There have been a number of recent legal and regulatory developments in the area of investment funds recently.

ESMA GUIDELINES ON ETFs AND OTHER UCITS ISSUES

ESMA (European Securities and Markets Authority) have recently published a Questions and Answers to accompany their Guidelines on ETFs and other UCITS issues. ESMA will update the Q&A document regularly.
Issues of interest already clarified include:

  • ETF identifier - The use of the ETF identifier is for funds at a sub-fund level of umbrella UCITS.
  • Financial indices - The Guidelines on financial indices do not apply to UCITS that use financial indices as performance benchmarks. The specific Guidelines only apply to the use of financial indices for investment purposes.
  • Existing UCITS - All existing UCITS have twelve months from 18 February 2013 to comply with the Guidelines. However a new investment of cash collateral made before the Guidelines come into force on 18 February 2014 must comply with the Guidelines immediately.


The Central Bank has updated its UCITS Notices to include new UCITS Notices on Exchange Traded Funds and Financial Indices.

FITNESS AND PROBITY

The Central Bank hasissued an updated Fitness and Probity Frequently Asked Questions document. The FAQs clarified issues for those performing pre-approval controlled functions (PCFs) who were in-situ at the beginning of the regime. They must now submit an Individual Questionnaire if such PCFs are now subject to re-election or re-appointment. This also applies for those performing PCFs that are subject to employment contract renewals.

FINANCE ACT 2013: FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)

Ireland signed an Intergovernmental Agreement (IGA) with the United States in December implementing compliance with FATCA. The Finance Act 2013 (the Act) contains provisions to implement the IGA. The Act allows the Revenue Commissioners to make regulations to ensure compliance with FATCA. The regulations are expected to include provisions:

  • Requiring financial institutions to register with the Irish Revenue Commissioners in circumstances to be specified in the regulation;
  • Specifying the information to be reported, by the registered financial institution, to the Irish Revenue Commissioners; and
  • Specifying the financial accounts that are U.S. reportable accounts.

Individuals failing to comply with the regulations may be subject to a fine. Financial Institutions who fail to file a return or file an incomplete return will also be fined, with an additional fine for every day the breach continues.

EUROPEAN FINANCIAL TRANSACTION TAX

The European Commission recently published details of the proposed European Financial Transaction Tax (FTT). While Ireland has chosen to opt out of the FTT, funds located here may still be affected. The FTT will apply to transactions involving all financial instruments and derivatives in one of the eleven participating Member States. Generally the FTT will apply to each financial institution acting as a party to a transaction, where the institution or transaction is based in a participating Member State.

Instead of operating on just a residency basis, the FTT will also be applied on an issuance basis. This means that the FTT will be applied in situations where (i) one party is based in a participating Member State or (ii) where certain financial instruments are issued in a participating Member State - even where neither party to the transaction is based in one of the participating Member States. Also, branches of a FTT zone financial institution based in a non-FTT participating Member State will be subject to the FTT on their transactions.

It is envisaged that the FTT will apply from January 2014 at the earliest. Member States participating in the FTT must publish the implementing regulations by 30 September 2013.

FINANCE ACT 2013: INVESTMENT LIMITED PARTNERSHIPS

The Finance Act 2013 contains measures to ensure Investment Limited Partnerships (ILPs) in Ireland are now tax transparent vehicles. ILPs are currently governed by the Investment Limited Partnership Act 1994. Limited Partnerships are a very popular structure internationally, particularly in the U.S.

ILPs authorised by the Central Bank after 13 February 2013 are no longer deemed an investment undertaking under tax law. Instead of tax being charged to the partnership itself, tax will now be imposed on the relevant income and gains of partners in an

ILP in proportion to the value of their investment. Previous advantages associated with ILPs such as exemptions from stamp duty, capital acquisition tax and withholding tax will still apply.

To avail of the tax transparency provisions, an ILP must file an annual return with the Revenue Commissioners before 28 February every year with the following information:

  • the total amount of relevant profits of each partner in the ILP; and
  • details on each partner including the partner’s name and address and the amount of profits that each partner is entitled to.


ESRB RECOMMENDATION ON MONEY MARKET FUNDS

The European Systemic Risk Board (ESRB) issued a recommendation that will assist the EU Commission in legislating Money Market Funds (MMFs). The recommendations are extensive and can be found here.

These recommendations give an insight into possible changes to EU regulation that should be expected for MMFs in the future.

ESMA CONSULTATION PAPER ON STANDARDS ON THE PUBLICATION OF A SUPPLEMENTAL PROSPECTUS

ESMA recently published a consultation paper containing Draft Regulatory Technical Standards on when the publication of a supplemental prospectus is required. ESMA lists a number of “triggering events" which would require the publication of a supplemental prospectus. The list is non exhaustive and if a situation is not listed as a triggering event, it must be assessed by the issuer or offeror with reference to significance or materiality.

The “triggering events” are listed in the consultation paper which can be found here.

The closing date for comments on the draft regulatory technical standards is 14 June 2013.

DELEGATED REGULATIONS RELATING TO EUROPEAN MARKET INFRASTRUCTURE REGULATION (EMIR)

The EMIR Regulatory Technical Standards (RTS) entered into force in March 2013. EMIR implements the EU's obligations to regulate over the counter (OTC) derivatives which the G20 saw as a contributing factor to the financial crisis of 2008.
Further information can be found in the RTS.

ESMA released a Questions and Answers document on the implementation of OTC derivatives, central counterparties and trade repositories under EMIR on 20 March 2013 that should be a useful tool in clarifying the EMIR RTS.