The Central Bank of Ireland (the "Central
Bank") has announced that Qualified Investor
Alternative Investment Funds ("QIAIFs")
are to be permitted to engage in loan origination, subject to the
fulfilment of a number of conditions.
Ireland is the first European jurisdiction to authorise a
dedicated regulated fund product to facilitate loan origination by
investment funds. The Central Bank's pioneering work in
this field demonstrates its commitment to engaging constructively
with the funds industry in providing alternative sources of funding
to small and medium sized enterprises, while simultaneously
ensuring investor protection and mitigating against systemic
risk.
Ireland is already a leading location for the establishment of
loan funds, and this significant development will further
strengthen its position as the
European domicile of choice for regulated loan fund
products.
The Central Bank's announcement follows on from a Consultation
Paper published by the Central Bank on 28 July 2014 (the
"Consultation Paper"), in which the
Central Bank set out its proposed regulatory framework for loan
originating QIAIFs. While the final framework broadly follows
that proposed in the Consultation Paper, it also contains a number
of important clarifications which take into consideration industry
responses to the Consultation Paper, including that submitted by
Matheson.
Most significantly, the Central Bank has confirmed that loan
origination funds will also be able to engage in loan
participation, as well as in hedging and efficient portfolio
management techniques.
The Central Bank has also modified the requirement that loan
originating QIAIFs may only acquire a loan from a credit
institution if that institution retains, on an ongoing basis, a
material net economic interest of at least 5% of the nominal value
of the loan as measured at origination. That rule will now
only apply where the loan acquired from a credit institution is a
bilateral arrangement. It will not apply if the loan has been
offered to multiple parties and is acquired on an arm's length
open market basis.
Next Steps
The Central Bank has incorporated the new regulatory framework
for loan originating QIAIFs by way of an amendment to the AIF Rule Book. The Central Bank will
accept applications for authorisation of loan originating QIAIFs
from 1 October 2014, and will publish application forms on its
website in advance of that date.
Loan originating QIAIFs will be able to avail of the AIFMD
marketing passport, enabling distribution throughout the European
Union to professional investors. QIAIFs also benefit from Irish
regulatory process requirements which facilitate regulatory
authorisation within a 24 hour period of document submission.
Under proposed new legislation, which is expected to be passed
shortly, it will be possible to structure a loan originating QIAIF
as an Irish Collective Asset-management Vehicle, a new Irish
corporate vehicle specifically designed for investment funds with
the ability to "check the box" for US tax purposes.
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