2017 saw many initiatives being taken at national and European level to counter the potential impact of Brexit. We review some of the actions driving the current Brexit contingency plans.
Supervisory convergence opinion: 31 May 2017
Many UK market participants are likely to relocate entities, activities or functions to EU Member States in a short time period in order to maintain access to EU financial markets. It is important that supervisory and regulatory arbitrage risks are avoided.
ESMA (European Securities and Markets Authority) believes a consistent supervisory approach among National Competent Authorities is vital, a concept known as 'supervisory convergence'. ESMA's opinion provides helpful guidance and general principles on this and is seen as a practical tool in achieving supervisory convergence. For example, it adopts the principle that UK authorisations should not be automatically recognised. It also believes that the planned EU-based activity is the main driver for relocation and that letter-box entities should not be granted approval.
Sector specific opinions: 13 July 2017
Following this, sector-specific opinions were published in July 2017 in the areas of investment firms, investment management and secondary markets and provide further guidance on this.
Central Bank Initiatives
Brexit FAQ: July 2017
The Central Bank of Ireland's (Central Bank) FAQ provides information for entities seeking to relocate to Ireland. Some of the points addressed include how the Central Bank is engaging with UK entities seeking to relocate and what impact Brexit will have on existing Irish entities.
Central Bank contingency planning letter: 6 November 2017
The letter calls for contingency plans to be developed by funds and fund managers for all Brexit scenarios and associated risks and should be discussed and documented at board meetings.
It is only the beginning of Brexit. Now is the time to look at your business and evaluate what contingency plans may need to be put in place.
PRIIPs – effective since 1 January 2018
The requirement to provide a Key Information Document (KID) is now in force when a 'Packaged Retail and Insurance-Based Investment Product' (PRIIP) is offered to retail investors. A retail investor is one that is not a MiFID professional investor who possesses the necessary experience, knowledge and expertise to make its own investment decisions and to properly assess associated risks.
What is a KID?
- Pre-contractual information to aid investors and assist them in making an overall informed investment decision.
- A standalone document containing information such as general information on the PRIIP, any risks involved and associated costs.
Who is required to produce a KID?
- AIFs: if accepting retail investors, a KID must be produced.
- UCITS: exempt until 31 December 2019. The current UCITS Key Investor Information Document (KIID) may remain or may be replaced by the KID.
The requirement is now in force, so investor bases should have been examined to identify whether the requirement applies or not.
General Data Protection Regulation (GDPR) – Effective from 25 May 2018
What is the GDPR?
- It is the most significant overhaul of privacy and data protection legislation in over 20 years.
- It provides significant strengthening of data protection rules - obligations are to become more onerous in terms of the controlling and processing of personal data.
Who does it affect in the asset management industry?
- Investment funds, management companies, administrators, depositaries and distributors.
What do I need to do?
Each organisation should at a minimum:
- Fully understand the various aspects of its data flows in respect of investor and other personal data which it controls/processes
- Ensure appropriate arrangements are in place to ensure protection of such data
- Review contracts and update as necessary
- Review existing systems and alter or update as necessary
What's on the horizon for 2018?
2017 was a very positive year in terms of fund growth, with an increase across all Irish domiciled funds and strong net sales, which is likely to continue in 2018.
It will be another busy year, with Brexit remaining a hot topic of discussion. Also, governance will continue to play a key role in the funds industry, with the requirement for fund management companies to be fully compliant with the Central Bank's "CP86" guidance by 1 July 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.