1 Regulatory Framework
1.1 What legislation governs the establishment and operation of Alternative Investment Funds?
The Irish Funds Legislation, which governs the establishment and operation of Irish AIFs authorised and regulated by the Central Bank of Ireland (the "Central Bank"), is set out in question 1.3 below. Additionally, Irish AIFs structured as European long-term investment funds ("ELTIFs") are impacted operationally by Regulation (EU) No 2015/760 (the "European Long-term Investment Funds Regulation").
The governing legislation of Irish AIFs not subject to authorisation by the Central Bank depends on the legal form of those AIFs; e.g. the Companies Act, 2014 will apply to corporate AIFs established as investment companies with fixed capital.
All Irish AIFs are impacted operationally by:
- the European Communities (Alternative Investment Fund Managers) Regulations 2013 (S.I. 257 of 2013) as amended (the "Irish AIFM Regulations"), which transposed Directive 2011/61/EU (the "AIFM Directive") into Irish law; and
- Commission Delegated Regulations and Commission Implementing Regulations adopted by the EU Commission in specified areas in order to ensure that the AIFM Directive is implemented consistently across the EU, the principal one of which is the Commission Delegated Regulation (EU) No 231/2013 supplementing the AIFM Directive with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision.
1.2 Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?
Irish AIFMs managing Irish AIFs established under the Irish Funds Legislation are required to be authorised under the Irish AIFM Regulations. However, an Irish registered AIFM may manage an Irish AIF marketed to qualifying investors (a "QIAIF") for a two-year start-up period during which the Central Bank will not require the QIAIF to have an authorised AIFM. After the start-up period, an authorised AIFM must be appointed.
Non-Irish EU AIFMs managing Irish AIFs are required to be authorised in their home jurisdiction and to have availed of the passporting provisions pursuant to Article 33 of the AIFM Directive.
Although non-EU AIFMs currently have no passporting rights under the AIFM Directive and will not have such rights until such time as they are extended to non-EU AIFMs by the European Commission, non-EU AIFMs may avail of transition benefits allowed by the Central Bank for such entities and consequently may manage an Irish QIAIF, provided they are designated by the QIAIF as the AIFM and certain rules as set out in question 1.8 below are complied with. However, in such circumstances, the non-EU AIFM must be approved by the Central Bank to act as an investment manager of Irish authorised collective investment schemes (see below).
An Irish AIF constituting a collective investment scheme authorised and supervised by the Central Bank under the Irish Funds Legislation and marketed to retail investors (a "RIAIF") must have an authorised AIFM. Consequently, a non-EU AIFM cannot avail itself of the transition benefits allowed by the Central Bank as referred to above and manage a RIAIF on the basis that it is designated by the RIAIF as the non-EU AIFM.
Non-AIFM Irish Management Companies
RIAIFs and QIAIFs, depending on their legal form, may be required to appoint a management company to carry out the management of those AIFs. Where such a management company is not acting as the AIFM, it must be approved by the Central Bank and meet the requirements relating to such entities as set out in the Central Bank's AIF Rulebook (the "AIF Rulebook"), e.g.:
- a minimum capital requirement of at least EUR 125,000 or one quarter of its total expenditure taken from the most recent audited accounts (whichever is higher);
- organisational requirements such as the appointment of a compliance officer who must be located in the State, policies and systems to identify, control and monitor risk, accounting policies and procedures, maintenance of records, etc.; and
- adequate management resources.
Non-AIFM General Partners
A general partner of an ILP, as a regulated financial services provider, is subject to Central Bank regulations relating to fitness and probity but is not otherwise required to be authorised by the Central Bank.
Investment managers or sub-investment managers, which are one of the following entities, will not usually be subject to an additional regulatory review process by the Central Bank:
- UCITS management companies;
- MiFID investment firms;
- EU credit institutions; and
- externally appointed authorised AIFMs.
Investment managers which are not one of the entities listed above may only be appointed where (i) a Memorandum of Understanding ("MoU") is in place between the Central Bank and the competent authority in the home jurisdiction of the investment manager, and (ii) the Central Bank has approved the investment manager following receipt of a completed Investment Manager Clearance Form.
The Central Bank does not apply an approval process to investment advisors in order for such entities to provide investment advice in relation to a RIAIF/QIAIF, provided that the managers/directors of the RIAIF/QIAIF confirm that the advisors in question will act in an advisory capacity only and will have no discretionary powers over any of the assets of the RIAIF/QIAIF.
1.3 Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a regulatory body?
Irish AIFs established under the Irish Funds Legislation, as detailed below, are required to be authorised by the Central Bank, which has the power to impose conditions on them. The current conditions that the Central Bank imposes are contained in an AIF Rulebook:
- unit trusts under the Unit Trusts Act 1990;
- investment companies under Part 24 of the Companies Act 2014;
- investment limited partnerships ("ILPs") under the Investment Limited Partnerships Act 1994 as amended by the Investment Limited Partnership (Amendment) Act 2020;
- common contractual funds ("CCFs") under the Investment Funds, Companies and Miscellaneous Provisions Act 2005; and
- Irish collective asset-management vehicles ("ICAVs") under the Irish Collective Asset-management Vehicles Act 2015 (collectively referred to as the "Irish Funds Legislation").
In addition, Irish AIFs structured as ELTIFs must be authorised by the Central Bank pursuant to the European Long-term Investment Funds Regulation.
1.4 Does the regulatory regime distinguish between open-ended and closed-ended Alternative Investment Funds (or otherwise differentiate between different types of funds or strategies (e.g. private equity vs hedge)) and, if so, how?
The Central Bank allows RIAIFs/QIAIFs to be structured as follows:
An AIF is considered open-ended by the Central Bank where it:
- provides redemption facilities on at least a (i) monthly basis in the case of a RIAIF, and (ii) quarterly basis in the case of a QIAIF;
- redeems, when requested, at least (i) 10% of net assets in the case of a RIAIF/QIAIF that redeems on a monthly basis or more frequently, or (ii) 25% in the case of a QIAIF that redeems on a quarterly basis; and
- does not impose a redemption fee in excess of (i) 3% of the net asset value ("NAV") per unit in the case of a RIAIF, or (ii) 5% in the case of a QIAIF.
An AIF, which provides for a period of greater than 30 days in the case of a RIAIF and 90 days in the case of a QIAIF between the dealing deadline and the payment of redemption proceeds, will not be subject to the above requirements provided it classifies itself as open-ended with limited liquidity
- Open-Ended with Limited Liquidity
A RIAIF/QIAIF is classified as open-ended with limited liquidity if it does not meet one or more of the requirements for an open-ended AIF but does permit the redemption of units throughout the life of the AIF.
The Central Bank considers a closed-ended RIAIF/QIAIF to be one which does not facilitate the redemption of units at the request of the unitholders during the life of the AIF.
1.5 What does the authorisation process involve for managers and, if applicable, Alternative Investment Funds, and how long does the process typically take?
The application for authorisation of a RIAIF/QIAIF must be made by (i) the AIFM, together with (ii) the corporate AIF or management company/general partner in the case of a non-corporate AIF, and (iii) the depositary, in the case of a unit trust or CCF.
All parties to a RIAIF/QIAIF must have been authorised or otherwise deemed acceptable to the Central Bank prior to the application for authorisation (e.g. the management company, general partner, AIFM, directors in the case of a corporate AIF, depositary, other service providers such as the fund administrator, investment manager, etc.).
The directors of any entity authorised by the Central Bank (including, inter alia, the directors of a corporate RIAIF/QIAIF) are required to meet certain standards of fitness and probity. As part of the Central Bank's fitness and probity requirements, any director proposed to be appointed must be pre-approved by the Central Bank. In this regard, an individual online questionnaire must be completed by the proposed director and validated and submitted on behalf of the appointing entity by a certain time period in advance of the proposed authorisation date for the RIAIF/QIAIF (i.e. at least 20 working days in the case of a RIAIF and at least five working days in the case of a QIAIF).
A RIAIF/QIAIF is not subject to any minimum capital requirements unless it is internally managed and therefore constitutes the AIFM.
In relation to the authorisation of QIAIFs, there is no prior filing of QIAIF documentation for review by the Central Bank. Instead, there is a self-certification regime (i.e. certification has to be given that the Central Bank's disclosure requirements relating to the QIAIF documentation are met). Because there is no prior review by the Central Bank, the timeframe for authorisation of a QIAIF is within the control of the relevant parties based on the length of time it takes to negotiate and agree the QIAIF documents (subject to the pre-clearance of any persons or parties required by the Central Bank). Once the documentation is filed online by 3pm on the business day prior to the date for which authorisation is sought, a QIAIF will be authorised on the requested date without a prior review. The Central Bank may carry out a "spot check" post-authorisation review.
This contrasts with the authorisation process for RIAIFs, as the Central Bank requires certain documents (e.g. the prospectus) to be submitted for review and cleared of comment by the Central Bank in advance of the formal application for authorisation being submitted. As a result, a RIAIF with an externally appointed AIFM can take approximately eight to 10 weeks to be authorised by the Central Bank from the date of submission of applicable documents for review.
The only exception to the self-certification regime, where no prior filing of QIAIF documentation is submitted to the Central Bank for review, is where the QIAIF has what are in the Central Bank's view one or more features of an unusual nature which may need to be presented to the Central Bank by way of a written submission and approved in advance by the Central Bank.
Internally Managed RIAIF/QIAIF Constituting the AIFM
Where it is proposed that a RIAIF or QIAIF will be internally managed and constitute the AIFM, a separate application for authorisation of an AIFM must be submitted to the Central Bank (together with other supporting documentation, including, inter alia, a programme of activity) and such authorisation must be obtained before formal application for authorisation of the RIAIF/QIAIF may be submitted to the Central Bank.
Any such RIAIF/QIAIF is required to meet the minimum capital requirements of an AIFM as set out in Regulation 10 of the Irish AIFM Regulations (equivalent to Article 9 of the AIFM Directive).
The Central Bank is obliged to inform the AIFM in writing as to whether or not authorisation has been granted, within three months of a complete application. However, the Central Bank may extend this period for another three months where it considers it necessary because of the specific circumstances of the case.
Originally published by International Comparative Legal Guide
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