Consultation on UK Temporary Permissions Regime (TPR)
The FCA published a consultation on the Temporary Permissions Regime (TPR) for inbound firms and funds. This paper provides information and seeks input regarding the implementation of the TPR for Irish domiciled funds which want to continue to distribute to UK investors after the UK leaves the EU on 29 March 2019. The deadline for responses to the consultation is 7 December 2018. Please speak with your usual contact on the A&L Goodbody Asset Management & Investment Funds team if you wish to contribute to a response.
Irish Funds - GDPR Working Group Industry Bulletins.
The Irish Funds GDPR Working Group (in the course of 2018) published
o a first bulletin outlining the scope and key impacts of the GDPR. The bulletin also outlines the objectives of the Working Group
o a second bulletin outlining the impact of GDPR on the roles and responsibilities of funds and their service providers
o a third bulletin considering data retention and data subject rights
o a fourth bulletin outlining the industry discussion with the Data Protection Commissioner, Helen Dixon
o a fifth bulletin providing a Data Protection Accountability Checklist
o a sixth bulletin considering Personal Data Breaches & Notification to Data Protection Authorities
Please speak with your usual contact on the A&L Goodbody Asset Management & Investment Funds team if you would like to receive a copy of the bulletins.