key takeaways
- On 22 October 2024, Ireland's Minister for Finance published the Department of Finance's final report on the review of the Funds Sector 2030.
- The Report is wide-ranging in nature and the Review team has developed a set of 42 recommendations across nine identified themes, including the continued growth of areas such as private assets, ETFs and structured finance as well as measures enabling greater retail investment in the sector.
- The Funds sector review is an important contribution to ensuring the continued success of the asset management and investment funds sector in Ireland as well as supporting the EU's Savings & Investments Union.
On 22 October 2024, Jack Chambers, the Minister for Finance, published the Department of Finance's ("DoF") final report on the Funds Sector 2030 Review (the "Report").
The Report marks the culmination of the DoF's review of the investment funds sector in Ireland, under the themes of "Open Markets, Resilient Markets and Developing Markets", which was originally launched for public consultation in April 2023. The DoF was tasked with reviewing Ireland's funds sector framework to ensure it is up-to-date and to take account of developments necessary to support the long-term growth of the sector.
The Report which is wide-ranging in nature sets out 42 recommendations across the following 9 identified themes:
- the sector's growing and important role for, and in, society;
- drivers of growth will likely continue for the foreseeable future;
- growth in exchange traded funds, passives and index funds;
- growth in private assets;
- scale in distribution in a competitive global marketplace;
- an increasingly complex sector;
- financial challenges and consolidation;
- low retail participation; and
- the disruptive potential of technology
The Growth of Private Assets
The Report notes the growth in the private assets sector and increased investor demand for access to private assets, recognising the opportunity this presents for Ireland. The Report notes that one of the key proposals made in industry submissions was for the creation of a new unauthorised and unsupervised structure designed specifically for private assets. However, the Report notes that there are a number of risks associated with such a proposal and in light of the available regulated products, does not recommend the introduction of such a product.
The Report recommends that a package of measures be progressed, targeted at improving the attractiveness of Ireland's existing authorised fund structures. This includes recommendations for the Central Bank of Ireland (the "Central Bank") to review the existing AIF Rulebook and associated requirements regarding the establishment of private asset funds in Ireland, and for the Tax Division in the DoF to progress measures designed to improve the investment limited partnership, with regard to the participation exemption currently being designed and a review of the scope of the dividend withholding tax exemption.
Governance
In respect of governance requirements, the Report notes some respondents highlighted a perceived lack of flexibility with the current fund management companies guidance (the "Guidance"). The Report recommends that as part of any review by the Central Bank of the Guidance, that it should consider requirements concerning senior management to ensure they remain effective and proportionate while supporting diversity and inclusion in the sector.
Structured Finance
In addition to the funds sector, the Report also covers the structured finance sector in Ireland. The Report notes the important economic role that structured finance and special purpose entities ("SPEs") play and also notes that the Section 110 regime supports Ireland's attractiveness as a location for structured finance transactions and SPEs. The Report recommends that further work should be conducted to better understand money laundering / terrorist financing risks in the SPE sector and to support the development of targeted legislative measures in this area. The Report found that access to information on special purpose vehicles availing of the Section 110 regime could be improved. The Report also recommends that the Revenue Commissioners and the DoF continue to work together on measures that seek to enhance transparency of the Section 110 regime and address tax avoidance (including measures: (i) enabling the Revenue Commissioners to publish a list of SPEs availing of the Section 110 regime; and (ii) requiring SPEs availing of the Section 110 regime to have a Legal Entity Identifier). The Report also notes that work should continue in order to support statistical reporting in the SPE sector and that the Department of Enterprise, Trade and Employment should continue to enhance oversight of section 142 of the Companies Act (Limitation on number of directorships).
Enabling Retail Investment
The Report notes submissions to the public consultation which highlighted the relatively low levels of domestic investment in capital markets, and the identification in such submissions of the taxation of investment funds and life assurance policies as a significant barrier to investment by retail investors in Ireland.
The Report recommends a number of reforms to the taxation of Irish-domiciled funds, with similar amendments to be made to the taxation of equivalent products domiciled in EU, EEA and OECD territories, in order to bring about closer alignment with taxation on other savings and investment products. These recommendations include the removal of the eight-year deemed disposal requirement, aligning the Investment Undertakings Tax and Life Assurance Exit Tax with the current capital gains tax rate of 33%, and allowing for a limited form of loss relief.
Investment Fund Reporting and Data Collection
The Report notes the role of the Central Bank as Ireland's national competent authority for the authorisation and supervision of investment funds and fund managers in Ireland. It notes a number of responses to the public consultation referred to reporting requirements and data collection in the industry, and includes suggestions for more engagement between the Central Bank and industry in order to assess issues with regulatory returns, in order to help harmonise and streamline regulatory reporting requirements.
The Report notes that the majority of investment fund reporting requirements derive from the European Securities and Markets Authority and the European Central Bank as opposed to the Central Bank and found the latter is cognisant of the resource requirements associated with data requests and data reporting. The Report recommends the Central Bank share periodic updates with industry in terms of upcoming reporting requirement deadlines and ad-hoc requests in order to assist industry with planning and responding to such requests.
Next Steps
The recommendations in the Report have been endorsed by the Government for implementation and/or further consideration. The Central Bank has welcomed the publication of the Report and noted it supports the recommendations included and looks forward to working with the DoF on the implementation of the recommendations.
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