Regulatory Deadlines for Irish Funds and Fund Service Providers
We set out below a reminder of certain deadlines which either occur annually, or are being introduced for the first time in 2016, which may be relevant for financial service providers including investment funds and fund management companies.
Annual Regulatory Deadlines
The Corporate Governance Code for Collective Investment Schemes and Management Companies (the “Code”) requires that an informal review of the overall performance of the Board, and that of the individual directors, to be conducted on an annual basis. The Code further stipulates that an annual review of the terms of reference of any committees of Boards and an annual review of the Board’s compliance with its documented procedures for dealing with possible conflicts of interest, must be undertaken by the Board.
In addition, the Code further requires that a formal documented review should take place once every three years. As the Code was adopted by most Boards in 2012, the first three year formal documented review is approaching for many Boards and will likely require completion on or after 31 December 2015.
Fitness & Probity Standards
The Central Bank requires an Annual Pre- Approval Controlled Function (“PCF”) confirmation return to be completed. This annual confirmation must be completed by each regulated financial service provider in respect of all PCF Holders within the firm confirming that they are compliant with the Fitness and Probity Standards. The Annual PCF confirmation return must be submitted through the Central Bank’s online reporting system (“ONR”). The confirmation return should set out a list of all active PCF Holders within the firm as at 31 December 2015. Fund service providers should therefore receive appropriate confirmations in writing from all relevant PCFs as at 31 December 2015 to enable them to make the required returns. The filing deadline for submitting the confirmation return via the ONR is 31 January 2016 for fund service providers (which include AIFMs and UCITS management companies), and is 28 February 2016 for funds.
Section 54(6) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended by the Criminal Justice Act 2013) requires funds and fund service providers (“Firms”) to ensure that staff are aware of the law relating to money laundering/terrorist financing and are provided with ongoing training. The Central Bank found, in its Report on Anti-Money Laundering/ Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector (the “Report”) published in November 2015, in assessing the nature, extent and frequency of the training provided, a number of inadequate practices in place, including: (i) not all Board members engaged in on-going AML/ CFT training, and (ii) firms were unable to provide evidence that they had satisfied themselves that staff at outsourced service providers who perform AML/CFT functions on their behalf had received adequate AML/ CFT training.
The Central Bank expects in relation to Firms’ annual training obligations that: (i) firms ensure that all persons involved in the conduct of the business (including staff at outsourced service providers) are instructed on the law relating to money laundering/terrorist financing and are provided with on-going training, and (ii) adequate training records for all staff are retained.
Return of Values (Investment Undertakings) Regulations 2013
The Return of Values (Investment Undertakings) Regulations 2013 (the “2013 Regulations”) came into effect in July 2013. The 2013 Regulations contain a number of tax reporting requirements which must be complied with by investment funds, particularly in respect of an update to be made to the fund’s application form to obtain a tax reference number and supporting documentation for Irish resident entities who make a new investment on or after 1 January 2014. Clients should contact their administrators to ensure that their funds are fully compliant with the 2013 Regulations for the year ending 31 December 2015.
The European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 provide that a UCITS is required to keep the essential elements of its KIID up-to-date. Further, Commission Regulation (EU) No 583/2010 provides that an updated KIID must be made available no later than 35 business days after 31 December each year. Accordingly, all UCITS should ensure that an updated KIID, be made available to investors, and a copy filed with the Central Bank by 19 February 2016.
As part of UCITS V compliance, KIIDs will also need to be updated to refer to the UCITS management company’s remuneration policy.
As Boards are aware, under Regulation 25 of the European Union (Alternative Investment Fund Managers) Regulations 2013 (the “Irish Regulations”), alternative investment fund managers (“AIFMs”) are required to report to the Central Bank either quarterly, half-yearly or annually, depending on the AIFM’s level of assets under management and whether the alternative investment funds (“AIFs”) the AIFM manages are leveraged or unleveraged.
In addition, an AIFM should ensure that it obtains appropriate annual confirmations from any relevant party that it may require to ensure compliance with the terms of the AIFM’s programme of activity.
New Regulatory Deadlines
Common Reporting Standards
The Common Reporting Standard (“CRS”) emerged in February 2014 and draws on earlier work of the Organisation for Economic Co-operation and Development and the EU, global anti-money laundering standards and, in particular, the Model FATCA Intergovernmental Agreement. The goal of the CRS is to provide for the annual automatic exchange between governments of financial account information reported to them by local Financial Institutions relating to account holders tax resident in other participating countries. The CRS sets out the financial information to be exchanged, the financial institutions required to report, along with common due diligence standards to be followed by financial institutions. The CRS requires financial institutions to obtain and report the tax identification number of nonresident account holders to the relevant tax authorities. The CRS impacts Irish funds from 1 January 2016. Subscription forms are likely to require updating in order to capture the relevant data that needs to be collected. This will also likely result in an update to the tax section of the prospectus at the next available opportunity.
Companies Acts 2014
The Companies Act 2014 (the “Act”) was signed into law on 23 December 2014. The Act, which consolidates the Companies Acts 1963 to 2013 into a single statute, commenced on 1 June 2015. For UCITS management companies and AIFMs, there is a period of up to 18 months from commencement of the Act within which to re-register either as a private company limited by shares (“LTD”) or a designated activity company (“DAC”). Boards should consider their preference as regards continuing as a LTD or electing to convert to a DAC. Companies which wish to convert to DAC status must do so by 31 August 2016. The transitional period ends on 30 November 2016 and therefore private companies limited by shares which have not converted to either a LTD or a DAC will automatically be converted to a LTD company on 30 November 2016.
Irish funds established as investment companies are less impacted by the Act than private companies. The M&A of existing investment companies will be deemed to continue in force, except to the extent that any provisions are inconsistent with any mandatory provisions of the Act. Investment companies are automatically deemed to be investment companies to which Part 24 of the Act applies.
Central Bank UCITS Regulations
The Central Bank (Supervision and Enforcement Act 2013 (section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulation 2015 (the “Central Bank UCITS Regulations”), which came into effect on 1 November 2015, consolidate all of the requirements which the Central Bank imposes on UCITS, UCITS management companies and depositaries of UCITS. The new Regulations, which are also accompanied by a series of Guidance Notes, replace the existing UCITS Notices and Guidance Notes. On 4 November 2015, the Central Bank published the ninth edition of its UCITS Q&A (the “Q&A”) in order to assist in the interpretation of the Central Bank UCITS Regulations. Our recent briefing note provides an update on the Central Bank UCITS Regulations and is available here.
The Central Bank UCITS Regulations apply to all new UCITS and existing UCITS. Amendments to documentation for existing UCITS funds that are required to comply with the new Regulations should be reflected in the next update of the prospectus.
A UCITS management company and depositary of a UCITS must now produce half-yearly accounts twice in each financial year. The Central Bank has clarified that the requirement to produce this second set of half-yearly accounts commences when the next financial year of the UCITS management company or depositary commences.
UCITS Business Plan/ AIF Programmes of Activity
UCITS management companies, UCITS self-managed investment companies, AIFMs and internally managed AIFs authorised prior to 1 November 2015 are impacted by the new obligations set out in the Fund Management Companies Guidance and CP 86 in respect of the revised managerial functions, the organisational effectiveness role, the time commitments and operational matters. The proposed deadline that has been set by the Central Bank for compliance by existing entities is 30 June 2016. New entities authorised after 1 November 2015 must comply with the new requirements as part of the authorisation process.
UCITS should also, in accordance with the provisions of its business plan, obtain annual confirmations from service providers and other relevant persons regarding compliance with the terms of the business plan.
The UCITS V Directive (“UCITS V”) was published on 28 August 2014 and came into effect on 17 September 2014. UCITS V amends Directive 2009/65/EC on undertakings for collective investment in transferable securities (“UCITS”). UCITS will be required to update their fund documentation in order to reflect the provisions of UCITS V. In particular, a new depositary agreement will need to be entered into between the Fund and the Depositary in place of the existing Custodian Agreement. Policies and procedures relating to remuneration and whistleblowing also need to be put in place. UCITS V comes into effect on 18 March 2016.
The Central Bank is yet to settle the process and filing requirements for UCITS V compliance by the 18 March 2016 deadline.
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”) came into force on 16 August 2012 and has direct effect through the EEA, although its provisions take effect on a phased basis. Many of the substantive EMIR obligations applicable to non-cleared OTC derivative contracts are now in effect. The clearing obligation under EMIR will start from 21 June 2016, after which firms will have to centrally clear certain classes of interest rate swaps (“IRS”). This follows the publication of the European Commission’s Delegated Regulation 2015/2205 on the central clearing of IRS in the EU’s Official Journal on 1 December 2015 (the “Delegated Regulation”). Our recent briefing note provides an update on clearing obligations under EMIR and is available here.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.