knowledge 30 June 2016 |

Update for Funds on the Main Securities Market

Market Abuse Regime: All Funds

The new EU Market Abuse Regulation 596/2014 (“MAR”) takes effect in member states across the EU, including Ireland, on 3 July 2016. MAR considerably expands the scope of the existing market abuse rules in terms of markets and products covered. In particular, it brings issuers whose financial instruments are admitted to trading on a multilateral trading facility (“MTF”) within the scope of the market abuse rules for the first time.

It also introduces a number of key changes which mean that funds whose units are admitted to trading on the MSM will need to revise their practices and procedures, in particular with respect to the control and disclosure of inside information, monitoring of share dealings by fund directors and maintenance of insider lists.

Significantly, insider lists will need to be updated to conform to the European Securities and Markets Authority’s new template. In addition, persons discharging  managerial responsibilities (“PDMRs”) and persons closely associated with them (“PCAs”) must now notify the fund of transactions conducted on their own account relating to the fund’s units, within three business days (rather than four previously).

PDMRs will also have to observe “closed periods”, being 30 calendar days before the announcement of an interim financial report or year-end report, and may not buy or sell units in the fund during such closed periods.

For further information, see our related briefings here and here.

Statutory Audit Regulations: EU Funds

The new framework for statutory audits, comprising the Statutory Audit Regulations and Regulation 537/2014 on Statutory Audits became applicable on 17 June 2016. The Statutory Audit Regulations transpose into national law Directive 2014/56² which sets out a series of amended and new requirements governing every statutory audit performed in the EU by any Statutory Auditor or Audit Firm.   Regulation 537/2014 contains a series of additional requirements that only apply to the statutory audits of Public Interest Entities (“PIEs”), including funds incorporated in an EU member state whose units are admitted to trading on a regulated market of any EU member state.

One of the most important changes under the new audit regime relates to the duration of the audit engagement and requires a PIE to change its statutory auditor at least every 10 years. However, this requirement is subject to a number of transitional arrangements. Specifically, where, on 16 June 2014, an auditor has been providing audit services to a PIE:

• for 20 or more consecutive years, the PIE must not enter into or renew an audit engagement with that auditor as from 17 June 2020;
• for more than 11 years but less than 20 consecutive years, the PIE must not enter into or renew an audit engagement with that auditor as from 17 June 2023;

There are no transitional arrangements applicable to an audit firm providing audit services to a PIE for less than 11 years as of 16 June 2014, meaning that the rotation requirements now apply to such firms and an existing auditor cannot be re-appointed once its engagement extends beyond 10 years.

For further information on the statutory audit regulations see our related briefing here.

Costs of International Securities Identification Numbers (ISINs): Irish Funds

Funds established in Ireland should note that with effect from 27 June 2016, the Irish Stock Exchange is obliged to charge €123 for each ISIN that it issues. Previously there was no charge for issuing ISINs.

Comment and Next Steps

Funds whose units are admitted to trading on the MSM will need to put in place the necessary measures to ensure compliance with the new requirements applicable to market abuse and, for EU funds, statutory audits. In particular, EU funds will need to ensure that they comply with the new audit rotation requirements and that procedures are in place to alert them when the ten year deadline is approaching.

As changing audit firms can cause considerable disruption, some funds may also wish to consider moving to an MTF, such as the Irish Stock Exchange’s Global Exchange Market (“GEM”), thus bringing themselves outside the scope of the new audit rotation requirements. Such a move would not, however, affect the need to comply with MAR, which, as mentioned, applies to funds whose units are admitted to trading on the GEM as well as on the MSM.