Ireland: Investment Funds Legal & Regulatory Update, July 2019

Central Bank's CP86 Implementation Review Underway

On 21 June 2019, the Central Bank took the first step in its well-publicised review of the implementation of its Fund Management Company Guidance ("CP86") and issued a Fund Management Company Guidance Questionnaire ("Questionnaire") to the Chairs of all fund management companies (including self-managed investment funds). The Questionnaire comprised seven sections in all covering:

1. Governance and the Business Model;
2. Delegate Oversight;
3. Organisational Effectiveness;
4. Directors' Time Commitments;
5. Managerial Functions;
6. Operational Issues; and
7. Procedural Matters.

The deadline for completion and submission of the Questionnaire to the Central Bank was 5 July 2019. Analysis of the responses to the Questionnaire will be followed up with desk-based reviews and onsite inspections of selected firms.

Senior Executive Accountability Regime: Cabinet Approval for Legislation

On 18 June 2019, the Minister for Finance received cabinet agreement to begin drafting heads of a Central Bank (Amendment) Bill 2019 (the "Bill") aimed at improving transparency and accountability in the financial sector. The Bill will provide for:

• the introduction of a Senior Executive Accountability Regime ("SEAR") which places obligations on firms and senior individuals within firms to set out clearly where responsibility and decision-making lies;
• the introduction of standards of conduct for individuals and firms to provide for statutory powers to set and impose binding and enforceable obligations on all regulated financial services providers and individuals working within them regarding expected standards of conduct;
• an enhanced fitness and probity regime;
• breaking the "participation link" which addresses the known deficiency in the existing legislation that requires the Central Bank to first prove a contravention of financial services legislation against a regulated financial services provider before it can proceed with an action against an individual; and
• technical amendments to improve existing legislation and clarify certain statutory processes.

Taking a risk-based approach, it is proposed that the initial introduction of a SEAR would focus on a sub-set of the financial services industry including credit institutions, certain insurance undertakings and investment firms, before being eventually applied to other regulated financial services providers.

The draft heads of Bill are expected to be brought forward during Q4 2019. For more information on the SEAR proposals, please see our Financial Regulation Group's article.

Postponement of Launch of Central Register of Beneficial Ownership

Under the Fourth EU Money Laundering Directive, EU Member States are obliged to establish and maintain central registers of the beneficial ownership of corporates and trusts. These registers must be established by 10 January 2020 (corporates) and 10 March 2020 (trusts).

In Ireland, the central register requirement for corporates was transposed via the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (the "Regulations"). The Regulations revoked the previous regulations made in November 2016 (S.I 560 of 2016), which gave effect to the requirement for relevant entities to establish and maintain a corporate beneficial ownership register. The Regulations maintain this requirement and also provide for the creation of a central register of beneficial ownership, which must be put in place before 10 January 2020. Part 3 of the Regulations, regarding the establishment of the central register and the submission of relevant information thereto came into effect on 22 June 2019, with companies then having 5 months from this date to submit their beneficial ownership information to the Registrar of Beneficial Ownership of Companies and Industrial and Provident Societies (the "Registrar").

However, on 24 June 2019, the Registrar announced that the launch of the central register of beneficial ownership of companies (and industrial and provident societies) had been postponed. A future date for the opening of the register was not confirmed, but the Registrar intends to contact each company (and industrial and provident society) individually in advance of the central register opening. We will keep you updated of further developments and filing deadlines.

Reforms to the Irish Investment Limited Partnership

The Irish government has published the Investment Limited Partnership (Amendment) Bill 2019 (the "ILP Bill"). This provides for welcome reforms to the Irish investment limited partnership ("ILP").

BACKGROUND

When enacted, the ILP Bill will modernise the ILP and bring it in line with comparable partnership vehicles in other leading jurisdictions. The ILP Bill will also make certain technical amendments to the legislation applicable to ICAVs.

MAIN CHANGES INTRODUCED BY THE ILP BILL

• Umbrella ILPs: The ILP Bill introduces the possibility of establishing "umbrella" ILPs that are divided into compartments or "sub-funds" with segregated liability. The umbrella structure is attractive because it allows separate strategies or investor types to be accommodated in different sub-funds within the same umbrella ILP rather than having to establish stand-alone ILPs for each. 
• Limited Partner Safe Harbours: If a limited partner ("LP") takes part in the management of the ILP, the LP loses the benefit of limited liability.  The ILP Bill clarifies and broadens the safe harbours which allow LPs to undertake certain actions without being deemed to take part in the management of ILPs (e.g., sitting on advisory committees and approving changes to the limited partnership agreement ("LPA")).
• Amendments to the LPA and Approval by Majority of LPs: The ILP Bill removes the requirement for all LPs to approve an amendment to the LPA. Instead such an amendment will require approval by a majority of the GPs and a majority of LPs. The ILP Bill also allows for certain amendments to proceed without LP approval where the depositary certifies that the changes do not prejudice the interests of LPs.  In addition, in line with partnership structures in other jurisdictions, the ILP Bill allows for the LPA itself to make specific provision as to what constitutes a "majority of limited partners" (e.g., a majority by value, by number or by class).
• Withdrawals/Redemptions by Investors: The ILP Bill streamlines the process for the contribution and withdrawal of capital to and from ILPs and aligns the process with that applicable to other Irish fund vehicles and partnership structures in other jurisdictions. 
• Alignment with other Irish Funds Legislation and AIFMD: The ILP Bill makes other changes to align the legislation with standard provisions applicable to other Irish regulated fund structures and with the liability and other provisions of AIFMD.

NEXT STEPS

The publication of the ILP Bill is the first step in the legislative process. Before entering into law, the Bill will be subject to various stages of review and approval by the Irish parliament.

It is hoped that the committee stage of legislative scrutiny will allow for amendments to the ILP Bill to permit the migration of partnerships to and from Ireland.  Separately, it is expected that the Central Bank of Ireland will consult later this year on changes to its rules for alternative investment funds. These changes will be relevant to managers that are interested in using the ILP structure. We will keep you updated on relevant developments.

EMIR: ESMA Updates its Q&A on Reporting

ESMA has updated its EMIR Q&A to provide further clarity regarding the implementation of EMIR Refit with respect to:

• Q&A OTC 3 on the calculation framework towards the clearing thresholds; and
• TR Q&A 51 regarding the notifications to be made by market participants to their competent authorities to apply an intragroup exemption from reporting.

European Legislative Updates

CROSS-BORDER DISTRIBUTION OF INVESTMENT FUNDS

In March 2018, the European Commission proposed amendments to both the UCITS and AIFM Directives aimed at removing identified regulatory barriers to the cross-border distribution of investment funds (both UCITS and AIFs). The proposals (a Regulation and Directive) were adopted by the European Parliament on 16 April 2019 and by the European Council on 14 June 2019. The legislation will enter into force 20 days followings its publication in the Official Journal of the EU. Thereafter, the Regulation will be directly applicable 24 months later and Member States will have 24 months to transpose the requirements of the Directive.

The key legislative changes include a definition of "premarketing" under AIFMD, which will permit alternative fund managers to more easily test the appetite of potential professional investors in new markets; harmonisation of the de-notification procedure; and disclosure requirements in marketing communications.

PEPP REGULATION

On 14 June 2019, the European Council adopted the Regulation on a pan-European personal pension product. It will enter into force 20 days following its publication in the Official Journal of the EU. It will apply 12 months after the publication in the Official Journal of the delegated acts referred to in Article 28(5) (content of the PEPP KID), Article 30(2) (revision of the PEPP KID), Article 33(3) (provision of the PEPP KID), Articles 36(2) and 37(2) (PEPP benefit statement), Article 45(3) (basic PEPP) and Article 46(3) (risk-mitigation techniques).

Central Bank to Move to 100% Industry Funding

On 14 June, the Central Bank issued a press release noting that following approval from the Department of Finance, it will be moving towards 100% industry funding over the next 5 years. In this regard, the Central Bank has stated that it will be writing to all firms subject to an industry-funding levy to advise of relevant changes.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.