Welcome to the latest edition of our Asset Management and Investment Funds Legal and Regulatory Update.
In this issue we consider the European Commission's AIFMD review and ESMA's proposed legislative amendments to both the AIFMD and UCITS frameworks; the commencement of SFTR reporting for investment funds; the Central Bank's and ESMA's recent statements on Money Market Funds reporting and stress testing; recent amendments to the Companies Act 2014; and some AML updates.
If you would like to discuss any of the topics covered, please feel free to contact a member of our team.
AIFMD REVIEW: ESMA ISSUES LEGISLATIVE RECOMMENDATIONS TO THE EUROPEAN COMMISSION
The European Commission ("Commission") is currently reviewing the Alternative Investment Fund Managers Directive (EU/2011/61) ("AIFMD"). The purpose of the Commission's review is to examine the scope and application of AIFMD to establish its impact on investors, AIFs and both EU and non-EU AIFMs, and to determine the extent to which AIFMD's objectives have been achieved.
The Commission is also mandated to propose legislative amendments to AIFMD on foot of its review. In this context, ESMA has written to the Commission with a number of recommended changes to AIFMD. Notably, a number of the recommendations proposed by ESMA also include corresponding amendments to the UCITS framework and so the proposals are of relevance not only to AIFMs, but also to UCITS and UCITS Management Companies.
ESMA's letter is extensive and includes recommendations for both policy and reporting enhancements to the AIFMD legislative framework. Changes are proposed across nineteen areas, including:
- harmonising the AIFMD and UCITS regimes;
- delegation and substance;
- liquidity management tools;
- the AIFMD reporting regime; and
- the harmonisation of supervision of cross-border entities.
For further information, please see our more detailed briefing here.
The recommendations relating to delegation and substance will be of keen interest to all AIFMs and UCITS Management Companies (including self-managed UCITS) and our detailed briefing on these proposals is available here.
SFTR: REPORTING FOR INVESTMENT FUNDS COMMENCES IN OCTOBER
Under the Securities Financing Transactions Regulation, counterparties, including UCITS, UCITS Management Companies, EU AIFs and EU authorised AIFMs are required to report details of securities financing transactions they have entered into to a trade repository, together with details of any modification or termination thereof. The reporting obligation applies to counterparties on a phased basis. Phase three, which includes UCITS and AIFs, will commence on 11 October 2020, with the UCITS Management Company or AIFM being responsible for reporting on behalf of the UCITS or AIF.
For further information, please see our more detailed briefing here.
MONEY MARKET FUNDS UPDATE
Money Market Funds Reporting
The Central Bank has published a Guidance Note ("Guidance") to assist money market fund ("MMF") managers with their reporting requirements under the Money Market Funds Regulation ("MMFR"). The Guidance provides information and direction on the completion of the following reports by MMF managers:
- the "Money Market Fund Returns" for authorised MMFs under Article 37 of the MMFR;
- ad-hoc stress test reporting under Article 28 of the MMFR;
- other ad-hoc reporting under MMFR outside of points (i) and (ii); and
- daily reporting for MMFs.
Under the MMFR, MMF managers must report certain information to their national regulator on at least a quarterly basis. The frequency of reporting is annual in the case of a MMF whose total assets under management does not exceed ?100 million. The information to be reported includes:
- general characteristics, identification of the MMF and the MMF manager;
- type of MMF;
- portfolio indicators (NAV, WAL, WAM, liquidity indicators etc.);
- results of stress tests; and
- information on assets/liabilities.
The deadline for receipt of the first of these quarterly Money Market Fund Returns (for Q1 and Q2 2020) is 6 October 2020. Thereafter, it is envisaged that returns should be filed 25 calendar days after each period end. The returns should be made using the Central Bank's ONR system and submissions can be made from 2 October 2020.
For further information on MMF stress testing and reporting requirements, please see our previous briefing here.
ESMA to Update Risk Parameters in its Stress Testing Guidelines
ESMA has confirmed that it will update its 2019 Guidelines on Stress Test Scenarios under the MMFR ("2019 Guidelines") to include a modification of the risk parameters to reflect recent market developments related to the COVID-19 crisis.
ESMA has noted that pending the application date for the 2020 update, all the sections of the 2019 Guidelines continue to apply, including the existing calibrated scenarios and the internal stress test exercise to be carried out by MMF managers.
Article 28(1) of the MMFR provides that "Each MMF shall have in place sound stress testing processes that identify possible events or future changes in economic conditions which could have unfavourable effects on the MMF". These internal stress tests could include factors other than those referred to in the 2019 Guidelines, and when designing these internal stress tests, ESMA has stated in its communication that it expects that MMFs would factor in the impact of the recent market stress according to the risk profile of their fund.
The results of the stress tests conducted under the MMFR must be included in the quarterly reporting to national regulators. As noted above, the first of these reports (covering Q1 &Q2 2020) should be submitted to the Central Bank by 6 October 2020.
ESMA expects to publish the 2020 update of the guidelines in Q4 2020. The updated guidelines will then be translated, and the changes will apply from two months after the publication of the translations.
COMPANIES (MISCELLANEOUS PROVISIONS) (COVID-19) ACT 2020
The Companies (Miscellaneous Provisions) (COVID-19) Act 2020 (the "Act") was signed into law on 1 August 2020 and commenced on 21 August 2020. The purpose of the Act is to address operational compliance issues under the Companies Act 2014 due to COVID-19. The Act amends the Companies Act 2014, largely on an exceptional and temporary basis and applies to what is called the "Interim Period", being the period beginning on 21 August 2020 and ending on 31 December 2020. This period may be extended by Ministerial Order. The amendments introduced by the Act will:
- allow companies to postpone their AGMs until 31 December 2020 regardless of anything to the contrary in the company's constitution;
- provide that general meetings may be held virtually;
- permit a change of location and date of general meeting; and
- permit documents which are required to be executed under seal to be executed in counterpart.
For further information, please see a more detailed briefing from our Corporate Governance and Compliance team here.
Beneficial Ownership - Central Bank issues FAQs on its Central Register
The Central Bank has published a set of FAQs on its central register of beneficial ownership of certain financial vehicles ("CFV Register"). The FAQs address such matters as the purpose of the register, the definition of a beneficial owner, the information that should be submitted and how to submit it.
As previously reported, funds established as unit trusts and ICAVs must file their beneficial ownership information with the Central Bank (as registrar) for inclusion on the CFV Register. Submissions to the CFV Register should be made via the Central Bank's Online Reporting System (ONR).
ICAVs and unit trust funds in existence as at 25 June 2020 must make their filings by 25 December 2020, and newly established entities must file the information within six months of their date of authorisation. The Central Bank intends to impose a levy in Q1 2021 in respect of the 2020 costs of the CFV Register.
For further information, please see our July e-zine here.
Ireland fined for late transposition of 4MLD
On 16 July 2020, the Court of Justice of the EU ("CJEU") delivered its judgment in case C-550/18, (Commission v Ireland), regarding the transposition of the Fourth EU Money Laundering Directive ("4MLD"), which should have been transposed into national law in all EU Member States by 26 June 2017. Ireland did not fully transpose 4MLD until November 2018 and the Commission had already initiated proceedings in August 2018. In those proceedings, the Commission sought the imposition of both a fixed lump sum penalty and a daily penalty payment for failure to fulfil the obligation to notify the measures transposing 4MLD. The Commission withdrew its claim for a daily penalty as a result of 4MLD having been transposed in full into Irish law and the CJEU imposed a ?2 million fine on Ireland.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.