Ireland: First EU Member State to Open AIFMD Application Process
EU: Important Regulations for Non-EU AIFMs and Opt-In Procedures
The Central Bank of Ireland (the "CBI") has released a full suite of AIFMD1 documentation (the "Irish Rules"), which will permit interested parties to seek authorisation in Ireland as alternative investment fund managers ("AIFMs") or to establish Irish alternative investment funds ("AIFs") on and after 22 July 2013.
The Irish Rules clarify the following important points: (i) the opening of the application process;(ii) the transitional periods; (iii) depositary liability and its contractual discharge; (iv) the treatment of non-EU AIFMs; (v) the treatment of MiFID2 firms and passporting; (vi) the ability to market into non-compliant EEA member states from 22 July 2013; (vii) eligible investors; (viii) exemptions from AIFMD; and (ix) remuneration requirements.
The Irish Rules will be of significant interest to all promoters, directors, managers, advisers, depositaries, administrators, prime brokers and other service providers of existing non-UCITS funds (e.g. QIFs3), as well as those seeking to establish new AIFs or AIFMs in Ireland.
At a European level the EU Commission has issued two important implementing regulations covering:
(a) a procedure for determining the Member State of reference of a non-EU AIFM; and
(b) AIFMs which choose to opt in under the Directive (i.e. sub-threshold AIFMs).
The Irish Rules
The Irish Rules, which will replace the CBI's current non-UCITS Notices, Guidance Notes and application forms, consist of:
(a) A new AIF Rulebook;
(b) A full set of AIFM and AIF application forms; and
(c) A Q&A document addressing key questions of interpretation on AIFMD in Ireland.
Copies of all documents are available from:
As most readers will be aware, AIFMD is due to take effect across all EU Member States (and adherent EEA member states) on 22 July 2013, and it will radically overhaul the management and marketing of AIFs in the EU.
The primary purpose for the new Irish Rules is therefore to align the CBI's regime for Irish AIFs and AIFMs with the impending AIFMD requirements.
At the same time, the CBI has also taken the opportunity to consolidate and simplify its existing rules; to remove certain obsolete and unnecessary requirements; and to introduce key product enhancements in order to strengthen Ireland's position as the leading domicile for EU AIFs and AIFMs.
1) Q&A and Irish Policy AIF requirements
The Q&A clarifies a number of extremely important issues:
Timing for AIFM Applications. The CBI will begin accepting applications for AIFMs immediately with a view to authorising the first Irish AIFMs on 23 July 2013. This will ensure that there are no marketing 'blackouts' and will facilitate first-mover advantage for entities wishing to fully opt in to AIFMD. The CBI's AIFM application forms and Chapter 3 of the AIF Rulebook provide detailed guidance on the AIFM application process. Applications are invited by entities seeking to hit the deadline as soon as possible. Applications will be accepted notwithstanding that details in relation to some arrangements, e.g. reporting procedures, are not finalised.
Timing for AIF Applications. The CBI will retain its 24-hour turn-around for qualifying investor AIFs ("QIAIFs"). The cut-off time for applications for "Day 1" authorisation of QIAIFs is 3pm on 20 July 2013. In advance of that date, AIFMs and their legal advisers will need to draft QIAIF documentation which is in compliance with the CBI's new AIF application forms. For Day 1 authorisations of retail AIFs ("RIAIFs"), the amount of time that it will take to process the application will depend on the complexity and nature of the proposal as well as the number of other applications which are received. Early submissions are strongly encouraged for entities which have a strong business need to be authorised by 22 July 2013.
Transitional Arrangements for AIFMs. In the case of an existing Irish AIFM with an existing AIF, the intention of the CBI is that the non-UCITS series of Notices which have been imposed prior to 23 July 2013 will continue to apply to the AIF until the AIFM is authorised or until the transitional period ends in July 2014, at which point the AIF Rulebook will become applicable to both the AIFM and its AIFs. This is the case for both external AIFMs and self-managed AIFs.
EU investment managers located outside of Ireland will be permitted to continue to act for Irish AIFs during the transitional period until they become formally authorised under AIFMD in their home Member State or until the transitional period expires. A passport notification under Article 33 must then be issued.
The CBI will also authorise QIAIFs after 22 July 2013 which designate non-EU AIFMs (e.g. US investment advisers). The CBI has flagged that it expects that the treatment of this category may be further clarified at EU level.
The Q&A also deals with further sub-categories of EU/non-EU AIFMs and Irish AIFs, and stricter transitional limits are imposed on RIAIFs (e.g. a non-EU AIFM cannot act as the designated AIFM for these funds post 22 July 2013).
We would advise interested parties to review the transitional rules carefully in conjunction with legal advice to ensure that they will fall into an eligible category if intending to take advantage of the additional year. We also believe that it would be prudent for AIFs and AIFMs to adopt procedures to demonstrate a 'best efforts' intention to comply with AIFMD (and to document that) in advance of 22 July 2013, and we would be happy to discuss this further.
Transitional Arrangements for AIFs. Very helpful guidance is given on launching new sub-funds within an umbrella structure or new stand-alone AIFs during the transitional period. There was some concern that such action could "trigger" a requirement for the AIFM to seek immediate authorisation prior to the launch of the AIF (i.e. a mandatory end to the transition period).
For entities launching new Irish sub-funds in umbrellas, they will remain subject to the existing set of non-UCITS rules until the AIFM is authorised, at which point the AIF Rulebook and the rest of the Irish Rules will become applicable.
The situation is slightly different for entities launching new AIFs (i.e. stand-alone funds outside the umbrella) during the transitional period. In this case, the AIFM will be permitted to avail of the remaining transitional time period, but a 'best efforts' obligation is imposed for full compliance with AIFMD; the AIF will have to comply with the relevant parts of the AIF Rulebook; and certain obligations will be imposed on the depositary (albeit not full strict liability under AIFMD).
Transitional Arrangements for Depositaries. The full AIFMD requirements for depositaries will not be applied until the AIFM become authorised or until the transitional period expires (whichever is sooner).
Transitional Arrangements for Co-Operation Agreements. While we expect to see a number of co-operation agreements with third countries (including the Cayman Islands and the British Virgin Islands) signed before 22 July 2013, the CBI will not require third country co-operation agreements to be in place during the transitional period where there is delegation of portfolio management or risk management to entities in third countries.
Considering the delays thus far in finalising such agreements, this will be a welcome clarification for some groups.
Contractual Discharge of Liability for Depositaries. As many readers will be aware, Article 21.13 permits a depositary to delegate certain safe-keeping functions to a third party (very often a prime broker ("PB")) and to discharge its liability under AIFMD, which is transferred to that third party.
Any such arrangement is subject to strict limitations under AIFMD, including a requirement to establish an objective reason to contract such a discharge. However, neither AIFMD nor the Level 2 Regulation4 provided clear guidance on this concept nor did they set out the limits on its application.
Following detailed submissions by Maples and Calder on behalf of the Association for Financial Markets in Europe ("AFME") and its members, it is encouraging to see that the CBI has taken the opportunity to confirm that depositaries of Irish AIFs may avail of this option in the manner permitted by AIFMD. The CBI will also permit material contracts containing contractual discharge arrangements to be filed as part of Irish AIF applications.
Such arrangements will require depositaries to give consideration in identifying suitable objective reasons for delegation and for discharge of liability. It is a matter for depositaries to judge this in the first instance and to keep the matter under review. Given the importance of this matter, it would be prudent that the analysis and ongoing review should be documented and approved at least at a senior managerial level within the depositary. It may also be appropriate to have the matter approved at board level within the AIF.
AIFMs, in choosing depositaries, are advised to be satisfied that their depositaries are diligent in their compliance with these legislative obligations on an ongoing basis.
Ultimately, it will be a matter for the courts to determine where liability rests and to judge contractual disputes between depositaries and third parties.
Following this confirmation, we would expect the depositary industry to seek legal advice and to see compliant depositary and PB models emerge.
This development will be of particular interest to AIFMs using PB and multi-PB models.
Use of the Passport
One of the main benefits of opting into AIFMD will be the availability of the pan-EU marketing passport.
This option is initially only available to EU AIFMs with EU AIFs.
Some concerns have been raised that, as a large number of EEA member states are likely to miss the deadline for implementing the AIFMD, the value of the passport could be restricted.
This concern has been addressed and the CBI has definitively stated that an authorised AIFM in Ireland will be able to avail of the passport under Articles 32 and 33 and to market or manage on a cross-border basis irrespective of whether the target EEA member state has implemented AIFMD.
We understand that this view is backed by EU precedent on similar marketing passports under UCITS and MiFID. It will allow entities to plan their distribution with certainty and to consider how to access markets which are closed under private placement rules.
Exempt Categories of Funds and Structures. The CBI recognises that certain Irish structures exist outside the scope of the current funds regulatory regime which are "used to channel funds from investors" and which "have some element of pooled investment". Such structures may be within the broad definition of an AIF. An example given that will require consideration in this context is an exempt unit trust, but it is noted that other Irish structures could also potentially be in scope for AIFMD. The CBI has deferred on providing further specific guidance on this within the Q&A, instead referring industry to the guidance on key concepts of the AIFMD expected to be issued shortly by ESMA5.
MiFID. The CBI has endorsed the European Commission's position that a dual MiFID/AIFMD authorisation will not be permissible and that any MiFID-like non-core services that an AIFM is authorised to perform (under Article 6(4) of AIFMD) cannot be passported to another EU jurisdiction. It is noted however that an entity may be dual authorised as an AIFM and UCITS management company and can then avail of the UCITS management company passport for those services specifically.
Remuneration. The Q&A does not consider the important question of the applicability of remuneration requirements to delegates appointed by an AIFM in light of ESMA's Guidelines on sound remuneration policies under AIFMD (ESMA/2013/201, paragraph 18). It simply confirms that remuneration requirements will apply equally to AIFMs and internally managed AIFs.
2) AIF Rulebook Highlights
As highlighted in previous updates, the update of the Irish AIF rules will entail significant product changes and improvements. They include:
a) The removal of the requirement for every Irish AIF to have a CBI-approved promoter;
b) The introduction of the new RIAIF product, which will replace and improve upon the existing (but rarely used) non-UCITS retail product, by offering a higher-risk and more flexible retail alternative to UCITS funds;
c) Increased ability for Irish AIFs to invest as feeders into unregulated master funds;
d) Removal of the CBI's prime brokerage rules, OTC counterparty criteria and credit rating criteria. The regime will move to a more straightforward AIFMD regime (please note the commentary on contractual discharge of liability under Article 21.13 above);
e) Increased ability to differentiate between share classes in the same sub-fund (e.g. different liquidity or asset allocation), with the emphasis on ensuring "fair" (rather than equal) treatment of investors and subject to adequate disclosure. This concept will also have important impact on the private equity space where excuse and exclusion provisions will be permissible;
f) Permission for open-ended QIAIFs to purchase assets and immediately place them in side-pockets;
g) Certain improvements introduced specifically for Irish private equity and real estate funds, such as an extension in the maximum permitted initial offer period, and enhanced borrowing provisions including permission to engage in bridge financing transactions; and
h) The application of the full AIFMD depositary regime (including provisions on depositary duties, liability and delegation) to all authorised AIFs.
There is a material change in the format of the latest draft of the CBI AIF Rulebook, insofar as previous guidance and legislative reference has been removed. The Rulebook is therefore more streamlined.
The CBI intends to publish continuous updates to policy and guidance on its website and in the interim, parties may look to the previous draft AIF Handbook for guidance.
The latest draft of the AIF Handbook and the AIFM application forms contain extremely important information for entities seeking to apply for authorisation of Irish AIFMs or internally managed Irish AIFs.
The application forms identify 5 specific sections for AIFMs to address, comprising: (i) Legal Structure & Ownership; (ii) Proposed Activities; (iii) Capital, Financial & Business Information; (iv) Organisational Structure; and (v) Regulatory Background. In particular, they:
(i) set out clearly the 16 areas of AIFM responsibility, namely the managerial functions of decision-making; monitoring of investment policy, investment strategies and performance; monitoring compliance; risk management; liquidity management; operational risks; conflicts of interest; supervision of delegates; financial control; monitoring capital; internal audit; complaints handling; accounting policies and procedures; record-keeping; remuneration; and reporting requirements.
As we have previously identified, many of these are harmonised with the existing UCITS management company and self-managed investment company functions, so entities with these structures in Ireland will be familiar with them and there is also a well-tested interpretative framework for them;
(ii) cover the split of proposed activities – from core AIFMD functions of portfolio management and risk management, to ancillary AIFMD and MiFID activities;
(iii) contain clear guidance on regulatory capital and professional insurance obligations; and
(iv) set out rules on organisational structures and conflicts; and
The presence of the 16 prescribed key managerial functions effectively supplements the Level 2 Regulation on substance requirements. The CBI has previously commented publicly that these functions represent "modifications which we felt would help ensure that our regime is closely and accurately married with the intention of the AIFMD"6.
The AIFM application form gives a clear indication of the CBI's expectations in terms of AIFM requirements for Day 1 authorisation applications. There is a very strong correlation between the 16 key managerial functions and the 10 key managerial functions required in a UCITS context. This is notable in terms of the substance requirements that will apply to an Irish AIFM / internally managed AIF discharging its functions with reference to the 16 key management functions in the AIF Rulebook (along with the requirements of AIFMD and the Level 2 Regulation).
AIF Application Forms
The AIF application forms contain detailed provisions on the contractual clauses and confirmations which will need to be included in Irish AIF and AIFM documentation.
These will form an invaluable guide to all entities updating documentation to comply with AIFMD.
There is particularly good news for the private equity industry as new investment limited partnership ("ILP") forms have been issued for both RIAIFs and QIAIFs. In the case of QIAIFs, this will move the ILP authorisation process away from the prior review regime and into the same self-certification and 24-hour approval process for existing QIFs.
As noted, above the European Commission has also issued two important implementing regulations which will be available on the EU Commission website at:
Timing and Next Steps
The importance of today's release is that Ireland is now the first major EU funds domicile to settle and publish an AIFMD-compliant regime.
It is worth noting that the AIF Rulebook and new application forms will only replace the CBI's existing non-UCITS Notices, Guidance Notes and application forms with effect from 22 July
2013 and that the CBI may seek to refine its drafting of those documents in the interim.
However, the CBI's proactive approach to finalising its new rules more than two months ahead of the deadline means that managers now have the opportunity in Ireland to apply for - and obtain - authorisation of new AIFMD-compliant AIFs and/or AIFMs prior to 22 July 2013 and thereby seize 'first mover advantage' for the AIFMD pan-EU marketing passport.
Equally, as existing Irish AIFs will automatically move to being regulated under the CBI's new regime on 22 July 2013, the early publication of that new regime now allows managers of existing Irish AIFs to assess with reasonable certainty what changes will be required for those AIFs to become compliant. This is particularly helpful given that certain changes (for example to constitutional documents) will require investor consent and prior notice periods.
We therefore encourage managers as a first step to liaise with their Irish legal advisers to carry out a compliance gap analysis between the AIF Rulebook and new application forms and their current Irish AIF structures.
Our previous client update anticipating these amendments may be accessed via the following link:
Previous client updates in respect of funds domiciled in the Cayman Islands and British Virgin Islands are also available upon request.
For further information on the new Irish regime, or on the AIFMD impact for the Cayman Islands and British Virgin Islands, please contact your usual Maples and Calder contact or any of our AIFMD experts
 The Alternative Investment Fund Managers Directive (2011/61/EU)
 Markets in Financial Instruments Directive
 Qualifying Investor Funds
 Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012
 European Securities and Markets Authority