Summer-Time Tasks for Fund Managers

June and July will see two new regulatory requirements becoming applicable to certain fund managers, namely, the requirements to:

  • put in place an operational designated email address by 30 June 2017 and to submit details of this address to the Central Bank of Ireland (“CBI”);  
  • comply with the pre-contractual disclosure requirements set out in the Securities Financing Transactions Regulation 2015/2365 (“SFTR”), by 13 July 2017.

The Designated Email Address

The requirement for fund managers to designate an email address for CBI communications is set out in Part V of the CBI’s Guidance for Fund Management Companies (here), which deals with operational issues.  See our previous briefings here and here.  

According to recent updates to the CBI’s AIFMD and UCITS Q&A, details of the designated email address must be submitted to the following CBI addresses:

  • an internally managed AIF/ UCITS self-managed investment company must submit the details to
  • an authorised AIFM/UCITS ManCo that is classified as “low impact” under PRISM must submit the details to
  • an authorised AIFM/UCITS ManCo that is classified as “medium-low impact” or “medium-high impact” under PRISM must provide the details to its supervisor. 

The relevant updates are set out in ID 1123 of the AIFMD Q&A (here) and in ID 1076 of the UCITS Q&A (here).

According to the CBI’s Guidance, one of the purposes of the designated email address is to allow the CBI to:

  • send letters, including formal letters, to the fund management company or investment fund; 
  • request meetings; 
  • issue surveys or requests for information; 
  • disseminate industry letters and notes; and 
  • more generally act as a portal for other fund management company/supervisory related communication activities.

The Guidance also sets out requirements relating to, among other things, the approval and monitoring of the designated email address. Changes to a designated email address must be communicated to the CBI via the Online Reporting System (ONR) as a “Regulatory Report”, within five business days.   

Pre-Contractual Disclosures under the Securities Financing Transactions Regulation

The SFTR lays down rules on the reuse of collateral and the transparency of securities financing transactions (“SFTs”), including reporting and disclosure requirements. See our previous briefings here, here and here

Among other things, the SFTR requires UCITS management companies, UCITS investment companies and AIFMs to disclose specified information to investors about their use of SFTs and total return swaps in their periodic reports.  In addition, a fund must disclose information about such use on a pre-contractual basis in its prospectus.  While the periodic reporting requirements have applied since 13 January 2017, the pre-contractual disclosure requirement will first apply from 13 July 2017 for funds constituted before 12 January 2016.  Funds constituted after 12 January 2016 have been subject to the disclosure requirements since that date. 

For the purpose of the pre-contractual disclosure requirement the prospectus must specify which SFTs and total return swaps it is authorised to use, and include a clear statement that these transactions are used. In addition, the disclosure must include the information set out in Section B of the Annex to the SFTR, namely:

  • General description of the SFTs and total return swaps used by the collective investment undertaking and the rationale for their use.
  • Overall data to be reported for each type of SFTs and total return swaps
    • Types of assets that can be subject to them
    • Maximum proportion of AUM that can be subject to them
    • Expected proportion of AUM that will be subject to each of them.
  • Criteria used to select counterparties (including legal status, country of origin, minimum credit rating).
  • Acceptable collateral: description of acceptable collateral with regard to asset types, issuer, maturity, liquidity as well as the collateral diversification and correlation policies.
  • Collateral valuation: description of the collateral valuation methodology used and its rationale, and whether daily mark-to-market and daily variation margins are used.
  • Risk management: description of the risks linked to SFTs and total return swaps as well as risks linked to collateral management, such as operational, liquidity, counterparty, custody and legal risks and, where applicable, the risks arising from its reuse.
  • Specification of how assets subject to SFTs and total return swaps and collateral received are safe-kept (eg with fund custodian).
  • Specification of any restrictions (regulatory or self-imposed) on reuse of collateral.
  • Policy on sharing of return generated by SFTs and total return swaps: description of the proportions of the revenue generated by SFTs and total return swaps that is returned to the collective investment undertaking, and of the costs and fees assigned to the manager or third parties (eg the agent lender). The prospectus or disclosure to investors shall also indicate if these are related parties to the manager.

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.