1 Legal & Regulatory

1.1 UCITS and AIFMD Update

Ireland

On 27 February 2023, the Central Bank of Ireland ("Central Bank") published revised website guidance on national provisions governing marketing requirement for UCITS and AIFs. The guidance notes contain updated information on the format and content of marketing material and the Central Bank's approach to verification of marketing communications.

On 24 March 2023, the Central Bank issued a Dear CEO letter following an EU-wide review of costs and fees in UCITS. While primarily related to UCITS (and directed to UCITS management companies) the Central Bank also expects that the findings are considered by AIFMs in relation to AIFs as well.

The main findings are:

  • The costs and fees charged and the methodology for calculating these fees should be reviewed at least annually.
  • All fund management companies should have structured pricing policies and procedures in place. This should include procedures for the design of cost and fees structures (as well as ongoing review).
  • Fund management companies engaging in securities lending arrangements should ensure that fee arrangements are clearly disclosed in fund documents and are compliant with ESMA guidance.
  • Fund management companies operating fixed operating expense models should ensure the differential (between the fixed overall fee and the running costs it covers) is minimised and the model should be reviewed annually.
  • Non-discretionary investment advisor fees should be proportionate to the nondiscretionary role being performed and would not, for example, be expected to be higher than the fee paid to the delegate investment manager.

The Central Bank requires all firms managing UCITS and AIFs to conduct a gap analysis of the findings / expectations and to put a plan in place by 30 September 2023 to address any gaps identified.

For more information see Central Bank of Ireland Findings Following EU Review of Costs and Fees in UCITS.

EU

On 3 February 2023, the European Securities and Markets Authority ("ESMA") published updated Q&As on the application of the UCITS Directive adding a new Q&A 5e to Section I: General on issuer concentration.

On 9 February 2023, the European Parliament's Economic and Monetary Affairs Committee ("ECON") published the report it adopted on the European Commission's legislative proposal for a Directive amending AIFMD and the UCITS Directive relating to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by AIFs. The report contains a draft European Parliament legislative resolution which sets out amendments to the proposed Directive. On 28 March 2023, the Council of the EU published an information note containing a table comparing the negotiating positions taken by the European Commission, the Council of the EU and the European Parliament. The note has been published as trilogue negotiations on the legislation taking place.

On 10 March 2023, ESMA published updated versions of:

  • Its Q&A on the application of AIFMD adding a new section XVI on exemptions. It contains a new Question 1 on how the notion of "substantive direct or indirect holding" in Article 3(2) of AIFMD should be interpreted.
  • Its Q&A on the application of the European Social Entrepreneurship Funds Regulation (EU) 346/2013 and the European Venture Capital Funds Regulation (EU) 345/2013 adding Question 5 on investment in another qualifying venture capital fund / qualifying social entrepreneurship fund.

1.2 Central Bank (Individual Accountability Framework) Act 2023 – SEAR

The Central Bank (Individual Accountability Framework) Act 223 was signed into law on 9 March 2023. The Act is not yet fully in force but some provisions came into effect on 19 April 2023. It amends current Central Bank legislation and significantly changes the regulation and supervision of regulated financial service providers and persons performing controlled functions and pre-approval controlled functions. It also introduces a Senior Executive Accountability Regime ("SEAR"), new types of business and conduct standards, and an enhanced fitness and probity regime. The Central Bank administrative sanctions procedure will also be amended to align with the new provisions.

The Central Bank, on 13 March 2023, launched a three-month consultation on key aspects of the implementation of the Individual Accountability Framework ("IAF"), including the publication of draft regulations and guidance.

The draft regulations and guidance aim to clarify the Central Bank's expectations for the implementation of three aspects of the framework: SEAR, the conduct standards and certain aspects of the enhancements to the fitness and probity regime.

For more information see CP153: CBI Consults on Individual Accountability Framework as Act Becomes Law.

1.3 Central Bank Key Regulation and Supervision Priorities for 2023

On 16 February 2023, the Central Bank published aDear CEO Letter addressing its key regulation and supervision priorities for 2023. On 15 March 2023, Central Bank deputy governors Derville Rowland and Sharon Donnery spoke to the Central Bank's 2023 regulatory and supervisory priorities at an event hosted by the Institute of Banking building on and reinforcing the February 2023 priorities letter. Core areas of focus included:

  • Continuing to remain vigilant in assessing and managing the financial and operational resilience of firms;
  • Enhancing the Central Bank's regulatory and supervisory approaches to mitigate risks from the changing financial system;
  • Providing a clear, open and transparent authorisation process through active engagement with industry and other stakeholders;
  • Progressing actions on the systemic risks generated by non-banks; in particular, advancing a macro-prudential framework for non-banks;
  • Continuing to oversee the consolidation of the Irish banking sector;
  • Supervising how firms are supporting borrowers to manage the challenges of the current economic environment (including issues related to affordability and arrears);
  • Consulting and engaging on the review of the Consumer Protection Code and the Individual Accountability Framework, the objective of which is to enhance governance across the regulated sector;
  • Continuing vigilance of the financial system, supervising firms' compliance with AML / CFT obligations, detecting and sanctioning market abuse, and enforcing financial sanctions;
  • Implementing new EU regulations on DORA and markets in crypto assets ("MiCA"), as well as contributing to the development of other regulations, such as the review of the Payment Services Directive; and
  • Strengthening the resilience of the financial system to climate change risks and its ability to support the transition to a climate-neutral economy, along with implementing SFDR.

1.4 Central Bank Securities Market Risk Outlook Report

On 2 March 2023, the Central Bank published its annual Securities Markets Risk Outlook Report 2023 - Risks in a Rapidly Changing Environment which highlights the key risk areas identified and the steps regulated financial service providers should take to effectively identify, mitigate and manage risks in the context of their particular business activities. The report sets out these risks under eight headings: (i) external risk environment; (ii) sustainable finance; (iii) market integrity; (iv) market conduct risk management; (v) delegation and outsourcing; (vi) cyber security; (vii) data quality; and (viii) digital innovation.

For more information see Central Bank of Ireland: Key Areas of Supervisory Focus for 2023.

1.5 Central Bank Information Note on Liability Driven Investment Funds

On 29 March 2023, the Central Bank published an information note on Liability Driven Investment Funds which notes the statement by the Bank of England's Financial Policy Committee published on the same date.

Following the significant UK sovereign bonds (gilts) market turmoil in September 2022 and its associated impact on UK pension funds and liability-driven investment ("LDI") funds denominated in GBP, the Central Bank engaged closely with market participants and regulators in the UK and across Europe, including the CSSF and ESMA. This engagement culminated in a letter issued on 30 November 2022 which set out the minimum safeguards required to maintain the operational and financial resilience of these funds. All funds need to ensure they have adequate liquidity to meet their obligations in normal and stressed market conditions.

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