ANNUAL
Knowledge Report 2021
www.algoodbody.com
CONTENTS
Click on the sections to bring you to the chapter
INDEX
SECTION 01 XxxxXX
INTRODUCTION3
MEET THE TEAM
5
01/ ANTI-MONEY LAUNDERING
6
02/ ASSET MANAGEMENT & INVESTMENT FUNDS
12
03/ CORPORATE LAW AND CORPORATE GOVERNANCE 19
04/ DATA PROTECTION
26
05/ EMPLOYMENT
32
06/ FINANCE
38
07/ BANKING IN THE COURTS
44
08/ FINANCIAL REGULATION & INVESTIGATIONS
48
09/ DISPSUECTTEISO&NI0N2VESTIGATIONS 53
10/ PROXPxExRxTY
59
11/ COMPETITION LAW
65
12/ SPOSTELCIGTIHOTNO0N3 CLIMATE, ENVIRONMENT AND
XxxxXX
SUSTAINABLE FINANCE
71
13/ A VIEW FROM ALG BELFAST
79
14/ KNOSXEWxCxLxTEIODGNE0M4 ANAGEMENT: HYBRID TEAMS AND XX
POST-PANDEMIC THEMES
82
THE KNOWLEDGE CENTRE
86
KNOWLSEEDCGTEIOANT 0A5LG
87
XxxxXX
CLIENT KNOWLEDGE SERVICES
89
SECTION 06 XxxxXX
SECTION 07 A&L Goodbody LLP 2021. The contents of this document are limited to general information andXnoxtxdxetailed analysis of XX
law or legal advice and are not intended to address specific legal queries arising in any particular set of circumstances.
DUBLIN / BELFAST / LONDON / NEW YORK / SAN FRANCISCO / PALO ALTO
2
Knowledge Annual Report 2021
INTRODUCTION
Listen to the audio version
Paula Reid
Partner, Knowledge
Welcome to our Annual Knowledge report. This is the sixth year that the ALG Knowledge team has published its report looking at the year's key legal developments and those in the pipeline.
This year's Report contains insight pieces from our Knowledge Lawyers covering a broad range of topics, including antimoney laundering, asset management and investment funds, finance and financial regulation, corporate law, data protection, employment law, litigation and property law.
The Report also features an article written by Dr Vincent Power, Head of EU, Competition & Procurement, which provides an overview of the key developments and trends over the last year. It also discusses the impacts and lessons learned from these changes.
Michael Neill, partner and Head of our Belfast office, shares his insights on some of the business and market dynamics in Northern Ireland. On a more personal note, he shares his experiences of how the Belfast office is managing a hybrid working model.
Alison Fanagan, Ann Shiels and Chris Stynes conduct a very interesting analysis of significant developments in climate, environment and sustainable finance, with some useful signposting for what lies ahead in this important area.
The legal updates in the Report are laid out in three sections: `2021 at a glance' highlights the key themes of the past year and is followed by a review of the year's legal developments. Each update finishes with a brief `looking ahead' to developments on the horizon.
KnowledgeCONNECT
Last year we launched KnowledgeCONNECT, which is available via KnowledgePlus. CONNECT was about establishing personal connections between our clients and members of the Knowledge team. It was a build on our existing Knowledge Lawyer Helpline and helped our clients to gain access to the entire Knowledge team, which includes our paralegals and Knowledge Centre team, comprising information and research professionals.
Remote working gives rise to a number of challenges, such as the ability to catch up in person with colleagues to exchange views or get a second opinion on a difficult point that's on our desks. Remote working might also be impacting on our ability to have ready access to our usual legal research resources. CONNECT affords our clients the opportunity to discuss highlevel legal points with our Knowledge Lawyers (such as the impact of new legal or regulatory developments) and to ask our Knowledge Centre team how to source a legal resource, or for tips on how to track a piece of legislation.
CONNECT also enables our clients to talk with our knowledge management professionals about solutions which might help them to better manage their own legal know how and resources.
Legal Leaders' Toolkit
Over the course of this year, the Knowledge team has been thinking about the impacts of the emerging hybrid working model on the knowledge needs of our clients. In our own
3
Knowledge Annual Report 2021 | Introduction
business, we have seen increased use of technology and knowledge systems by our lawyers. There is also a general acknowledgement that, in a remote or hybrid working environment, people need to put greater effort into formal knowledge sharing.
Against this backdrop we have developed our Legal Leaders' Toolkit. This toolkit is about helping legal teams to bring knowledge management (KM) and process efficiencies to their work streams. It contains articles, videos and podcasts from the ALG Knowledge team on a range of KM topics, including guidance on running a knowledge audit and pointers on how to develop a formal knowledge capture system. This new knowledge offering will be available at the end of this year.
We also have other client knowledge projects in the pipeline for 2022.
Online knowledge and learning
KnowledgePlus is our online knowledge and e-learning extranet for ALG clients. The site provides clients with access
to legal know how in the form of practice notes, checklists and FAQs covering a range of legal practice areas. It also provides access to hours of online recordings and presentations which qualify for CPD. This year, in line with the approach taken last year, all 20 hours of CPD required by the Law Society may be obtained online.
KnowledgePlus will provide you with thought leadership, expert opinion and spotlight coverage of key areas of significant impact for your legal team and business. KnowledgePlus also features case studies of how our Knowledge team has worked with client legal teams to develop bespoke knowledge management solutions. Access to KnowledgePlus is available exclusively to ALG clients.
Other knowledge tools are also available to clients, such as the Contract Law Toolkit and the Financial Litigation Case Law Website. We encourage our clients to engage with our team and to make use of our knowledge offerings, which can be reviewed in detail under the Client Knowledge Services section of this report.
To register for KnowledgePlus, please email your details to [email protected]
4
Knowledge Annual Report 2021
MEET THE TEAM
Paula Reid
Partner, Knowledge +353 1 649 2348 [email protected]
Elizabeth White
Knowledge Lawyer, Finance +353 1 649 2787 [email protected]
Celine Kelly
Knowledge & Client Solutions Manager +353 1 649 2068 [email protected]
Lance Kerrigan
e-Learning Specialist +353 1 649 2166 [email protected]
Nollaig Greene
Knowledge Lawyer, Investment Funds +353 1 649 2359 [email protected]
Edel Finn
Knowledge Lawyer, Finance +353 1 649 2868 [email protected]
Anne O'Neill
Senior Knowledge Executive +353 1 649 2726 [email protected]
Ann O'Sullivan
Knowledge Services Manager +353 1 649 2646 [email protected]
Ann Shiels
Knowledge Lawyer, Investment Funds +353 1 649 2396 [email protected]
Helen O'Connor
Knowledge Lawyer, Litigation & Dispute Resolution +353 1 649 2853 [email protected]
Margaret White
Knowledge Systems Specialist +353 1 649 2149 [email protected]
Catherine Watters
Assistant Knowledge Services Manager +353 1 649 2390 [email protected]
Triona Sugrue
Knowledge Lawyer, Employment +353 1 649 2065 [email protected]
Aoife Smyth
Knowledge Lawyer, Commercial Property +353 1 649 2314 [email protected]
Lorna McNeely
Knowledge Paralegal +353 1 649 2509 [email protected]
Fiona Lacey
Assistant Knowledge Services Manager +353 1 649 2146 [email protected]
5
Paula Reid
Partner, Knowledge
Kerill O'Shaughnessy
Partner, Asset Management & Investment Funds
Christopher Martin
Senior Associate, Financial Regulation
SECTION 01
8 MIN READ
ANTI-MONEY LAUNDERING
Listen to the audio version
6
Knowledge Annual Report 2021 | Anti-Money Laundering
Perspectives on AML from the Corporate Crime & Regulation Summit 2021
In October, ALG hosted its third annual Corporate Crime & Regulation Summit. One of the break-out panel discussions at this year's Summit centred on anti-money laundering and countering the financing of terrorism (AML/ CFT). Our panel, Freshly Laundered: Perspectives on AML, featured Mardie Hughes, Head of Financial Crime Compliance at Permanent TSB and Michael Ashe SC, QC, as well as Kerill O'Shaughnessy, ALG Partner and Chris Martin, Senior Associate. The session was chaired by Paula Reid, ALG Partner.
The panel looked at four topics:
1.the EU's AML legislative reform package 2.remote on-boarding and digital
identification 3.beneficial ownership rules 4.governance Some of the key talking points and observations from our panel are set out below.
1 Clients can watch recordings from the CCR Summit on demand via the KnowledgePlus platform. If you would like more information on this, please contact Paula Reid or a member of the Knowledge team.
EU AML/CFT legislative reform package 2021
On 20 July 2021, the European Commission announced a package of legislative proposals designed to strengthen the EU's framework of AML/CFT laws. A response to the Commission's AML Action Plan published in May 2020, Commissioner Mairad McGuinness has described the aims of the package as "consistency, harmonisation, supervision and enforcement".
The package is made up of four legislative proposals:
1.a Regulation establishing a new EU AML/CFT Authority (the AMLA)
2.a Regulation on AML/CFT, dubbed the `Single Rulebook', which essentially recasts into a directly applicable regulation the AML/CFT rules currently found in the Fourth Anti-Money Laundering Directive (4AMLD) relating to customer due diligence (CDD), beneficial ownership and policies and procedures, among others
3.a sixth AML/CFT Directive, containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States
4.a recast of the 2015 Regulation on Transfers of Funds to facilitate the transfer of crypto-assets
7
Knowledge Annual Report 2021 | Anti-Money Laundering
Single Rulebook
The panel discussion focussed on the Single Rulebook and the AMLA. The policy objective underpinning the shift from the old directive system to a directly applicable regulation as the legal instrument establishing the AML/CFT framework is to address the lack of harmonisation of AML/ CFT rules in Member States. This shift may be said to mark the importance with which the EU regards standardisation of regulation in this area and we may see more of this in other areas such as tax, for example.
There was broad consensus that the Single Rulebook is a useful codification of the existing rules. There are some new additions, including a provision which recognises that intra-group transactions are not within the scope of the AML/CFT rules. The clarification for payment investment services that the merchant is the customer when used for quasi-acquiring is also helpful, as are the provisions integrating the management of financial sanctions into the AML/CFT regime.
The Rulebook will help ensure that financial institutions, which operate in a number of EU jurisdictions, can hope to have one set of policies and procedures applicable across the EU. This will be positive, particularly for groups with specialist teams in one location servicing
clients and business from more than one jurisdiction. Many international fund servicing groups have established functional operations or centres of excellence, providing services such as CDD to funds domiciled in multiple jurisdictions from one location. In that type of operational set-up, divergences between the requirements of EU jurisdictions introduces operational complexity. So the prospect of harmonisation of the AML/CFT rules across the EU under the Rulebook is an attractive one.
Another key practical advantage within the asset management industry is that the Rulebook will hopefully eliminate the potential for regulatory arbitrage between EU Member States, and help ensure that a consistent approach to difficult issues can emerge. By way of example, the AML and sanctions-related challenges associated with distribution of funds through US brokers on the National Securities Clearing Corporation (NSCC) infrastructure is an area where the Irish funds industry would like to see consistency of approach and a level playing field across the EU.
The panel noted that more granularity in some aspects of the Rulebook might have been expected, as a lack of sufficient detailed guidance may be challenging
for implementing a common, EU-wide approach. The regulatory technical standards (RTS) which the AMLA will have responsibility for issuing may help to address any gaps or lack of detail in the Rulebook. It was also hoped that there might be safeguard criteria and assessment criteria for remote identification, but further standards and regulations on this may emerge at a later date.
The AMLA
The Commission has described the AMLA as a "centrepiece of an integrated AML/ CFT supervisory system". It is part of a broader move to coordination of regulation and supervision at an EU-level involving both AMLA and national supervisors (both financial and non-financial regulators/ industry regulatory authorities). A similar model can be seen in the areas of data protection and competition. The main activities of the AMLA are:
directly supervising certain high risk institutions (three-yearly selection, based on risk and cross-border activity, or on request)
monitoring and coordinating national supervisors
facilitating and supporting cooperation among national Financial Intelligence Units
8
Knowledge Annual Report 2021 | Anti-Money Laundering
There is increasing focus on the use of alternatives to traditional approaches to CDD through the use of RegTech solutions.
More generally, the panel's sense was that, before there are further moves to harmonise supervision and compliance, it is crucial to have the relevant framework embedded and understood clearly and for national and EU supervisors to act consistently.
The panel also briefly discussed the potential approach to AML reforms in the UK. In July 2021, HM Treasury launched a consultation on the UK's AML/CFT regulatory and advisory regime. However, more importantly, the present UK government is also looking at AML/CFT as part of its broader fight against economic crime. The UK's Chairmanship of FATF will be an opportunity which ministers have publicly said they will take to drive this fight further forward. Serious consideration is being given to introducing an offence of failure to prevent money laundering (ML). This would be drafted in a manner similar to the offence of failure to prevent bribery under the Bribery Act 2010 and failure to prevent the facilitation of tax evasion in the Criminal Finance Act 2017.
On a narrower front, the Suspicion Activity Report (SAR) regime has been identified as not working well. Consideration is being given to revising the system in order to further the objective of frustrating ML operations and catching those who committed the crime giving rise to the proceeds.
Remote client on-boarding and digital identification
Against the backdrop of a move towards the provision of exclusively online financial services, there has been a greater focus on remote client on-boarding and digital identification. The panel looked at some of the guiding legal principles and emerging practices in this area. There is a broad discretion in the legislation in terms of what will be acceptable and, indeed, the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the CJA), as amended, and the Central Bank of Ireland's (CBI) AML/ CFT Guidelines for the Financial Sector are technology neutral. There is increasing focus on the use of alternatives to traditional faceto-face and one-plus-one approaches to
CDD through the use of RegTech solutions (and Covid has accelerated this focus). The use of third party specialist providers is also increasing, particularly for smaller entities and FinTechs.
The CBI AML/CFT Guidelines are clear that firms need to:
fully understand the impact the RegTech solution has on the firm's regulatory compliance
ensure that the RegTech solution can achieve compliance when it goes live
ensure that the RegTech solution is capable of being audited
undertake a compliance risk assessment of the RegTech solution on an annual basis either independently of, or incorporated into, the firm's annual AML/ CFT risk assessment
Electronic/digital identification (under the eIDAS Regulation), is still yet to significantly develop, but there is some provision for this in recent amendments to the CJA and it is specifically referenced in the proposed Single Rulebook. One practical challenge in the areas of remote on-boarding and digital identification concerns the varying levels of maturity across Member States, as well as the lack of clear regulatory guidance. The EU's proposal of a European Digital Identity wallet may obviate the need for remote ID measures entirely in the future.
9
Knowledge Annual Report 2021 | Anti-Money Laundering
Beneficial ownership
Some of the challenges relating to the practical application of, and compliance with, the beneficial ownership regime were discussed by the panel, including the obligation on designated persons to "ascertain" that a customer has filed their beneficial ownership information on the relevant central register. The onus on designated persons to identify discrepancies in the register was also considered.
The limitation that the central register cannot be used as a method of CDD verification poses practical challenges, as designated persons must independently verify beneficial ownership information elsewhere and compare it to the central register. Another practical challenge relates to payment mechanisms for accessing the Register of Beneficial Ownership (the RBO). At present, designated persons must pay per transaction for access. It is hoped that the RBO will move to a system based on an annual licence fee.
Overall, the funds and asset management industry has welcomed the approach taken in relation to the implementation in Ireland of the beneficial ownership requirements in 4AMLD (as amended). There are now central registers for each of the various Irish regulated fund structures, with provisions having been introduced for investment
limited partnerships and common contractual funds in the Investment Limited Partnership (Amendment) Act 2020, which was enacted earlier this year.
Beneficial ownership regulations will, however, always present particular challenges for funds given the fluidity of ownership and varying distribution models employed in respect of funds; with intermediaries and fund distribution platforms complicating the beneficial ownership analysis. It was also noted that the funds industry in Ireland was very fortunate that the various stakeholders worked together so well to achieve a robust and workable framework, which takes account of the practical challenges for different fund structures. A good example of this collaboration was the sensible solution which emerged on unit trusts through positive engagement with the Irish government and the CBI. Here, 4AMLD required all beneficial owners to be captured without a minimum threshold. However, the Irish implementing legislation pragmatically adopted the same 25% minimum ownership threshold for unit trusts, as exists for corporates, resulting in more practical and useful information being made available in respect of unit trusts.
There was also some discussion in the panel around the policy objectives behind the beneficial ownership rules and their efficacy.
Where there is transparency, it is more difficult to hide the proceeds of crime and, to that extent, the measures will achieve their objective, but this gives rise to two issues:
The determined criminal will always find alternative means to hide the proceeds of crime and that is through the unregulated and underground banking system. It is generally thought that this money does, in fact, find its way back into the regulated area, but how, it is difficult to determine.
It is largely the innocent whose affairs will be transparent and there are many genuine reasons why a person may want to keep their financial affairs private. It may be said that, if one has nothing to hide, then why is there a need to keep matters secret? While this is a seductive position to take, there are a great many reasons for secrecy that are legitimate.
It is noteworthy that the Financial Action Task Force (FATF) is considering privacy issues in the context of beneficial ownership requirements. In October, FATF issued a Consultation Paper on amendments to Recommendation 24 on transparency and beneficial ownership (a follow up to the White Paper published back in June).
Some potential protections that might be introduced to protect against misuse of beneficial ownership information include
10
Knowledge Annual Report 2021 | Anti-Money Laundering
the introduction of traceable contact information for those accessing beneficial ownership registers, as well as a requirement to demonstrate a legitimate need for that information (such as for AML/CFT reasons). Our panellists felt it was positive that FATF are looking at this issue and assessing the need for protective measures.
Finally, the Beneficial Ownership Registers Interconnection System (BORIS), which was introduced by way of implementing regulation in March 2021, has created a system interconnecting national beneficial ownership registers across the EU. Questions remain as to how this will work with the beneficial ownership regulatory structure in Ireland and whether our current system is fit for purpose in this regard.
Governance
Governance was a particular focus of the CBI's revised AML/CFT Guidelines, published in June 2021. The Guidelines envisage that responsibility for AML/CFT should be assigned to a member of "senior management" where "proportionate to the nature, scale and complexity" of the firm's activities. Where a firm is exposed to a significant degree of ML/TF risk, it may be appropriate for the member of senior management to be a member of the Board.
It's a `comply or explain' model and firms electing not to assign such a role must document their reasons.
More recently, the CBI announced a proposal to amend the pre-approval controlled function (PCF) list by creating a stand-alone PCF-52 of Head of AML/CFT (PCF-12 Head of Compliance will remain unchanged, but PCF-15 will be removed). At EU-level, guidance for the financial sector can be found in the EBA's revised Guidelines on Internal Governance, which will apply from 31 December 2021, and its draft guidelines on the role of AML/CFT compliance officers. The CBI's expectations seem broadly aligned with those expressed by the EBA.
Given the multiplicity of governance structures and models in funds in particular, the governance model in each case will need to reflect how a particular fund operates in practice and a one-size-fits-all approach will not be possible.
A key consideration will be ensuring that, with the introduction of more responsible persons, things don't fall between stools. Another issue in an asset management context will be the division of responsibility between the fund vehicle and the management company in the context of the
implementation of the CBI's Feedback on CP86, which is currently underway across the Irish market. With the movement from self- and internally-managed funds to the externally-managed model, care will need to be taken with the untangling of roles and responsibilities between the fund and the management company. The considerations may differ between structures with a third party management company and those with a proprietary management company.
Finally, the panel noted some of the governance messages which have emerged from the courts. Following the seminal Australian case of Daniels v Anderson - a ruling of the Supreme Court of New South Wales from 1995 - and the influence it has had in the common law world, it is clear that a director is not an "ornament" and, while not having to be an expert, has responsibility if things go wrong. The upshot of this is that directors have to take responsibility for running their businesses properly and lawfully, be aware of risks to that objective and, in the AML/CFT arena, ensure that the regulations are applied in the interests of not allowing the business to be a facilitator of laundering proceeds of crime.
11
Ann Shiels
Knowledge Lawyer, Asset Management & Investment Funds
Nollaig Greene
Knowledge Lawyer, Asset Management & Investment Funds
SECTION 02
7 MIN READ
ASSET MANAGEMENT & INVESTMENT
FUNDS
Listen to the audio version
12
Knowledge Annual Report 2021 | Asset Management & Investment Funds
2021 AT A GLANCE
Revamped Irish investment limited partnership became a reality
Phase 1 Sustainable Finance Disclosures Regulation: disclosures for AIFs, UCITS and their managers completed in March 2021
CP86 (Guidance for Fund Management Companies) action plans and implementation
New EU regulation on cross-border distribution of funds came into effect
Liquidity continued as a regulatory focus
European and Irish guidelines on performance fees
European supervisory action on costs and fees
The Central Bank of Ireland consulted on outsourcing and on digital operational resilience
Some clarity emerged about the PRIIPs KID
The Central Bank of Ireland commented on the use of crypto-assets
A new regime was introduced for a depositary of real assets
2021 was another busy year for regulatory and legislative developments in the funds industry at both European and Irish level. The number of Irish domiciled funds and total net assets continued their upward trajectory to over 8,000 funds and 3.5trn net assets to the end of May 2021.1 Add to that an updated fund structure in the form of the Irish investment limited partnership (the ILP) and a new categorisation of depositary in the form of the Depositary of Assets other than Financial Assets (DAoFI) and it is almost easy to infer that, with the understandable exception of less liquid open-ended funds and money market funds, the funds industry has continued to adjust and move forward remarkably well despite the continuing global disruption to commercial operations.
1 Irish Funds, Irish domiciled funds facts and figures
13
Knowledge Annual Report 2021 | Asset Management & Investment Funds
Brexit
The year started with the landmark effective date of 1 January 2021 of the provisional EU-UK Trade and Co-operation Agreement (TCA). The TCA covers financial services in broad terms, but not any decisions related to equivalence for financial services. The EU and the UK stated their intention to agree, by March 2021, a Memorandum of Understanding (MoU) establishing a framework for regulatory cooperation on financial services, but this has yet to materialise. In the absence of an equivalence decision and until the terms of any MoU are agreed and can be analysed, the position for Irish investment funds affected by Brexit is effectively the same as if there had been a `no-deal Brexit'.
Investment limited partnership (ILP)
The long-awaited Investment Limited Partnerships (Amendment) Act 2020 came into force on 1 February 2021. It modernises the existing Irish ILP structure, bringing it into line with other types of Irish regulated fund structures and limited partnership law in other jurisdictions. Three Central Bank of Ireland (CBI) regulatory developments, which will support the Irish ILP regime, also occurred in 2021:
1.The CBI discontinued its requirement for the general partner of an ILP to be authorised as an AIF management company, removing general partner authorisation and capitalisation requirements.
2.The CBI issued guidance on the establishment of differentiated share classes in a closed-ended QIAIF, permitting features such as stage investing and management participation. Closed-ended QIAIFs typically invest in illiquid assets. This development will likely be of interest to those who invest in private equity, credit and other private asset investment strategies.
3.The CBI issued new guidance for DAoFIs, which are permitted under AIFMD. A DAoFI may act as a depositary for certain types of AIFs, investing in asset classes such as infrastructure, intellectual property, plant and equipment, land, art and wine. These attract less onerous depositary requirements both in terms of liability standards and tasks to be performed.
The CBI also established a beneficial ownership register for ILPs and common contractual funds in 2021.
Updates to ICAV legislation
The ILP (Amendment) Act 2020 also makes technical amendments to the Irish Collective Asset Management Vehicles Act 2015 (the ICAV Act). These improvements enhance the efficiency of the ICAV structure and align the ICAV Act with certain provisions of the Companies Act 2014.
Sustainable finance
The first-phase implementation of the requirements of the Sustainable Finance Disclosures Regulation (SFDR) on 10 March 2021 was an important and challenging regulatory deadline for UCITS, AIFs and their management companies. Aside from making sustainability-related disclosures and considering whether to make principal adverse impact statements at entity level, fund products also had to be classified as so-called "light-green" or "dark-green" funds or neither. For regulated investment funds and their managers, in practice, the SFDR deadline meant updating prospectuses and making website disclosures. The detailed regulatory technical standards to support the required disclosures were delayed. The next-phase detailed technical disclosures under SFDR, along with environmental
14
Knowledge Annual Report 2021 | Asset Management & Investment Funds
disclosures under the Taxonomy Regulation, scheduled for 1 January 2022, have been delayed until 1 July 2022. This creates an additional challenge because the effective date for disclosures under the Taxonomy Regulation primary legislation is still 1 January 2022.
Separately, delegated acts amending the UCITS Directive and the AIFM Directive were published in April 2021. From 1 August 2022, these will oblige AIFMs and UCITS management companies to integrate sustainability risks and factors into their policies, procedures and operations.
CP86
Following the conclusion of a thematic review by the CBI into the implementation by fund management companies (FMCs) of CBI requirements and guidance, FMCs were expected to have agreed, by the end of March 2021, an action plan addressing the findings arising from the review and the CBI's minimum expectations in relation to resourcing and governance arrangements. Consequently, 2021 saw the implementation of those action plans with a trend of management companies being appointed to self-managed investment companies (SMICs) and internally managed AIFs.
Liquidity
A regulatory focus on liquidity featured heavily again this year. The CBI wrote to all Irish authorised UCITS managers about liquidity risk management, requiring them to conduct a specific, documented review of their practices, documentation, systems and controls. This review must include details of actions taken to address any of the findings in the ESMA public statement on its common supervisory action and the CBI's letter. This review has to be completed and an action plan discussed and approved by the board of each UCITS manager and selfmanaged UCITS by the end of Q4 2021.
The CBI also issued a letter to FMCs that were surveyed as part of the ESRBESMA liquidity risk project. The letter requires FMCs in receipt of the letter to consider how liquidity risk management frameworks and fund structures should be adapted and the steps needed to increase funds' resilience to future shocks. This consideration was to be concluded and the results presented to and approved by the board of the FMC by 30 June 2021.
The end of quarter one will have seen fund management companies having agreed, at board level, a remedial action plan which reflects their critical assessment of operations as against regulatory expectations. Of course, agreeing a remedial action plan is only the first step.
Derville Rowland at the Irish Funds Annual Conference in May 2021.
15
Knowledge Annual Report 2021 | Asset Management & Investment Funds
Crypto-assets
The CBI has said that it will consider submissions for a QIAIF seeking to gain exposure to crypto-assets that are based on an intangible or non-traditional underlying.2 The CBI notes that it is "highly unlikely" that UCITS or a retail investor alternative investment fund (RIAIF) investing directly or indirectly in these kinds of crypto-assets would be approved.
Cross-border distribution of funds
Directive (EU) 2019/1160 on the crossborder distribution of collective investment undertakings (CBDF) was implemented into Irish law on 2 August 2021.3 Translations of ESMA's Guidelines on marketing communications under the CBDF Regulation were published on ESMA's website on 2 August 2021. These guidelines will apply from 2 February 2022. The intention of CBDF legislation is to encourage more
cross-border fund marketing by removing regulatory barriers to efficient crossborder marketing and to align the foreign registration process for UCITS and AIFs. It also introduces a new "pre-marketing" concept for AIFs.
UCITS costs and fees
ESMA launched a Common Supervisory Action (CSA) on costs and fees in January. As part of it, the CBI issued detailed questionnaires requesting both qualitative information and quantitative data from a significant proportion of Irish UCITS. The aim of this CSA is to assess the compliance of supervised entities with the relevant costrelated provisions in the UCITS framework and the obligation of not charging investors with undue costs. For this purpose, the CBI will take into account the supervisory briefing on the supervision of costs previously published by ESMA in June 2020.
2 C rypto-assets that are "tokenised traditional assets (whose value is linked to an underlying traditional asset or a pool of traditional assets (such as financial instruments or commodities)) may be viewed by the CBI as having a different risk profile when compared to other crypto-assets that are based on an intangible or non-traditional underlying". CBI UCITS Questions & Answers
3 T he European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2021 and the European Union (Alternative Investment Fund Managers) (Amendment) Regulations 2021.
Outsourcing
The CBI's consultation on draft cross-industry guidance on outsourcing closed on 26 July 2021. The guidance is expected to be finalised and implemented in 2021. Outsourcing risks addressed in the guidance include cloud outsourcing, chain outsourcing, concentration risk and offshoring. The guidance will require regulated firms to assess functions that are outsourced, including both intragroup entities and third party providers, and the relative importance of each function, including intragroup arrangements and delegation arrangements. Unsurprisingly, the CBI notes that outsourcing and delegation are not different concepts. The identified risks must be managed and governed appropriately and be subject to ongoing monitoring.
16
Knowledge Annual Report 2021 | Asset Management & Investment Funds
Operational resilience
PRIIPs KID
The CBI's consultation on draft crossindustry guidance on operational resilience closed on 9 July 2021. The guidance is issuing in the context of the CBI's strategic commitment to strengthening resilience in the financial system, particularly in the case of disruptive events such as technology failures, cyber incidents, the COVID-19 pandemic and natural disasters which affect the delivery of critical or important business services. The CBI proposes to apply this guidance to all regulated financial service providers including UCITS, AIFs and their management companies regulated by the CBI.
Performance fees
Both the CBI (2021) and ESMA (2020) issued new regulatory guidance on performance fees for retail funds, which affects UCITS and RIAIFs with some exceptions, such as closedended AIFs. The CBI UCITS Regulations and AIF Rulebook were also updated to amend performance fee provisions. For the most part, ESMA and CBI guidance is consistent and the CBI has committed to fully implementing the principles of the ESMA guidelines.
The effective date of the guidelines was 5 January 2021, with an implementation period for existing funds.
The European Commission adopted two `quick-fix' proposals to amend the PRIIPs Regulation and the UCITS Directive on 15 July 2021. The two proposals advance the plan to replace the UCITS KIID and PRIIPs KID with one revised PRIIPs KID, based on the technical standards adopted by the European Supervisory Authorities in February and the European Commission in September. This aims to give retail investors more comparability and to standardise the provision of pre-contractual information for retail investors in the EU. The two quickfixes aim to synchronise all application dates to give retail investment market participants time to prepare for the new PRIIPs Delegated Regulation, and ensure a smooth transition into the new rules, which should enter into force on 1 July 2022; although this may be further delayed.
Money Market Fund stress testing
The CBI published a notice of intention on the application of the ESMA guidelines on stress test scenarios under the Money Market Fund Regulation. The CBI expects full compliance with those guidelines from 29 August 2021. The CBI UCITS Regulations and AIF Rulebook will be updated to reflect this, following industry consultation.
17
Knowledge Annual Report 2021 | Asset Management & Investment Funds
LOOKING AHEAD
It's likely that the regulatory focus on liquidity and fund management company governance will continue.
We may also see some developments on the review of AIFMD.
It's also worth remembering the CBI's previous commentary in relation to its support for the development of a macroprudential framework for investment funds.
The administrator of LIBOR has indicated the most widely referenced benchmarks globally will, mostly, no longer be usable as early as the beginning of 2022. Market participants, including investment funds, must prepare for this.
Outsourcing and operational resilience look likely to take a leading role in governance planning in 2022; the timeframes and extent of the analysis to be done will emerge once the final guidance is published.
The ESMA Guidelines on marketing communications under the CBDF become effective from 3 Feb 2022.
1 July 2022 looks set to become a busy deadline for investment funds with the PRIIPs KID changes to be effective, unless these are further delayed. In addition, the next phase of detailed technical disclosures for SFDR implementation and the first round of the Taxonomy Regulation detailed technical environmental disclosures will also be effective from 1 July 2022.
We will also see whether compliance with Level 1 of the Taxonomy Regulation disclosures will be required by European and national regulators from 1 January 2022 and, if so, how the industry will manage those disclosure requirements.
In fact sustainability and ESG issues other than disclosure are likely to feature strongly in the asset management and investment funds sector in 2022. The amending UCITS Directive and amending AIFMD Regulation (effective 1 August 2022) must integrate sustainability risks and factors into their policies, procedures and operations.
What has become clear from the Covid-19 experience is the need to develop and operationalise a macroprudential framework for investment funds.
Derville Rowland at the Irish Funds Annual Conference in May 2021.
18
SECTION 03
8 MIN READ
Eugene Mulhern
Senior Adviser
CORPORATE LAW AND CORPORATE
GOVERNANCE
Anne O'Neill
Senior Knowledge Executive
Listen to the audio version
19
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
2021 AT A GLANCE Companies (Corporate Enforcement
Authority) Bill 2021 before the Oireachtas Companies (Rescue Process for Small and
Micro Companies) Act 2021 New regulations on beneficial ownership
of trusts impacting on corporate entities Temporary COVID-19 legislation expiring
on 31 December 2021
Companies (Corporate Enforcement Authority) Bill 2021
The Companies (Corporate Enforcement Authority) Bill 2021 (the Bill) was published in September and is currently making its way through the Houses of the Oireachtas. The main purpose of the Bill is to replace the Office of the Director of Corporate Enforcement (ODCE) with a new, independent, statutory agency to be called the Corporate Enforcement Authority (the CEA). Minister of State, Robert Troy, has stated that the Government intends to have the CEA operational by 1 January 2022. The Bill also includes a miscellany of amendments to the Companies Act 2014 (the 2014 Act).
Key features of the CEA
The current functions of the ODCE will be transferred to the CEA with no substantial changes. These functions include encouraging compliance with the 2014 Act, investigating suspected offences and non-compliance, prosecution of summary offences and supervision of liquidators and receivers discharging their duties under the 2014 Act.
In place of the single Director of Corporate Enforcement, the Bill provides that the CEA will have no more than three full-time `members'. Where there is more
than one full-time member, the Minister for Enterprise, Trade and Employment will appoint one of them as chairperson.
While the number of members is fixed by legislation, the Bill enables the CEA to hire additional staff with the skills and expertise that it deems necessary (subject to Ministerial consent). Like the ODCE under the current legislation, the Bill provides for the secondment of Garda to the CEA.
The chairperson will be specifically accountable to the Dil Committee of Public Accounts and any member of the CEA (including the chairperson) must attend before any Oireachtas Committee (excluding the Public Accounts and Members' Interests Committees) "to give account for the general administration of the Authority".
The Bill carries over the obligation for the CEA to prepare and submit an annual report to the Minister for Enterprise, Trade and Employment. The Bill also imposes new obligations on the CEA to prepare a strategy statement (forwardlooking over a three-year period) and a work programme relating to the discharge of its functions for the coming year.
Miscellaneous amendments to the 2014 Act
The Bill proposes a number of amendments to the 2014 Act, many of which will fix
20
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
anomalies in, or restore old company law provisions to, the 2014 Act. Among the amendments of note are the following:
A company will once again be able to use its share premium account for, among other things, the writing off of the company's preliminary expenses, or the expenses of, or commission paid on, any issue of shares or debentures by the company (e.g. in an initial public offering).
Three-party share-for-undertaking transactions will be able to proceed even if there is no reorganisation on the company's capital. The Bill also adds a new condition where such transactions can occur where a company has distributable reserves at least equivalent to the value of the transferred or disposed assets and deducts an amount, equivalent to the value of those assets, from its reserves.
The definition of treasury shares will be amended to include shares acquired by a company pursuant to a merger or division. This will clarify post-merger treatment of merging/dividing companies' shares acquired by a successor company.
A new provision will permit directors (except where the constitution provides otherwise) to decline to register
the transfer of a share in a range of circumstances, including to a person of whom they do not approve; or where the share is one on which the company has a lien; or where the transfer of a share would, in their opinion, "imperil or prejudicially affect the status of the company".
There is welcome confirmation that ULCs and PUCs are not required to purchase or redeem shares out of distributable profits.
Corporate governance amendments
Directors will be required to provide their PPSNs (or other information if they do not have PPSNs) when incorporating a new company, filing an annual return, or notifying a change of director. This is a safeguarding measure designed to mitigate the possibility of (deliberate and inadvertent) breaches of company law where a director has used different versions of their name on company documentation.
The Minister's power to grant exemptions to companies from the requirement to show the names of directors on business letters of the company will be removed. Current exemptions will continue, but will not be renewable.
Insolvency-related amendments
The obligation to register resolutions in a creditors' winding-up with the Registrar (an unintentional omission in the 2014 Act) will be restored.
The CEA will have the power to request evidence from a person that they are qualified to act as liquidator and failure to comply will be an offence. Liquidators may also be required to make more frequent reports to the CRO where this is required by the Registrar.
The Bill introduces new grounds for a restriction order to be made by the High Court against a director who has failed to meet certain procedural requirements in the course of a company becoming insolvent:
failure by a director to convene a general meeting of shareholders for the purpose of nominating a named liquidator
failure to table a notice to nominate such liquidator
failure to provide the required notice to employees of the company in the winding up of the company
21
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
While the Act provides a welcome opportunity for small and micro companies to avail of a restructuring process, it remains to be seen how it will operate in practice.
Companies (Rescue Process for Small and Micro Companies) Act 2021
The Companies (Rescue Process for Small and Micro Companies) Act 2021 (the Act) was signed into law on 22 July 2021, but has not yet been commenced. The Act provides for a new administrative rescue process dubbed the Small Company Administrative Rescue Process (SCARP) by the Department which will be available exclusively to small and micro companies.1
Cost has long been recognised as one of the main barriers to examinership for small companies. The Act adopts the key principles of examinership to create a new process for
small companies to restructure their debts within an expedited timeframe of 70 days.
While the Act provides a welcome opportunity for small and micro companies to avail of a restructuring process, and there is an expectation that the demand for such a process will increase significantly with the cessation of COVID-19-related supports, it remains to be seen how it will operate in practice. Certain factors may present difficulties for a company seeking to avail of the process. For example, the Act does not provide for an automatic stay on proceedings against the company while the rescue process is ongoing. The provision for creditors such as Revenue to `opt-
1 A small company (excluding a holding company) is defined as one fulfilling two or more of the following requirements in relation to a financial year: (i) the amount of turnover does not exceed 12m; (ii) the balance sheet total of the company does not exceed 6m; (iii) the average number of employees does not exceed 50. The comparable conditions to qualify as a micro company are: (i) the amount of turnover does not exceed 700,000; the balance sheet total of the company does not exceed 350,000 and (iii) the average number of employees does not exceed 10.
out' of the process may also be significant for certain companies. In addition, the company may struggle to attract fresh investment, meaning that it will continue to rely on existing creditors. This continued dependency may make the write-down of their debt less likely.
The rescue process is available to small and micro companies where the following criteria are satisfied:
the company is, or is likely to be, unable to pay its debts
no resolution subsists for the winding up of the company
no order has been made for the winding up of the company
the directors have not passed a resolution for the appointment of a process adviser during the previous five-year period
no petition for examinership is currently before a court and no examiner has been appointed to the company concerned
The key aspects of the rescue process are as follows:
The company engages a "process adviser" (an insolvency practitioner who must be qualified to act as a liquidator under the 2014 Act) to consider whether the company has a "reasonable prospect of survival".
22
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
If the process adviser is satisfied that the company has a reasonable prospect of survival, they will prepare a report setting out the conditions required in order for the company to continue trading as a going concern (similar to the examiner's report).
The process adviser may then be appointed by resolution of the board.
The process adviser engages with creditors and members of the company and prepares a rescue plan, which they present to the requisite members and creditors.
A rescue plan shall be deemed to have been accepted when 60% in number (representing a majority in value of the claims represented at that meeting) have voted in favour of the rescue plan.
A rescue plan is binding without court approval provided at least one impaired class of creditors votes in favour of the plan and no creditor raises an objection to the plan within a 21-day cooling-off period following the vote.
A creditor may file an objection with the relevant court (whether Circuit or High Court will be determined by the process adviser in accordance with the Act) on a number of prescribed grounds within this 21-day period. Where an objection to the rescue plan is raised, the rescue plan can only become binding when approved by the court.
The rescue process differs from examinership in some material ways, including:
Revenue (and other state creditors) may object to the inclusion of certain "excludable liabilities" (pertaining to unpaid taxes and liabilities with respect to the Revenue Commissioners and the Department of Social Protection, and other liabilities arising from the Redundancy Payments and Protection of Employees Acts).
The company has no automatic protections and must apply to the court for protective orders.
The rescue process cannot be initiated by a creditor.
The rescue plan may provide for the repudiation of contracts on behalf of the company where the process adviser considers it necessary for the survival of the company as a going concern. Court approval is not required, but the right is subject to certain notice obligations and the right of claimants to object to the proposed repudiation.
The Act creates a number of offences, including for the provision of any false or misleading statement in the statement of affairs prepared by the company's director(s) and for any director who fails to implement any provision of the rescue plan.
If it appears to the process adviser that any past or present officer, or member of the company, has been guilty of an offence in relation to the company, they are obliged to report the matter to the DPP and the ODCE.
The rescue process will not currently be recognised under the Recast Insolvency Regulation (2015/848).
New regulations on beneficial ownership of trusts
The European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2021 (the Regulations) came into operation on 24 April 2021. The Regulations apply a similar beneficial ownership regime to express trusts, as already applies to corporates and certain financial vehicles.
Trustees of in-scope trusts must (i) "take all reasonable steps to obtain and hold adequate, accurate and current information in respect of the trust's beneficial owners" in an internal beneficial ownership register (already an obligation since 2019) and (ii) file beneficial ownership information to a central register (the Central Register) overseen by the Revenue Commissioners.
The Regulations apply to express trusts established by deed or otherwise in writing where the trustees are resident in the State
23
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
or where the trust is administered in the State. If none of the trustees are resident in an EU Member State and the trust is not administered in the EU, the Regulations apply where the trustee enters into a business elationship in the State in their capacity as trustee, or acquires land or other real property in the State in the name of the trust.
There is a very wide definition of in-scope trusts in the Regulations. There are no minimum thresholds for an express trust to be caught, with the result that trust arrangements such as notes trusts, nominee shareholder agreements and security trusts are within scope. In a corporate context, this may have implications for trusts created in the context of commercial transactions which are incidental and/or temporary trusts.
Competent authorities (Garda, Revenue, etc.) have unrestricted access to the Central Register. Members of the public will have to prove they have a "legitimate interest" before being granted restricted access. Designated persons (e.g. banks and financial institutions) will have restricted access for the purposes of obtaining beneficial ownership information before entering into a business relationship or carrying out any transactions on behalf of the trust.
Temporary COVID-19 legislation
The COVID-19 pandemic continued to have an effect on the operations of companies and on general meetings in 2021. The interim period of the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the 2020 Act) has been extended twice this year and is now set to expire on 31 December 2021 (unless further extended).
By way of reminder, the key provisions of the 2020 Act are as follows:
Documents may be executed by counterpart
General meetings may be conducted wholly or partly by electronic means
Voting on resolutions at general meeting does not require physical attendance by a member or proxy
Period of protection from creditors is extended up to 150 days
Winding up debt threshold increased to 50,000 for both individual and aggregate debts
Creditors' meetings may be conducted wholly or partly by electronic means
Many of the large PLCs had already conducted their AGMs by the time the 2020 Act was introduced and held them behind closed doors in order to comply with public health restrictions in place at the time. AGM
Season 2021 was therefore the first time where the effects of the 2020 Act could be truly assessed.
The 2020 Act facilitated widespread utilisation of electronic-access general meetings, using a number of commercial platforms. Some form of hybrid meeting was considered preferable to either a wholly virtual meeting, or a closed door meeting in the interests of accommodating shareholder engagement. There was a mix of practices in terms of enabling electronic voting at general meetings and providing for twoway communication. Companies typically also invited the submission of questions in advance of the meetings via the company secretary.
For many Irish companies, these developments coincided with the inaugural AGM following the migration of securities' holding and settlement to Euroclear Bank (from CREST). The resultant additional complexity in relation to voting mechanics led, in a number of cases, to lower and later voting turnout, but it is expected that at least some of these frictions will have been addressed by the time of the 2022 AGM season. The format of 2022 meetings will need to be assessed having regard to prevailing COVID-19 restrictions and legislation at that time, balanced against the importance of facilitating shareholder engagement.
2 See the Company Law Review Group's 2020 Report, Advising on a Legal Structure for the Rescue of Small Companies
24
Knowledge Annual Report 2021 | Corporate Law and Corporate Governance
LOOKING AHEAD
Legislation in relation to screening of foreign direct investment (FDI): at the time of writing, we are still awaiting publication of the Investment Screening Bill, which is expected to establish some kind of FDI screening mechanism in Ireland.
End of the deferral period in respect Legislation in relation to screening of the European Single Electronic Format (ESEF) requirements for retail debt securities: relevant issuers will be required to apply the ESEF to financial reports for financial years beginning on or after 1 January 2021.
The Corporate Enforcement Authority is to be established by 1 January 2022 following the enactment of the Corporate Enforcement Authority Bill 2021.
Continued progress and visibility is expected on requirements under the
proposed EU Corporate Sustainability Reporting Directive, which will extend sustainability reporting requirements to all large companies and all companies listed on regulated markets. If the projected timeline is achieved, companies will have to apply the standards for the first time to financial reports published in 2024 (covering the financial year of 2023).
Legislative developments relating to cross-border conversions, mergers and divisions: Ireland must transpose Directive (EU) 2019/1132 into Irish law by 31 January 2023.
Developments in relation to dematerialisation of holdings of transferable securities under the EU Central Securities Depositary Regulation (EU) 909/2014: Article 3(1) of the Regulation requires Irish-listed PLCs
to arrange for their securities to be represented in book-entry form. This obligation will apply: (i) from 1 January 2023 with respect to new issues of shares and (ii) from 1 January 2025 with respect to all transferable securities (although there is also discussion of a single impact date in Ireland from 1 January 2023).
The model to be adopted for dematerialisation in Ireland has not yet been determined. The dematerialisation project, together with the utilisation of the Euroclear Bank system given its specific characteristics and service offering, may, absent remedial legislative amendments, adversely impact on the enforceability of members' rights in Irish company law. This is an area on which further developments can be expected during 2022.
25
Chris Bollard
Partner, Commercial & Technology
SECTION 04
9 MIN READ
DATA PROTECTION
Listen to the audio version
26
Knowledge Annual Report 2021 | Data Protection
2021 AT A GLANCE
Record GDPR fines in 2021, including a 225m fine imposed by the DPC on WhatsApp
Data subject access requests continue as the largest category of complaints
Some welcome clarity on the scope of the legal privilege exemptions in the Data Protection Act 2018
Further regulatory activity at EU and Irish level with regards to international transfers of personal data
New EU Standard Contractual Clauses introduced by the EU Commission
Adoption of a UK adequacy decision by the EU Commission, which means that personal data can continue to flow freely from the EU to the UK
2021 was another busy year for the Data Protection Commission (DPC). International data transfers, data security breaches, data processing in the context of preventing the spread of COVID-19, and record GDPR fines were some of the main data protection issues. Headline fines included a hefty 225m fine imposed by the DPC on WhatsApp for failing to discharge its transparency obligations under the GDPR. This decision has implications for all businesses, as it sets out the DPC's high expectations in regard to the information that must be provided to individuals in privacy notices, and how it should be presented.
There have also been a number of important developments at EU level. In particular, the EU Commission adopted highly anticipated new Standard Contractual Clauses (SCCs), which organisations can incorporate into their contracts when transferring personal data to recipients based outside the EEA. Organisations have been given a grace period (until 27 December 2022), to replace all contracts incorporating the old SCCs with the new SCCs.
27
Knowledge Annual Report 2021 | Data Protection
DPC regulatory activity
The DPC's Annual Report (the Report) for 2020 (published in Q1 of 2021) reviews the span of regulatory work completed by the DPC, and reveals some interesting trends and statistics. It highlights that the DPC dealt with more than 6,000 data breach notifications; handled 42 applications for approval of binding corporate rules; and progressed 83 statutory inquiries during 2020. The DPC has also issued fines and/or reprimands for breaches of the GDPR on 13 occasions.
DSARs & legal privilege exemption
In terms of identifiable trends, the largest category of complaints continues to concern data subject access requests (DSARs). Organisations frequently assert legal privilege over documents containing personal data in order to restrict the scope of a DSAR. The Report provides some welcome clarity on the scope of the legal privilege exemptions in the Data Protection Act 2018 (the DPA 2018). Section 162 of the DPA 2018 restricts individuals' rights under the GDPR (including the right of access) where the communications are protected by legal privilege. The DPC states that this provision essentially incorporates the common law principles, as they apply to privilege, into the DPA 2018. At common law, legal advice privilege attaches to communications between a
lawyer and client where the communication is confidential and for the purpose of giving or receiving legal advice. Litigation privilege applies to communications between a client and lawyer, or between a client and/or lawyer and a third party, where the dominant purpose of the communication is to prepare for actual or apprehended litigation.
The Report also highlights that when legal privilege is relied upon to refuse a DSAR, the DPC will require an explanation as to why the controller is asserting privilege, and will seek a narrative of each document containing personal data. It is open to the DPC to request sight of disputed documents on a voluntary basis, or, if the organisation refuses to produce such documentation, to apply to the High Court for a determination of whether the documentation is privileged. However, to bring an application of this nature, the DPC must have reasonable grounds for believing the disputed documents do not contain privileged material, and have reasonable grounds to suspect that it contains evidence relating to an infringement of the GDPR or DPA 2018.
Data subject requests and verification of identity
The GDPR allows an organisation which has "reasonable doubts" concerning the identity of an individual to request them to provide additional information to verify their identity when exercising their rights
(such as the right of access). The Report reminds organisations of the importance of complying with the data minimisation principle when requesting such information from individuals, and only requesting such information when there are reasonable doubts about the individual's identity.
Case study 7 of the Report discusses a complaint about Groupon's policy of requiring individuals to provide a copy of their national identity card to verify their identity when making an erasure request under Article 17 of the GDPR. The DPC, acting as Lead Supervisory Authority (LSA), reprimanded Groupon for infringing the data minimisation principle in Article 5(1)(c) of the GDPR. The DPC concluded that a less datadriven solution to identity verification was available (namely by way of confirmation of email address). The DPC also found that Groupon infringed Article 12(2) by requesting proof of the complainant's identity, in circumstances where it had not demonstrated that it had reasonable doubts about same.
DPC enforcement activity
As of 31 December 2020, the DPC had 83 statutory inquiries open, including 56 domestic inquiries and 27 cross-border inquiries. Whilst all of the domestic inquiries are `own volition' inquiries, the cross-border inquiries are a mix of complaints-based (10) and `own volition' (17) inquiries.
28
Knowledge Annual Report 2021 | Data Protection
Since the entry into force of the GDPR, the DPC imposed fines and/or reprimands on 13 occasions, on a range of public and private bodies, including the HSE, Tusla, UCD, the Irish Credit Bureau, Ryanair, Groupon, Twitter and WhatsApp. The fines imposed by the DPC to date range from 35,000 to 225m. These fines and/or reprimands demonstrate, in particular, the importance of:
implementing appropriate security measures
adopting a privacy by design and by default approach to data protection
having clear data breach procedures in place
not delaying in reporting data breaches to the DPC
complying with the transparency obligations
having appropriate policies/procedures in place to deal with requests from individuals (such as access or erasure requests)
being able to demonstrate compliance with the GDPR as required by the accountability principle
The DPC's decision in respect of its inquiry into WhatsApp will have implications for all businesses, as it sets out the DPC's high expectations in regard to the information
it expects to be included in privacy notices which is much more information than is typically the case and how it should be presented to individuals. The decision also clarifies the relevance of the consolidated turnover of the entire group of companies when calculating both the maximum fining cap, and the appropriate fine to impose.
In addition, it clarifies the scope of the concept of `personal data' under the GDPR. The DPC found that in considering whether information, such as a phone number, constitutes `personal data' under the GDPR, it is not necessary to consider subjectively whether the controller or a third party is reasonably likely to use the number to indirectly identify a person. It is sufficient that the controller or third party has means of identifying the person to whom the information relates, in the event that it forms the intention to do so. It is worth noting, however, that the DPC's decision is subject to three appeals by WhatsApp, including a judicial review action; an annulment action before the European Court of Justice; and a High Court appeal against the fine.
International data transfers
2021 saw further regulatory activity at EU and Irish level in regard to international transfers of personal data.
New SCCs
The EU Commission has adopted new SCCs for the transfer of personal data to third countries, which came into force on 27 June 2021. The new SCCs repeal and replace the old controller to controller SCCs (Decision 2001/497/EC, as amended) and the controller to processor SCCs (Decision 2010/87/EC). Organisations had the option of continuing to execute new contracts using the old SCCs until they were repealed on 27 September 2021. From that date, all new contracts must be executed using the new SCCs.
Organisations have until 27 December 2022 to replace existing contracts incorporating the old SCCs with the new SCCs (provided the underlying processing operations remain unchanged and the transfer is subject to appropriate safeguards). Replacing legacy SCCs will likely be a significant task for many organisations, and will entail more than simply swapping out the old clauses for the new clauses. In addition, consideration will need to be given as to whether it is necessary to implement any supplementary measures (such as contractual, technical or organisational measures) recommended by the European Data Protection Board (EDPB), to ensure transferred personal data is afforded a level of protection that is essentially equivalent to that provided by EU laws. It would therefore be prudent for organisations to start taking steps now to
review their data flows and identify which data transfer contracts need to be reviewed and replaced.
The Irish government has moved swiftly to plug a perceived gap about whether Irish law was fit for purpose as a governing law under the SCCs. The new SCCs permit parties to choose an EU Member State law to govern their SCCs, so long as that law allows for third party beneficiary rights. As a rule, Irish contract law does not allow for third party beneficiary rights, because the privity of contract doctrine still prevails in Irish law with few exceptions. Controllers and processors in Ireland (and their Iegal advisers) were therefore justifiably concerned that they would not be able to choose Irish law to govern their data transfers under the new SCCs.
However, on 24 June 2021, the Minister for Justice adopted the European Union (Enforcement of Data Subjects' Rights on Transfer of Personal Data outside the European Union) Regulations 2021 (S.I. 297/2021). These Regulations insert a new section 117A into the DPA 2018, which confers an express right on data subjects to enforce the SCCs (or other contractual transfer mechanisms such as binding corporate rules (BCRs)) against the parties to the contract. Accordingly, it is clear that Irish law can be chosen by the parties as a governing law for SCC transfers.
29
Knowledge Annual Report 2021 | Data Protection
In the DPC's view, the collection of vaccination data should not in general be considered a necessary work-place safety measure.
UK adequacy decision
In addition, the EU Commission has adopted an adequacy decision for the UK, which means that personal data can continue to flow freely from the EU to the UK, without organisations needing to put in place additional safeguards, such as the SCCs.
Unlike prior adequacy decisions, the UK adequacy decisions include a `sunset clause', limiting their duration to four years after their entry into force (i.e. until 27 June 2025). After that period, the adequacy findings may be renewed. However, renewal will only occur if the UK continues to ensure an adequate level of data protection. During this period, the EU Commission will closely monitor legal developments in the UK, including in regard to onward transfers of personal data. The Commission may suspend, repeal or amend the adequacy decisions at any point, if the UK deviates from the level of protection currently in place.
Processing COVID-19 vaccination data
The DPC has published guidelines addressing the issue of what information employers can
process in relation to their employees' return to the workplace. Information about a person's vaccination status is special category personal data for the purposes of the GDPR, and is afforded additional protections under data protection law. The DPC has issued guidance which states that it does not generally consider there is any legal basis under the GDPR or DPA 2018 for employers to request the vaccination status of their employees at this time. In the DPC's view, the collection of vaccination data should not in general be considered a necessary workplace safety measure, and is therefore unlikely to be necessary or proportionate in the employment context.
The DPC acknowledges that there may be certain situations, such as in regard to frontline healthcare services, where vaccination can be considered a necessary safety measure, based on relevant, sector-specific guidance. In these situations, the DPC states that an employer will likely be in a position to lawfully process vaccine data. Unless the DPC guidance changes as a result of public health advice or laws, employers may be exposed to legal risks if they seek information about an employee's vaccination status.
Guidance on concepts of `controller' and `processor'
The EDPB has adopted guidelines on the concepts of controller and processor (07/2020). These concepts play a crucial role in the application of the GDPR as they determine who is responsible for compliance with certain GDPR obligations and how data subjects can exercise their data protection rights.
The guidelines also set out the EDPB's expectations concerning the content of data processing contracts between controllers and processors, in order to ensure compliance with Article 28 of the GDPR. It would be prudent for companies to review their precedent data processing contracts in light of the guidelines, and determine whether any amendments are required going forward to ensure compliance with Article 28 of the GDPR. The guidelines are very clear that data processing contracts should not simply restate the provisions of Article 28 of the GDPR, but rather should be tailored for the particular processing activity and its risk profile.
30
Knowledge Annual Report 2021 | Data Protection
LOOKING AHEAD
We will undoubtedly see further regulatory activity at both Irish and EU level in respect of international transfers of personal data.
Following the EU Court of Justice's decision in Schrems II, the DPC is continuing its investigation of Mr Schrems' complaint relating to Facebook's transfer of his personal data from the EU to the US.
It is also completing a new `own volition' statutory inquiry into the lawfulness of Facebook's EU-US data transfers under section 110 of the DPA 2018.
In addition, the DPC has stated that it is conducting investigations into EU-US data transfers by four other controllers (following receipt of complaints from NOYB-European Centre for Digital Rights an organisation in which Mr Schrems is involved).
We may also see the DPC, along with other EU regulators, using their enforcement powers against any organisations executing contracts using the old SCCs post-27 September 2021.
Further enforcement of the rules on cookies is also likely.
Last year, the DPC published guidance in relation to the use of cookies and tracking technologies, and signalled its intention to begin enforcement action during Q4 of 2020.
In December 2020, the DPC served Enforcement Notices on seven website operators for non-compliance with the rules on cookies.
In addition, the DPC has announced that it will expand its regulatory activities in relation to compliance by private sector organisations with Article 37 of the GDPR
(where applicable). That provision sets out an obligation for certain organisations to designate a Data Protection Officer and communicate their details to the DPC.
In 2020, the DPC commenced a project to assess compliance by public bodies with their Article 37 obligations.
From a total of 250 public bodies, the DPC identified 77 public bodies as potentially not compliant with the requirements in Article 37 of the GDPR.
These are just a few of the regulatory activities on the horizon. There is no doubt that data protection issues will continue to dominate the headlines in 2022, and the DPC -- as LSA for some of the world's leading technology companies whose European headquarters are located in Ireland will continue to play a leading role in regulating GDPR compliance.
31
SECTION 05
8 MIN READ
Triona Sugrue
Knowledge Lawyer, Employment
EMPLOYMENT
Listen to the audio version
32
Knowledge Annual Report 2021 | Employment
2021 AT A GLANCE
The long-running litigation in Zalewski v An Adjudication Officer and Others came to a close and the constitutionality of the Workplace Relations Commission was upheld subject to two significant procedural issues being addressed.
The law on probationary periods came into sharp focus when the Court of Appeal overturned the High Court's decision in O'Donovan v. Over-C Technology Limited and Over-C Limited
The Minister for Public Expenditure and Reform published the General Scheme of the Protected Disclosures (Amendment) Bill which will transpose the EU Whistleblowing Directive into Irish law.
Two significant Codes of Practice were published; on Bullying and on the Right to Disconnect.
The Gender Pay Gap Information Act 2021 was enacted and regulations are awaited in order for reporting to commence.
The Supreme Court's decision in Zalewski
In the case of Zalewski v An Adjudication Officer and Others [2021] IESC 24, the Workplace Relations Commission (WRC) narrowly survived a constitutional challenge. The Supreme Court, by a majority of 4:3, decided that while the WRC is constitutionally valid, certain aspects of its procedures were not.
By way of background, Mr Zalewski was dismissed by his employer in 2016. He brought a claim for unfair dismissal to the WRC. When the parties attended for the hearing it was adjourned due to witness availability. When the parties returned to the WRC on the adjourned date, the Adjudication Officer informed them that she had already made her decision. The decision then issued three days later, dismissing Mr Zalewski's claim.
Mr Zalewski brought proceedings in the High Court seeking an order quashing the WRC's decision and a declaration that the Workplace Relations Act 2015 was repugnant to the Constitution. The State conceded the invalidity of the WRC's decision but contested Mr Zalewski's arguments in respect of the constitutionality of the WRC.
33
Knowledge Annual Report 2021 | Employment
The Supreme Court on appeal narrowly decided that the WRC carries out the administration of justice, which means it should be administered in a court by a judge. However, it found a saver for the WRC in Article 37 of the Constitution, which permits the exercise of some functions and powers by persons and bodies who are neither judges nor courts under the Constitution.
The exercise of jurisdiction captured by Article 37 is nonetheless an administration of justice. Approached through this lens, the Supreme Court found that:
there is no justification for a blanket prohibition on hearings in public before the WRC
the absence of at least a capacity to allow an Adjudication Officer to require that certain evidence must be given on oath is inconsistent with the Constitution
As a result of the Supreme Court's decision, the Workplace Relations (Miscellaneous Provisions) Act 2021 was swiftly enacted. Since 29 July 2021, WRC hearings are now generally conducted in public and the decisions contain the parties' names, unless there are special circumstances. Evidence may now be given on oath or affirmation.
The WRC must now operate under a regime where it is administering justice to a standard which cannot be lower or less demanding than the justice administered in the courts.
Probationary periods: the Court of Appeal clarifies the law
In O'Donovan v Over-C Technology Limited and Over-C Limited [2021] IECA 37, the Court of Appeal overturned the decision of the High Court in this important case. The High Court had found that the obligation to apply the principles of natural justice may apply to a performance-related dismissal as well as to a dismissal for misconduct.
By way of background, Mr O'Donovan was employed by Over-C Technology Limited as its Chief Financial Officer. His contract provided for a six-month probationary period with a one-month notice period and the right to pay in lieu of notice. It also provided the employer with an express entitlement to terminate the contract during the probationary period if the performance of Mr O'Donovan was "not up to the required standard".
Mr O'Donovan commenced employment in August 2019. In January 2020, he was called to a meeting with the CEO. He was told he was being dismissed immediately with payment in lieu of notice.
The CEO subsequently confirmed the decision in a letter setting out particular performancerelated issues that were unacceptable to the company. While an appeal hearing was set up, it did not go ahead due to Mr O'Donovan's
availability. The Company took this as Mr O'Donovan wishing not to proceed with the appeal and confirmed that the decision to dismiss him stood.
Mr O'Donovan sought an interim mandatory injunction restraining his dismissal. In 2020, the High Court found that a fair procedures obligation arose, which had been breached by the employer. It granted Mr O'Donovan the injunction.
The Court of Appeal issued its decision in this case on 16 February 2021. A key finding was that the High Court had failed to give adequate weight to the fact that the termination occurred during the probationary period. The Court of Appeal was of the view that, during a period of probation, both parties are and must be free to terminate the contract of employment for no reason, or simply because one party forms the view that the intended employment is, for whatever reason, not something with which they wish to continue. If an employer has a contractual right - in this case, a clear express right - to dismiss an employee on notice without giving any reason, the Court cannot imply a term that the dismissal may only take place if fair procedures have been afforded to the employee, except where the employee is dismissed for misconduct.
34
Knowledge Annual Report 2021 | Employment
While employers can no doubt breathe a sigh of relief as a result of this decision, it's important to still bear in mind that even though an employee may not have one year's service for a claim under the Unfair Dismissals Acts, they can still refer a dispute to the WRC or Labour Court for a non-binding recommendation. In addition, employers need to be conscious that the line between misconduct and performance issues can, in some circumstances, be difficult to distinguish.
Imminent changes to Ireland's whistleblowing regime
The EU Whistleblowing Directive is due to be implemented by 17 December 2021. The General Scheme of the Protected Disclosures (Amendment) Bill (the General Scheme) was published in May and prelegislative scrutiny concluded in October. The General Scheme provides a broad outline of the proposals for the contents of the Bill. While Ireland already has one of the strongest regimes of whistleblower protection in the EU, there are nonetheless some significant changes on the horizon. A summary of the key changes and implications for businesses is set out below.
Who will be covered?
Currently "workers" are covered by the Protected Disclosures Act 2014. The definition of "worker" will be expanded to include an individual who is a shareholder, a member of the company's administration or management, a non-executive member, a volunteer or unpaid trainee, or a job candidate.
What wrongdoings?
A "relevant wrongdoing" refers to the type of wrongdoing for which a person may make a disclosure and be protected from penalisation. It will include breaches of EU law that are within the scope of the Whistleblowing Directive. Importantly, from an employer's perspective, a grievance about interpersonal conflicts between the reporting person and another worker, which could be channelled through another HR procedure, will be expressly excluded.
Penalisation
Currently, penalisation is widely defined as any act or omission that affects a worker to their detriment and includes examples such as unfair treatment, or the imposition of a
disciplinary sanction. The General Scheme envisages new examples being added to this list, such as a negative performance assessment, failure to convert a temporary employment contract into a permanent one, and psychiatric or medical referrals.
Complainant employees will be allowed to seek interim relief - i.e. an injunction from the Circuit Court - in respect of all forms of penalisation. Currently, interim relief applies only in the context of alleged dismissal for having made a protected disclosure.
Anonymous disclosures
Importantly, the General Scheme provides that there is no obligation to accept and follow up on anonymous disclosures. However, if an anonymous whistleblower's identity subsequently becomes known, they will be protected. The absence of any legal requirement to follow up on a whistleblowing report could provide a false sense of security to businesses. Just because there is no legal requirement to follow up does not mean there is no reputational exposure for not doing so.
35
Knowledge Annual Report 2021 | Employment
The key change for businesses will be a requirement to have more detailed, advanced processes for managing whistleblowing complaints.
Protecting identity
Under the General Scheme, the person to whom the protected disclosure is made or referred must not disclose any information that might identify the whistleblower to anyone beyond those authorised to receive or follow-up on the disclosure. This is very similar to, and represents only a minor modification of, the existing requirement to keep a whistleblower's identity confidential.
However, the General Scheme also provides that the same protection applies to a "person concerned", i.e. a person who is referred to in a protected disclosure as someone involved or associated with the wrongdoing. This is a very significant change. Businesses already find it challenging to keep a whistleblower's identity confidential. Keeping confidential the identity of the `accused' will, in practice, be very challenging.
Internal reporting channels
The General Scheme provides that all employers with 250 or more employees will have to have internal channels and procedures for the making of protected disclosures. This threshold will reduce to employers with 50 or more employees from 17 December 2023. The threshold of 50 employees will not apply to companies subject to EU laws in areas such as financial services.
The procedures will include:
a requirement to acknowledge receipt of a protected disclosure within seven days
the designation of an impartial person competent to follow up
providing feedback within three months
the provision of clear and easily accessible information regarding the procedure for making a protected disclosure; both internally and to a `prescribed person' such as a regulatory body
Protected disclosures office A dedicated, independent, protected disclosures office will be established within the office of the Ombudsman to act as a prescribed person of last resort to address situations where there are gaps in the provision of a prescribed person, or where assistance is required in directing the disclosure to an appropriate prescribed person. The protected disclosures office will also support Ministers who receive disclosures, by conducting an initial assessment and recommending the appropriate authority to deal with it or carry out the follow up itself.
36
Knowledge Annual Report 2021 | Employment
Penalties The General Scheme provides for the imposition of new penalties for:
hindering or attempting to hinder a worker in making a protected disclosure
penalising a worker bringing vexatious proceedings against
a worker for having made a protected disclosure breaching the duty of confidentiality to protect the identity of the whistleblower and the "person concerned" The level of the penalties is still to be decided in consultation with the Office of the Attorney General. However, the Whistleblowing Directive prescribes that they must be "effective, proportionate and dissuasive".
The key change for businesses will be a requirement to have more detailed, advanced processes for managing whistleblowing complaints, which include certain strict requirements. Publication of further detail on the proposed legislation is eagerly awaited.
LOOKING AHEAD
Important employment legislation is due to be enacted in 2022, such as the implementation of statutory sick pay which will be phased in over a four-year period, starting with three days per year in 2022. Employers will eventually be obliged to cover the cost of ten sick days per year in 2025.
Legislation on a right to request remote working is also anticipated. It will provide a legal framework around which a request can be made by an employee and how it should be dealt with by the employer. The legislation is expected in early 2022.
The Gender Pay Gap Information Act 2021 requires regulations in order for the reporting process to commence and it is expected that these will be in place so that reporting will commence in 2022. ALG has a dedicated Gender Pay Gap hub where we provide the latest updates and insights on gender pay gap reporting.
Pre-legislative scrutiny is well underway in respect of the Protected Disclosures (Amendment) Bill, with a deadline of 17 December 2021 for implementation of the Whistleblowing Directive. Many businesses have started preparing so that the new whistleblowing culture envisaged by the legislation is embedded by the time the new laws take effect.
37
Elizabeth White
Knowledge Lawyer, Finance
Edel Finn
Knowledge Lawyer, Finance
SECTION 06
7 MIN READ
FINANCE
Listen to the audio version
38
Knowledge Annual Report 2021 | Finance
2021 AT A GLANCE
Case law favourable to lenders: confirming the conclusiveness of the property register, in applications of the O'Malley decision, and through positive substitution applications by successor lenders (discussed in further detail in Banking in the courts)
Licensing and supervisory regimes for retail credit and credit servicing firms to be extended by the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021
Reporting to Revenue's new Central Register of Beneficial Ownership of Trusts effective from 23 October 2021
COVID-related adaptations for corporate execution further extended by statutory instruments
Implications for future recognition and enforcement of judgments in financing transactions caused by the ending of the Brexit transition period
ECB supervisory expectations regarding climate risk now firmly on the agenda for EU Banks
Proposed extension of existing sustainability reporting requirements and Regulation on a voluntary European Green Bond Standard published by the European Commission
Extended regulation of retail credit and credit servicing firms
The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 will, when enacted, extend Irish licensing and supervisory regimes for retail credit and credit servicing firms. The primary objective of this legislation is to provide that any currently unregulated "non-bank" entity (i.e. a credit intermediary, such as a car dealership) which offers, either directly or indirectly:
credit (i.e. cash loans),
hire-purchase agreements (including Personal Contract Plans (PCPs)), or
consumer-hire agreements,
will be required to be authorised as a "Retail Credit Firm" (RCF) by the Central Bank of Ireland (CBI).
The Bill proposes to do this by expanding key definitions (including "credit") and broadening the range of agreements which fall within the regulated business of a RCF or Credit Servicing Firm (CSF) to include provision of more than just direct cash loans (the current definition of "credit"). This will capture hire-purchase agreements (including PCPs) and consumer-hire agreements, and the indirect provision of credit. Such
39
Knowledge Annual Report 2021 | Finance
entities will become subject to the CBI's authorisation and supervisory regime, and will be required to comply with the CBI's Consumer Protection Code. The Bill is currently before the Oireachtas and is expected to become law by the end of 2021.
Central register of beneficial ownership of trusts
The European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2021 (the Regulations) oblige trustees of express trusts established by deed or other declaration in writing (as well as any other prescribed arrangement) to maintain a register of beneficial ownership, and to register beneficial ownership information on a central register established and operated by Revenue (the Central Register of Beneficial Ownership of Trusts, or CRBOT). The Regulations came into effect on 24 April 2021 and revoked the previous regulations (which established the obligation to maintain an internal register of beneficial ownership for trusts in Ireland in 2019). Express trusts existing at 23 April 2021 had six months to register with the CRBOT (by 23 October 2021), and new express trusts created after 23 April 2021 must do so within six months of creation. Some express trusts are specifically out of scope.
Difficulties have been identified in the interpretation and application of these Regulations, due to the potentially wide scope of some of the undefined terms and phrases. There are also some drafting inconsistencies within Revenue's FAQs, as to certain of the Regulation's due diligence requirements. This has led to concerns from lawyers, trust participants and trust service providers as to how to correctly adhere to the Regulations. Industry engagement with Revenue in relation to scope, application and compliance is on-going.
Execution and e-signatures
The Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (the Covid Act 2020) was enacted to temporarily alleviate some of the practical difficulties which COVID caused for corporates. One such temporary measure allows for the simplified execution of documents under seal by a company in counterparts during the `interim period'. Throughout the pandemic, this has facilitated a company's seal and signatures for instruments under seal to be on separate counterparts; a welcome adaptation for corporate execution. The `interim period' was extended by statutory instrument until 31 December 2021.
Statutory instruments have also been published which amend orders of the Superior and District Courts, to simplify the swearing of affidavits. The Rules of the Superior Courts (Affidavits) 2021 (S.I. No. 127 of 2021) came into effect on 31 March 2021, and the District Court (Affidavits) Rules 2021 (S.I. No. 147 of 2021) came into effect on 6 April 2021. These Rules provide for the remote swearing of affidavits by video conference (albeit the process is ultimately based on wet-ink originals).
Legislative initiatives and extensions, such as those just mentioned, demonstrate a recognition of the types of difficulties COVID continues to present for corporates and individuals executing documents in a pandemic. Use of e-signatures has increased this year as well, as market demand rises and e-signing platforms augment their capabilities. The Law Society of Ireland is also expected to soon publish an updated version of its E-Signatures, electronic contracts and certain other electronic transactions guidance note (originally released in March 2020).
40
Knowledge Annual Report 2021 | Finance
Brexit
Recognition and enforcement of English judgments and submission to the jurisdiction of English courts
Lenders and borrowers in financing transactions began 2021 having to grapple with the consequences of the ending of the transition period on 31 December 2020. In particular, clients have had to contend with the fact that Brexit has had an immediate effect on future recognition and enforcement of English judgments and submission to the jurisdiction of English courts. Often, multijurisdictional financing transactions include agreements whereby the parties submit to the jurisdiction of the English courts and choose English law as the governing law. The ending of the transition period means that the extremely effective recognition and enforcement regime under the Recast Brussels Regulation no longer applies to any judgments arising out of proceedings, commenced after 31 December 2020, between the UK and Ireland.
Where the parties to finance documents submit to the jurisdiction of the English courts, the Hague Convention of 2005 on Choice of Court Agreements provides an alternative basis for (i) recognition of an English judgment and (ii) upholding the submission to an English court. However, the Hague Convention only applies to exclusive jurisdiction clauses.
The Lugano Convention 2007 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters could provide a further alternative basis for recognition of English judgments and submission to the jurisdiction of the English courts. However, it ceased to apply to the UK at the end of the transition period. The Lugano Convention applies to a submission to the exclusive or nonexclusive jurisdiction of the courts of EU Member States, and also Iceland, Norway and Switzerland.
Unlike the Hague Convention (which the UK had a unilateral right to (re-)join), accession to the Lugano Convention requires permission from all other contracting states. Iceland, Norway and Switzerland have already indicated their agreement to the UK joining. But in June 2021, the European Commission officially communicated that the EU was not in a position to give its consent to the UK's accession. The final decision on whether the EU will approve the UK's application rests with the Council of the EU, which will need to vote on the matter. A qualified majority (15 of the 27 Member States) would need to vote in favour.
So at present, the Lugano Convention is not an option, and the Hague Convention has its limits. Where the Hague Convention is not applicable, the future recognition
and enforcement of English judgments and submission to the jurisdiction of English courts will fall to be determined in accordance with common law principles.
Choice-of-law agreements
Thankfully, clients have not been faced with similar difficulties in respect of choice-of-law agreements between the UK and Ireland. This is because the Rome I and Rome II Regulations require EU Member States to give effect to the parties' choice of law, regardless of whether that law is the law of an EU Member State or the law of a third country (such as English law).
The UK has incorporated the Rome I and Rome II Regulations (as retained EU law) into its domestic law from 31 December 2020, and the European Union (Withdrawal) Act 2018 confirms that Rome I and Rome II will continue to apply in the UK post-Brexit (subject to minor amendments). The English courts will therefore continue to apply the same rules as courts in EU Member States to determine what law applies to contractual/ non-contractual rights and obligations. However, it is possible that, in time, divergences may appear if the UK doesn't amend its versions of Rome I and Rome II in line with EU amendments.
41
Knowledge Annual Report 2021 | Finance
Green finance
ECB developments
The ECB issued a guide in November 2020 on its supervisory expectations relating to the management and disclosure of climaterelated and environmental risks. ECB Banking Supervision requested banks to conduct a climate risk self-assessment and to draw up action plans on the basis of the guide. In June 2021, the ECB stated that very few euro-zone banks were adequately prepared for the risks they face from climate change. The ECB will conduct a bank-level climate stress test in 2022 for the banks that the ECB directly supervises.
In September 2021, the ECB published the results of its economy-wide climate stress test. The results show that (i) firms and banks clearly benefit from adopting green policies early on to foster the transition to a zero-carbon economy and (ii) euro area banks could be severely affected under a scenario where climate change is not addressed. The results will also inform the 2022 supervisory climate stress test.
European Commission developments
On 21 April 2021, the European Commission published its proposal for a Corporate Sustainability Reporting Directive (CSRD). The CSRD proposes to amend the existing sustainability reporting requirements of the Non-Financial Reporting Directive (NFRD) to include (i) all large companies, whether they are listed or not and without the NFRD's previous 500-employee threshold, and (ii) listed SMEs, with the exception of listed micro-enterprises.
On 6 July 2021, the European Commission published its renewed sustainable finance strategy, which included the publication of a proposal for a regulation on a voluntary European Green Bond Standard (EUGBS). The EUGBS aims to create a high-quality voluntary standard available to all issuers (private and sovereigns, whether located inside or outside of the EU) to help finance sustainable investments.
For further discussion of sustainable finance, see the Spotlight on Climate, Environment and Sustainable Finance.
The ECB has also warned EU banks that they will need to have more effective and experienced boards to tackle the effects of climate change (as well as the pandemic and digital technology).
In June 2021, the ECB stated that very few euro-zone banks were adequately prepared for the risks they face from climate change.
42
Knowledge Annual Report 2021 | Finance
LOOKING AHEAD
While 2021 continued to see much attention being directed at the stabilisation of markets and the provision of pandemic relief to businesses and consumers, in 2022 we would expect to see a return of focus to legislative and regulatory reform agendas, both at a national and EU level.
One deadline largely unaffected by the impact of COVID, however, is the ending of the use of LIBOR. By 31 December 2021, the transition of LIBOR to Risk Free Rates is due to be largely complete (US LIBOR deadlines have been extended, for example) albeit some issues, such as with so-called `tough legacy' contracts, continue to be worked through in the market.
Domestically, over the next six to 18 months, we will see the Central Bank
(Senior Accountability Framework) Bill 2021 proceed through the legislative process, following the long awaited publication of the General Scheme in July
Enactment of the Consumer Rights Bill (to consolidate and modernise consumer protection legislation) is also expected in Q2 of 2022. Although limited in its application to financial services generally, of note will be the introduction of a new `black-list' of contractual terms that are always unfair (in addition to the existing grey-list of terms which may be unfair).
The year ahead will also see the cryptoassets market continuing to gain traction, although it remains to be seen how disruptive it will be to the traditional financial system; much will depend on the approach of regulators. The ECB announced in July that it is progressing
to the investigation phase (to last 24 months) of a digital euro project, but noted this will not prejudge any future decision on whether to actually issue a digital euro. The ECB has stressed it will not be a cryptocurrency.
The highly anticipated Directive on credit servicers and credit purchasers is expected to enter into force before the end of the year. Member States will have two years from the date of its entry into force to transpose the Directive into national law. The implementation by the Irish legislature of this Directive, and its potential effect on the existing credit servicing regime in Ireland (e.g. whether the current Irish regime will be amended to remove the authorisation requirement for legal title holders of credit), will be keenly watched by loan purchasers and servicers in the Irish market.
43
SECTION 07
8 MIN READ
Elizabeth White
Knowledge Lawyer, Finance
BANKING IN THE COURTS
Listen to the audio version
44
Knowledge Annual Report 2021 | Banking in the courts
2021 AT A GLANCE
It has been another busy year in the courts for banking and finance-related litigation. Themes emerging this year include the following: 1.renewed confirmation for lenders of the
conclusiveness of the register under Section 31 of the Registration of Title Act 1964 2.further illustrations in favour of lenders of the implementation of the Supreme Court's 2019 decision in O'Malley (to provide sufficient particulars of the debt claimed) 3.successful substitutions of first claimants by successors to loans and mortgage security 4.discovery of the purchase price paid in a mortgage loan sale (which will be less welcome for lenders and loan purchasers)
1. Conclusiveness of the register under section 31 of the Registration of Title Act 1964
In Start Mortgages DAC v Gawley [2020] IECA 335, the Court of Appeal upheld Simons J's grant in the High Court of leave to issue execution out-of-time of a possession order in respect of the borrower's mortgaged property, endorsing Simons J's reliance upon the conclusiveness of the register under Section 31 of the Registration of Title Act 1964.
In Promontoria (Oyster) DAC v Greene [2021] IECA 93 and Promontoria (Oyster) DAC v McKenna [2021] IECA 94, the Court of Appeal reversed the High Court's decisions refusing to allow the lenders to rely on the conclusiveness of the register enshrined in Section 31, in respect of registered burdens on title. The registered burdens in question were liens pursuant to Section 73 of the Registration of Deeds and Title Act 2006, relating to equitable mortgages by way of deposit of land certificates (a `Section 73 lien'). The Court held that the lenders were not required to adduce evidence of when and how the original mortgages by deposit of the land certificates had been created. The only thing that had to be proved was that the lien covered the loans which the lenders were seeking to recover. The Court also held that, in deciding whether to grant a well-charging order, the Court is not to
concern itself with the issue of priorities, and so does not need to know the date the mortgages by deposit were created. The issue of priorities arises only after the wellcharging order is made.
In Promontoria (Oyster) DAC v McHale [2021] IECA 95, the Court of Appeal upheld the ex tempore ruling of the High Court, which had taken a different view from that of the later High Court decisions in Greene and McKenna. The Court of Appeal agreed with the High Court that the lender seeking to enforce a Section 73 lien was entitled to rely upon the conclusiveness of the register enshrined in Section 31, and was not required to adduce evidence of the original deposit of the land certificate. The Court declared the property to be well-charged, on the grounds that registration of the lien constitutes "conclusive evidence" that the title of the registered owner is subject to such lien, and so the loan purchaser was entitled to rely on the register to establish conclusively that it was the holder of a statutory lien registered as a burden on the folio.
In Bank of Ireland Mortgage Bank v Cody [2021] IESC 26, the Supreme Court also emphasised that a lender is entitled to rely upon the conclusiveness of the register enshrined in Section 31 to show it holds a charge.
45
Knowledge Annual Report 2021 | Banking in the courts
2. Implementation of the Supreme Court's 2019 decision in O'Malley
In KBC Bank Ireland PLC v Corrigan [2021] IECA 9, the Court of Appeal rejected a borrower's appeal from a summary judgment granted to the bank for the borrower's outstanding mortgage debt. However, the Court of Appeal set aside the High Court order and remitted the case back to the High Court, so as to enable the bank to amend its affidavits and special indorsement of claim. This was required, according to the bank, to ensure the bank complied with the intervening Supreme Court decision in Bank of Ireland Mortgage Bank v O'Malley [2019] IESC 84, which had prescribed the level of detail to be provided about the debt claimed. Whelan J held that it was significant that the appellant took no issue with the particulars of the claim advanced by the bank before the High Court and, in particular, did not contest the considerable detail embodied in the underlying exhibits to the various affidavits sworn in the course of the proceedings. The bank was seeking leave to amend the particulars of the summary summons, having come to a view that it was required in order to present a more robust summons in light of O'Malley, and Whelan J was satisfied that it ought to be permitted to do so. Interestingly, the bank had contended, nonetheless, that the original summary summons fell at the more compliant end of the O'Malley spectrum of cases.
In The Governor and Company of the Bank of Ireland v Wales [2021] IEHC 134, the High Court granted leave to the plaintiff bank to amend the special indorsement of claim in its original summary summons relating to recovery of the borrower's outstanding debt, on the basis of the requirements of O'Malley. The Court held the proposed limited amendments were necessary to ensure that the real questions of controversy in the litigation were before the court, and the O'Malley requirements were intended as a protection to defendants in debt proceedings: it was not a case of the plaintiff bank "mending its hand". Also, the disruption caused to court proceedings by the COVID-19 pandemic excused the delay in making the application. However, the defendant was entitled to his costs of the application, as the deficiencies in the initial pleadings had been within the control of the plaintiff.
In Promontoria (Arrow) Ltd v Mallon [2021] IECA 130, a defendant (who had appeared as a lay litigant in the High Court to defend a motion for summary judgment) sought to amend his grounds for appeal on the advice of legal representatives, citing the recent summary judgment jurisprudence of O'Malley and Promontoria (Aran) v Burns [2020] IECA 87. The Court of Appeal refused the application, stating that both of those decisions were restatements of the law as it had existed, and that arguments in the nature of that law had been available to the defendant in the High Court, but had not been offered.
The fact that the defendant had been unrepresented by counsel in the High Court hearings did not give the defendant the right to "agitate a new case" on the appeal now that counsel was representing him.
3. Successful substitutions of first claimants by successors to loan and mortgage security
In Avestus Capital PartnersvStapleford Finance Ltd [2021] IEHC 59, the High Court ordered the substitution of the first claimant by a claimed successor to loan and mortgage security in the underlying proceedings. Case law had established that the onus of proof on such a procedural motion is very different from that required at the trial. It is not appropriate for the court to go into the efficacy or validity of the underlying sale or assignment. All that is required is that the documentation furnished provided prima facie evidence of the transfer of the loan in question.
Similarly, in Pepper Finance Corporation (Ireland) DAC v Beades [2021] IECA 39, the Court of Appeal granted an order allowing a further successor lender to be added as corespondent to an appeal by the borrower against the substitution of the previous lender of record for the original lender. This related to an application for liberty to issue execution on foot of a possession order previously granted to the original lender. As in Stapleford, the Court of Appeal held
46
Knowledge Annual Report 2021 | Banking in the courts
that, where such a procedural motion is involved and the proceedings in question have not yet been determined by a court order, the Court requires only prima facie evidence of the interest of the applicant seeking the order. However, in a post-order situation (like the present case), where an order for possession had already been made, there was a higher threshold to be met by the party seeking the order to be joined in the proceedings. This was the usual civil standard of the balance of probabilities. It was therefore appropriate for the Court to consider the merits in determining whether the applicant had provided sufficient evidence of its interest in the proceedings to satisfy the balance of probabilities test, which the Court held it had. The provisions of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 also supported the applicant's request to be joined as co-respondent.
In the related case of Pepper Finance Corporation (Ireland) DAC v Beades [2021] IECA 40, the Court of Appeal again confirmed that the trial judge had been correct to deal with the application for substitution on the basis that only prima facie evidence of the transfer of the mortgage loans was needed. Whelan J held that an appeal court should be slow to interfere with rulings made by a High Court judge on procedural matters in respect of which such a judge has full original jurisdiction.
In Ulster Bank Ltd v Quirke [2021] IEHC 199, the High Court granted permission for the applicant (who had been assigned the borrower's loan) to be added as plaintiff to the summary proceedings to recover the mortgage debt, and leave to issue execution of the judgment previously obtained by the original lender. This case was also interesting for deciding that:
as regards concerns about the 12-year limitation period for an "action" upon a judgment laid down in Section 11(6)(a) of the Statute of Limitations 1957, recent decisions suggest that applying for leave to execute was not an "action" within the meaning of that provision
time runs not from the date on which the Master of the High Court grants leave to enter final judgment, but rather from the date on which final judgment is actually entered
the principles regarding an inordinate and inexcusable delay, with respect to prosecution of proceedings, do not apply to execution of a judgment
In Roscrea Credit Union Ltd v O'Sullivan [2021] IEHC 361, the High Court approved the order sought by the notice party to be substituted in the proceedings, with a view to proceeding with the sale of the borrower's property. The Court held that the effect of Order 33, Rules 7 and 8 of the Rules of the Superior Courts (in
allowing substitution of a plaintiff in such mortgage proceedings) was to further the principle that an order for sale (which had been granted to the Credit Union who had subsequently agreed a settlement with the borrower) inures for the benefit of all incumbrancers or all parties having an interest in the mortgaged land (which included the notice party). This avoids duplication of proceedings. Otherwise, every incumbrancer would be required to commence and pursue parallel proceedings against the same debtor in respect of the same asset.
4. Discovery of purchase price paid in mortgage loan sale
In Wheelock v Promontoria (Arrow) Ltd and Tennant [2021] IECA 71, the Court of Appeal allowed an appeal against an ex tempore High Court judgment refusing to order discovery regarding the purchase price paid by the purchaser lender in a mortgage loan sale. The Court granted the appeal on the basis that the High Court had erred in adopting one view of how the law on unjust enrichment operates over an alternative contested view. The Court of Appeal deemed the discovery sought as relevant and necessary for the fair disposal of the action, but did however attach several limits on the use or quoting of that price acquisition information in open court, or in any documents or electronic transmissions.
47
SECTION 08
11 MIN READ
Dario Dagostino
Partner, Disputes & Investigations
Patrick Brandt
Partner, Financial Regulation
FINANCIAL REGULATION & INVESTIGATIONS
Listen to the audio version
48
Knowledge Annual Report 2021 | Financial Regulation & Investigations
2021 AT A GLANCE
General Scheme of the Central Bank (Individual Accountability Framework) Bill published in July 2021
Focus on diversity and inclusion, with legal requirements being developed
Fitness and probity continues to be a regulatory priority
The Central Bank of Ireland has been active in the areas of market abuse and market conduct
Individual accountability
The Central Bank of Ireland's (Central Bank) Individual Accountability Framework (IAF) will be one of the most impactful regulatory changes of recent years. This suite of reforms is designed to provide for the direct enforceability of standards against individuals and regulated financial service providers (RFSPs). The General Scheme of the Central Bank (Individual Accountability Framework) Bill was published in July 2021 and the Bill is expected to progress through the Oireachtas in late 2021. We expect a consultation process from the Central Bank to occur ahead of implementation.
The proposals are wide-ranging, with `Common Conduct Standards' being imposed on all persons performing controlled functions (CFs) and pre-approval controlled functions (PCFs) in all RFSPs. Such individuals will be required:
to act honestly, ethically and with integrity
to act with due skill, care and diligence
to observe proper standards of market conduct
to act in the best interests of customers and treat them fairly and professionally
There is an additional requirement to be cooperative with the Central Bank and other
regulators or authorities, and to deal with them in good faith and without delay.
Individuals performing PCFs and other persons who "exercise significant influence" on the conduct of the affairs of all RFSPs will be subject to `Additional Conduct Standards'. These Standards will require senior individuals to:
ensure that the business of the RFSP for which the person is responsible is controlled effectively
ensure that the business of the RFSP for which the person is responsible complies with relevant regulatory requirements
ensure that any delegation of tasks for which they are responsible is to an appropriate person and they oversee the discharge of the delegated task effectively
disclose promptly, proactively and appropriately to the Central Bank any information of which the Central Bank would reasonably expect notice
participate effectively in collective decision making
All RFSPs, regardless of sector, will be required to adhere to a set of Business Conduct Standards, which require ethical standards across the business and impose a duty to deal with the regulator in good faith in an open and cooperative way and make prompt disclosure of issues to the Central Bank.
49
Knowledge Annual Report 2021 | Financial Regulation & Investigations
Within banks, insurers and certain investment firms, a Senior Executive Accountability Regime (SEAR) will clarify the roles and responsibilities of PCFs and individuals who exercise significant influence on the conduct of the business. Such individuals will have a duty of responsibility to take reasonable steps to avoid the RFSP committing, or continuing to commit, a prescribed contravention in the area of the business for which they are individually responsible.
Overall, the IAF will make it easier for the Central Bank to engage in enforcement investigations against individuals. The IAF will also enhance the fitness and probity regime and enforcement processes. We expect pilot implementation programmes to occupy cross-divisional teams for the foreseeable future, with HR, legal and compliance teams, and affected employees, feeding in to the process.
Culture
Diversity and inclusion are said to be key aspects of a firm's culture, on the basis that diverse institutions with inclusive environments deliver better outcomes on risk management, problem solving and decision making; all of which ultimately lead to better outcomes for firms' consumers and clients. We are seeing the evolution of diversity and
inclusion from regulatory expectation to blackletter requirements in some sectors, owing to the importance of diversity in establishing a consumer-focused culture.
Legal requirements are being developed, which require certain financial service providers (FSPs) to be diverse and to ensure equal opportunities for all genders, and to improve the representation of women at management level. It is notable that a new supervisory division within the Central Bank will conduct inspections relating to culture within a firm.
Culture and conduct generally is an ongoing area of focus for the Central Bank, with a behaviour and culture framework being developed currently. It is interesting to note that the Central Bank is obtaining insights in to the prevailing attitudes and behaviours at regulated firms through day-to-day engagements and inspections, with the regulator assessing conduct and attitudes during remediation and enforcement processes as they arise.
Regulatory activity
The Central Bank's priorities for 2021 focused mainly on consumer protection, sustainable finance, fitness and probity, anti-money laundering governance, and managing liquidity risk in funds. Several
enforcement settlements this year under the Administrative Sanctions Procedure (ASP) have reflected these priorities.
Enforcement
Enforcement settlements in 2021 to date have involved issues relating to the Consumer Protection Code, the Markets in Financial Instruments Directive, credit risk management and the Unfair Terms in Consumer Contracts Regulations. The Central Bank recently stated that it was not a "zero tolerance" regulator and is focused on early identification, rectification and redress and using enforcement action only for the most serious of breaches.
Fitness and probity
Fitness and probity continues to be an area of regulatory focus. The Central Bank has continued to stress the importance of culture in firms and the significance of the fitness and probity regime as an aspect of maintaining a good culture. The Central Bank has emphasised the importance of making sure firms understand and embed their obligations, support PCF applications and evidence how they are satisfied as to a candidate's fitness and probity. Ongoing due diligence should be performed on incumbents and the Central Bank expects firms to be clear on how they go about demonstrating compliance to the Central Bank.
50
Knowledge Annual Report 2021 | Financial Regulation & Investigations
The Central Bank recently stated that it was not a "zero tolerance" regulator and is focused on early identification, rectification and redress and using enforcement action only for the most serious of breaches.
The Central Bank also published a fitness and probity interview guide, which outlines what applicants for PCF roles should expect during the interview process. Notably, the Central Bank has indicated that firms that have robust frameworks for fitness and probity requirements will be well-placed for the implementation of the IAF.
Operational resilience of financial service providers
As we navigate through the pandemic, domestic and European regulators have been focused on the operational resilience of FSPs. The Central Bank launched a consultation on Cross Industry Guidance on Operational Resilience (CP140) (now closed) and it is proposed that this guidance will apply to all RFSPs.
Digital operational resilience has also been the focus of governments and regulators across sectors lately, which is unsurprising given that information and communications technology (ICT) is a key enabler for the business models of most FSPs. When we
factor in a remote working scenario for many staff, reliable ICT becomes even more operationally important.
Outsourcing
Outsourcing is another key focus for European regulators and the Central Bank is no exception, with its publication of draft cross-industry guidance for consultation. The main outsourcing risks highlighted in this consultation paper include cloud outsourcing, chain outsourcing, concentration risk and offshoring. The guidance will be applied in a proportionate manner to all regulated firms and not just those covered by the scope of the existing outsourcing guidelines issued by the European Supervisory Authorities.
The Central Bank expects the guidance to be finalised and implemented later in 2021. The guidance will require firms to assess functions that are outsourced including intragroup entities and third party providers and the relative importance of each function, including intragroup arrangements and delegation
arrangements. The identified risks must be managed and governed appropriately and be subjected to ongoing monitoring.
Restructuring of the Central Bank
The Central Bank has undergone a restructuring so as to house all regulatory interactions in divisions, established according to type of RFSP. We envisage that the relevant Central Bank directorates will become more specialised and attuned to the realities of the businesses they regulate.
Markets
Market conduct is a priority for the Central Bank and this is reflected in the specific market conduct requirements in the IAF. A key issue for firms is to define what market conduct means for their business. There is no centralised definition, as each firm's interaction with markets legislation will vary, so firms should assess what aspects of their businesses touch on the many pieces of markets legislation and determine the risks accordingly.
The Central Bank expects a market conduct risk framework to be embedded in the organisational arrangements of a firm with controls in place to address the risks. Boards are expected to take full ownership of market conduct risk by challenging decisions, including group decisions, where appropriate. Boards should have access to information to allow them to oversee market conduct risk in the firm. Boards should also ensure that the policies and procedures they have approved relating to market conduct are being implemented in practice and assessed appropriately by the second line.
In 2021, the Central Bank published its findings and expectations following an industry review of compliance with the Market Abuse Regulation (MAR). The Wholesale Market Conduct Team issued three Dear CEO letters in July, which provided an overview of key findings from the Central Bank's 2020 market abuse supervisory work and the regulator's expectations in relation to MAR compliance standards. These letters were addressed to (i) persons who transmit or execute orders,
51
Knowledge Annual Report 2021 | Financial Regulation & Investigations
(ii) issuers, and (iii) advisors who act on behalf of or on account of issuers. It was noted that improvements are required to:
trade surveillance and reporting frameworks and policies on public disclosures of inside information
the quality and governance of insider lists staff awareness of and training in MAR In particular, training needs to be more comprehensive and specific to the risk the entity faces in the context of its business activities. A number of risk-mitigation programmes issued to market participants where concerns were identified.
Earlier in 2021, the Central Bank published its first Securities Markets Risk Outlook Report. The Report details key conduct risks to securities markets and sets out actions firms should take in order to identify, mitigate and manage those risks. The key risks identified in the Report are the impact of external shocks, the migration to a greener securities market, increasing complexity, transparency, increased use of indices, misconduct risk, governance and data quality.
LOOKING AHEAD
Preparing for implementation of the IAF will occupy all RFSPs going forward. Many firms are currently running pilot programmes to assess how implementation will progress and to identify key issues for lobbying and consultation, such as the inclusion of independent non-executive directors within the framework.
Other areas of focus from the Central Bank where we're likely to see developments include:
a review of the Consumer Protection Code
implementation of outsourcing guidance
new operational resilience requirements
diversity within senior roles
Evolving sustainability requirements will also represent a significant project across the financial sector.
Banks will be occupied with the application of new governance guidelines from year-end, which will affect antimoney laundering, conflict of interest management, related party lending and diversity and inclusion policies.
Insurers continue to be the focus of regulatory scrutiny on a number of fronts, such as business interruption insurance claim management, differential pricing and changes to the Consumer Protection Code, and including an overhaul of auto-renewal processes and improving diversity at senior levels.
52
SECTION 09
8 MIN READ
DISPUTES & INVESTIGATIONS
Helen O'Connor
Knowledge Lawyer, Disputes & Investigations
Listen to the audio version
53
Knowledge Annual Report 2021 | Disputes & Investigations
2021 AT A GLANCE
Efforts made to return to the core functions of the courts system, while embracing innovations gained and seeking further reforms
Clarity on the issue of security of costs in Quinn Insurance v PricewaterhouseCoopers
Uncertainty remains in limitation periods for negligence
Progress in addressing the recommendations of the Report on the Review of the Civil Administration of Justice 2020
Reform of the Rules of the Superior Courts on procedures in default of pleadings
Challenges in cross-border litigation and enforcement arising from Brexit
The year in litigation has been marked by market-wide efforts to return to a kind of normality that restores the core functions of the court system, while retaining the efficiencies that have been achieved during the pandemic, and seeking out further reforms in both logistics and in law that will enhance the administration of justice. The judgments published this year have provided enhanced clarity around issues such as security for costs, but uncertainty remains in respect of limitation periods in negligence. We have seen some progress in respect of recommendations made in the Report on the Review of the Civil Administration of Justice (the `Kelly Report') published last year - for example, the recent reform of the Rules of the Superior Courts on procedures in the case of default of pleadings. We await a comprehensive response to the Report from the Department of Justice, however. Cross-border litigation and enforcement remains challenging, and is likely to remain so if the EU follows the Commission recommendation to decline to allow the UK to join the Lugano Convention.
54
Knowledge Annual Report 2021 | Disputes & Investigations
Statute of Limitations
At the end of 2020, the Supreme Court overruled the Court of Appeal in Cantrell v AIB [2020] IESC 71. The judgment, rendered in eight `pathfinder' cases selected from the 300 cases filed in 2014 by investors in the `Belfry funds', held that the investors' claims in negligence are not statute-barred and may proceed to hearing. The main issue under consideration concerned the point at which damage can be said to have accrued in the context of allegedly mis-sold investment products. The defendant had argued that the damage had been suffered at the point when investors had purchased a product that was inherently riskier than contended for, but the plaintiff's position that damage accrued only when that increased risk affected the value of the investments ultimately prevailed.
The judgment seems to represent a shift in approach from the `bright lines' interpretation of the Statute of Limitations seen in Gallagher v ACC, and it is fair to say that the pragmatism of the Court in this case will result in uncertainty in timelines in respect of cases involving latent damage. The Court took the opportunity to call for legislative reform of the Statute of Limitations, which it is hoped will be considered in the coming year.
Discovery
The High Court showed a similar embrace of the flexible application of long-established principles in the realm of discovery. In O'Brien v Red Flag Consulting [2021] IECA 172, the Court of Appeal determined that there is scope within the longstanding `relevance and necessity' tests for discovery to allow some leeway to parties alleging fraud or clandestine wrongdoing.
The issue arose in the context of an allegation by the plaintiff that the defendants had engaged in a conspiracy whereby they briefed particular politicians and journalists with material adverse to the plaintiff's interest, in order to encourage the publication of such material. The plaintiff thus sought discovery of all documents relating to such briefings, including documents relating to the purpose or motive underlying them. The defendants claimed that the application amounted to a "fishing expedition" designed to substantiate underparticularised allegations.
Donnelly J relied on the approach taken by Clarke J (as he then was) to a claim based in fraud in National Welfare Board v Ryan, noting that it sought to preclude the mere invocation of fraud allowing a widespread exercise in discovery, but instead struck a middle path, where more than a mere assertion of fraud, but less than fulsome
particularisation, was required. She held that the pleadings in the case gave a "reasonable picture" of what was alleged, and were sufficient to justify the granting of an order for discovery.
In the context of discovery, the Court of Appeal also issued a warning shot to defendants who fail to preserve documents when litigation is on the horizon. In McNulty v Governor and Company of Bank of Ireland [2021] IECA 182, the appellant argued that the respondent had a duty to preserve relevant documents in its possession and its failure to do so, or to put in place a `litigation hold' after proceedings were commenced, meant that the respondent's defence should be struck out. The Court acknowledged that there had been failures in the respondent's discovery processes, but refused the appellant's application on the basis that these failures did not constitute a "wilful default".
The Court acknowledged that there is Irish authority on whether, and in what circumstances, a party might be required to put in place a `litigation hold', but noted that the importance of taking appropriate steps to preserve documents is reflected in the Commercial Litigation Association of Ireland's Good Discovery Guide, which has been referred to with approval in several High Court decisions. The Court noted that
55
Knowledge Annual Report 2021 | Disputes & Investigations
it would be open to the plaintiff to raise the issue of undiscoverable documentation at the trial of the action, and to revisit the application to strike out the bank's defence, if appropriate, in light of the evidence tendered there. It also awarded the plaintiff the costs of her largely unsuccessful appeal.
Security for costs
The Supreme Court handed down two decisions arising out of separate cases, heard on a linked basis, which provided welcome clarity on the issue of security for costs. In Quinn Insurance Ltd (Under Administration) v PricewaterhouseCoopers (A Firm) [2021] IESC 15, the Court reiterated its previous position that a plaintiff who wishes to make the argument that it is not in a position to discharge an adverse costs order due to the actions of the defendant must put concrete evidence to that effect before the court, if it is to be taken seriously. The Chief Justice noted that, if a plaintiff fails to prove the defendant's causation of impecuniosity, the Court should then "err on the side of greater inquiry" and place at least some weight on an assessment of the extent to which the claim might be stifled, having regard to the overall balance of risk of injustice.
One of the most interesting elements of the judgment consisted of the proposed adoption of a more flexible approach to
applications for security for costs, with the Court noting that in certain potentially complex cases it might be appropriate for a court to direct that security be made on a staged or phased basis, by reference to significant milestones within the case such as the completion of discovery. Such an approach would allow the issue of security to be revisited from time to time in light of developments in the case, and would potentially allow for more concrete estimations of the costs involved in particular proceedings.
In the Court's linked decision in Protg International Group (Cyprus) Ltd v Irish Distillers [2021] IESC 16, it proceeded to apply the principles enunciated in Quinn Insurance, and ultimately concluded that the main outstanding issue for determination was whether the Irish security for costs regime is compatible with EU law in particular the effective remedy or judicial protection requirements set out in Union law, and in the Charter of Fundamental Rights.
The Court ultimately held that the requirement to put up security for costs does necessarily interfere with the right of access to court, but does not undermine the core or essence of the right to an effective remedy. It also found that the Irish law on security for costs forms an important part of the protection of the rights of defendants, and pursues a legitimate aim under EU law, as recognised by the Court of Justice of the EU.
Delay
It is almost ten years since the Supreme Court decision in Comcast International Holdings Inc. v Minister for Public Enterprise [2012] IESC 50, which made clear the need to deploy a stricter approach in assessing inordinate and inexcusable delays. It is fair to say that there has been a lack of consistency in the application of this exhortation to more rigorous case management. There are, however, some signs of an increased willingness to impose consequences on lethargic plaintiffs in line with the postpandemic emphasis on efficiency.
In Kennedy v Wexford County Council v Priority Construction Co Ltd [2021] IEHC 187, the plaintiff's claim for nuisance and trespass, which arose in late 2001/2002, was struck out owing to inordinate and inexcusable delay. Owens J noted that, where a plaintiff is bringing a claim for something that happened a long time ago, they have a positive obligation to advance proceedings without delay.
Not long after Kennedy was decided, the High Court struck out proceedings in Diamrem Ltd v Clare County Council [2021] IEHC 408 where the plaintiff had not delivered a Statement of Claim some 22 months after the issue of the plenary summons in the case. The case is notable
56
Knowledge Annual Report 2021 | Disputes & Investigations
Before awarding costs to a successful party, the court must have regard to, among other things, `the conduct of the proceedings by the parties'.
insofar as it concerns a delay of under two years, and the Court acknowledged that the plaintiff could "point to cases in the past where longer delays were tolerated by the Irish courts", but expressly struck out the claim in reliance on Comcast.
Costs
In line with this focus on prudent use of court time and resources, in Byrne v Revenue Commissioners [2021] IEHC 415, the High Court awarded the "entirely successful" defendant only 60% of its costs on the basis that 20% of the hearing was taken up with submissions that had no probability of success.
The matter had come before the Court by way of case stated, with three questions
posed to the High Court. In each case, the question was answered in the affirmative, as argued by the defendant. The defendant had relied on one primary issue and three secondary issues to support its claim that the plaintiff was incorrect to pursue the case stated. The Court agreed with it on the primary issue and on one of the secondary issues, and on that basis came to its overall conclusion in respect of the questions posed. The Court was not, however, supportive of the defendant's position on the two remaining secondary issues. The Court determined that a "more disciplined approach to the litigation would have led Revenue to rely solely on the primary issue" and noted that the second and third secondary issued contained "tenuous claims".
The Court then relied upon section 169(1) of the Legal Services Regulation Act 2015, which provides that before awarding costs
to a successful party, the court must have regard to, among other things, "'the conduct of the proceedings by the parties". It interpreted the 2015 Act as imposing an obligation on the court to consider in every costs application whether in fact the winning litigant acted reasonably in pursuing all of the issues pursued, not just at hearing, but from the moment of the commencement of the dispute to the conclusion of the litigation.
Cross-border litigation and enforcement
In cross-border litigation, the UK remains outside the EU regulatory regime that provides for jurisdictional matters, such as the enforcement of jurisdiction clauses, and the cross-border enforcement of judgments. As an EU member, the UK enjoyed the benefits of the Brussels Recast regime. In the aftermath of Brexit, the UK has applied to join the Lugano Convention, a similar regime but one that includes the non-EU, EFTA states of Switzerland, Norway and Iceland. In May 2021, the European Commission published its opposition to the UK's
57
Knowledge Annual Report 2021 | Disputes & Investigations
application to join the Lugano Convention, on the basis that Lugano membership is a "flanking measure" of the Single Market, and is inappropriate for the governance of relationships with third countries. The ultimate decision will lie with the Council of the European Union, which may reject the Commission's recommendation. At present, enforcement of judgments of UK courts can be done under the terms of the less-expansive-in-scope and more-onerous-in administration Hague Convention on Choice of Court Agreements 2005, but only if the judgment is given on foot of an agreement that contains an exclusive choice of court agreement.
LOOKING AHEAD
The Collective Redress Directive must be fully transposed into Irish law by the end of 2022 and will come into effect in June 2023. When implemented, it will represent one of the most significant reforms in consumer protection and redress in the history of the State, allowing, for the first time, multiple, individual, low-value claims to be bundled into single, large-value disputes.
A public consultation on the implementing law closed at the beginning of this year and we will be carefully watching the policy choices made in transposing the EU provisions in to Irish law. In particular, the impact of the new regime will depend in large part on whether its application is limited to the 66 pieces of European law annexed to the Directive, or it is drafted in a way that will allow traditional claims in breach of contract and negligence to be litigated using the new procedures.
It is important to note that Irish implementing legislation is likely to apply to breaches of EU law that took place prior to implementation.
The costs provisions within the Directive are also likely to bring the longstanding issue of litigation funding to the forefront once again. Third party funding was briefly considered in the Kelly Report, and is under more fulsome consideration by the Law Reform Commission. The Directive provides for a `loser pays' principle in respect of collective claims, but also provides that any adverse costs orders must not fall upon individual consumers. It also allows only a nominal fee to be levied on members of a collective action. As such, it is difficult to see how the class action system envisaged by the EU will be able to effectively operate until the torts of maintenance and champerty are reformed or abolished to allow for third party funding.
58
Aoife Smyth
Knowledge Lawyer, Commercial Property
SECTION 10
8 MIN READ
PROPERTY
Listen to the audio version
59
Knowledge Annual Report 2021 | Property
2021 AT A GLANCE
Measures introduced to disincentivise bulk sale of housing units to investment funds
A change in the calculation of rent within rent pressure zones (RPZ)
Other residential tenancy reforms, including the extension of RPZ designations to 31 December 2024 and caps placed on the payment required to secure a tenancy
Affordable Housing Act 2021
Land Development Agency Act 2021 puts the Land Development Agency on a statutory footing
Government's Housing for All strategy announced in September 2021
Housing for All developments in Q4, 2021 (see Looking ahead)
Real estate developments in 2021 have been dominated by the issue of housing, which continues to drive the legislative agenda. The Irish government has, throughout the course of the year, introduced several new schemes involving much greater State participation in the provision of housing. It has also published its Housing for All strategy which, in addition to interventions directly relevant to housing, contemplates developments across a range of real estate issues, from planning to the conveyancing process itself, which will have a wider impact on the property market generally over the coming months and years.
Easements reform
Before turning our attention to matters housing-related, it should be noted that legislation is expected imminently to amend certain provisions of the Land and Conveyancing Law Reform Act 2009 (the 2009 Act) before the end of 2021. These changes relate to the acquisition of easements by prescription, i.e. by long use as of right.
Prior to the introduction of the 2009 Act, prescriptive rights of way were usually verified by statutory declarations of long use. The 2009 Act introduced new requirements for a prescriptive right to be verified by a court order and/or registered with the Property Registration Authority. The deadline for applications under the old pre-2009 rules is due to expire on 30 November 2021.
At the time of writing, the draft legislation has yet to be published. However, the Government has indicated that there will be a short amending bill, to be enacted before the end of November. Our understanding is that the net effect of this bill will be that the law applicable to prescriptive easements will largely revert to the law that applied before the introduction of the 2009 Act.
60
Knowledge Annual Report 2021 | Property
Real estate developments in 2021 have been dominated by the issue of housing, which continues to drive the legislative agenda.
The acting Minister for Justice has also outlined her commitment to more comprehensive reform in this area, saying:
"The amending bill will address the most pressing need by removing the end of November deadline. However, it is clear that more wholesale reform is needed. I intend to establish a time bound review that will identify the best long-term, sustainable provisions for the law in this area."*
We will keep clients advised of further developments in this area as they arise.
Acquisition of housing by investment funds
In May, the Government announced a number of interventions to disincentivise the bulk sale of units in housing developments to investment funds. These generally apply to houses and duplexes but not to apartment developments, due to what the Government
refers to as "fundamental viability issues" in the apartment context.
The steps taken can be broken down into the following categories:
Stamp duty
From 20 May 2021, stamp duty of 10% applies on the multiple purchase of 10 or more residential houses where acquired on a cumulative basis over 12 months (previously the rate was 1% on first 1m and 2% thereafter). It will also apply in circumstances where multiple purchases of residential units are made indirectly through shares or units of investment funds.
Apartments are exempt from this higher rate of stamp duty, as are:
multiple purchases by local authorities and approved housing bodies
units leased to local authorities for a term of at least 10 years
1 D epartment of Justice Press Release, `Minister Humphreys to introduce Bill to clarify rights of way' https://www.justice.ie/en/JELR/Pages/PR21000229
Planning guidelines
The Department of Housing, Local Government and Heritage issued new planning guidelines requiring local authorities and An Bord Pleanla to prohibit the bulk-buying of houses and duplexes.
These guidelines specify that developers of five or more houses/duplexes must enter into an agreement with the local authority that will limit sales of such units to an individual.
Apartments are specifically exempt from these guidelines, which do not apply retrospectively and will only impact future applications.
Owner occupier guarantee
The Government also announced its intention to introduce by way of legislative amendment an "owner occupier guarantee" which will enable local authorities to designate a specified number of houses and duplexes within a predetermined range of 0-50% of a development for purchase by owner occupiers. This requirement will be in addition to existing requirements under Part V of the Planning and Development Act 2000. Once again, it is intended that apartments will be exempt from this requirement. The draft legislation bringing about the owner occupier guarantee has yet to be published.
61
Knowledge Annual Report 2021 | Property
Residential tenancies
2021 has seen a number of developments in the context of residential tenancies as follows:
a change in the calculation of rent within RPZs, moving from a model which permitted a maximum increase of 4% per annum to one which caps rent increases at the rate of inflation (if any) shown by the Harmonised Index of Consumer Prices
extension of RPZ designations for a further three years to end on 31 December 2024
extension of the provision which allows rent reviews outside of RPZs every two years only to 31 December 2024
extension of the existing protections around tenancy termination and rent increases for tenants adversely financially impacted by COVID-19 to expire on 12 January 2022
capping the payment to be made in order to secure a tenancy to (i) an advance payment of rent in an amount no greater than a month's rent; and (ii) a deposit in an amount no greater than one month's rent
limiting the notice periods required to be given by students in respect of studentspecific accommodation to 28 days
The most significant change here is clearly the new method for the calculation of rent
in RPZs. It remains to be seen how indexlinking will work over the medium term. Certainly, in the short term, the high rate of inflation in the market generally is resulting in larger increases in rent than those contemplated by the Government when it introduced the legislation in July.
Affordable Housing Act
The Affordable Housing Act 2021 was signed into law by the President on 21 July 2021.
The Act is referred to by the Government as "the most comprehensive standalone affordable housing legislation in the history of the State" and does the following:
Direct sales agreements
Housing authorities can now enter into arrangements for the provision of dwellings for affordable housing such that a developer can sell units directly to eligible applicants nominated by the housing authority (removing the need for the authority to take the asset onto their books first).
The entities with which the housing authority can enter into such arrangements are the likes of approved housing bodies, the Land Development Agency, public-private partnerships with which the authority has entered into
an arrangement and those with whom the authority has entered into Part V agreements.
The terms of any so-called `direct sales agreements' are specified in the legislation, and deal with matters such as a requirement for units to be sold directly to eligible applicants in accordance with the scheme of priority put forward by the housing authority and the terms and conditions (including as to price) on which the dwellings are to be sold.
Equity share scheme
The legislation introduces a shared equity scheme which is designed to help bridge the gap between the market value of a home in the private market and what purchasers can afford.
Housing authorities can enter into arrangements with the ultimate purchaser whereby the authority makes a contribution to the acquisition of the unit (a discount from market value in the case of the sale of a dwelling provided by the housing authority, including through a Part V agreement, or a financial sum in the case of the purchase of an open market dwelling) and is then entitled to an equity share in the dwelling this being the so-called "equity share".
62
Knowledge Annual Report 2021 | Property
Cost rental
Part 3 of the legislation provides for the introduction of cost rental accommodation into the Irish market. This is effectively not-forprofit housing, with the rent intended to cover the cost of the construction, management and maintenance of the property.
There is no requirement for this to apply in the private sector or to private investors they can opt in if they wish, but are not forced to do so.
The minimum designation period as a cost rental dwelling is at least 40 years. The "initial maximum rent" is to be calculated as the rent that would, over the 40-year designation period, amortise a sum not greater than the estimated total cost to the owner of acquiring, developing and otherwise making available and letting the dwelling.
Part V Planning and Development Act 2000
The legislation makes changes to Part V of the Planning and Development Act 2000, most importantly amending the 10% minimum requirement for social homes and increasing this to 20% for social and affordable homes. The new 20% requirement applies to all planning permissions granted after 1 August 2021. Transitional provisions have been included
where the permission is granted during the period beginning on 1 August 2021 and ending on 31 July 2026 but the land to which the application for permission relates was purchased by the applicant during the period beginning on 1 September 2015 and ending on 31 July 2021. In such circumstances, the Part V requirement will continue at 10%.
Land Development Agency
The Land Development Agency Act 2021 (the LDA Act) gives legislative underpinning to the Land Development Agency (LDA), which was established in 2018.
The LDA has been created to coordinate public-owned land for more optimal uses where appropriate, with a focus on the provision of housing. The LDA Act formally establishes the LDA and provides for everything from its functions and powers to its corporate structure and funding.
The legislation provides that the LDA will periodically report to government on public lands which could be suitable for housing or urban development and government may direct that such lands be transferred to the LDA. It also provides that the LDA will have first refusal to purchase public lands being put up for sale.
Under the LDA Act, the Minister for Housing will specify an affordability requirement for the delivery of affordable homes for sale or rent on public lands. This affordability requirement can be varied on sites in different areas depending on local housing needs.
The LDA can provide services to local authorities for the development of large scale multi-tenure sites for housing and urban development in urban centres over 30,000. The intention is that this will assist with the construction of increased social housing on local authority-owned sites.
Zoned land tax
Budget 2022 announced the introduction of a new "zoned land tax", which is to replace the existing vacant sites levy. The new tax, which is to be collected by Revenue, is slated to come into operation in 2024 for land zoned before January 2022, and 2025 for land zoned after January 2022. The tax will be charged at a rate of 3% per annum on the market value of the land and will apply to vacant serviced sites which are zoned for residential development. There will be no minimum size exclusion (as there is currently for the vacant site levy for sites below 0.5 hectares) and the new charge
will therefore apply to all qualifying sites, regardless of their size. Primary legislation is required for the introduction of this new tax, which we expect to be published in late 2021 or early 2022.
Housing for All
The Government launched its Housing for All strategy in September. The strategy consists of a number of key pathways designed to increase affordability, eradicate homelessness, increase new housing supply and address vacancy and efficient use of existing stock.
Many of the key actions under each pathway have already been taken during the course of 2021; for example, placing the LDA on a statutory footing, introducing shared equity and cost rental schemes via the Affordable Housing Act 2021, expanding Part V requirements from 10% to 20%, and linking rents within RPZs to inflation.
63
Knowledge Annual Report 2021 | Property
LOOKING AHEAD
The Housing for All strategy also gives an insight into potential further developments over the short to medium term, many of which will have implications for the broader real estate sector. Examples of some of these measures are set out below.
Q4 2021
Introduction of indefinite tenures for residential leases (note this is stated by the Government to be "subject to legal advice").
Development of active land management powers with fairer sharing of the increase in land values resulting from zoning decisions via a new system of Land Value Sharing (securing a proportion of the value uplift of a development site, tracked from zoning to planning permission).
Introduction of a new planning process
for large scale residential developments to replace the Strategic Housing Development process.
2022
Amendment of residential tenancies legislation to provide for default conciliation as part of the dispute resolution process.
Reform of the judicial review process and introduction of a new division of the High Court for planning and environmental cases to reduce planning delays.
A comprehensive review and consolidation of planning legislation.
Introduction of a new vacant property tax on residential homes.
Commencement of section 9 of the Local Government Rates and Other Matters Act 2019 with a view to empowering local authorities to offer rates-based incentives for the conversion of suitable vacant commercial properties to residential use.
Development of new regulatory controls requiring short-term and holiday lets to register with Filte Ireland.
Regulatory reform under multi-unit development (MUDs) legislation to ensure owners' management companies (OMCs) are financially stable and provide for expenditure of a non-recurring nature (i.e. sinking funds).
Examination of measures to accelerate conveyancing as part of the sale and land transfer process.
2023
Increased enforcement of registration of tenancy requirements through measures such as the expansion of data-sharing arrangements between Revenue and the RTB.
Examination of the potential for creation of a system of deposit retention based on best international practice.
LATER
Implementation of minimum Building Energy Rating (BER) standards for the private rental sector.
Ending long term leasing of social housing by local authorities and approved housing bodies, moving to delivery models which ensure long term ownership of social housing homes.
64
Vincent Power
Partner, EU & Competition
SECTION 12
7 MIN READ
COMPETITION LAW
Listen to the audio version
65
Knowledge Annual Report 2021 | Competition Law
As we end 2021 and hope for healthier times in 2022, it is opportune to reflect on both what has happened in 2021 and what is likely to happen in 2022 in competition law in Ireland.
Business leaders rarely pay enough attention to competition (or antitrust) law until it knocks on their door - sometimes `literally' in a dawn raid. But this area of law designed to ensure the benefits of rivalry flow to consumers and the marketplace can have a crippling effect on a business. It can halt mergers and acquisitions, criminalise conduct, fine businesses up to 10% of the value of their turnover/sales, and even imprison executives for up to ten years.
In Ireland, we have to comply with both Irish and EU competition laws which are broadly similar but not the same. Other national regimes may also impinge on a business depending on where it trades.
For example, businesses trading with, or in, the UK have to comply with UK competition law, which can now divert materially from EU law (because of Brexit); thereby leading to higher compliance costs and greater uncertainty for all concerned.
Well-run businesses tend to have compliance programmes to manage the competition risks (e.g. how to identify competition law problems, deal with issues, ensure compliance with the rules and deal with unannounced inspections by competition agencies in the form of dawn raids). But even those businesses have to keep an eye on what is happening on a day-to-day basis. This briefing seeks to do just that by highlighting key developments and lessons.
2021
Substantial increase in merger notifications
During 2021, there has been a substantial increase in the number of merger notifications to Ireland's Competition and Consumer Protection Commission (CCPC). During the whole of 2020, there were 41 merger notifications made to the CCPC a 13% decrease on 2019. By contrast, 2021 has seen a dramatic rise. By 1 November 2021 alone, there were already 60 notifications a 46% increase in the ten months of 2021 over the entirety of 2020. Given that there is usually a surge of notifications in the last two months (as proportionately more deals close before year-end), the number of notifications in 2021 could well reach 70 or beyond for a full year.
Interestingly, the notifications so far in 2021 span a wide variety of economic sectors including financial services, manufacturing, technology, food, motor vehicles and the media but the more substantial deals which are still being reviewed are in the financial services space. The type of notifications also range from straight forward acquisitions to joint ventures and
66
Knowledge Annual Report 2021 | Competition Law
where there is `a change in control' in the business (e.g. moving from `joint control' to `sole control'). The key lesson is: be aware of the merger control regime even in the case of non-traditional changes in a business and not just in plain `vanilla' acquisitions.
Simplified merger procedure working well
On 1 July 2020, the CCPC helpfully introduced the Simplified Merger Notification Procedure (SMNP). It has worked well in 2021. The SMNP applies to M&A deals which do not raise significant competition concerns in Ireland. Seven notifications were cleared under the SMNP during the second half of 2020. They took on average 13.4 working days to clear, which is faster than the average of 22.9 working days for the non-extended Phase 1 investigations during 2020.
The SMNP regime has now been used several times in 2021 and the early promise has continued. The upsides for notifying parties are that a little less information is needed in the notification form while the review process is markedly quicker. The downside is that, while one can start out on the SMNP route, one could then be transferred across to the routine/nonsimplified procedure (e.g. perhaps by reason
of a third party complaint raising serious competition concerns) meaning that the advantages of the SMNP are lost. However, on balance, it is useful where it applies.
The key lesson is: start the SMNP only where it is very likely to remain possible to a successful approval.
Merger notification rejected as invalid
It is very rare that M&A notifications are rejected by the CCPC as invalid. On 21 January 2021, the CCPC announced that it had rejected as invalid a notification relating to a joint venture in the financial services sector. The CCPC said that following "a preliminary review of the notification, the CCPC has formed the view that the notifying parties have not provided full details of the proposed transaction as required under section 18(3) of the 2002 Act". The CCPC further noted that, as the notifying parties had "failed to provide full details in the notification in relation to the nature of the proposed transaction, the CCPC has been unable to determine whether the proposed transaction is a `merger or acquisition' within the meaning of section 16 of the 2002 Act." The transaction was subsequently notified and reviewed by
the CCPC. The key lesson is: the notification process should not be taken for granted and is more complicated than first appears.
Commitments in merger cases
On 6 July 2021, the CCPC cleared the proposed acquisition by a buyer of sole control of six companies trading in the nursing home sector. The clearance was subject to commitments by the buyer to:
i. inform the CCPC of all future transactions in a particular Irish county (i.e. County Kildare) during the following two years even if those transactions were not compulsorily notifiable under Part 3 of the 2002 Act
ii. notify voluntarily such transactions to the CCPC even if the transactions were not notifiable compulsorily (i.e. even if they fell below the turnover thresholds for compulsory notification) where the CCPC directs notification
The CCPC had identified potential concerns regarding the buyer's position in the provision of residential care and nursing home services in County Kildare following implementation of the notified transaction and any potential future expansion in this area by the buyer, Orpea.
67
Knowledge Annual Report 2021 | Competition Law
The key lessons are:
competition can exist in a local context (e.g. a county)
the CCPC often accepts (quite sensibly) `behavioural' commitments
one of the consequences of entering into a notifiable transaction is that one may end up having to notify all future transactions within a particular timeframe and context - even if the turnovers involved fall below the thresholds for compulsory notification - because of a commitment which has to be given to the CCPC to obtain approval in the notified deal
High Court commitments in pricing case
Businesses have to watch out for "resale price maintenance" (RPM). This arises when a "supplier" in the economic chain tells a "reseller" (further down the chain) the price(s) at which the reseller may, or may not, resell the products sold to them by the supplier. Typically, one may recommend a price at which products are resold or impose a "maximum" resale price but not a "minimum" or "specific" resale price. Statements such as "you may not resell it for more than 10" or "we recommend a resale price of 7.99" are generally fine, but "you must sell it for 7.99" or "you may not sell it at less than 5" are problematical.
In a recent case, the CCPC suspected that a furniture company was engaged in illegal RPM. The company denied the allegation entirely. The matter was resolved when the CCPC sought a High Court order under Section 14B of the Competition Act 2002 and the company agreed to the order. The High Court made the order on 14 May 2021. The CCPC's process took from 2019 to 2021, but spanned conduct going back to 2013, which shows how these investigations can last some time and can review quite a long timeframe.
It is useful to examine the case in more detail because the CCPC has a strong interest in RPM. The CCPC believed that the supplier's "suggested selling prices" (SSPs) amounted to RPM; an allegation which the company denied. On 15 April 2021, the company entered into a commitment agreement with the CCPC in which it agreed to give a commitment not to engage in RPM and, in particular to refrain from:
i. imposing or agreeing any terms and conditions that place obligations on its resellers to adhere to the company's suggested, minimum or fixed resale prices for specified products
ii. restricting the ability of resellers to independently determine the resale price of products
In consideration of the company's undertakings to the court, the CCPC undertook to "conclude the Investigation and shall refrain from instituting proceedings pursuant to section 14A of the [2002] Act against [the company] in respect of any matter to which the Investigation relates for so long as [the company] remains in compliance with the Agreement and Undertakings."
On 14 May 2021, the High Court granted an order in the terms of the agreement between the CCPC and Coach House. The High Court order came into force on 29 June 2021, subsequent to a 45-day "standstill" period under section 14B(4). The agreement is now binding for seven years from 29 June 2021.
The key lessons are:
as a supplier, be very careful how you communicate resale prices and recommendations
as a reseller, realise you may have more freedom in regard to pricing than you thought initially
CCPC investigations can span several years and can review several years of business conduct
68
Knowledge Annual Report 2021 | Competition Law
Motor insurance
The CCPC started an investigation into the motor insurance sector in 2016 and it finally concluded five years later in August 2021. The CCPC Annual Report 2020 stated:
"The anti-competitive cooperation activities under investigation include a practice which is commonly referred to as `price signalling'. Price signalling occurs when businesses make their competitors aware that they intend to increase prices, in turn causing further price increases across the sector. Price signalling can happen in public, through announcements or comments on prices, or in private through direct contacts between companies. If a business knows that their competitor is increasing prices, they may be encouraged to also increase prices, since their customers are less likely to move to their competitor."
The case was closed when the CCPC, five insurers and an insurance broker (which had denied any breach) reached agreement on various terms. In essence, the insurance sector parties agreed to introduce new internal compliance measures, the CCPC dropped its investigation and the longrunning investigation ended. Notably, there was no legal action taken against the one party which did not reach agreement with
the CCPC. The CCPC (and its predecessor) have had the power to take civil court actions since 1991 and to be involved in criminal prosecutions since 1996, but no such proceedings were taken by the CCPC in this case. The case centred on price signalling and it is a pity that the CCPC has not yet taken the opportunity to publish guidance on this topic, which is somewhat ambiguous and unclear. The key lesson is: investigations can last some time and may not always lead to an enormous amount of clarity on the law at the end of the process.
2022022
New competition legislation
The most significant reform of Irish competition law in years is due to occur with the enactment of a new competition statute. It will give the CCPC the power to impose penalties in line with the EU's so-called "ECN+ Directive" (named after the European Competition Network (ECN) which comprises the competition authorities of the EU and the Member States). But the legislation may also go further and reform various aspects of Irish competition law.
While the ECN+/EU aspects will be covered by an immunity from constitutional challenge because the legislation was
necessary under EU law, some of the other "home-grown" Irish aspects of the legislation will have to be carefully scrutinised to ensure that they are not only workable but compatible with the Irish Constitution. The legislation was scheduled for early 2021 (the implementation date for the ECN+ Directive was 4 February 2021), but the deadline was missed.
ALG's EU, Competition & Procurement Group will publish updates as soon as the legislation is published. The sponsoring Department (the Department of Enterprise, Trade and Employment) has identified a number of possible elements to the new legislation, which include the following:
Giving surveillance or bugging powers to the CCPC, when investigating serious criminal breaches of competition law and under specific conditions, to:
i. carry out video and audio surveillance
ii.require interception and recording of electronic communications attached to such powers
Making provision for a specific criminal offence of `bid-rigging'.
Making procedural changes in regard to mergers and acquisitions including a power to compel the disclosure of more information to the CCPC.
69
Knowledge Annual Report 2021 | Competition Law
Enabling the CCPC to bring summary prosecutions (i.e. cases before a judge without a jury) in respect of `gun jumping' offences.1 The DPP currently brings such prosecutions, but this reform would enable the CCPC also to bring prosecutions. The argument in favour of this is that it would enable the CCPC to police the system more, but the argument against this is that the DPP is not involved in the case and can therefore bring a more objective detached view to the case.
The new powers span all sectors of the economy equally and are not, as was implied in some media outlets in August 2020, targeted only at the motor insurance sector; all businesses will have to comply with it.
COVID competition cases
Almost every crisis generates new competition cases. Crises often lead competitors to collude. It is quite possible that some competitors may have colluded because of COVID-19 (e.g. on fixing prices or terms and conditions on re-opening businesses, and so on). So these cases could emerge during 2022 (e.g. because one participant seeks immunity under the Cartel Immunity Programme).
Some developments at EU level
There are several developments at EU level which will impact on Irish competition law e.g. changes relating to distribution, purchasing, franchising and other so-called "vertical agreements". It is proposed to mention two of these very briefly.
1.The EU's draft Digital Services Act seeks to address the dissemination of illegal content online (including goods and services). It would impose various obligations on the providers of certain online services. It could also provide for consumers and businesses seeking redress, the removal of content, and to increase transparency on the operation of the business models of online platforms.
2.The EU's draft Digital Markets Act is more of a competition measure. It aims to ensure contestable and fair markets in the digital sector by imposing harmonised, directly applicable obligations on a number of digital gatekeepers.
Both measures are hotly debated but moving rapidly through the EU legislative process and, if adopted, will impact on competition law in Ireland, both inside and outside the digital space.
1 If a merger or acquisition must be notified to the CCPC, but the parties put it into effect without CCPC approval, then they are said to be `gun jumping'.
KEY TAKEAWAYS
Irish competition law is already tough and will get tougher with new legislation very likely in 2022.
Be careful to check if the M&A provisions apply to a commercial deal (not just plain vanilla acquisitions) but changes in control and joint ventures.
Be very careful about communicating prices to resellers because of the rules on resale price maintenance.
Investigations can be long and onerous so better to avoid them by having competition compliance programmes in place.
EU developments in the digital space could be very significant for all parts of the economy because while the rules will apply to the digital sector, the remedies could be open to all sectors of the economy.
70
Alison Fanagan
Consultant, Environmental & Planning
Ann Shiels
Knowledge Lawyer, Asset Management & Investment Funds
SECTION 12
7 MIN READ
SPOTLIGHT ON
Climate, Environment and Sustainable Finance
Chris Stynes
Solicitor, Environmental & Planning
Listen to the audio version
71
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
CLIMATE AND ENVIRONMENT
The Sixth Assessment Report of the United Nations Intergovernmental Panel on Climate Change, published on 6 August 2021, assessed scientific, technical, and socio-economic information concerning climate change. It is stark in its findings, which include: "it is unequivocal that human influence has warmed the atmosphere, ocean and land". So what is being done, in Europe and in Ireland, to respond to this real threat?
In December 2019, the European Commission announced the European Green Deal, a framework to help make Europe the first climate neutral continent in the world by 2050, and to help improve the quality of life for its citizens through cleaner air, water and the protection of the natural
world. The Green Deal touches on nearly every aspect of the European economy, and involves a revisiting of European law and policy in respect of biodiversity, food, agriculture, energy, industry, construction, transport, and climate action. In turn, it is expected that Member States, including Ireland, act in a manner consistent with the achievement of these objectives. That will affect our plans, policies and investment decisions, as well as impacting on businesses and residents. Climate litigation to put pressure on Member States to act on climate issues has taken place in the Netherlands and here in Ireland. New climate legislation has also been prioritised this year, and there is a growing sense of urgency on the need to make progress on responding to a climate emergency.
The transition to carbon neutrality requires innovation and change, much of which is likely to come at a cost. It is becoming widely accepted that the global finance industry has a powerful opportunity to bridge the funding gap by directing capital towards a more sustainable, resilient and circular economy. This article considers some recent key developments and trends relative to climate, environment and sustainable finance, both at a European and an Irish level, and identifies what is likely to happen next.
72
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
The Climate Action Act 2021
The Climate Action and Low Carbon Development (Amendment) Act 2021 (the Act) was finalised (after lengthy Dil and Seanad debate) on 23 July 2021 and became legally effective on 7 September 2021. This follows on from Ireland's declaration of a climate emergency in May 2019, the EU's renewed focus on environmental action through the European Green Deal and international efforts to strengthen global climate action.
The core aim of the Act is to provide for the approval of various plans to be prepared by Government, in order to enable Ireland to transition towards becoming a climateresilient, biodiversity-rich, environmentally sustainable and climate-neutral economy by no later than 2050.
The Act amends the earlier Climate Action and Low Carbon Development Act 2015 and provides a framework for Ireland to reduce its carbon emissions in the following ways:
National Strategic Objective: the Act sets an objective to achieve the transition to a climate neutral economy by 2050.
Greenhouse gas reduction: the Act sets an interim target of a 51% reduction in greenhouse gas emissions by 2030 as against 2018 levels.
Local authority climate action plan: the Act provides that all local authorities must make individual local climate action plans and, when making their development plans, must include objectives for reducing greenhouse gases (GHGs) and address the necessity of adaptation to climate change, taking account of their local authority climate action plan.
Pathway to targets: the Act provides a framework for the development of enabling plans and strategies to reach the 2030 and 2050 targets through annual climate action plans, five-yearly long-term climate action strategies, fiveyearly carbon budgets, sectoral emission ceilings, and a national adaptation framework. This framework is intended to address the Supreme Court's concern in last year's Climate Case Ireland (Friends of the Irish Environment v Government of Ireland [2020] IESC 49) about the lack of specificity in Ireland's National Mitigation Plan (which was quashed by the Court).
Climate reporting: the Act imposes a climate reporting obligation on the Minister for the Environment, Climate and Communications. The Minister must give regular accounts (at the written request of a joint committee of the Oireachtas) on the latest climate action plan, whether there has been a reduction or increase in GHGs, compliance with
carbon budgets (from 2022), and the implementation of adaptation policies under the most recently approved national adaptation framework. A similar obligation is imposed on every government minister in relation to the sector for which they have responsibility.
Performance of functions: the Act provides that "relevant bodies" (including various state and semi-state bodies) must, in so far as practicable, perform their functions in a manner consistent with:
the climate action plan
the national long-term climate action strategy
the national adaptation framework (and approved sectoral adaptation plans)
the national climate objective and the objective of mitigating GHG emissions
State liability: the Act provides that there is no entitlement to remedy or relief by way of damages or compensation for failure to comply with the Act.
The national 2030 target is ambitious and will require swift and sustained action by the Irish Government, but also all aspects of business, agriculture and society at large. We expect the biggest immediate impact will be in relation to the setting of carbon budgets (see below), the making of regulations by the Government for
73
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
determining how GHG emissions (and their reduction) are to be accounted for, and the development of specific measures by local authorities as part of their climate action plans. In the new development plan cycle, we expect to see local authorities place a greater emphasis on climate change and the necessity of adaptation, particularly in sustainable housing and transportation strategies, which will in turn impact on zoning decisions.
What happens next?
The National Development Plan 2021-2030 with an investment budget of 165bn, was published early in October 2021. For the first time, all of the projects included are being assessed against a methodology to ensure that those that comply with climate action objectives are prioritised. There will be huge investment opportunities provided by this spending commitment.
A revised Climate Action Plan, which is due to be published imminently, must address the deficiencies identified by the Irish Supreme Court in Climate Case Ireland (referenced above). It will set out, sector by sector, updated targets and detailed steps to be taken in order for Ireland to meet its 2030 and 2050 emissions targets. When
the Climate Action Plan was published in 2019, its ambitious sectoral targets were welcomed, but the Plan was criticised for a lack of detail and impracticality in some areas. It is hoped that the revised plan will set realistic and achievable benchmarks, in order for business to see exactly what steps need to be taken and what opportunities are available, in the run up to 2030.
While Ireland has included various carbon tax initiatives in previous fiscal budgets (including taxes to incentivise the purchase of electric cars, and disincentivise the use of fossil fuels), its first dedicated carbon budget was presented to the Government in late October 2021 by the Climate Change Advisory Council. It is due to be considered and approved by Government and the Oireachtas shortly. The first five-year period under the budget will run from 2021 to 2025 and will require a 4.8% annual average reduction of emissions to ensure Ireland can reach its 2030 targets. The second five-year period will run from 2026 to 2030 and will require an 8.3% annual average reduction of emissions. Once approved, the Minister for the Environment, Climate and Communications will divide the budget of allowable emissions between various sectors, which is expected to impact transport and agriculture (including the wider dairy manufacturing sector) in particular.
The increased development of renewable energy projects including solar, and onshore and offshore wind is also a key pillar of Ireland's focus to achieve its 2030 targets by having 80% of energy from renewable targets by that date.
With that in mind, significant new legislation (the Maritime Area Planning Bill 2021) is currently going through the legislative process to provide a "fit for purpose" planning regime for, amongst other things, offshore wind projects. Ireland hopes to deliver 5,000 mw of new offshore wind by 2030, which will likely require between 7-10 new projects off the Irish coast where currently there is virtually no such development. This is in a context where there are significant energy constraints due to inadequate energy infrastructure and a current reliance on fossil fuels (oil and gas) and onshore wind, which can be unpredictable. Peat was previously used to fire generation plants but the harvesting of peat was effectively shut down by the Irish Environmental Protection Agency refusing to permit the activity to continue; with the last peat burning power station ceasing activity at the end of 2020. This is already showing a real change and an opportunity for developers of renewable energy projects.
74
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
This legislation will help bring certainty to the offshore legislative process in a way that complies with European environmental assessment obligations, facilitates Aarhus Convention-compliant public participation and gives Ireland a realistic chance of delivering new renewable energy sources, thus allowing it to meet its 2030 climate change targets.
Circular economy principles are being advanced by the Irish EPA in its Circular Economy Programme, published in April 2021, and the ongoing consultation by Government on a new Strategy to Transition to a Circular Economy. Initiatives include reducing waste, shrinking our carbon footprint, supporting local and regional economic development, and growing new business models.
SUSTAINABILITY AND FINANCE
Cascade of environmental, social and sustainable economic policy
Paris Agreement UN SDGs
Global policy
Brundtland Report
United nations frameworks
European Union Policy
PSI PRI
PRB
Ireland's national strategy
European Green Deal EU Action Plan on Sustainable
Finance
Climate Action Act National Development Plan Climate Action Plan Maritime Area Planning Bill Circular Economy Programme
Domestic business
Domestic financial services
75
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
The challenges and opportunities associated with the changing environmental, social and economic landscape are manifesting in the financial sector. The financial sector can be uniquely placed to influence and drive change. All actors in the financial system have a role to play.
One reason for this is that a primary function of the financial system is to power the real economy. So, if sustainability challenges matter to businesses and activities in the real economy, then they matter to the financial service sector because it lends to, invests in, or insures those businesses and activities.
Another reason is linked to the ambitious targets set to achieve the goals of the Paris Climate Agreement and the UN Sustainable Development Goals (UN SDGs). These goals require financing to achieve them and the public sector cannot do this alone. Private finance, including the financial service sector, has a part to play.
Taking a look from the global macro policy perspective: estimates indicate the figure to finance the UN SDGs will require an additional US$2.4 trillion of global, annual, public and private investment into low carbon infrastructure, energy, agriculture, health, education and other sustainability sectors. Europe alone has identified a
yearly financial gap of more than 180bn to finance policies and investments necessary to keep the global temperatures in line with the objectives of the Paris Agreement.
It will be necessary to have government support, in the form of policy and other supports, and political will aligned with these strategies, in order to drive the change required at the pace it will need.
Environment, Social and Governance (ESG)
The growth of sustainable finance over the past years is a reflection of the increasingly accepted belief that a failure to incorporate ESG factors into financial decision making is creating significant risks for both businesses and society. Climate change is the most widely known, understood and quantifiable global sustainability challenge which triggers many of the `E' issues, but it is not the only one. `S' factors, especially those related to inequality and employee health and safety, are increasing in priority, accelerated by pandemic-related challenges.
ESG integration in the area of investment decision-making has been evolving for some time now. The insurance industry is the risk manager of the financial sector and therefore, uniquely placed to identify, assess, manage and monitor systemic risks
and opportunities such as those arising through an ESG lens. With two thirds of the European economy financed by banks, according to the European Banking Federation, the transition simply cannot happen without them.
UN global collaborative initiatives
There are many collaborative and membership-based organisations in financial markets at global, regional and national level promoting broader adoption of responsible and sustainable finance practices.
The United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between the UN Environment Programme (UNEP) and the global financial sector to mobilise private sector finance for sustainable development. UNEP FI works with banks, insurers, and investors and supporting institutions to help create a financial sector that serves people and planet while delivering positive impacts.
The frameworks UNEP FI has established or co-created establish the norms for sustainable finance and include:
Principles for Responsible Banking (PRB) launched with more than 130 banks collectively holding USD$47 trillion in assets, or one third of the global banking
sector, on 22 September 2019. AIB Group plc, An Post and Bank of Ireland are signatories to the PRB.
Principles for Sustainable Insurance (PSI) established in 2012 by UNEP FI and today applied by one-quarter of the world's insurers (25% of world premium). Allianz, Aviva, Zurich and Willis Towers Watson are just some of the signatories to the PSI.
Principles for Responsible Investment (PRI) established in 2006 by UNEP FI and the UN Global Compact, now applied by half the world's institutional investors (USD$83 trillion). There are currently 29 signatories to the PRI listed as headquartered in Ireland, with asset owners, investment managers and service providers amongst them.
EU Action Plan on Sustainable Finance
The Irish approach to sustainable finance is shaped by the EU's stance. In July 2021, the European Commission published its renewed Strategy for Financing the Transition to a Sustainable Economy (the EU Action Plan on Sustainable Finance). The EU Action Plan on Sustainable Finance is an important workstream supporting the policy objectives of the European Green Deal and channelling private investment into the transition to a climate-neutral, climate-resilient, resourceefficient and just economy.
76
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
The EU Action Plan outlined ten reforms in three areas:
1.reorient capital flows towards sustainable investment
2.mainstream sustainability into risk management
3.foster transparency and long-termism in financial and economic activity
The EU Taxonomy Regulation is a key development under the first area and the Sustainable Finance Disclosures Regulation (SFDR) under the second. The proposal for a Corporate Sustainability Reporting Directive and European Green Bond Standard are others.
The EU taxonomy is a unified classification system on what can be considered environmentally sustainable economic activities. It is an important body of work underpinning much of the European approach and will have far reaching consequences for European and Irish business sectors and firms.
SFDR has already had an impact on disclosures made by regulated financial services firms in Europe and firms who distribute their products in Europe. This has,
and will continue to be, a significant product, governance, risk and compliance issue and, for example, will have ongoing product classification and disclosure implications for the Irish asset management and investment funds industry.
In October 2021, the European Commission issued the first NextGenerationEU green bond, raising 12bn to be used exclusively for green and sustainable investments across the EU.
Ireland and sustainable finance
There is a strong commitment in Ireland to developing sustainable finance across all stakeholders in the financial system. AIB launched Ireland's first green bond and reported in 2020 that its green mortgage offering represents 14% of new mortgage lending. Bank of Ireland's `Woodland Nature Credit' is a nature-based funding instrument for carbon sequestration, biodiversity and public amenities across Ireland. With 5.2 trillion in assets under administration, Ireland has the third largest investment fund domicile in the world. Irish regulated funds have been tackling SFDR head-on by making sustainability-related disclosures available to investors, classifying their products as
so-called `light-green' and `dark-green' funds under SFDR and will soon be disclosing how much of their underlying investments are aligned with the EU Taxonomy. The Central Bank of Ireland published a climate and emerging risk survey in May 2021 entitled "Understanding the Future of Insurance".
Minister for Finance, Paschal Donohoe, launched Ireland's Sustainable Finance Roadmap at Climate Finance Week Ireland on 11 October 2021. This roadmap sets out targeted measures with a view to Ireland being a leading sustainable finance centre by 2025 and provides for creating an International Sustainable Finance Centre of Excellence by mid-2022. It outlines how public-private sector collaboration will develop talent, prepare industry, leverage digital solutions, enhance the enabling environment, and promote and communicate Ireland's sustainable finance priorities and capabilities.
The expectation of how this will transform Ireland's financial service sector is ambitious, as is the objective to help local companies big and small to realign their business models to take advantage of these significant opportunities.
77
Knowledge Annual Report 2021 | Spotlight on Climate, Environment and Sustainable Finance
What does this mean for business in Ireland?
Climate action and the broader sustainability agenda is now the umbrella under which all of us need to make both business and personal decisions as we move forward. All businesses will need to demonstrate that environmental principles are informing their decisions be they regarding investments, financing arrangements, acquisition of properties, employee policies including reuse of transportation, product development, waste management, and all initiatives to reduce their own carbon footprint.
ESG is not just the preserve of large companies anymore while it may not be formalised in smaller businesses, it will be relevant to everything we do. It will impact on the ability to raise finance, attract investment, attract and retain talent, and secure regulatory consent.
There will be challenges, including increased taxation for certain industries, conflict between improving infrastructure and meeting environmental requirements, and a risk of increased litigation. We are already seeing a rise in challenges based on incompatibility with climate objectives. For example, the Irish High Court recently granted leave for judicial review proceedings to be taken against the granting of planning permission for a data centre for a number of reasons, including an alleged failure to assess the data centre's carbon footprint during the environmental impact assessment process.
There will, however, also be opportunities in innovation and development in both the public and private sectors:
the supply of materials to allow for retrofitting of homes and businesses
the development of renewable energy projects
the development of public transportation
the development of much needed energy, water and waste water infrastructure
the development of new technologies to allow for the reuse of materials
Ireland has a thriving financial services sector. By adopting sustainable approaches to core areas of investment, banking and insurance, financial market participants can create opportunities for both the public and private sector to transition from business-as-usual to business models and strategies that deliver long-term sustainable outcomes for the environment, society and the wider economy.
The law is as stated on 1 November 2021. Developments continue apace in this area and two developments of note - COP26 and Ireland's Climate Action Plan 2021 occurred after this article was finalised. Check out our Climate Action Hub for the most up-to-date content.
78
Michael Neill
Head of Belfast Office
SECTION 13
4 MIN READ
A VIEW FROM ALG BELFAST
Listen to the audio version
79
Knowledge Annual Report 2021 | A view from ALG Belfast
It's almost 18 months since the Belfast Office decamped en-masse back to our homes for some office working. Now that we have cautiously returned to some sense of normality, much may have changed but, ultimately, we believe for the better.
By way of background, the Belfast office is now four years into its second decade having grown substantially between 2007 and 2017, a decade somewhat counter-intuitively dominated by a recession. That decade allowed us to lay the foundations of four pillar practice areas (Corporate, Litigation, Banking and Property), whilst gradually building specialisms within and around those departments in order to diversify our client base.
On 15 October 2019, I gave an update on Belfast to all our partners. Three months later, on 30 January 2020, the partners met at an away day. Only two months later, Covid-19 arrived. Nevertheless, I have revisited both presentations in order to identify what were the consistent themes pre-Covid and how apt those themes are post-Covid. The themes were threefold.
01
Clients and markets
We had clearly been taking significant market share. By way of explanation, economic growth in NI from 2012 - 2018 was only +5.7% whereas the Belfast Office had grown by +151% during the same period.
02
Flexibility
Both presentations contained a section entitled Agile Working. This highlighted the positives we had noted following the laptop roll out in 2019.
03
People
The NI market (Belfast, in particular) was becoming crowded with different law firm models, so we felt it was important to press down even harder on our strategy of investing in our people.
Instinctively, one's first thought is that, post-Covid, much has now changed. However, it seems to me that if we can carefully navigate these same themes in a post-Covid environment, we can emerge as an even stronger, more progressive and, ultimately, a unique law firm on the island of Ireland.
80
Knowledge Annual Report 2021 | A view from ALG Belfast
Clients and market
Many performance indicators, whether annual revenue, legal directory listings, Experian league tables. or otherwise, speak to our Belfast Office as a leading law firm in Northern Ireland. In terms of size relative to competitors, we are approximately 40% larger than Arthur Cox NI and only 20% smaller than Carson McDowell, as the largest NI firm. However, one notable difference is that we've only been in the NI market for 14 years in contrast to their 150 years! Whilst it's clear momentum is on our side, it's important to note that our objective is not necessarily to become the largest law firm in NI. Rather, our strategy is less to do with outcome and more to do with ensuring we facilitate a process of continual improvement.
Post-recession, post-Brexit, post-Covid, post-multiple Stormont crises ... the NI market is actually doing well. Despite the Brexit noise and the associated short term bumps, NI occupies an enviable position in two key areas. Firstly, it facilitates an obvious geographical and friction-lite gateway for trade into both the European and British markets (and beyond). This is unique. In fact, when you Google Northern Ireland + Brexit, the strapline "Gateway of opportunity" often appears. Secondly, unlike many other countries, NI's growth potential, with its young (we have one of the
youngest populations in Europe), educated and resilient workforce, is still relatively untapped.
That said, there are clear signs that sophisticated businesses are now capitalising on this potential. For example, there are now circa 6,000 more companies registered in Northern Ireland today than there were prior to the Referendum and inward investors continue to set up operations. This year, transactional activity is buoyant as borne out by our Corporate Department completing the largest deal in the NI market for many years (the Euroauctions sale transacted for 750m) and our Property Department completing the largest ever commercial letting ever seen in NI (PwC's Merchant Square building). In addition, this year, Belfast found itself ranked ninth in the top ten `Tech cities of the future', according to fDi Intelligence, a specialist division of the Financial Times.
Flexibility
We have been returning gradually to the Belfast Office for almost six months now. Whilst, in tandem, we have been thinking a lot about what the future of work will look like, we've realised that the office is naturally defaulting into a pattern and rhythm to our work. This period is providing us with invaluable insight as to how we are functioning in a hybrid working environment
before any prescriptive parameters are, or even need to be, set. Nevertheless, our midto long-term objective is to strike the right balance between flexibility and culture, but we know it will take time to find the correct balance.
As we have often reflected to our staff, we were struck by the responses to the question within our internal 2021 Insight Survey "What is the Best thing about working at ALG?" It wasn't just the level of engagement, in terms of the number of volunteered responses we received, but the fact that over 95% of the answers from staff contained one or a combination of these words: "people"; "culture"; "colleagues". We are acutely aware that this connectivity was borne out of a decade of office-working, so our challenge is to preserve our culture and train our people, whilst also embracing the benefits of working flexibly.
People
As we highlighted back in late 2019, the legal marketplace in a small jurisdiction like NI was becoming crowded. The reasons are principally linked to the latent potential of the NI market, which I have highlighted. For example, in the legal sector, there are the traditional players like ourselves as well as English law firms needing to establish a presence in Belfast to service their existing clients (Pinsents,
TLT, Shoosmiths, Eversheds, etc.) as well as near shoring Magic/Silver Circle firms (A&O, Baker Mackenzie, Herbert Smith, etc.). Each sectoral participant offers something different. However, the strength of our firm is principally that it creates a direct interface with both clients and colleagues based in Belfast, Dublin and beyond. This builds a distinct culture within our firm which is bolstered by a consistent strategy of investing in our people in order to facilitate both their own personal growth and, ultimately, the growth of the firm over the longer term. We are fortunate in this regard because our people typically have a hunger for knowledge and personal development.
Conclusion
I joined the firm almost 12 years ago and it's been a fantastic experience to see the Belfast Office evolve to what it is today. It never ceases to impress me how ALG is able to successfully shape, shift and pivot within a changing business landscape. Covid-19 might be the most recent example, but the outcome remains the same: that the firm is adept at emerging from challenge even stronger than before.
81
SECTION 14
7 MIN READ
KNOWLEDGE MANAGEMENT:
Hybrid teams and post-pandemic themes
Celine Kelly
Knowledge & Client Solutions Manager
Listen to the audio version
82
Knowledge Annual Report 2021 | Knowledge Management
The sudden shift to remote working in March 2020 meant that law firms and legal teams supporting a business had to find new ways to collaborate, communicate, deliver work product and just execute. Online resources became even more important and also the ability to capture and disseminate knowledge in all its forms leading to a sharper focus on knowledge management solutions. Now as businesses move towards a blended or hybrid working environment it might be useful to reflect on the value knowledge management (KM) can bring to a hybrid working model?
Doing more with less and the business case for Knowledge Management
The requirement for legal departments to do more with less was amplified over the last year and a half when the `less' now also meant just less personal access to colleagues. Legal teams, law firms and other professional services thrive on complex networks of colleagues who both formally and informally share knowledge, information and business intelligence throughout the whole organisation. Remote working meant the loss of the ability to drop by a colleague's office for a quick view on a tricky issue. Typically, lawyers like to collect and build their own know-how, sometimes in hard copy in a folder stored in their office. Remote working also compromised access to such personal knowledge banks.
Another adverse by-product of remote working was just a general decline in engagement with knowledge sharing activities and so knowledge contributions dipped. Sustained knowledge sharing within a legal team requires on-going promotion. Knowledge champions are required to promote a culture of knowledge sharing and collaboration Lawyers continuously create
knowledge as part of their day to day work but sometimes this is such an organic and intuitive process that they are not conscious of it and need constant reminders about what `good' knowledge contribution looks like to ensure that valuable knowledge outputs are captured and shared centrally with the team. As Zoom fatigue kicked-in and the broader challenges of managing life in lockdown were felt, knowledge sharing was not a priority.
Over recent months we have seen increased reliance by our ALG lawyers on our knowledge systems and an understanding that engagement with knowledge contribution is critical to the quality and success of our own knowledge database. Lawyers working remotely rediscovered the value of core KM best practices and foundational know-how tools, such as having sets of precedents and other useful documents in one managed and searchable location. We saw the traditional pillars of the department's knowledge efforts come back into sharp focus. It was a reminder that the bedrock to a successful and practical knowledge strategy revolves around collection, curation and quick access to content. Knowledge tools empower remote
83
Knowledge Annual Report 2021 | A view from ALG Belfast
workers to act more independently and with current and correct information and data. In this way knowledge management supports consistency of advice and risk management. The business case for ready access to a centralised bank of current know-how has been established yet again and now is the time to reignite the knowledge culture across your legal department.
Knowledge management to support hybrid working
As teams emerge into the hybrid workplace, face-to-face interactions will continue to be considerably reduced when compared to pre-pandemic office life. When team members have reduced opportunities to meet at the proverbial water cooler and discover a common work stream, or ask for help on a tricky legal issue, how can team leaders ensure that the right connections still happen? It is worth remembering that KM is a framework, not a single tool or solution. The KM framework is made up of people, processes and technologies and is just as much about connecting people as it is about collecting know-how documents and other assets. The `collect' and `connect' aspects are important and complementary facets of any successful KM strategy.
The principle of connecting colleagues should be carried through to all aspects of your knowledge strategy. For example, when adding know-how to central banks or repositories, it is vital to capture author/ adviser details to ensure the expertise can be mapped back to the expert person on the legal team (or external counsel). Good KM is not just about finding the right document; it can also be about quickly identifying the right person to speak with.
`The Great Resignation'
Much has been made of `the Great Resignation' over the last year. The concept was coined in 2019,1 but took hold in early 2021 as the global employment market saw huge changes in worker behaviour. Whether or not your legal team has been directly impacted by this movement, team leaders should be thinking about how they can help to drive a positive employee experience. Knowledge has a role to play here: when team members can easily access departmental and business knowledge, they can work more efficiently, answer questions confidently and quickly, and continue to grow their own learning and expertise. Complicated systems and siloed
knowledge contribute to a frustrating and draining experience for the busy in-house legal professional.
This period of employee movement has highlighted the importance of working to retain the institutional knowledge and expertise of the business on an on-going basis.2 When valued members of the team retire or move position, the expertise void can be significant and costly. A knowledge retention strategy works to convert the knowledge inside experts' heads (tacit knowledge) into documented or recorded assets (explicit knowledge) in a sustained and continuous way. The captured knowledge is made available to the whole team and its reuse supports efficient work practices, reduces risk, ensures consistent legal service to the business and underpins future knowledge creation and reuse. The methods of capturing and sharing expert knowledge might include `After Action Reviews', where lawyers distil completed projects down to three key questions: what worked, what didn't work and what would I do differently next time? Another method might be a discussion forum for the team where legal questions can be raised and answered in a way that is visible to the whole team. Your team might already be
1 L orna Borenstein, Three Indisputable Truths About the Great Resignation, Forbes (20 Aug 2021) 2 Olive Keogh, Covid taking a toll on companies' reservoir of workplace knowledge, Irish Times (4 Dec 2020)
84
Knowledge Annual Report 2021 | A view from ALG Belfast
using Slack, Yammer, Teams or some other communication channel to do this. If they are, make sure that the valuable knowledge being shared on these channels can be identified, retained and searched at a later date.
Knowledge retention strategies attempt to decentralise the expertise of the few and make it available to the team at large. This benefits both the expert and the novice. For the new hire, resources of best practice, position papers, playbooks, precedents, training materials and eLearning videos means that they can get up to speed on the work of the team and the legal position and culture of the business in a quicker and more self-driven way. For the expert, the insights and learnings captured are available to their whole team without further interruption to the expert. Content needs to be easy to find, especially for newer, less expert or less familiar team members. These team members, who will benefit most from the captured know-how, should not be faced with a document management solution that requires a degree of institutional knowledge to navigate.
Consider your commuters
As your hybrid team returns to the office, the commute becomes a part of life again. Consider if there are aspects of your important knowledge assets which might have broader reach or deeper engagement if colleagues could listen to a case study or watch a recorded presentation when it suited them. Bite-sized eLearning (or `microlearning'3) modules are by their nature short, flexible and offered to the end-user to be consumed as when they are needed or desired. The team's first foray into this approach might be something as simple as asking a know-how contributor to read and record a `lessons learned' paper on their phone, which they have shared with the team. Ensuring the audio recording is available wherever the original paper is accessed allows the end-user to choose the format that works best for them.
3 S tephen Baer, The Future of Professional Development, Forbes (19 March 2020)
CONCLUSION
Knowledge, and in particular the ability to retrieve and share core business/ department information, is increasingly seen as a critical process of an efficient and effective legal team. At ALG, the Knowledge team has been working for over two decades with ALG lawyers and now provides direct knowledge support to clients in a number of different ways. Whether your team is just starting to think about the value that KM could bring to its operations, or is considering a refresh of an existing strategy, talk to the ALG Knowledge team about our experiences and the lessons we have learned.
85
THE KNOWLEDGE CENTRE
Listen to the audio version
The Knowledge Centre is the ALG inhouse law library and information centre. Based in our Dublin office, the Knowledge Centre is staffed by three professionally qualified librarians. It is both a virtual and physical space, providing 24/7 access to legal resources across the ALG network. The Knowledge Centre is a core business support function within the firm ensuring ALG lawyers have immediate access to legislation, case law and other legal materials, as well as relevant business critical information. In addition to curating the firm's hard copy and digital resources, the Knowledge Centre provides the firm with bespoke legal and current awareness alerts and legislation tracking services. The Knowledge Centre staff also deliver legal research training to ALG's lawyers and other legal professionals, promoting information literacy and robust research skills across the firm.
Remote and hybrid working
In March 2020, our Knowledge Centre team had to figure out how best to support ALG
lawyers in a remote environment. While the Knowledge Centre has always had a strong virtual presence, the team worked hard to enhance its offering of electronic resources and to provide additional training and support to users, some of whom were coming to terms with working with and relying on e-resources exclusively for the first time. The lessons learned from this experience can now be applied to a hybrid working model.
What can the Knowledge Centre do for you?
For legal teams advising and supporting a business, the ability to conduct research quickly and efficiently is important. This can be challenging against the backdrop of a growth in the quantity (but not necessarily quality) of information resources. The ALG Knowledge team has developed a sophisticated in-house library and research function and we are happy to share our experience in this area with our clients. This offering will be of particular interest and relevance to client legal teams.
Our Knowledge Centre team, led by Ann O'Sullivan, is available to work with legal teams
to review their research tools and resources and to deliver legal research training. Through legal research guides and workshops, our information professionals will advise you on how to get the most out of both free and premium resources and how to ensure a consistent approach to legal research across the team.
The Knowledge Centre team
Ann O'Sullivan
Knowledge Services Manager
Catherine Watters
Assistant Knowledge Services Manager
Fiona Lacey
Assistant Knowledge Services Manager
Available via KnowledgeCONNECT
Registered users of KnowledgePlus, our client knowledge extranet, have direct access to our Knowledge Centre team through KnowledgeCONNECT. Ann, Catherine and Fiona are available to help with high-level research queries and to provide guidance on sourcing information using both open-source resources and the client's existing tools. For further details on CONNECT, see Client Knowledge Services.
86
KNOWLEDGE AT ALG
87
Knowledge Annual Report 2021 | Knowledge at ALG
ABOUT KNOWLEDGE
Knowledge is at the heart of ALG's commitment to delivering the best legal advice and services to our clients. The firm was the first in Ireland to establish a dedicated knowledge function and a partner within its practice, signifying its commitment to placing knowledge at the forefront of its business. Today, Knowledge still occupies a position of prominence in ALG, with colleagues and clients turning to our team for support and guidance on everything from legal developments to knowledge management solutions.
A diverse set of work streams requires a diverse team and we continue to bring talented professionals on board. The Knowledge team at ALG is made up of legal and knowledge professionals who are passionate about working with our people and clients to develop a strong knowledge sharing culture where lifelong learning, smart working and engagement with people and ideas are encouraged. The team's unique knowledge initiatives have been internationally recognised in the legal market and we continue to strive for excellence in this field.
There are several elements to the ALG Knowledge team which may be of interest to General Counsel and their legal teams. A few are set out below, but please get in touch with our Knowledge partner, Paula Reid, if you would like to discuss how we can best help you and your business.
88
CLIENT KNOWLEDGE SERVICES
Weekly Knowledge Bulletin
The team provides a weekly update of legal developments through its Knowledge Bulletin. These updates cover legislative, regulatory and case law developments across Ireland, the UK and the EU. The Bulletin focuses on the practical implications of legal and regulatory change.
Please email [email protected] to register for access to KnowledgePlus.
KnowledgeCONNECT
Please email [email protected] to subscribe to the Knowledge Bulletin.
KnowledgePlus
KnowledgePlus is our online knowledge resource featuring a range of useful knowhow across a range of legal practice areas. This know-how may take the form of checklists, FAQs, practice notes or in-depth articles. KnowledgePlus also provides access to recordings from the firm-wide seminar programme. The training section contains a range of CPD eligible online presentations. KnowledgePlus also provides case studies of some of the bespoke Knowledge services, which the team has provided to clients.
To support our clients during this challenging time we have launched KnowledgeCONNECT, which is available via KnowledgePlus. CONNECT provides our clients with a gateway to connect with the Knowledge team. As well as our existing Knowledge Lawyer Helpline, clients now have access to the entire Knowledge team, which includes our paralegals and Knowledge Centre team.
We all appreciate the significant personal and business impacts of the COVID-19 pandemic. One of the common impacts concerns the loss of connection with colleagues and the ability to talk in person about issues across our desks, as well as the
potential loss of physical access to hard copy information resources in our offices.
CONNECT affords our clients the opportunity to discuss high-level legal points with our Knowledge lawyers (such as the impact of new legal or regulatory developments) and to ask our library and information professionals how to source a legal resource, or for tips on how to track a piece of legislation. CONNECT also enables our clients to talk with our knowledge management professionals about solutions which might help them to better manage their own legal know-how and resources.
Contract Law Toolkit
The Contract Law Toolkit provides easy access to high-quality summaries of contract law cases heard in the Irish and English courts, along with links to the full judgments. The Toolkit is a searchable repository of contract case summaries organised into user-friendly sections which align with the lifecycle of a contract. It is maintained by the team and populated with information on the most recent judgments.
You will need to be a registered user of KnowledgePlus in order to submit a question via KnowledgeCONNECT.
Please email [email protected] to register for access to the Toolkit.
Please email [email protected] to register for access.
89
Knowledge Annual Report 2021 | Client Knowledge Services
Financial Litigation Case Law
This site collates and indexes summaries of important Irish financial litigation case law along with providing links to the judgments. It is fully searchable and maintained on an ongoing basis. It is designed to make locating relevant cases quick and easy and to provide a reliable and up-to-date resource of financial litigation.
training, or to discuss the implications of particular legal developments.
Please contact Paula Reid or your usual ALG contact to discuss your needs and how the Knowledge team may help.
Legal research training
Our Knowledge Services Manager, Ann O'Sullivan, is available to provide advice on how to develop your research techniques and manage your resources. She and her team are also available to deliver virtual and on-site training and workshops to legal teams.
Please email [email protected] to register for access to this respository.
Knowledge Lawyer Helpline
Please contact Paula Reid to discuss your research training needs.
Knowledge management consultancy services
Clients have the benefit of direct access to our Knowledge Lawyer team. This facility enables clients to telephone or email the appropriate Knowledge lawyer with informal queries relating to legal topics of interest. Contact details for each Knowledge lawyer may be found on the Meet the Team page of this report.
On-site seminars and training
Members of our Knowledge team are available to visit client offices to deliver seminars and
Knowledge management solutions can help to support a legal team and drive efficiency and consistency of advice. Our Knowledge and Client Solutions Manager, Celine Kelly, has significant expertise in the assessment and development of knowledge management services, such as search tools and knowledge repositories. In collaboration with other members of the team, she can advise you on the best-fit knowledge management solutions for your business.
Please contact Paula Reid to discuss knowledge management consultancy services further.
Legal CPD Tracker App
ALG's CPD Tracker App helps in-house lawyers and legal professionals to log CPD records on-the-go and automatically calculates your outstanding CPD requirements. All CPD information may, at the touch of a button, be exported to your email. It also has a list of FAQs relating to CPD requirements. The CPD Tracker App is available to download for free to iPhone, iPad and Android devices. Just visit the Apple App Store or Google Play.
Training and development
We provide a number of online and eventbased learning sessions, which are eligible for CPD. Our training programmes comprise of lectures, seminars, workshops, guest speakers and practical case studies. They are delivered by a combination of our own partners, senior lawyers, internal specialists and experienced external consultants.
To learn more about this, please contact Paula Reid or visit KnowledgePlus.
90
www.algoodbody.com
