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Funds Update - Ireland
Quarterly Update | January - March 2017

1 Legal & Regulatory

1.1 UCITS Update

1.2 AIFMD Update

1.3 EMIR Update

1.4 Companies (Accounting) Bill 2016 

1.5 Money Market Funds

1.6 Outsourcing of Fund Administration Activities 

1.7 CP86 - The Designated Email Address 

1.8 SFTR

1.9 MiFID II/MiFIR Update

1.10 PRIIPs KID Regulation

1.11 European Venture Capital Funds and Social Entrepreneurship Funds

1.12 Benchmark Regulation 

1.13 CSDR: Regulating Central Securities Depositories 

1.14 Capital Requirements Regulation 

1.15 Investment Funds Statistics: Q4 2016 

1.16 IFRS 9 - Financial Reporting Impact on Investment Funds

1.17 IOSCO Loan Funds Survey

1.18 New Methodology to Calculate Funding Levies 

1.19 Anti-Money Laundering Update 

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2 Tax

2.1 Establishing an Irish Management Company - Tax Issues 

2.2 Irish Real Estate Funds

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3 Listings

3.1 Enhanced LEI Data Collection

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1 Legal & Regulatory

1.1 UCITS Update

There have been a number of developments over the quarter:

Central Bank UCITS Regulations – CP105

On 19 January 2017 the Central Bank of Ireland ("Central Bank") issued a Feedback Statement on CP105 - Consultation on amendments to the Central Bank UCITS Regulations. This summarises the responses received along with the Central Bank’s comments and indicates that amending regulations are expected to issue "in Quarter 1 2017".

UCITS Share Classes – ESMA Opinion

The European Securities and Markets Authority ("ESMA") issued an opinion on share classes in UCITS on 30 January 2017 (ESMA34-43-296). It outlines four principles that should be adhered to when operating multiple share classes in UCITS as follows:

  • Common investment objective. Share classes of the same fund should have a common investment objective reflected by a common pool of assets. ESMA considers that hedging arrangements at share class level (with the exception of currency risk hedging) are not compatible with the requirement for a fund to have a common investment objective.
  • Non-contagion. UCITS management companies should implement appropriate procedures to minimise the risk that features specific to one share class could have a potentially adverse impact on other share classes of the same fund.
  • Pre-determination. All features of the share class should be pre-determined before the fund is set up.
  • Transparency. Differences between share classes of the same fund should be disclosed to investors when they have a choice between two or more classes.

It also provides that share classes should not be set up to circumvent the UCITS Directive rules, particularly those on diversification, derivative eligibility and liquidity. Any non-conforming share classes have to be closed to new investors within six months of the publication of the opinion (that is, 30 July 2017) and closed to investments from existing investors within 18 months of the publication of the opinion (that is, 30 July 2018).

In summary, ESMA endorses the utilisation of share classes and the application of features and techniques at share class level but prohibits any share class hedging techniques with the exception of currency hedging. This will effectively terminate practices such as interest rate hedging and volatility hedging at share class level in UCITS.

The opinion also presents a number of points to be clarified. To this end, the Irish Funds' UCITS Rulebook Working Group has engaged with the Central Bank and it has indicated that it will shortly be amending the UCITS rules to implement the requirements in the opinion and update its UCITS Q&A.

Central Bank Q&A

On 13 March 2017 the Central Bank published the 16th edition of its UCITS Q&A. Existing question, ID 1056 - Central Bank (UCITS) Regulations - Transitional arrangements, is amended as a consequence of the publication of the Central Bank (Supervision and Enforcement Act) 2013 (Section 48(1))(Investment Firms) Regulations 2017 stating that fund administrators are now subject to Parts 2-5 of those Regulations (see 1.6 below "Outsourcing of Fund Administration Activities").

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1.2 AIFMD Update

There have been a number of developments in relation to the Directive 2011/61/EU ("AIFMD") over this quarter:

AIF Rulebook

On 2 December 2016 the Central Bank published a notice of intention to increase the range of investments an Irish authorised loan originating QIAIFs ("LQIAIFs") may make from 3 January 2017. On this date the Central Bank published another version of its AIF Rulebook which extends the scope of permitted activity for LQIAIFs. On 13 March 2017 the Central Bank published a further version of the AIF Rulebook.

Central Bank Q&As

On 3 January 2017 the Central Bank published the 23rd edition of its AIFMD Q&A. New questions are added on loan originating QIAIFs which clarify the scope of the extension of permitted activity.

On 13 March 2017 the Central Bank published its 24th edition with amendments made to ID 1021, Depositary Services. This amendment was made as a consequence of the publication of the Central Bank (Supervision and Enforcement Act) 2013 (Section 48(1))(Investment Firms) Regulations 2017 (see 1.6 below re "Outsourcing of Fund Administration Activities"). ID 1021 clarifies that entities authorised under the Investment Intermediaries Act 1995 may be appointed by an alternative investment fund manager ("AIFM") to provide certain services without prior authorisation.

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1.3 EMIR Update

The European Market Infrastructure Regulation (Regulation on over the counter ("OTC") derivative transactions, central counterparties ("CCPs") and trade repositories (Regulation 648/2012)) ("EMIR") is relevant to all Irish funds trading in financial derivative instruments ("FDI") whether on an exchange or otherwise. UCITS and AIFs are financial counterparties for EMIR purposes, subject to the full scope of EMIR obligations.

There have been a number of developments over the quarter:

Two regulations came into force on 10 February 2017 amending and supplementing the data reporting requirements under Article 9 of EMIR (Commission Delegated Regulations (EU) 2017/104 and 2017/105). The updates include clarifications around collateral reporting and an extension of the deadline for backfilling legacy trades (i.e. trades still open on 16 August 2012, or entered into thereafter but expired prior to the commencement of reporting on 12 February 2014) to 12 February 2019. They both apply from 1 November 2017 (with the exception of the extension of the deadline for reporting legacy trades, which took effect immediately). On 2 February 2017 ESMA published an updated EMIR Q&A clarifying that reporting entities are not obliged to update all outstanding trade reports on the application date of the revised standards and are required to submit the reports related to the old outstanding trades only when a reportable event takes place (for example, when the trade is modified). It also explains how those reports will be validated by the trade repositories.

On 23 February 2017 the Joint Committee of the European Supervisory Authorities ("ESAs") (the European Banking Authority ("EBA"), ESMA and EIOPA) published a statement on the requirement under EMIR to exchange variation margin exchange for uncleared OTC derivative contracts, in response to industry requests relating to operational challenges in meeting the 1 March 2017 deadline for exchanging variation margin. It explains that neither they nor competent authorities have the power to disapply directly applicable EU legal text. The Central Bank then issued a Q&A acknowledging the difficulties facing market participants in meeting the 1 March 2017 deadline, stating it does not expect market participants to unwind or avoid transactions that they would have otherwise entered into, but it expects to see evidence of robust planning to achieve compliance at the earliest possible time for all in-scope transactions entered into from 1 March 2017.

The US Commodity Futures and Trading Commission ("CFTC") issued a ‘no action’ letter in respect of non-compliance with the 1 March 2017 deadline giving CFTC-regulated firms a further six months to put in place regulation-compliant documentation.

On 25 February 2017 Commission Delegated Regulation (EU) 2017/323 correcting Delegated Regulation (EU) 2016/2251 (prescribing collateral requirements for non-cleared OTC contracts) was published in the Official Journal of the EU and also came into force. It applies retrospectively from 4 January 2017 and clarifies the applicable transitional periods for intragroup transactions where the counterparty to the transaction is located in a third country, pending an equivalence decision in respect of margining requirements in that third country.

On 16 March 2017 the European Commission adopted a Delegated Regulation relating to the EMIR clearing obligation to prolong, by two years, the phase-in period for financial counterparties with a limited volume of OTC derivatives activity (that is, those counterparties classified in category 3 under the Delegated Regulation). Category 3 counterparties include UCITS and AIFs that do not have existing OTC clearing arrangements in place and have non-cleared OTC derivatives exposure levels under €8 billion. The new start date for the clearing obligation for category 3 counterparties is 21 June 2019. The Delegated Regulation amends three EMIR Delegated Regulations which had specified start dates of 21 June 2017 for OTC interest rate derivatives referencing major indices denominated in EUR, GBP, JPY, and USD and 9 February 2018 for OTC index credit default swaps and OTC interest rate derivatives referencing major indices denominated in NOK, PLN and SEK. The next step is for the Council of the EU and the European Parliament to consider it.

On 31 March 2017 ESMA published its final report setting out policy decisions and the final text of eight sets of regulatory technical standards ("RTS") and implementing technical standards ("ITS") implementing the SFTR and related amendments to EMIR RTS, see 1.8 on the SFTR below for further detail. The Commission has three months (extendable by one month) to decide whether to endorse them.

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1.4 Companies (Accounting) Bill 2016

This Bill gives further effect to the Accounting Directive 2013/34/EU. A key change is that many Irish unlimited companies will be required to publicly file their financial statements in the Companies Registration Office ("CRO") as it broadens the definition of "designated unlimited company" in the Companies Act 2014 (the "Act"). Consequently, non-filing unlimited company structures which are currently exempt from filing their financial statements with the CRO will be obliged to file their financial statements with their annual returns thereby making them publicly accessible.

The Bill also amends the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 and the Act to provide that both UCITS and AIF investment companies will be obliged to file financial statements and directors' reports with the CRO (meaning financial reports will be a public record), noting they have to date been exempt from filing any such financial reports. ICAVs are not in scope of the Bill and do not have to file their accounts with the CRO. The Bill is progressing through the legislative process and a revised version was published on 22 March 2017.

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1.5 Money Market Funds

The proposed Regulation on Money Market Funds ("MMF Regulation") lays down rules for MMFs, in particular, the composition of their portfolios and the valuation of their assets, to ensure the stability of their structure and to guarantee that they invest in well diversified assets of a good credit quality. It also introduces common standards to increase the liquidity of MMFs, to ensure that they can face sudden redemption requests. It was recently approved by the European Parliament and now awaits formally adoption by the Council of the EU. It will then be published in the Official Journal of the EU. It will enter into force 20 days following publication and will apply 12 months after the date of entry into force with the exception of a number of Articles.

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1.6 Outsourcing of Fund Administration Activities

The Central Bank completed a review on outsourcing by Irish regulated fund administrators in 2016, which looked at the extent to which larger Irish fund administrators have outsourced fund administration activities to global service providers and the governance and oversight arrangements in place regarding those outsourced activities. On 7 March 2017 it issued a letter to all Irish regulated fund administrators setting out its observations and recommendations.

At the same time, the Central Bank issued new regulations for MiFID investment firms, investment firms authorised under the Investment Intermediaries Act 1995 and fund administrators. These supplement the European Communities (Markets in Financial Instruments) Regulations 2007 and the Investment Intermediaries Act 1995. The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 cover multiple requirements for investment firms, including a detailed section on outsourcing by administrators which also sets out activities that cannot be outsourced (core management functions, maintenance of shareholder registers and the check and release of a fund's final NAV). Some of the key concerns in the Central Bank letter are addressed in the Regulations, including that outsourcing service providers are suitably regulated, the Irish administrator must have suitable "take back" procedures and there are robust written risk and compliance reviews and testing of the outsourcing arrangements, at the outset and on an ongoing basis.

Any new proposed outsourcing arrangement must be notified to the Central Bank and must be subject to written, legally binding contractual arrangements which meet certain criteria. Further administrators must file and annual return at the end of each year covering outsourcing arrangements. Administrators must have an outsourcing policy which must cover certain issues such as due diligence checks and the Central Bank expects administrators to carry out periodic onsite inspections of outsourcing service providers.

However, the new requirements should not affect administrators which add investment funds to existing outsourcing arrangements that have already been cleared by the Central Bank, with the exception of the check and release of final NAV figures.

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1.7 CP86 - The Designated Email Address

The Central Bank finalised its CP86 project in December 2016 on fund management effectiveness. One element of CP86 is the introduction of a requirement for fund management companies to maintain a designated email address to ensure they can comply with the Central Bank's statutory based requests for information and to facilitate effective and efficient communication.

The deadline for having a designated email address in the Central Bank's Questions and Answers is 30 June 2017. However, it is engaging directly with fund management companies to request that the designated email address is communicated to it before 28 April 2017 – with the earlier date being set to assist the Central Bank's introduction of this regime from an operational perspective.

For more information see our client update, CP86 - The Designated Email Address

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1.8 SFTR

The SFTR (or Regulation on securities financing transactions ("SFTs") EU/2015/2365) covers 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 requires market participants to report details of SFTs to an approved EU trade repository. It came into force on 12 January 2016 with the exception of certain transitional provisions in Article 33 and introduced new transparency requirements for prospectuses and financial statements for investment funds using securities financing transactions and total return swaps.

UCITS and AIFs must ensure prospectuses clearly disclose the intention to use these techniques (including maximum and expected exposure levels) and describe the risks they entail – SFTR is detailed and prescriptive in relation to the information to be disclosed. While the prospectus disclosure requirements applies immediately for new umbrellas/standalone funds from 12 January 2016, umbrella/standalone funds constituted before 12 January 2016 have up to 13 July 2017 to comply.

In the context of UCITS (and Retail Investor AIFs) where the Central Bank must clear prospectus changes in advance, it has indicated that funds themselves must ensure draft documentation is submitted in advance so that the updates can be noted by the deadline. Therefore affected UCITS (and Retail Investor AIFs) should submit their updates as soon as possible. Affected QIAIFs can attend to updates any time up until 13 July 2017.

On 31 March 2017 ESMA published its final report setting out policy decisions and the final text of eight sets of RTS and ITS implementing the SFTR including draft ITS on the obligation to report the details of SFTs to a trade repository. The reporting obligation will apply for UCITS and AIFs from Q1 2019 at the earliest.

The Commission has three months to decide whether to endorse them.

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1.9 MiFID II/MiFIR Update

The Markets in Financial Instruments Directive (2014/65/EU) ("MiFID II") and the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") repeal the Markets in Financial Instruments Directive (2004/39/EC) ("MiFID"). They apply from 3 January 2018.

On 12 January 2017 ESMA published an opinion on the impact of the exclusion of fund management companies from the scope of MiFIR. These powers can be exercised by national competent authorities and ESMA from 3 January 2018. Currently, the powers will only apply to MiFID investment firms marketing products which pose risks to retail investors, market integrity, and financial stability in the EU, but do not cover UCITS management companies and AIFMs. ESMA is concerned about potential regulatory arbitrage and reduction in effectiveness of future intervention measures.

On 31 January 2017 ESMA published updated versions of two Q&A documents on implementation issues relating to transparency and market structures requirements under MiFID II and MiFIR. On 2 February 2017 another version of its Q&As on MiFIR data reporting was published.

In March 2017 the Central Bank launched its MiFID II application process for investment firms who want to obtain authorisation in Ireland and will be accepting full applications from 3 July 2017 and a new application form and guidance will be in place from 31 March 2017, The Central Bank can accept applications under the old MiFID regime up until 3 July 2017 but they will require the MiFID II requirements to be covered so, in practical terms, all new applications will need to demonstrate how they will meet the MiFID II requirements.

On 31 March 2017 ESMA published its final report on draft RTS specifying the scope of the consolidated tape for non-equity financial instruments under Article 65(8)(c) of MiFID II. The European Commission has three months to decide whether to endorse them. 28 Delegated Regulations published on the same date supplementing MiFID II and MiFIR will come into force on 20 April 2017 and will mostly apply from 3 January 2018.

Also on 31 March 2017 ESMA published an updated version of its Q&As on the application of MiFID to the marketing and sale of financial contracts for difference or CFDs and other speculative products to retail clients.

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1.10 PRIIPs KID Regulation

The Regulation on key information documents ("KIDs") for packaged retail and insurance-based investment products ("PRIIPs") ("PRIIPs KID Regulation") will introduce a new pan-European pre-contractual product disclosure document for PRIIPS in EU Member States from 1 January 2018.

On 10 February 2017 the Joint Committee of the European Supervisory Authorities or ESAs (that is, the EBA, EIOPA and ESMA), published a consultation paper on PRIIPs with environmental or social objectives which closes on 23 March 2017. The consultation is on a proposal to set minimum requirements, which manufacturers of PRIIPs with environmental or social objectives ("EOS PRIIPs") should comply with to ensure that credible products are offered to retail investors. The manufacturer of an EOS PRIIP is required to have specific governance measures to ensure that EOS are met and be able to demonstrate the relevance of these objectives to retail investors throughout the investment process.

On 8 March 2017 the European Commission adopted a Delegated Regulation supplementing PRIIPs KID Regulation by laying down RTS on the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide KIDs. This is a revised version of the Delegated Regulation, which the European Parliament objected to in September 2016. The Commission's amendments to the Delegated Regulation concern multi-option PRIIPs, performance scenarios, comprehension alert, and presentation of administrative costs in relation to biometric components of insurance-based investment products.

Article 14(2) of the Delegated Regulation applies until 31 December 2019. Under this, by way of derogation from Article 14(1), PRIIP manufacturers may use the key investor information document ("KIID") drawn up under the UCITS IV Directive 2009/65/EC to provide specific information for the purposes of Articles 11 to 13 of the Delegated Regulation, where at least one of the underlying investment options referred to in Article 14(1) is a UCITS or non-UCITS fund referred to in Article 32 of the PRIIPs Regulation.

The Council of the EU and the European Parliament have raised no objection to it and it will now be published in the Official Journal of the EU and will enter into force 20 days after publication. It will apply from 1 January 2018.

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1.11 European Venture Capital Funds and Social Entrepreneurship Funds

The European Venture Capital Funds Regulation 345/2013/EU ("EuVECA Regulation") sets out a marketing passport to allow fund managers to market qualifying venture capital funds to EU investors using the EuVECA designation. The European Social Entrepreneurship Funds Regulation 346/2013/EU ("EuSEF Regulation") sets out a marketing passport to allow fund managers to market qualifying social entrepreneurship funds to EU investors using the EuSEF designation.

On 22 March 2017 the European Parliament announced that its Economic and Monetary Affairs Committee ("ECON") has adopted a draft report on the European Commission's proposed Regulation amending the EuVECA Regulation and the EuSEF Regulation.

According to the press release, the committee supported the Commission's proposal to: extend the range of managers eligible to set up and manage EuVECA and EuSEF funds (to all managers authorised as AIFMs); extend the range of companies that can be invested in by EuVECA to "small mid-caps" (unlisted companies with up to 499 employees); and make the cross border marketing of these funds easier and cheaper. The report was published on 30 March 2017.

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1.12 Benchmark Regulation

The Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds 2016/1011/EU ("Benchmark Regulation") entered into force on 30 June 2016 and applies fully from 1 January 2018. To date, the European Commission has only designated EURIBOR as a critical benchmark under the Regulation.

On 30 March 2017 ESMA published its final report containing the draft RTS/ITS under the Benchmarks Regulation containing detailed rules on the new framework. The European Commission has three months to decide whether to endorse them. They include provisions providing:

(a) the set up of a benchmark is checked by a new oversight function that administrators have to establish;

(b) the potential manipulation of benchmarks is minimised, through new rules on the calculation and contribution of input data;

(c) that conflicts of interest of administrators and contributors are properly managed; and

(d) a level playing field across different EU Member States for the authorisation and registration of benchmark’s administrators.

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1.13 CSDR: Regulating Central Securities Depositories 

The Regulation on improving securities settlement and regulating CSDs (Regulation 909/2014/EU) ("CSDR") is in effect since September 2014. However, 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. Certain other implementing measures will apply from the date that they enter into force.

Implementing Regulation (EU) 2017/393 laying down ITS with templates and procedures for the reporting and transmission of information on internalised settlements in accordance with the CSDR was published in the published in the Official Journal of the EU on 10 March 2017 and will enter into force on 10 March 2019.

On 23 March 2017 ESMA published the following final reports relating to the implementation of the CSDR on guidelines on participant default rules and procedures under the CSDR and on access by a CSD to the transaction feeds of a CCP or of a trading venue under the CSDR. The guidelines will be translated into the official languages of the EU and published on the ESMA website. They will apply two months after their publication. Within two months of the publication of the translations, each national competent authority such as the Central Bank will have to confirm whether it complies or intends to comply with those guidelines.

On 30 March 2017 the following legislative acts implementing various provisions of the CSDR came into force:

  • Delegated Regulation (EU) 2017/389 on the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host member states. Subject to certain derogations, it will apply from 10 March 2019.
  • Delegated Regulation (EU) 2017/390 with regard to RTS on certain prudential requirements for central securities depositories and designated credit institutions offering banking-type ancillary services.
  • Delegated Regulation (EU) 2017/391 with regard to RTS further specifying the content of the reporting on internalised settlements.
  • Delegated Regulation (EU) 2017/392 with regard to RTS on authorisation, supervisory and operational requirements for central securities depositories. Article 54 will apply from the date of entry into force of the delegated acts adopted by the Commission under Articles 6(5) and 7(15) of the CSDR, whichever is the later.
  • Implementing Regulation (EU) 2017/394 laying down ITS with regard to standard forms, templates and procedures for authorisation, review and evaluation of central securities depositories, for the co-operation between authorities of the home member state and the host member state, for the consultation of authorities involved in the authorisation to provide banking-type ancillary services, for access involving CSDs and on the format of the records to be maintained by CSDs. Article 11(1) will apply from the date of entry into force of the delegated acts adopted by the Commission under Articles 6(5) and 7(15) of the CSDR, whichever is the later.

ESMA published a new set of Q&As relating to CSDR following the publication of six CSDR legislative acts on 10 March above (before their entry into force) on 13 March 2017. They focus on the CSD requirements provisions which came into force on 30 March 2017 and trigger the CSD authorisation process. Prospective CSD applicants have until the end of September 2017 to apply for authorisation.

On 31 March 2017 ESMA updated its Q&A on CSDR implementation which provides answers regarding certain aspects of: the introduction of additional national requirements; organisational requirements (sharing of staff); record keeping requirements (LEI); the protection of securities of participants and those of their clients (choice offered to clients); and the provision of banking-type ancillary services (competent authorities).

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1.14 Capital Requirements Regulation

The Capital Requirements Regulation 575/2013/EU ("CRR") applies to credit institutions and investment firms and contains provisions relating to, among other things, own funds and capital requirements, large exposures, securitisations, liquidity, leverage and supervisory reporting.

On 9 January 2017 European Commission Implementing Decision (EU) 2016/2358 on the lists of third countries considered equivalent for the purposes of the treatment of exposures came into force. Turkey, New Zealand, Faroe Island and Greenland are added to the list.

On 18 January 2017 the EBA and ESMA published a report which analyse requirements in the CRR and EMIR that are potentially duplicative and inconsistent to the extent they relate to capital requirements for and treatment of client exposures by CCPs that hold a banking licence.

On 3 February 2017 Commission Delegated Regulation (EU) 2017/72 supplementing the CRR with regard to RTS specifying conditions for data waiver permissions came into force.

On 9 February 2017 the EBA published its final draft RTS on the procedures for excluding transactions with non-financial counterparties established in a third country from the own funds requirement for credit valuation adjustment) risk under the CRR.

On 28 February 2017, Commission Delegated Regulation (EU) 2017/208 supplementing the CRR with regard to RTS for additional liquidity outflows corresponding to collateral needs resulting from the impact of an adverse market scenario on an institution’s derivatives transactions came into force.

On 3 March 2017, the EBA published a final report with final draft RTS on the disclosure of encumbered and unencumbered assets under Article 443 of the CRR to provide transparent and harmonised information on asset encumbrance across member states, based on a harmonised definition of encumbrance, and to enable market participants to compare the institutions consistently. The European Commission has three months to decide whether to endorse them.

On 7 March 2017 the EBA published an opinion on improving the decision making framework for supervisory reporting requirements under the CRR and on 8 March 2017 the European Commission published a report on market developments in the past year potentially requiring the use of Article 459. Under Article 459, the Commission may impose for a one year period, stricter requirements concerning the level of banks' own funds, large exposures, or public disclosures, under specific conditions.

On 31 March 2017 the European Commission published a draft Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to CCPs set out in the CRR and EMIR and is asking for comments by 28 April 2017.

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1.15 Investment Funds Statistics: Q4 2016

The main points to note in the Central Bank's March 2017 update for Q4 2016 are:

(a) The net asset value of investment funds resident in Ireland increased by 5.6% (€81 billion) over the third quarter of 2016, reaching €1,538 billion. The total value of assets held by investment funds increased by €83 billion to €1,867 billion.

(b) The third quarter saw strong investor inflows to IFs, amounting to €42 billion, continuing the general trend of recent quarters. Portfolio revaluations were strongly positive, at €39 billion, reflected in both debt and equity holdings.

(c) Exchange traded funds ("ETFs") domiciled in Ireland had total assets of €282 billion at end Q3 2016. ETFs have grown by 61% in the last two years up from €176 billion in Q3 2014.

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1.16 IFRS 9 - Financial Reporting Impact on Investment Funds

IFRS 9 was developed by the International Accounting Standards Board ("IASB") to replace IAS 39 Financial Instruments: Recognition and Measurement ("IAS 39"). While the impact of the change from IAS 39 to IFRS 9 for funds is not expected to be significant, the Irish Funds Financial Reporting working group have published a paper which identifies the potential impact on adoption of IFRS 9 particularly for funds who currently classify their financial assets as available for sale ("AFS"). In addition it provides information on new requirements in relation to hedge accounting, impairment and embedded derivatives.

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1.17 IOSCO Loan Funds Survey

On 20 February 2017 the International Organization of Securities Commissions published its final report following a survey on loan funds (loan originating funds and loan participating funds including open-ended funds and closed-ended funds marketed to retail and professional investors). 24 jurisdictions, including Ireland participated in the survey. The report identifies the current position in each jurisdiction and explains how the markets have evolved. It also explains how regulators are addressing the risks associated with funds. These relate to liquidity risk; credit risk; systemic risks from excessive credit growth; and regulatory arbitrage. The report concludes that further work on loan funds is not necessary at this stage.

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1.18 New Methodology to Calculate Funding Levies

On 28 March 2017 the Central Bank published a consultation on New Methodology to Calculate Funding Levies – CP 108. It proposes revisions to the way in which the industry funding levy is calculated for banks, investment firms, fund service providers and EEA insurers. The levy for investment firms and fund service providers would be smoothed, replacing the stepwise levy by a smoothed function. The consultation closes on 28 April 2017.

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1.19 Anti-Money Laundering Update

EU Member States must transpose the Fourth Money Laundering Directive ((EU) 2015/849) ("MLD4") into national law by 26 June 2017 and the revised Wire Transfer Regulation ((EU) 2015/847) ("WTR") applies from the same date.

On 19 January 2017 the European Parliament objected to the proposed Delegated Regulation amending the European Commission's list of high-risk third countries under MLD4. ECON and its Committee on Civil Liberties, Justice and Home Affairs ("LIBE") believe that the proposed list of third countries should be expanded, particularly to include countries that facilitate tax crimes as set out in their motion of 9 January 2017. The motion calls on the Commission to submit a new delegated act that takes account of their concerns.

On 10 February 2017 the Joint Committee of the ESAs published a consultation paper on draft RTS on the criteria for determining the circumstances in which the appointment of a central contact point under Article 45(9) of MLD4 is appropriate and the functions of the central contact point. The draft RTS set out the criteria that member states must consider when deciding whether foreign payment service providers and electronic money issuers should appoint one.

On 20 February 2017 the Joint Committee of the ESAs published an opinion addressed to the European Commission, on the risks of money laundering and terrorist financing affecting the EU's financial sector by identifying problems areas, including firms' understanding of the money laundering and terrorist financing risk and the effective implementation, by firms, of customer due diligence policies and procedures.

On 10 March 2017 the European Parliament published a report on the proposed Fifth Money Laundering Directive ("MLD5") that was adopted by ECON and LIBE on 28 February 2017 which contains a draft Parliament legislative resolution, together with opinions from various committees. The amendments agreed stricter transparency rules to prevent tax evasion and would enable EU citizens to access beneficial ownership registers without having to demonstrate a "legitimate interest" in the information, a requirement that currently restricts access to authorities and professionals such as lobbyists. The scope of the MLD5 has also been expanded to cover trusts and "other types of legal arrangements having a structure or functions similar to trusts." The report states that the Parliament must now give the go-ahead to start trialogue discussions with the Council of the EU and the European Commission.

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2 Tax

2.1 Establishing an Irish Management Company - Tax Issues

Brexit is one of a number of factors driving the creation of management companies in Ireland. Many international fund sponsors have established, or are in the process of establishing, management companies ("ManCos") in Ireland. Ireland offers a highly competitive tax regime for management companies, including a 12.5% rate of tax on trading income, generous withholding tax exemptions and a very user friendly electronic tax filing regime.

ManCos are subject to standard Irish corporate tax rules. They are not tax exempt in the same way as regulated funds are. There are a number of practical tax points regarding the establishment of ManCos which deserve specific attention:

(a) Residence and corporate tax – A ManCo should maintain its tax residency in Ireland. It is usually recommended that the board of directors regularly meets in Ireland. The adoption of a board protocol is frequently employed to provide guidance in this area. ManCos will only be subject to 12.5% tax on their trading income and 25% on their investment income. Where services are delegated to third parties, it is important that the ManCo retains sufficient oversight and control of the delegated functions to be treated as trading.

(b) Transfer pricing rules - If the ManCo is delegating some functions to an affiliated entity, it may need to carry out a transfer pricing study to determine the split of fee income between the ManCo and its affiliates for tax purposes.

(c) Irish VAT - The provision of management services from a ManCo to Irish regulated funds should be exempt under Irish VAT rules. The ManCo may not be able to fully recover Irish VAT as it only makes exempt supplies. Care should be exercised where the ManCo incurs VAT expenses on its own account as this could result in a VAT cost.

(d) Irish payroll tax - Payments to directors and any employees of the ManCo will be subject to Irish payroll taxes. If an employee exercises all duties in Ireland, then all of his employment income will be subject to Irish payroll tax. If the employee is exercising duties elsewhere and subject to overseas tax withholdings (e.g. UK, France) there may be scope to reduce Irish tax by reference to the overseas withholdings.

(e) Dividend withholding tax - Although there is a 20% withholding tax on dividends from Irish resident companies, there are a range of exemptions available, including dividends to corporate entities resident in an EU jurisdiction, a double tax treaty partner jurisdiction. In addition the EU Parent Subsidiary Directive may exempt dividends. There are a number of formalities related to the claiming of such exemptions and these should be reviewed in advance of dividend payments.

(f) Tax registration and compliance - It will be important for the ManCo to register for Irish corporation taxes and to make the necessary tax and VAT returns within the appropriate time limits. Our affiliate, Maples FS can assist with this process.

The Maples Tax group can assist with respect to all of these issues, ensuring that they are dealt with appropriately and efficiently. For more information see our client update, Setting up a Manco in Ireland – Key Considerations

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2.2 Irish Real Estate Funds

As highlighted in previous updates, there have been significant changes to the taxation of Irish investment funds that invest, or may invest, in Irish real estate and related assets. Such funds are described as "Irish Real Estate Funds" or "IREFs" for tax purposes. The impact of these changes is still unclear, however a number of items are worthy of mention:

(a) The Irish Revenue Commissioners are currently preparing their guidance notes on the new legislation. One area of particular focus is the availability of an exemption for property held for over five years. The initial draft legislation provided that this exemption would be generally available, however the final enacted version restricted it to a very small number of circumstances. The interpretation of these rules is being closely reviewed by investors to determine whether they can benefit from the exemption.

(b) Sales of units in IREFs now require the purchaser to deduct 20% of the consideration payable and account for it to the Irish Revenue Commissioners. Although trading in units in IREFs is relatively rare, it does occur and prospective purchasers and sellers need to be mindful of their tax obligations.

(c) There are a number of provisions which should encourage and incentivise a transition to a non-regulated corporate structure, including a REIT prior to 2018.

Administrators should pay particular attention to the new rules. Frequently administrators will be party to agreements, including tax related service agreements, which will require updating to deal with the calculation and imposition of the new taxation regime.

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3 Listings

3.1 Enhanced LEI Data Collection

The Legal Entity Identifier ("LEI") is a 20-digit, alpha-numeric code which connects to key reference information that enables unique identification of legal entities in financial transactions. The Irish Stock Exchange, as pre-Local Operating Unit (pre-LOU) for LEIs in Ireland, have announced that commencing 10 April 2017, the LEI data pool will be enhanced to include ‘Level 2’ data that will address the question of ‘who owns whom’. Specifically, legal entities that have or acquire an LEI will report their ‘ultimate accounting consolidating parent’ as well as their ‘direct accounting consolidating parent’.

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Contacts

Dublin

Maples and Calder 都柏林办事处
Barry McGrath
work +353 1 619 2029
Maples and Calder 都柏林办事处
Peter Stapleton
work +353 1 619 2024
Maples and Calder 都柏林办事处
Stephen Carty
work +353 1 619 2023
Maples and Calder 都柏林办事处
Carol Widger
work +353 1 619 2762
Maples and Calder 都柏林办事处
Emma Conaty
work +353 1 619 2708
Maples and Calder 伦敦办事处
Adam Donoghue
work +44 20 7466 1711