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Funds Update - Ireland
Quarterly Update | July - September 2014

1 Legal & Regulatory

1.1 AIFMD Update

1.2 Irish Collective Asset-Management Vehicle Bill

1.3 Money Market Funds: Update

1.4 UCITS V: Update

1.5 Loan Origination and Irish Investment Funds

1.6 Consultation on Fund Management Company Effectiveness: Delegate Oversight

1.7 EMIR Update

1.8 MiFID II/MiFIR

1.9 MiFID II Directive Clarifies AIFM Passport Issue

1.10 Market Abuse and Criminal Sanctions

1.11 ESMA Statement on Risks Associated with Investing in Contingent Convertibles Instruments

1.12 ESMA Revised Guidelines on ETFs and Other UCITS Issues

1.13 ESA Report on Risks and Vulnerabilities across the EU Financial System

1.14 Joint Committee Guidelines for Complaints Handling

1.15 Capital Requirements Directive IV / Capital Requirements Regulation

1.16 Regulation on European Long-Term Investment Funds

1.17 EuVECA and EuSEF Regulations

1.18 Transparency Directive

1.19 Central Securities Depositaries Regulation

1.20 Financial Conglomerates Directive

1.21 IOSCO Public Information Repository for Central Clearing Requirements

1.22 Anti-Money Laundering

1.23 Fitness and Probity Amendments

1.24 New IFIA Corporate Governance Code for Fund Services Providers

1.25 Guidelines on Variable Remuneration Arrangements for Sales Staff

1.26 Handbook of Prudential Requirements for Investment Intermediaries

1.27 Thematic Review of Data Integrity of Regulatory Returns

1.28 Protected Disclosures Act 2014

1.29 Criminal Justice (Mutual Assistance) (Amendment) Bill 2014

1.30 Central Bank Guide: 2014 Industry Funding Regulations

1.31 Data Protection

1.32 Previous Developments

1.33 Council of EU Provisional Agenda 2014

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2 Tax

2.1 FATCA – Irish Guidance Notes

2.2 Irish Budget and Finance Bill 2015

 Go to Tax section


3 Listing

3.1 Consultation on Draft Rules for a New Listing Regime for Investment Companies

3.2 New ISE Website Focuses on Global Customer Base

3.3 Global Legal Entity Identifier Foundation

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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) (the "AIFM Regulations") 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 21 July 2014, the European Securities and Markets Authority ("ESMA") published an updated version of its Q&A paper on the application of AIFMD (ESMA/2014/868).

The new Q&As are grouped under the following headings:

  • Reporting to national competent authorities under Articles 3, 24 and 42.
  • Depositaries.
  • Calculation of leverage.

On 30 September 2014, ESMA published a further update of its AIFMD Q&A. It covers:

  • reporting obligations to national competent authorities; and
  • delegation of portfolio and/or risk management.

(b) Central Bank Q&A

On 28 July 2014, the Central Bank of Ireland ("Central Bank") updated its AIFMD Q&A with new questions on remuneration, which reflect some of the clarifications previously made by ESMA and other regulators. The Central Bank has confirmed that CRD/MiFID firms (including firms still subject to CRD III and which have availed of the CRD IV exemptions) are to be treated as equally effective as AIFMD remuneration rules. This also applies to non-EU firms which are subject to group remuneration policies that are equally as effective as MiFID or CRD.

The Q&A confirms that alternative investment fund managers ("AIFMs") can substitute payment in AIF units with payment in an appropriate proxy such as shares in the AIFM. The Central Bank also confirms that the starting date for the remuneration disclosures in the AIF annual report would be the first full financial reporting year following application of the AIFMD-compliant remuneration policy by the AIFM. Further clarifications relate to governing law of the AIFM agreement and leverage disclosure in the offering documents of an AIF.

(c) New Regulations

The European Union (Alternative Investment Fund Managers) (Amendment) Regulations 2014 (S.I. No. 379 of 2014) (the "Regulations") were published on 12 August 2014. They clarify that the Investor Compensation Company Limited may levy AIFMs who are covered by the investor compensation fund.

In addition, Regulations 3(c) and 5 (which come into operation on 21 December 2014) make changes to the principal regulations (European Union (Alternative Investment Fund Managers) Regulations 2013) and the UCITS Regulations to transpose requirements of the Credit Ratings Agencies Directive (2013/14/EU) restricting the reliance of AIF and UCITS investment managers on ratings provided by credit rating agencies.

These requirements must be transposed into Irish law and become effective on 15 December 2014. The effective date of these amendments is the same date.
Finally, the Regulations also clarify that non-EU AIFMs must apply to the Central Bank for approval before marketing in the State and correct errors in the principal Regulations.

(d) Reporting Obligations

On 8 August 2014, ESMA published the official translations of its guidelines on reporting obligations under Articles 3 and 24(1), (2) and (4) of AIFMD (ESMA/2014/869). This triggers a period of two months within which member state competent authorities subject to these guidelines have to notify ESMA of their compliance position. The guidelines apply from 8 October 2014.

In August 2014, the Central Bank published AIFM reporting guidance notes and accompanying templates to be used when undertaking the regulatory reporting required under Article 24 and Article 3(3)(d) of AIFMD. It also published a guidance note and template for completion of the minimum capital report by Irish authorised AIFMs and/or UCITS management companies.

The Central Bank published an update to Reporting Guidance for Alternative Investment Fund Managers on 17 September 2014. This note is relevant to all AIFMs including internally managed alternative investment funds, who are authorised or registered by the Central Bank or who manage or market AIFs in Ireland.

On 25 September 2014, ESMA released updated IT technical guidance in relation to AIFMD regulatory reporting. The updated files (revision 4) include modifications to reflect the latest version of ESMA’s AIFMD Q&A as well as some further clarifications and correction of inconsistencies with XSD documents.

(e) Depositary Duties

On 28 July 2014, the Central Bank published its feedback statement with responses from interested stakeholders to its consultation paper on "Carrying out depositary duties in accordance with Article 36 of AIFMD" (CP78) which addressed the 'Depositary-Lite' model of services to non-EU AIFs managed by EU AIFMs also marketed in the EU. The feedback is likely to lead to amendments to the relevant sections amendments of the AIF Rulebook.

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1.2 Irish Collective Asset-Management Vehicle Bill

On 29 July 2014, the Irish government published a draft Irish Collective Asset-management Vehicle ("ICAV") Bill which, once enacted, will allow the incorporation of a new, tax efficient and innovative corporate structure for Irish investment funds.

The ICAV will sit alongside the existing public limited company structure, which has been the most successful of the existing Irish fund structures to date. It will also complement other available legal forms of Irish regulated funds which include: the unit trust; the investment limited partnership; and the common contractual fund. Like other regulated fund structures, the ICAV will be established by way of a filing with the Central Bank and can seek authorisation as either a UCITS or AIF structure.

For further details please see our client update, Irish Collective Asset-management Vehicle Bill published

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1.3 Money Market Funds: Update

On 4 September 2013, the draft "Proposal for a Regulation of the European Parliament and of the Council on Money Market Funds" (the "draft Regulation") was published. It contains regulatory measures that will apply to European money market funds ("MMFs").

On 29 September 2014, the European Parliament announced that it will further consider the draft Regulation at its plenary session on 25 March 2015.

In a related development on 23 July 2014 the US Securities and Exchange Commission decided to impose a mandatory variable net asset value ("VNAV") for prime institutional constant net asset value ("CNAV") MMFs in the US.

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1.4 UCITS V: Update

UCITS V consists of reforms to the UCITS regime intended to address issues relating to the depositary function, manager remuneration and administrative sanctions. The Directive came into effect on 17 September 2014. Member States must transpose the Directive into national law by 18 March 2016. 

For further details please see our client update, UCITS V Directive: Impact Assessment

On 26 September 2014, ESMA issued a consultation paper on draft technical advice to the European Commission under UCITS V.  It is consulting on draft implementing measures regarding the depositary role of UCITS funds. 

In order to enhance the protection of investors’ assets, UCITS V upgrades the duties and liabilities of UCITS’ depositaries by clarifying the safekeeping, oversight and cash flow monitoring functions. The new rules prescribe the types of entity that may act as a depositary. The consultation seeks views on proposals in two areas related to the depositary function: insolvency protection when delegating safekeeping and the UCITS depositary function independence requirements. Feedback is required by 24 October 2014. ESMA will use the feedback received to finalise its technical advice and is expected to submit it to the European Commission by the end of November 2014.

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1.5 Loan Origination and Irish Investment Funds

The Central Bank published a consultation paper "Consultation on loan originating Qualifying Investor AIF" (CP85) on 28 July 2014 which closed on 25 August 2014. This signalled its intention to lift its long-standing prohibition on lending by AIFs and set out rules to apply to specialist loan funds (loan originating Qualifying Investor AIF).

On 18 September 2014, the Central Bank published its feedback statement on CP 85, summarising the responses received along with the Central Bank's comments and decisions.

On 18 September 2014, the Central Bank published its new rules. It incorporated the new regulatory framework by way of an amendment to the AIF Rulebook.  The Central Bank will accept applications for authorisation of loan origination Qualifying Investor AIFs from 1 October 2014.

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1.6 Consultation on Fund Management Company Effectiveness: Delegate Oversight

On 19 September 2014, the Central Bank issued a consultation paper on corporate governance requirements for fund boards (CP86). Within its scope of review are the boards of: (i) self-managed investment companies (UCITS or AIF); (ii) UCITS management companies; and (iii) Irish AIFMs.

The aim of these measures is to encourage and support the continuous improvement of fund management company effectiveness by providing guidance on good practices, removing overlapping managerial functions, widening the net for potential fund management company directors and tightening the authorisation process. 

The closing date for submissions is 12 December 2014. 

For further details please see our client update, CBI Issues Consultation Paper on Fund Management Company Effectiveness

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1.7 EMIR Update

During the quarter, there were numerous publications in relation to Regulation 648/2012 ("EMIR").

The Central Bank was appointed by the European Union (European Markets Infrastructure) Regulations 2014 (S.I. No. 443 of 2014) as competent authority for the supervision and enforcement of EMIR.

ESMA issued consultation papers on regulatory technical standards for clearing of interest rate swaps and credit default swaps. It also published a discussion paper (ESMA/2014/876) on the calculation of counterparty risk by UCITS for over-the-counter ("OTC") derivative transactions subject to clearing obligations. During the quarter the International Organization of Securities Commissions ("IOSCO") published its consultation paper on Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives.

ESMA, the European Commission and the Central Bank all updated their respective Q&A and FAQ documents on EMIR with the Central Bank addressing foreign exchange forward contracts, in particular, when such contracts are in fact derivatives and not spot transactions.

During the period, ESMA published a number of recommendations and guidelines including: the principles for financial market infrastructures in respect of CCPs; the implementation of the CPSS-IOSCO Principles for Financial Market Infrastructures in respect of CCPs; its list of authorised European CCPs (now at 13); and a letter to the European Commission explaining that it is postponing the submission of certain advisory reports required under Article 85.3 of EMIR.

The European Systemic Risk Board ("ESRB") published responses: to ESMA's consultation paper on mandatory central clearing for interest rate derivatives under EMIR; and to the ESMA consultation paper on mandatory clearing for OTC credit derivatives.

On 11 August 2014, additional reporting on collateral and daily valuations of contracts began. As such, financial counterparties and non-financial counterparties that exceed the applicable clearing thresholds will have additional reporting obligations with respect to exposure information and valuations.

For more details please see our client update, EMIR Briefing: The Essentials for Fund Managers

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1.8 MiFID II/MiFIR

The Markets in Financial Instruments Directive (2014/65/EU) ("MiFID II") and Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") came into force on 2 July 2014. EU Member States must transpose MiFID II/MiFIR into national law by 3 July 2016 and firms will have to comply with MiFID II from 3 January 2017 (subject to excepted Articles).

(a) Consultation Papers

In the previous quarter, ESMA issued a consultation paper and a discussion paper on MiFID II. The purpose of the publications was to take a first step towards the preparation and development of 'Level Two' measures under MiFID II. The consultation paper covered a wide array of topics and responses were requested by 1 August 2014. The list of responses to both papers were published by ESMA. The responses are due to be considered by ESMA in their preparation of draft technical advice due to be submitted to the European Commission.

On 5 August 2014, the European Banking Authority ("EBA") published a consultation paper containing draft technical advice on possible delegated acts on criteria and factors for intervention powers concerning structured deposits under Articles 41 and 42 of MiFIR.

On 3 September 2014, the securities and markets stakeholder group of ESMA published four pieces of advice, addressed to ESMA, relating to aspects of ESMA's draft technical advice on MiFID II and MiFIR: investor protection; trading venues; transparency and trading obligations (equities); and transparency for the trading of non-equity instruments.

On 29 September 2014, ESMA published a consultation paper on future guidelines clarifying the definition of derivatives as financial instruments under the current Markets in Financial Instruments Directive ("MiFID I").  The different approaches to the interpretation of MiFID I across EU Member States mean that there is no commonly-adopted application of the definition of derivative or derivative contract in the EU for some asset classes. Whilst this issue has in the past been noted as a concern since the implementation of MiFID, the practical consequences have come to the forefront with the implementation of EMIR.

ESMA considers it essential to ensure, amongst other things, a consistent application of EMIR in the EU and is therefore considering the adoption of guidelines to ensure the consistent classification of certain financial instruments as derivatives. This will allow a common approach by national competent authorities in the implementation of EMIR from the date these guidelines start applying and until MIFID II and the relevant implementing regulation will start applying.

(b) Complex Products

MiFID II may be applicable to an investment fund where the fund is deemed to be a 'complex product' such as a structured UCITS, or an investment fund comprised of shares in non-UCITS collective investment schemes or shares that embed a derivative.

MiFID II provides an exemption which permits an authorised investment firm when carrying out execution only or transmission of order services to not carry out an appropriateness test (the obtaining of information on a client's investment fund knowledge or experience) on its client. This exemption applies to non-complex products and applies generally to UCITS funds. Where this exemption does not apply, the UCITS fund increases in complexity and further, if it embeds a derivative or a structure which makes it difficult for an investor to understand the risks involved, then this may be deemed a complex product or a 'structured UCITS'. A complex product includes shares in non-UCITS collective investment undertakings and shares that embed a derivative.

ESMA is due to publish technical standards by July 2015 and with this, will address the issue of appropriateness testing further.

(c) Suitability

In March 2014, ESMA published an opinion on structured retail products and good practices for product governance arrangements. ESMA note that it is good practice for manufacturers and distributors of structured retail products that product governance arrangements cover a number of areas including:

  • Product design;
  • Product testing;
  • Distributions strategy; and
  • Target market.

Under the heading 'target market', ESMA provides that manufacturers identify appropriately their target market for the structured retail products they plan to issue.

In determining appropriate investors to target, ESMA suggests that manufacturers consider different criteria including:

  • To which market does the structured retail product provide exposure; and
  • The necessary investment horizon of a prospective investor to this structured retail product.

ESMA provides that it is good practice for firms to conduct robust research to understand investor needs, objectives and ability to understand the structured retail product to enable firms to reject inadequate structured retail products targeting a market segment before they are launched. It is also good practice for firms to analyse the charging structure of the structured retail product before manufacturing.

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1.9 MiFID II Directive Clarifies AIFM Passport Issue

MiFID II also amends AIFMD by clarifying a contentious point in relation to the passporting of MiFID type services on a cross-border basis within the EU/EEA.

An AIFM is authorised to manage AIFs but can also extend its authorisation, under Article 6(4) of AIFMD, to (i) manage UCITS; (ii) manage non-AIF portfolios; and (iii) carry out other non-core services. It appeared that Article 33 of AIFMD restricted the activity that an AIFM could conduct on a cross-border basis to managing AIFs. As an AIFM cannot obtain separate authorisation under MiFID, this position would have led to an AIFM being able to passport its AIF management services to other EU/EEA states but not being able to provide the Article 6(4) "MiFID" services anywhere in the EU/EEA other than its home state.

Accordingly, Article 92 of MiFID II amends Article 33 of AIFMD and facilitates the passporting by an AIFM of Article 6(4) services into other EU/EEA states.

In advance of national implementing measures to reflect the MIFID II amendments to AIFMD, ESMA has updated its Q&A and recommends "that competent authorities accept passport notifications for the activities of the AIFM authorised under Article 6(4) of the AIFMD even before 3 July 2015."

From an Irish perspective, this is consistent with the position of the Central Bank (as reflected in their AIFMD Q&A).

For more details see our client update, MiFID II Directive Clarifies AIFM Passport Issue

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1.10 Market Abuse and Criminal Sanctions

On 2 July 2014, the Market Abuse Regulation (Regulation 596/2014) ("MAR") and the Directive on criminal sanctions for insider dealing and market manipulation (2014/57/EU) ("CSMAD") (together, MAD II) entered into force.

MAR will apply from 3 July 2016, with the exception of certain provisions specified in Article 39(2), which applied from 2 July 2014. EU Member States have until 3 July 2016 to transpose CSMAD into their national law.

On 15 July 2014, ESMA published two consultation papers on the draft technical standards and the draft technical advice for the implementation of the new framework under MAR.

On 8 September 2014, Martin Moloney, Head of Markets Policy Division in the Central Bank gave an address to the Market Integrity Compliance and Surveillance in Capital Markets Conference addressing the implementation of MAR in three areas:

  • New developments in the text of MAR;
  • The Level II legislative agenda under MAR; and
  • The market abuse regulatory landscape after the implementation of MAR across Europe.

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1.11 ESMA Statement on Risks Associated with Investing in Contingent Convertibles Instruments

On 31 July 2014, ESMA issued a statement clarifying institutional investor risks from contingent convertibles instruments ("CoCos"). The statement notes the benefits of CoCos in the reduction of risk transfer from debt holders to taxpayers if they operate correctly. It also sets out potential risks that investors may not be aware of.

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1.12 ESMA Revised Guidelines on ETFs and Other UCITS Issues

ESMA’s "Guidelines on ETFs and other UCITS issues" include a 20% issuer diversification rule with respect to collateral received for the purposes of EPM techniques and OTC derivative transactions. In response to industry requests and following consultation, ESMA issued a final report on 24 March 2014 which provides an exemption from the 20% collateral diversification rule for government backed securities. The exemption is available to all UCITS rather than solely money market fund UCITS, as previously proposed.

On 1 August 2014, ESMA published revised guidelines for competent authorities and UCITS management companies which relate to ETFs and other UCITS issues (ESMA/2014/937EN). The revised guidelines amend ESMA’s original guidelines which were published on 18 December 2012 (ESMA/2012/832). The revised guidelines contain modified provisions on diversification of collateral (See Paragraphs 43(e) and 48 of the revised guidelines). UCITS that existed before the publication of the revised guidelines will be permitted a 12 month transitional period in which to comply with Paragraphs 43(e) and 48 of the revised guidelines.

National competent authorities must report to ESMA about their compliance or intention to comply, with the updated guidelines within two months. The guidelines apply from 1 October 2014.

On 28 July 2014, the Central Bank published a consultation paper (CP 84) in which it outlines its proposals to implement the exemption from the 20% collateral diversification for all UCITS as provided for under the revised ESMA guidelines. The Central Bank proposes to make the derogation subject to a requirement to determine whether the collateral is of "high quality", taking into account various criteria specified in the paper. The proposal aims to address the Central Bank’s concerns to satisfactorily address risk mitigation without diverging from the ESMA guidelines.

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1.13 ESA Report on Risks and Vulnerabilities across the EU Financial System

On 22 September 2014, the Joint Committee of the European Supervisory Authorities ("ESAs") published its bi-annual report on risks and vulnerabilities in the EU financial system. The ESAs highlight a number of risks including:

  • Prolonged weak economic growth in an environment characterised by high indebtedness;
  • Intensified search for yield in a protracted low interest rate environment; and
  • Uncertainties in global emerging market economies.

The report also highlights risks related to conduct of business and information technologies.

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1.14 Joint Committee Guidelines for Complaints Handling

On 25 August 2014, the Joint Committee published translations of guidelines for complaints-handling for the securities (ESMA) and banking (EBA) sectors. The guidelines aim to increase market confidence and ensure a harmonised approach to handling complaints for all EU Member States and across all financial services sector. They will become applicable two months after the date of publication of their translations.

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1.15 Capital Requirements Directive IV / Capital Requirements Regulation

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

On 18 August 2014, the EBA published a new XBRL taxonomy to be used by competent authorities for remittance of data under the EBA ITS on supervisory reporting. The updated taxonomy incorporates corrections to the COREP, FINREP and asset encumbrance reporting structures so as to be more in line with the recently published ITS amendments, as well as the new reporting structures for funding plans.

On 4 September 2014, the European Commission published the proposed Regulation on Own Funds Requirements for Firms based on Fixed Overheads under Article 97(4) of CRR. The Regulation has not yet been published in the Official Journal of the EU ("Official Journal") but will come into force 20 days after its publication.

On 17 September 2014, the European Commission Implementing Regulation (926/2014) laying down ITS with regard to standard forms, templates and procedures for notifications relating to the exercise of the right of establishment and the freedom to provide services under Articles 35, 36 and 39 of the CRD IV Directive came into force.

The EBA updated its Single Rulebook Q&A with 21 new entries. The Single Rulebook Q&A has been developed to ensure consistent and effective application of the new regulatory framework across the single market particularly in relation to CRD IV and CRR, the related technical standards developed by the EBA and adopted by the European Commission (RTS and ITS), as well as the EBA guidelines.

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1.16 Regulation on European Long-Term Investment Funds

The European Parliament is expected to resume examination of the proposed Regulation on European Long-Term Investment Funds shortly. It is designed to provide a framework for retail investment in illiquid asset classes such as infrastructure projects and unlisted companies.

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1.17 EuVECA and EuSEF Regulations

On 26 September 2014, ESMA published a consultation paper (ESMA/2014/1182) on its technical advice to the European Commission on implementing measures under the European Union Social Entrepreneurship Funds Regulation (Regulation 346/2016) ("EuSEF Regulation") and the European Venture Capital Funds Regulation (Regulation 345/2013) ("EuVECA Regulation"). The deadline for responses is 10 December 2014 and ESMA is to submit the final version of the technical advice to the Commission before the end of April 2015.

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1.18 Transparency Directive

On 10 July 2014, ESMA published its final guidelines on enforcement of financial information published by listed entities in the EU under the Transparency Directive. The Guidelines seek to strengthen and promote greater supervisory convergence in existing enforcement practices amongst EU accounting enforcers.

The Guidelines set out:

  • Principles to be followed by accounting enforcers throughout the enforcement process;
  • The objectives and scope of the enforcement process;
  • The characteristics of the enforcers;
  • Selection methods, examination procedures and enforcement actions; and
  • Common elements of the enforcement process.

On 10 July 2014, the European Central Bank ("ECB") published its opinion on the European Commission's proposed Regulation on reporting and transparency of Securities Financing Transactions ("SFTs"). The opinion is in response to requests made by the European Parliament and EU Council. The ECB is largely supportive of the proposed Regulation which aims to increase safety and transparency of the financial market and comments on the following matters:

  • Exemption for Central Bank transactions from transparency and reporting obligations;
  • Clarification of the Commission’s power to amend the list of exemptions;
  • Rehypothecation; and
  • Modalities for the reporting of data on SFTs.

On 29 September 2014, ESMA published its draft RTS under the revised Transparency Directive (2013/50/EC) relating to the notification of major shareholdings. The draft RTS supports the objectives of the Transparency Directive by facilitating the creation of a harmonised regime regarding the aggregation of holdings of shares and financial instruments, the calculation of notification thresholds and the exemptions from notification requirements. The draft RTS focuses on the following headings:

  • Method of calculation of 5% threshold exemption regarding trading books and market makers;
  • Calculation method regarding a basket of shares or an index;
  • Methods for determining the ‘delta’ for calculating voting rights; and
  • Financial intermediaries' notification regime of financial instruments.

The draft RTS also sets out the indicative list of financial instruments which are subject to the notification requirements in the Transparency Directive.

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1.19 Central Securities Depositaries Regulation

On 17 September 2014, the Central Securities Depositaries Regulation (909/2014) came into force. The Regulation aims to improve and increase the safety of settlements, the efficiency of settlements and the safety of Central Securities Depositaries ("CSDs"). The key aspects of the Regulation are:

  • Shorter settlement periods;
  • Deterrent settlement discipline measures (mandatory cash penalties and 'buy-ins' for settlement fails);
  • Strict prudential and conduct of business rules for CSDs;
  • Increased prudential and supervisory requirements for CSDs and other institutions which provide banking services ancillary to securities settlement; and
  • Strict access rights to CSD services.

Article 3(1) will apply from 1 January 2023 to transferable securities issued after that date and from 1 January 2025 to all transferable securities. Article 5(2) will apply from 1 January 2015 except for a trading venue that has access to a CSD referred to in Article 30(5), where it will apply at least six months before such a CSD outsources its activities to the relevant public entity, and in any event from 1 January 2016. Other measures will apply from the date that implementing acts enter into force.

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1.20 Financial Conglomerates Directive

On 24 July 2014, the Joint Committee of the three ESAs (EBA, EIOPA and ESMA) launched a consultation on the draft RTS on risk concentration and intra-group transactions within financial conglomerates. The RTS are intended to improve supervisory consistency in the application of the Financial Conglomerates Directive in clarifying which risk concentrations and intra-group transactions within a financial conglomerate should be considered as significant. Further, the RTS sets out some supervisory measures for coordinators and relevant competent authorities in identification techniques.

On 3 September 2014, IOSCO issued its report on supervisory colleges for financial conglomerates. The report sets out its findings from a self-assessment survey carried out on its members, of which 14 replied. The aim of the survey was to find out how far cross-sectoral issues and specific questions related to financial conglomerates are effectively addressed within supervisory colleges. The report highlights the general progress made since its previous study in 2009 but highlights various gaps and issues in regard the implementation of the principles, particularly principle 6 relating to supervisory cooperation, coordination and information-sharing.

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1.21 IOSCO Public Information Repository for Central Clearing Requirements

On 5 August 2014, IOSCO launched its information repository for central clearing requirements for OTC derivatives, providing regulators and market participants with consolidated information on the clearing requirements of different jurisdictions.

The repository seeks to assist competent authorities in their rule making and ensure that market participants comply with relevant OTC regulations by setting out the central clearing requirements on a product by product level, noting any exemptions. IOSCO intends to update the repository on a quarterly basis.

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1.22 Anti-Money Laundering

Currently the Central Bank is carrying out anti-money laundering ("AML") and counter-terrorist financing ("CTF") thematic inspections of regulated financial institutions, focusing on the investment fund sector.

For information on preparing for an inspection, please contact our Financial Services Regulatory Team.

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1.23 Fitness and Probity Amendments

In July 2014, the Central Bank published its Regulatory Transaction Services Standards Report: January – June 2014. The report sets out the Central Bank's performance against service standards it has committed to in respect of the processing of Fitness and Probity PCF Individual Questionnaire ("IQ") applications and the authorisation of new entities ("Service Standards"). The report sets out reasons why an IQ application may be returned as incomplete.

On 3 September 2014, the Central Bank added a further six pre-approved control functions: Chief Operating Officers; Head of Claims for insurance companies; signing actuaries for non-life insurers and re-insurers; Head of Client Asset Oversight for investment firms; Head of Investor Money Oversight for Fund Service Providers; and Head of Credit for retail credit firms.

From 31 December 2014, the Central Bank Reform Act 2010 (Sections 20 and 22) (Amendment) Regulations 2014 introduces a number of changes to the fitness and probity regime. The Regulation is accompanied by non-statutory Guidance on the Fitness and Probity Amendments 2014 which aims to assist regulated financial service providers in complying with their obligations under the Regulation.

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1.24 New IFIA Corporate Governance Code for Fund Services Providers

The Irish Funds Industry Association ("IFIA") recently issued a voluntary Corporate Governance Code for Fund Service Providers, which will sit alongside its 2012 Corporate Governance Code for Collective Investment Schemes and Management Companies.

The purpose of the code is to provide the board of directors of administrators, custodians and depositaries authorised and regulated by the Central Bank with a framework for good practice of corporate governance and oversight. The code provides a set of principles and guidance but is not intended to be prescriptive, rather a codifying of existing practice combined with what is seen as good international practice.

It is recommended that compliance and/or the level of compliance with the code should be disclosed in the director’s report accompanying the service provider’s annual report for years commencing on or after 1 January 2015 or alternatively the information should be published through a publicly available medium such as a website detailed in the annual report.

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1.25 Guidelines on Variable Remuneration Arrangements for Sales Staff

On 25 July 2014, the Central Bank of Ireland issued Guidelines on the Variable Remuneration Arrangements for Sales Staff following the completion of a cross-sectoral review of incentives payable to employees of banks, insurance companies and investment firms. The review examined the incentive arrangements to employees under the Consumer Protection Code 2012 and the Conflicts of Interest regulations applicable to investment firms under MiFID.

The Central Bank will require all banking, insurance and investment firms to review and restructure their remuneration arrangements in light of the Guidelines. The Chair of each firm must confirm to the Central Bank that this has been completed in advance of the remuneration period commencing on 1 January 2015. The Central Bank is following up on all specific issues identified directly with investment firms and banks inspected, having already done so with insurance firms.

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1.26 Handbook of Prudential Requirements for Investment Intermediaries

In the previous quarter, the Central Bank published the Handbook of Prudential Requirements for Investment Intermediaries setting out requirements for investment intermediaries under the Investment Intermediaries Act 1995 (as amended). The handbook covered the following areas:

(a) General supervisory requirements;
(b) Financial position and reporting requirements;
(c) Professional indemnity insurance;
(d) Organisation and management; and
(e) Books and records.

The Handbook is effective from 1 October 2014 and replaces the Handbook of Prudential Requirements for Authorised Advisors and Restricted Intermediaries 2006.

1.27 Thematic Review of Data Integrity of Regulatory Returns

On 12 September 2014, the Central Bank Central Bank issued a letter to industry regarding the outcome of its Thematic Review of data integrity of regulatory returns. It concerned returns from investment firms, fund service providers and stockbrokers and examined the:

  • Structure of the finance function;
  • Oversight of financial and regulatory returns by the board of directors and senior management; and
  • Production and reporting of management information within the firm.

The review sets out recommendations to be followed and suggests that firms should review their existing procedures to ensure that due care is given to the production, oversight and reporting of regulatory returns.

1.28 Protected Disclosures Act 2014

On 15 July 2014, the Protected Disclosures Act 2014 (the "Act") came into operation. Before the Act was introduced, employers could treat whistleblowers as having breached their employment contract either in terms of the obligation of confidentiality or the implied duty of loyalty insofar as the employer's business was damaged or disrupted. 

Currently, under Part V of the Central Bank (Supervision and Enforcement) Act, 2013 a financial service provider cannot penalise any of its employees who make, in good faith, a disclosure to the Central Bank, if the relevant employee has reasonable grounds for believing that an offence under any provision of financial services legislation may have been committed. Importantly, however the Act does not apply to disclosures made anonymously. 

The Government has introduced the Act to allow employees in any area of industry "blow the whistle" on perceived wrongdoings without fear of being penalised. The Act permits disclosures to be made anonymously and without an express requirement for good faith. An employee who makes a protected disclosure under the Act is protected in that they cannot be penalised, for example, dismissed, suspended or transferred from duties, and the Act provides for a maximum compensation award of five years' remuneration.  Further, an employee is protected from civil liability regarding making a protected disclosure under the Act.

For further details please see our client update, Whistleblowing on Fitness and Probity

1.29 Criminal Justice (Mutual Assistance) (Amendment) Bill 2014

On 18 August 2014, the Minister for Justice and Equality published the Criminal Justice (Mutual Assistance) (Amendment) Bill 2014. The Bill will give effect to various European Treaties with the intention of improving co-operation between EU Member States in combating financial crime. Notably, the Bill sets out provisions with regards to:

  • EU Member State co-operation in recovering financial penalties on a cross-border basis; and
  • EU Member State co-operation in the confiscation of property deemed to be a product of the proceeds of crime on the provision of a confiscation order.

1.30 Central Bank Guide: 2014 Industry Funding Regulations

On 8 September 2014, the Central Bank published its Guide to the 2014 Industry Funding Regulations (the "Guide"). The Guide intends to provide a user-friendly guide demonstrating how the industry funding levy for 2014 is calculated and is divided into five sections:

  • Background to the levy and summary of the 2014 Industry Funding Regulations;
  • significant changes to the levy in 2014 including changes to the categorisation of financial service providers;
  • calculation of the levy;
  • financial information for industry sectors such as calculation of levy rates and how the net annual funding requirement is determined; and
  • appendices.

Following publication of the Guide, the Central Bank commenced issuing its 2014 Industry Funding Levy Notices. The Central Bank have reminded regulated entities that these levies are due and payable within 35 days following issue, and may be settled by cheque, electronic funds transfer or direct debit (for which the direct debit run is expected to take place during the week beginning 20 October 2014).

1.31 Data Protection

On 18 July 2014, the final three sections of the Data Protection Act 1988 (as amended by the Data Protection (Amendment) Act 2003) entered into force. As a result, data controllers now have a broader duty in regards the rectification, blocking or deleting of personal data collected and the notification it must give to data subjects or relevant third parties. Further, an employer cannot require employees or applicants for employment to make a data access request which is then in turn made available to the employer or prospective employer.

On 13 August 2014, the Office of the Data Protection Commissioner ("DPC") published the second version of the Guide to Audit Process (previously known as the Data Protection Audit Resource, published in 2009). The guide provides guidance to organisations selected for audit by the DPC as well as providing organisations holding personal data with a simple and clear basis to conduct a self-assessment of their compliance with regulatory obligations.

1.32 Previous Developments

As noted in our previous regulatory updates, the following developments are due to be implemented in the short to medium term:

(a) Non-Financial Reporting Directive

In Q2 2014, the European Parliament adopted the Non-Financial Reporting Directive which requires larger European entities to disclose information on aspects considered non-financial such as environmental issues, social and employee-related policies, board diversity, human rights protocols and anti-corruption and bribery measures. The Directive is flexible in its remit ensuring that the administrative burden is not too high and permits scope in terms of the reports to be provided by such entities. It is expected to be implemented in 2016.

(b) Shareholders Rights Directive

In Q2 2014, the European Commission in an attempt to promote and enhance the long-term sustainability of EU entities proposed the Shareholders Rights Directive. The Directive intends to increase transparency and reduce corporate governance shortcomings relating to listed companies and their boards, intermediaries, shareholders and proxy advisors. The Directive is due to be considered by the European Parliament before the end of 2014.

(c) Statutory Audit Directive and Regulation

In Q2 2014, the revised Statutory Audit Directive and Regulation were published in the Official Journal, The new legislation increases audit quality, promotes transparency and accountability of audits and creates a more dynamic and better supervised audit market. Specifically, the new legislation reduces the perceived conflict of interest issues between audit firms and public-interest entities ("PIs") by requiring the rotation of audit firms for PIs and the restriction on the provision of some non-audit services that an audit firm can provide to a PI. The enhanced framework package is due to enter into force on 17 June 2016.

(d) Corporate Governance Code for Credit Institutions and Insurance Undertakings - FAQ

In Q2 2014, the Central Bank published a FAQ guide on the revised Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013, which is due to take effect on 1 January 2015. The existing Corporate Governance Code and FAQ guide (issued in 2011) continues to apply in the interim period.

The Central Bank has indicated that the FAQ guide reflects questions which have been raised in relation to the Code.

1.33 Council of EU Provisional Agenda 2014

During this quarter, the Council of the EU published their 'provisional' agendas for Council meetings, during the second semester of 2014. Of particular note is the provisional agenda of the Economic and Financial Affairs Council which includes:

14 October 2014:Legislative deliberations on a Council Directive regarding the mandatory automatic exchange of information in the field of taxation;
7 November 2014: Orientation debate on a proposal for a Council Directive on a Common Consolidated Corporate Tax Base;
7 November 2014:General approach on a proposal for a Council Directive of the European Parliament and of the Council on payment services in the internal market;
9 December 2014:General approach on a proposal for a Regulation of the European Parliament and of the Council on MMFs; and
9 December 2014: General approach on a proposal for Regulation of the European Parliament and of the Council on indices used as benchmarks in financial instruments and financial contracts.

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2 Tax

2.1 FATCA – Irish Guidance Notes

Irish Revenue published their final form Guidance Notes on the implementation of the Foreign Account Tax Compliance Act ("FATCA") in Ireland on 2 October 2014, bringing some much needed clarity to certain aspects of Ireland's FATCA regime. Investment funds should note that the deadline by which financial institutions must register for their GIIN number (31 December 2014) is fast approaching.  If an investment fund has not yet considered its FATCA status and whether it is required to register, please contact a member of the Maples Tax Group who would be happy to assist.

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2.2 Irish Budget and Finance Bill 2015

The Irish Government announced Budget 2015 on 14 October 2014, and the Finance Bill will be published on 23 October 2014.  If you have any questions, please do not hesitate to contact a member of the Tax team.

Please see our client update, Irish Budget 2015 – Rate, Regime, Reputation

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3. Listings

3.1 Consultation on Draft Rules for a New Listing Regime for Investment Companies

The Irish Stock Exchange ("ISE") has developed a new listing regime for certain types of investment companies that have expressed an interest in listing on the ISE, on a standalone basis or as a dual primary ISE/London Stock Exchange listing. The ISE consulted on the proposed rules which will be contained in a new chapter 17 of the Listing Rules in September. It is a requirement that the listing be performed by an equity sponsor, rather than an investment funds sponsor. Comments were requested by 26 September 2014.

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3.2 New ISE Website Focuses on Global Customer Base

The ISE launched a new website on 29 September 2014 which is mobile and tablet friendly and designed to allow customers retrieve information from any device or location. Key new features include:

(a) Dedicated areas also for existing companies, potential companies, fund and debt issuers, sponsors and advisors, trading firms and media.
(b) Responsive website – easy to view on desktop, mobile devices and tablets.
(c) Better data on companies:

  1. Hourly updates of share prices.
  2. Additional graphs on share performance.
  3. Data export functions to MS word and MS excel.

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3.3 Global Legal Entity Identifier Foundation

This quarter marked the inaugural meeting of the foundation Board of the Global Legal Entity Identifier Foundation ("GLEIF"), a major step in the building of a global legal entity identifier ("LEI") system which seeks to uniquely identify parties to financial transactions, in the public interest, and without any licensing, intellectual property or similar restrictions.
The purpose of the GLEIF is to support the implementation and use of a global LEI and associated data on legally distinct entities that engage in financial transactions as well as contributing to and facilitating various financial stability objectives.

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© Maples and Calder 2014

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.

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