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Funds Update - Ireland
Quarterly Update | January - March 2015

1 Legal & Regulatory

1.1 AIFMD Update

1.2 First Loan Origination QIAIF 

1.3 Irish Collective Asset-Management Vehicle Act 2015 

1.4 UCITS: Update

1.5 Companies Act 2014

1.6 Central Bank Enforcement Priorities 2015 

1.7 Central Bank Programme of Themed Inspections in Markets Supervision

1.8 Cyber Security Risk for Investment Funds

1.9 Money Market Funds: Update

1.10 EMIR Update 

1.11 MiFID II/MiFIR 

1.12 PRIIPs KID Regulation

1.13 CBI Reporting Requirements

1.14 European Venture Capital Funds Regulation

1.15 CSDR Settlement Regime: Implementing Measures

1.16 Market Abuse and Criminal Sanctions

1.17 Benchmark Regulation on Indices

1.18 Client Asset and Investor Money Regulations 

1.19 ELTIF Regulation

1.20 CRD IV

1.21 EU Capital Markets Union 

1.22 Regulation on Securities Financing Transactions

1.23 UK SFO: Conviction of Former Hedge Fund Manager for Fraud

1.24 ESMA Risk Dashboard for Q4 2014

1.25 ESMA: Trends, Risks and Vulnerabilities in EU Securities Markets

1.26 EFAMA Investment Funds Industry Fact Sheet 

1.27 Draft RTS on Prudential Requirements for CSDs 

1.28 Central Bank Market Authorisation Statistics 

1.29 Anti-Money Laundering Update

1.30 Fitness and Probity Update

1.31 IFS2020: A Strategy for Ireland's Financial Services Sector 2015 -2020

 Go to Legal & Regulatory section


2 Tax

2.1 Revenue Guidance: Exchange Traded Funds and Exchange Traded Commodities

2.2 Irish Real Estate Funds – VAT

2.3 ICAV – Tax Considerations on Conversion of a PLC to an ICAV

 Go to Tax section


3 Listing

3.1 Prospectus Directive and Handbook Update

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1 Legal & Regulatory

1.1 AIFMD Update

On 16 July 2013, the European Union (Alternative Investment Fund Managers) Regulations 2013 (No. 257 of 2013) gave effect to Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") in Ireland.

There have been a number of developments over the quarter:

(a)  ESMA Q&A

On 9 January 2015, the European Securities and Markets Authority ("ESMA") published an updated version (ESMA/2015/11) of its Q&A on the application of AIFMD. The new Q&A are all grouped under the heading of reporting to national competent authorities under Articles 3, 24 and 42. On 26 March 2015 ESMA published a further update of its Q&A (2015/ESMA/630). The new Q&As are in the following sections:

(i)  Section III: Reporting to national competent authorities under Articles 3, 24 and 42.

(ii)  Section IV: Notification of alternative investment fund managers ("AIFMs").

(iii)  Section VII: Calculation of leverage.

(iv)  Section X: Additional own funds.

(v)  Section X1: Scope.

(b)  Central Bank Q&A

On 23 January 2015, the Central Bank of Ireland ("Central Bank") published a twelfth edition of the AIFMD Q&A.  New questions ID1085 (delegation), ID1086-ID1087 (transitional arrangements) and ID1088 (disclosure) are included.

(c)  AIF Rulebook

On 6 March 2015, the Central Bank published the latest version of the AIF Rulebook to include reference to Irish Collective Asset-management Vehicles, Ireland’s newest corporate fund vehicle as discussed in greater detail below.

(d)  Central Bank Application Forms

On 16 March 2015, the Central Bank updated its AIFMD application forms for qualifying investor AIFs and retail investor AIFs for the authorisation of ICAVs.

(e)  Information to be provided by NCAs

Under Article 67(3) of AIFMD, national competent authorities ("NCAs") are required to report quarterly to ESMA information on AIFMs that are managing or marketing alternative investment funds ("AIFs") under their supervision, either under the application of the passport regime or under their national regimes. The Commission Delegated Regulation 2015/514 on information to be provided by NCAs to ESMA under AIFMD comes into force on 16 April 2015.

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1.2 First Loan Origination QIAIF 

Maples and Calder became the first law firm to advise an Irish authorised Qualifying Investor Alternative Investment Fund ("QIAIF") which will originate loans. On 18 September 2014, the Central Bank made revisions to the AIF Rulebook to allow loan origination to occur within QIAIFs in recognition of the demand for non-bank sources of finance.  Connect-Ireland Diaspora Loan Fund plc was authorised on 3 March 2015 as the first loan origination QIAIF.

See also our press release, QIAIF Loan Origination: Another First for Maples and Calder 

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1.3 Irish Collective Asset-Management Vehicle 2015 

The Irish Collective Asset-management Vehicle Act 2015 was commenced on 12 March 2015. The Central Bank is the registrar for Irish Collective Asset-management Vehicles ("ICAVs") and it has published an information note and a number of application forms for registration and post-registration filings and so on.

ICAVs which are AIFs will be authorised by the Central Bank under the Act. ICAVs which are UCITS will be authorised by the Central Bank under the European Communities (UCITS) Regulations 2011.

The Act allows an Irish plc to convert to ICAV status by way of continuation. In order to do so a filing will be required to be made with the Central Bank including the Irish plc's current and intended constitutional documents together with a statutory declaration of a director confirming, amongst other matters, the solvency of the Irish plc and consenting to the proposed conversion.

On 30 March 2015, the Central Bank authorised the first investment fund established as an ICAV with Maples and Calder acting as leading counsel.

For more information see our client update, ICAV Goes Live in Ireland and Maples and Calder Advises First ICAV Registration with Central Bank of Ireland 

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1.4 UCITS: Update

(a) UCITS V

The UCITS V Directive 2014/91/EU came into force on 17 September 2014. EU Member States must transpose it into national law by 18 March 2016. ESMA is currently working on technical advice on delegated acts required by UCITS V.

(b)  ESMA’s Guidelines on ETFs and other UCITS Issues

On 9 January 2015, ESMA published an updated version of its Q&A on its guidelines on exchange traded funds ("ETFs") and other UCITS-related issues (ESMA/2015/12). New questions and answers have been added to the sections of the Q&A dealing with financial derivative instruments (Q&A 5f) and collateral management (Q&A 6n).

A comprehensive set of forms relating to UCITS applications were updated in March 2015.

(c)  Central Bank Application Forms for UCITS

On 17 March 2015, the Central Bank updated a range of its application forms for the authorisation of UCITS (including sub-funds) as well as UCITS application form guidelines.

(d)  ESMA Q&A on the KIID

On 26 March 2015, ESMA published an updated version of its Q&A on the key investor information document for UCITS (2015/ESMA/631). It includes a new Q&A 4g on the treatment of past performance information in fund mergers. It considers how Article 19(4) of Regulation 583/2010 (the KIID Regulation) should be interpreted where the receiving UCITS is a newly established UCITS with no performance history and is a continuation of the merging UCITS.

It clarifies that the UCITS should use the past performance of the merging UCITS in the KIID of the receiving UCITS if the competent authority of the receiving UCITS reasonably assesses that the merger does not impact the UCITS' performance.

ESMA also states that a change in the investment policy or to the entities involved in the investment management should be interpreted as a factor impacting the performance of the UCITS. It should also be made clear in the KIID of the receiving UCITS that the performance is that of the merging UCITS.

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1.5 Companies Act 2014

The Companies Act 2014 is expected to be commenced substantially by statutory instrument with effect from 1 June 2015. It consolidates the existing 17 Companies Acts, which date from 1963 to 2013, into one Act and it also introduces a number of reforms designed to make it easier to operate a company in Ireland.

As a matter of good corporate governance, the constitution of all companies should be reviewed and updated in accordance with the Act. Action will be required in respect of fund management companies regulated by the Central Bank (being private companies limited by shares) guidance on which is due to be provided by the Central Bank in the near future. It is unclear at the moment whether the Central Bank will require that these management companies convert to a designated activity company ("DAC"). However as regulated firms, we consider it would be prudent to convert to a DAC in any case and will provide a further update on developments in this regard in due course.

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1.6 Central Bank Enforcement Priorities 2015

On 9 February 2015, the Central Bank published its enforcement priorities for 2015. The Central Bank highlighted the following enforcement priority areas across all sectors:

(i)  Prudential requirements;

(ii)  Systems and controls;

(iii)  Provision of timely, complete and accurate information to the Central Bank;

(iv)  Appropriate governance and oversight of outsourced activities;

(v)  Anti-money laundering /counter terrorism financing compliance; and

(vi)  Fitness and probity obligations.

The Central Bank highlighted the following sectors and the specific requirements set out for the relevant sectors:

(a)  Markets:

  1. MiFID conduct of business rules; and
  2. Client Asset Requirements.

(b)  Credit unions: governance.

(c)  Consumer protection:

  1. Code of Conduct on Mortgage Arrears;
  2. Suitability of sales; and
  3. Fair treatment of customers.

The Central Bank also reiterated its commitment to allocating resources for enforcement actions against low impact PRISM firms.

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1.7 Central Bank Programme of Themed Inspections in Markets Supervision

On 26 February 2015, the Central Bank published its programme of themed inspections in markets supervision, highlighting a number of supervisory priorities for 2015. The themed inspections, in addition to the Central Bank's day to day PRISM supervisory activities that are covered are in the following areas:

(i)  Cyber security / operational risk - inspection of controls and procedures around system security and access.

(ii)  Integrity of regulatory returns - review of firms’ regulatory reporting.

(iii)  Treatment of pricing errors for the calculation of fund NAVs - examination of the processes for the treatment of pricing errors and the payment of compensation.

(iv)  Depository oversight - review of depositary oversight of investment funds including the depositary’s annual report to investors.

(v)  Proprietary trading - reviewing the governance and control environment for MiFID firms trading on their own account.

(vi)  Conduct of business - review of selected MiFID conduct of business requirements.

(vii)  Suspicious transaction reports ("STRs") - follow-up on previous themed-inspection from 2013 related to market discipline in filing STRs.

(viii)  Person discharging managerial responsibilities; ("PDMRs") - review of policies and practices in relation to notification of relevant trading activity by persons discharging managerial responsibility in listed firms.

(ix)  Risk management in UCITS - examination of the on-going application of risk management processes employed by UCITS.

Following the publication of the programme of themed inspections, the Central Bank's Director of Markets Supervision, Gareth Murphy addressed the 4th Annual Funds Congress noting policy issues at the Central Bank and highlighting the Central Bank's planned effective and efficient supervision programme for 2015.

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1.8 Cyber Security Risk for Investment Funds 

Cyber security is increasingly becoming a major issue in financial services. Investment funds need to be aware of the increasing risks in this area and take the appropriate steps to ensure such risks are mitigated as much as possible. From an Irish financial services regulatory perspective, such is the importance of ensuring that an effective and robust cyber security controls environment is in place that the Central Bank has included "cyber security / operational risk" as one of its themed inspection areas for 2015 ( see 1.7 above).

We will be issuing a client update on Recommended Measures to Address Cyber Security Risk for Investment Funds in due course.

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1.9 Money Market Funds: Update 

On 26 February 2015, a European Parliament press release announced that ECON has voted on a draft report on the proposed Regulation on Money Market Funds ("MMF Regulation").

It highlights the proposed amendments made:

(i)  Limiting constant net asset value ("CNAV") MMFs to two types. These are retail CNAV MMFs, available for subscription only for charities, non-profit organisations, public authorities and public foundations and public debt CNAV MMFs required to invest 99.5% of their assets in public debt instruments;

(ii)  Introducing low volatility net asset value ("LVNAV") MMFs, able to display a constant net asset value under strict conditions;

(iii)  Requiring MMFs to diversify their asset portfolios and have stress testing processes. MMFs' assets should be valued at least once a day, with the result published daily on MMFs' websites;

(iv)  Preventing MMFs from receiving external support from third parties including sponsors;

(v)  Requiring MMFs to report certain information weekly;

(vi)  Requiring public debt and retail CNAVs and LVNAVs to apply "liquidity fees" and "redemption gates" to help stem sudden outflows; and

(vii)  Removing the requirement for CNAV MMFs to hold a cash capital buffer equal to 3% of their assets.

On 12 March 2015, the report was published. The European Parliament is due to consider the MMF Regulation between 27 and 30 April 2015.

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1.10 EMIR Update 

The European Market Infrastructure Regulation (Regulation on OTC derivative transactions, central counterparties ("CCPs") and trade repositories (Regulation 648/2012)) ("EMIR") is a European legal initiative introduced to improve transparency, mitigate counterparty credit risk and bring increased stability to the market in financial derivative instruments ("FDI"). It is relevant to all Irish funds trading in FDI, whether on an exchange or otherwise.

(a)  Clearing Obligation for Interest Rate Swaps

The OTC clearing obligation will apply to financial counterparties (definition includes UCITS and AIFs) and non-financial counterparties in excess of the clearing threshold (the "Relevant Entities"). On 6 March 2015, ESMA published a revised opinion on draft regulatory technical standards ("RTS") on the clearing obligation for interest rate swaps under EMIR, following amendments proposed by the European Commission. ESMA supports the Commission's intention to postpone the start date of the frontloading obligation (under which the clearing obligation will apply to certain contracts with a minimum remaining maturity at commencement of the clearing obligation) and further extend the timeframe for applicability to Relevant Entities that are not already clearing members and have less than €8 billion gross notional exposure to non-cleared OTC derivatives. The RTS are yet to be endorsed by the Commission; we anticipate publication at the earliest in Q3 2015, with the first clearing obligation for interest rate swaps applying to financial counterparties that are clearing members in Q1 2016. 

(b)  Clearing Obligation for Foreign Exchange NDF Classes

On 4 February 2015, ESMA published comments received on its consultation on applying the clearing obligation to a class of foreign-exchange non-deliverable forward ("FX NDF") OTC derivatives. It is not proposing a clearing obligation on the NDF classes currently as more time is needed to address the concerns raised including inconsistent definition of FX derivatives across Europe and lack of standardised approach to valuations and events disrupting settlement arise.

(c)  Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives

Every UCITS/AIF is a financial counterparty subject to the full scope of the EMIR obligations including an obligation to ensure "the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts that are entered into on or after 16 August 2012." The draft regulations in ESMA's 2014 consultation paper on this topic proposed methodologies to determine the level of margins, the criteria that define liquid high-quality collateral, the list of eligible asset classes, collateral haircuts (including an ill received proposed 8% haircut for margin in a currency which differs from the settlement currency of the trade) and concentration limits. There is a minimum level of non-centrally cleared OTC activity (€8 billion in gross notional outstanding amounts) necessary (and applicable to both sides of the transaction) to be in scope for the initial margin requirements.

The date for legislation to enter into force is at the earliest 1 December 2015 for variation margin, with phase in periods over four years in respect of initial margin rules (including a ban on rehypothecation of initial margin). This start-date may now be pushed out by a year in line with an IOSCO/BCBS proposal on 28 January 2015. Only new contracts at the time of entry into force of the RTS will be subject to the requirements.

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1.11 MiFID II/MiFIR 

The Markets in Financial Instruments Directive (2014/65/EU) ("MiFID II") came into force on 2 July 2014. It must be transposed into national law by 3 July 2016 and will apply from 3 January 2017 (subject to a small number of excepted sections).

On 18 February 2015, ESMA's consultation paper on RTS it is required to draft under the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") relating to transparency requirements for non-equity financial instruments was published.  It covers transparency issues for: foreign exchange derivatives; credit derivatives; other derivatives; and contracts for difference.

On 24 March 2015, ESMA published a consultation paper on draft guidelines on complex debt instruments and structured deposits (ESMA/2015/610). The paper also sets out draft guidelines on related issues for the correct classification of debt instruments as either "complex" or "non-complex", specifically the concept of an embedded derivative for debt instruments. The consultation closes on 15 June 2015 and final guidelines are expected in the fourth quarter of 2015.

On 27 March 2015, ESMA published a final report on draft RTS and draft ITS on the assessment of acquisitions and increases in qualifying holdings in investment firms under Article 10a(8) of MiFID.

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1.12 PRIIPs KID Regulation

The Regulation on key information documents ("KIDs") for packaged retail and insurance-based investment products ("PRIIPs") ("PRIPs KID Regulation") introduces a new pan-European pre-contractual product disclosure document for PRIIPS (previously known as PRIPS). It came into effect on 29 December 2014 and applies in EU Member States from 31 December 2016.

ESMA, the European Banking Authority ("EBA") and the European Insurance and Occupational Pensions Authority ("EIOPA") are expected to publish two separate consultation papers on the review, revision and republication of the KID (Article 10) and timing of delivery of the KID (Article 13) shortly and a technical discussion paper on complex aspects of the KID RTS.

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1.13 CBI Reporting Requirements 

On 11 March 2015, the Central Bank updated its series of reporting requirements for IIA non-retail business investment firms, depositories, AIF management companies, UCITS management companies, AIFMs, fund administrators, and MIFID investment firms. They cover both scheduled and ad hoc reporting obligations.

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1.14 European Venture Capital Funds Regulation 

ESMA has published its final report on technical advice on the delegated acts of the European Social Entrepreneurship Funds ("EuSEF") and European Venture Capital Funds ("EuVECA") Regulations in February 2015. The implementing measures address:

(a)  the types of goods and services, methods of production for goods and services and financial support embodying a social objective:

(b)  conflicts of interest of EuSEF and EuVECA managers; and

(c)  the methods to measure the social impact.

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1.15 CSDR Settlement Regime: Implementing Measures

On 20 February 2015, ESMA published the lists of responses that it has received to its December 2014 consultations on implementing measures for the securities settlement regime under the Regulation on improving securities settlement and regulating central securities depositories.

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1.16 Market Abuse and Criminal Sanctions

The Market Abuse Regulation (Regulation 596/2014) ("MAR") will apply from 3 July 2016 and the Directive on criminal sanctions for insider dealing and market manipulation (2014/57/EU) ("CSMAD") has to be transposed into Irish law on the same date (together, "MAD II"). 

On 3 February 2015, ESMA published its final report setting out technical advice to the European Commission on possible delegated acts under MAR following its consultation in July 2014. The measures consist of technical advice and technical standards on MAR manipulation indicators, enhanced disclosure of managers' transactions, whistleblowing procedures and the way regulator delays in disclosure of inside information need to be notified.

ESMA’s RTS on MAR will be published in July 2015.

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1.17 Benchmark Regulation on Indices

On 13 February 2015, the Council of the EU stated that its Permanent Representatives Committee ("COREPER") has agreed, on the Council's behalf, the Council's negotiating position on the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts ("Benchmark Regulation"). On 31 March 2015, ECON published a press release announcing that it has adopted its draft report on the proposed Regulation. The European Parliament will consider the Benchmark Regulation during its plenary session on 18 to 21 May 2015.

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1.18 Client Asset and Investor Money Regulations

On 30 March 2015, the Central Bank published the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Client Asset Regulations 2015 for Investment Firms ("Client Asset Regulations") and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 for Fund Service Providers ("Investor Money Regulations"). They both aim to ensure that investment firms and fund service providers ("FSPs") will have stronger systems and controls in place to protect the ownership rights of clients and investors respectively. Investment firms and FSPs will also have a process in place which, in the event of insolvency, will facilitate the expeditious return of client assets or investor money. The Central Bank published guidance to assist in interpreting them. 

The definition of an FSP in the Investor Money Regulations includes fund administrators. Fund administrators therefore will need to adopt appropriate technology and management company and investor communication systems to ensure compliance by the implementation date. The Client Asset Regulations commence on 1 October 2015 and investment firms will be required to have developed a documented Client Asset Management Plan ("CAMP") by 1 January 2016. The Investor Money Regulations will take effect from 1 April 2016 and FSPs will have to develop, document and maintain an Investor Money Management Plan by 1 July 2016.

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1.19 ELTIF Regulation

The proposed Regulation on European Long-Term Investment Funds ("ELTIF Regulation") is designed to provide a framework for retail investment in illiquid asset classes such as infrastructure projects and unlisted companies. 

On 13 February 2015, the European Parliament updated its FAQ on the ELTIF Regulation. It then adopted the Regulation on 10 March 2015. After adoption by the Council of the EU it will enter into force 20 days after publication in the Official Journal of the EU and is expected to apply six months after it has entered into force.

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1.20 CRD IV

(a) The CRD IV Directive 2013/36/EU, together with the Capital Requirements Regulation 575/2013 ("CRR") replaced the Capital Requirements Directive (2006/48/EC and 2006/49/EC).

(b) On 18 January 2015, the Commission Delegated Regulation 2015/62 on the leverage ratio, which supplements the CRR came into force.

(c) On 6 February 2015, the Commission Delegated Regulation 2015/61 on the liquidity coverage requirement for credit institutions, which supplements the CRR came into force.

(d) On 10 February 2015, the European Commission Implementing Regulation 2015/79 amending Implementing Regulation 680/2014 laying down ITS with regard to supervisory reporting of institutions according to the CRR as regards asset encumbrance, single data point model and validation rules came into force.

(e) On 21 February 2015, the European Commission Implementing Regulation 2015/227 amending Implementing Regulation 680/2014 laying down ITS with regard to supervisory reporting of institutions according to the CRR came into force.

(f) On 2 March 2015, the EBA published a report containing final draft RTS and ITS on benchmarking portfolio assessment standards and assessment sharing procedures under Article 78 of the CRD IV Directive.

(g) On 4 March 2015, the EBA launched a consultation on its draft guidelines on sound remuneration policies under CRD IV. These set out the governance process for implementing sound remuneration policies across the EU, as well as the specific criteria for mapping all remuneration components into either fixed or variable pay. 

(h) On 6 March 2015, the European Commission Implementing Regulation 2015/233 laying down ITS with regard to currencies in which there is an extremely narrow definition of central bank eligibility under the CRR came into force.

(i) On 10 March 2015, the EBA issued a revised list of validation rules in its ITS on supervisory reporting, highlighting those which have been deactivated either for incorrectness or for triggering IT problems.

(j) On 18 March 2015, the EBA published a revised version of its Extensible Business Reporting Language ("XBRL") taxonomy (Version 2.3) for supervisory reporting under CRD IV, which will come into force from 30 June 2015.

(k) On 24 March 2015, the Commission Delegated Regulation 2015/488 on the own funds requirements for firms based on fixed overheads, under Article 97(4) of the CRR was published in the Official Journal of the EU. It will come into force on 13 April 2015.

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1.21 EU Capital Markets Union

On 18 February 2015, the European Commission published a green paper on building a capital markets union. The main areas that the paper seeks to address are:

(i) improving access to financing for all businesses across Europe and investment projects, in particular start-ups, SMEs and long-term projects;

(ii) increasing and diversifying the sources of funding from investors in the EU and globally; and

(iii) making the markets work more effectively so that the connections between investors and those who need funding are more efficient and effective, both within EU Member States and cross border.

Responses are requested by 13 May 2015.

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1.22 Regulation on Securities Financing Transactions

On 24 March 2015, ECON announced it has voted to adopt its draft report (published in January 2015) on the proposed Regulation on securities financing transactions ("SFTs") which seeks to cover all forms of lending, borrowing and re-use of securities in the EU and in all the branches of counterparties to SFTs no matter where they are located.

It was decided that SFTs when the ownership of securities such as bonds, shares or derivatives temporarily changes hands to create liquidity, facilitate funding or support price discovery should be more transparent and public disclosure on SFTs should be expanded to credit institutions and listed companies.

Negotiations with EU Member States on the SFT Regulation are expected to commence in April 2015 and the European Parliament is due to consider it in its plenary session on 7 - 10 September 2015.

On 20 March 2015, ESMA issued a call for evidence to collect information from market participants as an input into the "phase-in approach" regarding the extension of the disclosure requirements of the draft RTS under the Credit Rating Agencies Regulation to private and bilateral transactions in SFIs.

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1.23 UK SFO: Conviction of Former Hedge Fund Manager for Fraud

On 19 January 2015, Magnus Peterson, the founding director of Weavering Capital (UK) Ltd an English incorporated investment management firm and the former investment manager of the Weavering Macro Fixed Income Fund was found guilty in England of eight counts of fraud, forgery, false accounting and fraudulent trading. He was subsequently sentenced to 13 years imprisonment.

In May 2012, the English High Court found four defendants including Mr Peterson liable for dishonest breach of fiduciary duty, through the manipulation of figures and misleading of investors in the fund and damages of $450m were awarded against them. Following this decision the UK Serious Fraud Office reopened its investigation into the case.

The criminal investigation focused on a number of interest rate swap trades between the Weavering Macro Fixed Income Fund (a Cayman Islands incorporated hedge fund) and Weavering Capital Fund Ltd (a BVI fund) which Mr Peterson also owned and controlled.

Over the six years in which the fund operated, Mr Peterson used the swap trades to inflate artificially the Macro Fund's investment performance, and thereby mislead investors as to its true value. The reported value of the fund grew increasingly to depend on the bad debt generated by the swap trades with the related counterparty to the point that when it collapsed in March 2009, its entire net worth was based on the valueless swaps.

Investors were misled into putting US$780 million into the Macro Fund, which was marketed as a low risk and liquid fund primarily engaged in exchange trading. When investors began asking for their money back in 2008 following the financial crisis, there were no assets to fund any repayments. The Macro Fund ceased trading on the Irish Stock Exchange in March 2009 and liquidators were appointed. The investors' net losses were approximately US$536m.

The case highlights the need to ensure that funds have a rigorous and effective compliance framework through compliance systems and controls. Maples' Financial Services Regulatory Enforcement Group can advise on the main compliance risks and assist in developing robust procedures to meet any shortfalls identified and developing staff training programmes.

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1.24 ESMA Risk Dashboard for Q4 2014

On 11 March 2015, ESMA published its Risk Dashboard No.1, 2015 analysing the final quarter of 2014 and highlighting the relevant levels of EU system stress; contagion risk; liquidity and market risk; risk perception and credit risk against those from a previous quarter.

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1.25 ESMA: Trends, Risks and Vulnerabilities in EU Securities Markets

On 11 March 2015, ESMA published its Report No. 1, 2015 on Trends, Risks and Vulnerabilities in EU securities markets, covering market developments from July to December 2014. The report notes that market conditions in the EU have remained tense, with high asset valuations, stable asset prices over time but with rising short-term price volatility across key markets. 

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1.26 EFAMA Investment Funds Industry Fact Sheet

On 19 February 2015, the European Fund and Asset Management Association ("EFAMA") published its latest Investment Funds Industry Fact Sheet, detailing net sales of UCITS and non-UCITS for December 2014 and the entire year of 2014, as well as net assets data at end 2014. The fact sheet was compiled from information received from 27 associations which represent approximately 99.6% of total UCITS and non-UCITS assets (as of December 2014).

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1.27 Draft RTS on Prudential Requirements for CSDs

On 27 February 2015 the EBA launched a public consultation on draft RTS on prudential requirements for central securities depositories. Responses are requested by 27 April 2015.

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1.28 Central Bank Market Authorisation Statistics

On 11 February 2015, the Central Bank published its Markets Directorate Authorisation Standards Report 2014. The report details the timelines and authorisation percentages for fund service providers; fund authorisations; fund post authorisations; MiFID authorisation process; and Prospectus Directive authorisations.

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1.29 Anti-Money Laundering Update

On 10 February 2015, the Council of the EU approved the political agreement reached with the European Parliament on the proposed Fourth Money Laundering Directive and the proposed revised Wire Transfer Regulation. Both strengthen EU rules against money laundering and ensure consistency with the approach followed at international level. This approval paves the way for adoption of the package at a European Parliament second reading in April 2015.

On 27 February 2015, the Financial Action Task Force's ("FATF") plenary meeting for the upcoming year concluded. The main issues addressed during this plenary were:

(i) Issuing a statement on FATF action on terrorist finance;

(ii) Adopting and publishing a report on the financing of the terrorist organisation Islamic State in Iraq and the Levant;

(iii) Producing two public documents identifying jurisdictions that may pose a risk to the international financial system:

(A) Jurisdictions with strategic anti-money laundering and combating the financing of terrorism ("AML/CFT") deficiencies for which a call for action applies; and

(B) Jurisdictions with strategic AML/CFT deficiencies for which they have developed an action plan with the FATF;

(iv) Receiving an update on AML/CFT improvements in Albania, Cambodia, Kuwait, Namibia, Nicaragua, Pakistan and Zimbabwe;

(v) Discussing the fourth round mutual evaluation reports on compliance with the FATF Recommendations of Australia and Belgium; 

(vi) Increasing collaboration between FATF and the Egmont Group of Financial Intelligence Units, including a briefing by the Chair of the Egmont Group on recent developments in financial intelligence units;

(vii) Reviewing the voluntary tax compliance programmes in several jurisdictions; 

(viii) Continuing its work on the issue of ‘de-risking’, in line with the effective implementation of a risk-based approach; and

(ix) Building on the 2014 report on virtual currencies, the FATF wants to progress this issue for a decision at the June 2015 Plenary.

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1.30 Fitness and Probity Update

On 30 January 2015, the Central Bank published its Regulatory Transactions Service Standards Performance Report: July – December 2014. There are seven categories of Service Standard against which it sets minimum performance targets which were exceeded for all but one category.

On 18 February 2015, the Central Bank published updated FAQs on the Fitness and Probity Standards and the Code.

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1.31 IFS2020: A Strategy for Ireland's Financial Services Sector 2015 -2020

On 12 March 2015, the Irish Funds Industry Association ("IFIA") welcomed the publication of the Irish Government’s IFS2020: A Strategy for Ireland’s International Financial Services sector 2015-2020. 

Pat Lardner, Chief Executive of the IFIA noted that "the financial services industry is a strategically important industry for Ireland, something confirmed by the publication of today’s strategy. With over 13,000 people employed by the funds sector in Ireland, administering some €3.2 trillion, we are tangible proof that Ireland can compete globally. We look forward to working with the Government, its departments and agencies to continue expanding the already significant contribution of the funds industry. The funds industry’s services connect Ireland to the world and connects producers of financial services with their global customers."

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2. Tax

2.1 Revenue Guidance: Exchange Traded Funds and Exchange Traded Commodities

Irish Revenue has issued new guidance on the taxation of Irish resident investors in exchange traded funds ("ETFs") and exchange traded commodity ("ETCs") platforms. This is of particular interest to managers, funds and intermediaries seeking to attract Irish individual investors. One result of the guidance may see increased interest in non-distributing ETFs and commodity linked debt products.  

This guidance note is narrowly focused and has no impact to the Irish tax regime for regulated funds or non-Irish investors. In very broad terms, such funds are exempt from Irish direct taxation and no Irish withholding or other tax arises on payments from regulated to non-Irish resident investors. 

Summary

Revenue note that ETFs are investment funds traded on a regulated stock exchange. A typical ETF will seek to replicate a particular index.

As set out in the table, Irish resident individuals will be subject to varying rates of tax depending upon where the ETF is domiciled. Relative to certain types of fund investments, Irish resident individuals may obtain more favourable tax treatment by investing in ETFs domiciled in the US or certain jurisdictions within the OECD. ETCs, which are constituted as debt instruments, may obtain a similarly advantaged tax treatment. This should be of interest to Irish residents choosing their investment products, but also to those funds, managers and other intermediaries who are seeking to attract Irish individual investors.

Investment TypeIrish ETFsEU ETFsUS ETFs"Offshore" EFTsETCs (Debt)

Income Events
(Dividends/Distributions)

41%41%20/40% 
plus social charges
20/40% 
plus social charges
20/40% 
plus social charges
Capital Events
(Sales, Redemptions)
41%41%33%20/40% 
plus social charges
33%

 

Irish ETFs

Irish resident individuals investing in an Irish domiciled ETF must self-assess for Irish tax on their income and gains. The rate of 41% applies to all of their profits on such Irish-domiciled ETFs. This includes income events such distributions, as well as capital events such as gains on disposals, sales or deemed disposals. Such income and gains do not attract Irish social insurance ("PRSI") or universal social charge ("USC") liabilities. No Irish taxes apply to non-Irish resident investors or many classes of Irish exempt investors (e.g. Irish regulated funds or pension funds).

ETFs domiciled in EU countries other than Ireland

A similar 41% regime on profits or gains will apply where Irish resident individuals invest in ETFs domiciled in EU Member States other than Ireland which are structured and regulated as UCITS. 

The position for non-UCITS ETFs domiciled in EU Member States the position is less clear. On the basis that they have comparable legal structures and regulatory oversight, Revenue will generally consider that the 41% rate applies. Revenue indicate that they will provide their views on any specific ETF where requested to confirm the tax treatment for Irish resident investors. 

ETFs domiciled in the US, EEA and other OECD countries

Only general guidance is provided for ETFs domiciled in the US, EEA or other OECD countries. Perhaps the most material confirmation in the guidance note is that Revenue will accept that with effect from 1 January 2014 investments in such ETFs will be outside the 41% tax regime attaching to Irish and EU ETFs.

Revenue will accept that, in the case of investments made on or after 1 January 2014 in US ETFs, income payments (dividends) will be subject to income tax at the standard (20%) or higher rate (40%) as appropriate together with PRSI and USC and gains on disposals will be subject to capital gains tax (currently 33%). The same treatment will apply to ETFs domiciled in EEA states or in OECD member states which have signed a double tax treaty with Ireland. 

"Offshore" ETFs – such as Singapore, Cayman, Jersey

In the case of ETFs domiciled in a country that is not an EU Member State, an EEA state or an OECD member state with which Ireland has a double taxation treaty, the Irish "Offshore Fund" rules may apply. These will impose income tax and social charges on both income payments (dividends) and gains on disposals.

ETCs

ETFs are considered to be distinct from other types of exchange-traded product such as ETCs. ETCs are, typically, securities that track the prices of physical commodities such as gold, silver and platinum, and also track commodity indices based on commodity futures prices. A number of such ETCs are domiciled in Ireland and utilise the Irish "section 110" tax regime to issue debt securities which provide exposure to commodities. 

Revenue accept that ETC investments structured as debt instruments will come within general taxation principles, with any income payments being liable to income tax at the standard or higher rate as appropriate, and gains on disposals being liable to capital gains tax. This tax treatment may be applied to ETC investments made on or after 1 January 2014.

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2.2 Irish Real Estate Funds – VAT

The increased use of Irish regulated funds as investment vehicles for Irish real estate is well documented. In that context, a recent European case on VAT is of particular interest. 

Management and administration services to regulated Irish funds are generally exempt from VAT. By contrast, advisory and management services relating to Irish land are generally subject to VAT in Ireland. The "VAT group X" before the Court of Justice of the European Union ("CJEU") is relevant to this area. This case concerns the VAT treatment of management of real estate funds. The taxpayer provided services which might be viewed as VAT exempt administration and management (e.g. attracting investors, sales and purchases of real estate) but also provided services relating to exploitation and management of the real estate.

The CJEU was asked whether investment companies which invest in real estate are special investment funds which could benefit from a VAT exemption for management and administration. They were also asked whether services relating to the actual exploitation of real estate could be within the scope of the exemption for management. 

The decision in this case is not expected for at least a few months. However, it will be closely monitored by investors in real estate who utilise regulated Irish funds. 

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2.3 ICAV – Tax Considerations on Conversion of a PLC to an ICAV

Irish law now allows an Irish plc to convert to an ICAV. One advantage of the ICAV is that, unlike the Irish public limited company ("plc"), it may make an election under US "check-the-box" tax rules. A number of investors and funds have raised tax questions regarding such a conversion. 

The change from plc to ICAV status is by way of 'continuation'.  Upon making a filing with the Central Bank a certificate of registration and public notice are issued confirming the change in status.  

Under Irish law, there should be no Irish tax arising on the conversion. There is no disposal or sale of any assets by the Irish plc nor any chargeable event for investors in respect of their shares.  

Although the Irish tax position is straightforward, the tax consequences of conversion should be considered under the local law of the jurisdiction(s) in which each investor is subject to tax. Maples and Calder have been working with a range of non-Irish advisors to explain the legal nature of the conversion. This is to enable the local advisors to understand the conversion process and provide assurances to investors in their respective jurisdictions. As conversion is achieved by a 'continuation' of the Irish plc, the rights and obligations of investors should remain the same in all material aspects and, on this basis, investors are generally not regarded as having disposed of their shares in the Irish plc.  However, the position of certain US investors who cease to be invested in an opaque vehicle and become invested in a fiscally transparent vehicle is of particular significance. There may be a need for specific disclosures relating such investors on a conversion, or alternatively, structural changes to the fund structure to mitigate any impact of the conversion.

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3. Listings

3.1 Prospectus Directive and Handbook Update

On 18 February 2015, the European Commission published a consultation paper reviewing the Prospectus Directive 2003/71/EC. The consultation covers a broad range of issues, for example, the scope of the prospectus requirement and the exemptions thereto, the appropriate level of investor protection, possible ways to reduce administrative burden and costs that seem unnecessary, cross-border issues and the possibility to make the regime more appropriate for small and medium-sized enterprises and companies with reduced market capitalisation. Responses are requested by 13 May 2015.

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© Maples and Calder 2015

This update is intended to provide only general information for the clients and professional contacts of Maples and Calder. It does not purport to be comprehensive or to render legal advice.

Contacts

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