The Central Bank of Ireland (the "Central Bank") has updated its AIFMD Questions and Answers document by publishing a new fifth edition, clarifying the exemption for securitisation vehicles from AIFMD.
Broadly, the Central Bank has clarified that:
- securitisation companies that have registered with the Central Bank as "financial vehicle corporations" pursuant to Regulation (EC) No 24/2009 of the European Central Bank (the "FVC Regulation"); and / or
- securitisation companies funded by way of debt or other non-equity instruments,
are outside the scope of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) and the Commission Delegated Regulation (EU) No 231/2013 as transposed into Irish law under the European Union (Alternative Investment Fund Managers) Regulations, 2013 (the "AIFM Regulations").
1. Central Bank's Q&A
The full text of the Central Bank's question and answer in relation to securitisation companies is as follows:
"Q. I operate an SPV. Should I now seek authorisation as, or appoint, an AIFM?
A. As a transitional arrangement, entities which are either:
- Registered Financial Vehicle Corporations within the meaning of Article (1)(2) of the FVC Regulation (Regulation (EC) no 24/2009 of the European Central Bank); or
- Financial vehicles engaged solely in activities where economic participation is by way of debt or other corresponding instruments which do not provide ownership rights in the financial vehicle as are provided by the sale of units or shares
are advised that they do not need to seek authorisation as, or appoint, an AIFM, unless the Central Bank of Ireland issues a Q&A replacing this one advising them to do so. The Central Bank of Ireland does not intend to do that at least for so long as ESMA continues its current work on this matter. If entities which believe they fall under (b) but not (a) wish to write to the Central Bank of Ireland in this regard, they may email AIFMDsecuritisation@centralbank.ie."
2. Irish "section 110" securitisation companies
Section 110 of the Irish Taxes Consolidation Act 1997 (as amended) creates the legislative framework for securitisation companies in Ireland. Such companies are commonly called "section 110" companies. Section 110 companies can be used to acquire and hold financial assets, commodities and / or plant and machinery and to securitise such investments by raising finance (for example, through debt securities or loans). Section 110 companies can also be used to issue derivative-linked certificates and warrants.
There are a number of general conditions to be satisfied before an Irish company can elect to use the section 110 regime. The main conditions are as follows:
- Irish resident - The company must be Irish tax resident
- Arm's length dealings - The company must enter into all transactions (other than in relation to payment of profit participating interest) on an arm's length basis
- EUR 10 million - The company's first transaction must relate to qualifying assets having a market value of at least EUR 10 million
- Business activities - The company may only carry on a business of holding and / or managing qualifying assets (including, for example, receivables, bonds, loans, shares, certain partnership interests, derivatives, commodities, aircraft, shipping assets or containers)
3. Consequences of clarifications for section 110 companies
Many existing and newly established section 110 companies would be required by the FVC Regulation to register with the Central Bank as "financial vehicle corporations", by virtue of the fact that they carry out, or intend to carry out, one or more "securitisations" (within the meaning of the FVC Regulation). Following the clarifications, it is now clear that AIFMD and the AIFM Regulations do not apply to such companies.
In addition, AIFMD and the AIFM Regulations do not apply to section 110 companies that are not required to register as FVCs, provided they are not engaged in the activity of issuing shares or units. This would include, section 110 companies that are not FVCs, where they are funded by entering into loans, issuing debt securities, and / or issuing non-debt instruments (such as certificates, warrants and derivative instruments) that do not convert into, and are not convertible into, shares or units giving an ownership interest in the company.
In addition to the above there are many other reasons why AIFMD and the AIFM Regulations may not apply to section 110 companies, including, for example, where such companies have a single investor, no defined investment policy or are holding companies.
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.